Document:

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                                                                    EXHIBIT 10.4

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                                LOAN AGREEMENT

                                By and Between

            CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY

                                      and

                           PEET'S COFFEE & TEA, INC.

                         Dated as of December 1, 1995

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     The interest of the CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
(the "Authority") in this Loan Agreement has been assigned (except for amounts
payable under Sections 4.2(b), 7.3, 9.2 and 9.3 hereof and its right to receive
notices) pursuant to the Indenture of Trust dated as of the date hereof, from
the Authority to First Trust of California, National Association, as trustee
thereunder, and is subject to such assignment.
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                                                         TABLE OF CONTENTS
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     Section                                                                                               Page
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     PARTIES ..............................................................................................   1
     PREAMBLES.............................................................................................   1

                                                            ARTICLE I

                                                            DEFINITIONS

     1.1.     DEFINITION OF TERMS..........................................................................   2
     1.2.     NUMBER AND GENDER............................................................................   2
     1.3.     ARTICLES, SECTIONS, ETC......................................................................   2

                                                          ARTICLE II

                                                         REPRESENTATIONS

     2.1.     REPRESENTATIONS OF THE AUTHORITY.............................................................   2
     2.2.     REPRESENTATIONS OF THE BORROWER..............................................................   3
     2.3.     BONDHOLDERS TO BENEFIT.......................................................................   4

                                                           ARTICLE III

                                                   CONSTRUCTION OF THE PROJECT

     3.1.     CONSTRUCTION OF THE PROJECT; MODIFICATION OF PROJECT.........................................   4
     3.2.     DISBURSEMENTS FROM THE PROJECT FUND AND COSTS OF ISSUANCE FUND...............................   5
     3.3.     ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF BORROWER TO COMPLETE.........................   5
     3.4.     INVESTMENT OF MONEYS IN FUNDS................................................................   6

                                                            ARTICLE IV

                                              LOAN OF PROCEEDS; REPAYMENT PROVISIONS

     4.1.     LOAN OF BOND PROCEEDS; ISSUANCE OF BONDS.....................................................   6
     4.2.     LOAN REPAYMENTS AND, OTHER AMOUNTS PAYABLE...................................................   6
     4.3.     RIGHT OF PURCHASE............................................................................   8
     4.4.     UNCONDITIONAL OBLIGATIONS....................................................................   8
     4.5.     ASSIGNMENT OF AUTHORITY'S RIGHTS.............................................................   8
     4.6.     AMOUNTS REMAINING IN FUNDS...................................................................   8

                                                             ARTICLE V

                                                 SPECIAL COVENANTS AND AGREEMENTS

     5.1.     RIGHT OF ACCESS TO THE PROJECT...............................................................   9
     5.2.     THE BORROWER'S MAINTENANCE OF ITS EXISTENCE..................................................   9
     5.3.     RECORDS AND FINANCIAL STATEMENTS OF BORROWER; EMPLOYMENT PRACTICES...........................  10
     5.4.     INSURANCE....................................................................................  10
     5.5.     MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER CHARGES.....................................  10
     5.6.     QUALIFICATION IN CALIFORNIA..................................................................  11
     5.7.     ALTERNATE CREDIT FACILITY....................................................................  11
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                                      i.
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     5.8.     LETTERS OF CREDIT...........................................................................   11
     5.9.     COVENANTS OF THE BORROWER...................................................................   12
     5.10.    CAPITAL EXPENDITURES........................................................................   15
     5.11.    SPECIAL ARBITRAGE CERTIFICATIONS............................................................   16
     5.12.    CONTINUING DISCLOSURE.......................................................................   16
     5.13.    LIMITATIONS ON DISPOSITION OF ASSETS; ASSIGNMENT, SALE OR LEASE OF PROJECT..................   16

                                                            ARTICLE VI

                                      DAMAGE, DESTRUCTION AND CONDEMNATION; USE OF PROCEEDS

     6.1.     OBLIGATION TO CONTINUE PAYMENTS.............................................................   17
     6.2.     APPLICATION OF NET PROCEEDS.................................................................   17
     6.3.     INSUFFICIENCY OF NET PROCEEDS...............................................................   18
     6.4.     DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY.................................................   18

                                                           ARTICLE VII

                                                LOAN DEFAULT EVENTS AND REMEDIES

     7.1.     LOAN DEFAULT EVENTS.........................................................................   18
     7.2.     REMEDIES ON DEFAULT.........................................................................   19
     7.3.     AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES...............................................   20
     7.4.     NO REMEDY EXCLUSIVE.........................................................................   20
     7.5.     WAIVERS.....................................................................................   20

                                                           ARTICLE VIII

                                                          PREPAYMENT

     8.1.     REDEMPTION OF BONDS WITH PREPAYMENT MONEYS..................................................   20
     8.2.     OPTIONS TO PREPAY INSTALLMENTS..............................................................   21
     8.3.     MANDATORY PREPAYMIENT.......................................................................   21
     8.4.     AMOUNT OF PREPAYMENT........................................................................   22
     8.5.     NOTICE OF PREPAYMENT........................................................................   23

                                                         ARTICLE IX

                                    NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

     9.1.     NON-LIABILITY OF AUTHORITY..................................................................   23
     9.2.     EXPENSES....................................................................................   23
     9.3.     INDEMNIFICATION.............................................................................   23

                                                             ARTICLE X

                                                          MISCELLANEOUS

     10.1.    NOTICES.....................................................................................   24
     10.2.    SEVERABILITY................................................................................   24
     10.3.    EXECUTION OF COUNTERPARTS...................................................................   24
     10.4.    AMENDMENTS, CHANGES AND MODIFICATIONS.......................................................   24
     10.5.    GOVERNING LAW...............................................................................   24
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                                      ii.
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                                                             Continued

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     10.6.    AUTHORIZED REPRESENTATIVE OF THE BORROWER...................................................   24
     10.7.    TERM OF THE AGREEMENT.......................................................................   25
     10.8.    BINDING EFFECT..............................................................................   25
     10.9.    BROKERAGE CONFIRMATIONS.....................................................................   25

     ANNEX A       Details of Issue.......................................................................  A-1

     EXHIBIT A     The Project
     EXHIBIT B     Tax Certificate and Agreement
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                                     iii.
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                                LOAN AGREEMENT

          THIS LOAN AGREEMENT, dated as of December 1, 1995, between CALIFORNIA
STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, a public entity of the State of
California (the "Authority"), and the Borrower named and more particularly
described in Item 1 of Annex A hereto, including, any general partner thereof,
if any, any affiliate or guarantor thereof, or any entity which is the
surviving, resulting or transferee entity in any merger, consolidation or
transfer of assets permitted under Section 5.2 hereof (the "Borrower")

                             W I T N E S S E T H:
                             -------------------

          WHEREAS, the Authority is a public entity of the State of California,
created pursuant to the provisions relating to the joint exercise of powers
found in Chapter 5 of Division 7 of Title I (commencing with Section 6500) of
the Government Code of the State of California; and

          WHEREAS, the Authority is authorized to finance certain capital
projects consisting of industrial facilities pursuant to the provisions of the
California Industrial Development Financing Act (constituting Title 10 of the
Government Code of the State of California as now in effect and as it may from
time to time hereafter be amended or supplemented) (the "Act"); and

          WHEREAS, the Authority is further authorized to issue its bonds for
the purpose of paying all or any part of the costs of a project, and for any
other authorized purpose; to acquire and hold property, including funds, project
agreements and other obligations of any kind, and pledge, encumber or assign the
same, or the revenues therefrom or any portion of such revenues, or other
rights, whether then owned or possessed, or thereafter acquired, for the benefit
of the owners, and as security or additional security for any bonds or the
performance of obligations under an indenture; to provide for the advance of
bond proceeds and other funds pursuant to project agreements as necessary to pay
or reimburse for project costs; and to enter into loan agreements; and

          WHEREAS, in furtherance of the purposes of the Act and in order to
protect the health, welfare and safety of the citizens of the State of
California (the "State"), the Authority proposes to finance the acquisition,
construction, rehabilitation, equipping, installation, improvement, and
furnishing of the industrial facilities described in Exhibit A hereto (the
"Project") to be owned by the Borrower; and

          WHEREAS, pursuant to and in accordance with the provisions of the Act,
the Authority has authorized and undertaken the issuance of its industrial
development revenue bonds more particularly described in Item 2 of Annex A (the
"Bonds") in the aggregate principal amount set forth in Item 3 of Annex A to
provide funds to pay the cost of the Project and the costs of issuance of the
Bonds; and

          WHEREAS, the Authority proposes to loan the proceeds of the Bonds to
the Borrower, and the Borrower desires to borrow the proceeds of the Bonds upon
the terms and conditions set forth herein; and

          WHEREAS, the Authority and the Borrower each has duly authorized the
execution and delivery of this Agreement;

          NOW, THEREFORE, for and in consideration of the premises and the
material covenants hereinafter contained, the parties hereto hereby formally
covenant, agree and bind themselves as follows:

                                       1.
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                                   ARTICLE I

                                  DEFINITIONS

          SECTION 1.1.  DEFINITION OF TERMS. Unless otherwise defined herein
or the context otherwise requires, the terms used in this Agreement shall have
the meanings specified in Section 1.01 of the Indenture of Trust, dated as of
December 1, 1995 (the "Indenture"), by and between the Authority and First Trust
of California, National Association, as Trustee (the "Trustee"), as originally
executed or as it may from time to time be supplemented or amended as provided
therein.

          SECTION 1.2.  NUMBER AND GENDER. The singular form of any word used
herein, including the terms defined in Section 1.01 of the Indenture, shall
include the plural, and vice versa. The use herein of a word of any gender shall
include all genders.

          SECTION 1.3.  ARTICLES, SECTIONS, ETC. Unless otherwise specified,
references to Articles, Sections and other subdivisions in this Agreement are to
the designated Articles, Sections and other subdivisions of this Agreement as
amended from time to time. The words "hereof," "herein," "hereunder" and words
of similar import refer to this Agreement as a whole. The headings or titles of
the several Articles and Sections, and the table of contents included herein,
shall be solely for convenience of reference and shall not affect the meaning,
construction or effect of the provisions hereof.

                                  ARTICLE II

                                REPRESENTATIONS

          SECTION 2.1.  REPRESENTATIONS OF THE AUTHORITY. The Authority makes
the following representations as the basis for its undertakings herein
contained:

          (a)  The Authority is a public entity of the State. Under the
provisions of the Act, the Authority has the power to enter into the
transactions contemplated by this Agreement and the Indenture and to carry out
its obligations hereunder. The Project constitutes and will constitute a
"project" as that term is defined in the Act. By proper action, the Authority
has been duly authorized to execute, deliver and duly perform its obligations
under this Agreement and the Indenture.

          (b)  To finance the Cost of the Project and certain Costs of Issuance,
the Authority will issue the Bonds, which will mature, bear interest and be
subject to redemption as set forth in the Indenture.

          (c)  The Bonds will be issued under and secured by the Indenture,
pursuant to which the Authority's interest in this Agreement (except certain
rights of the Authority to payment for expenses and indemnification) will be
pledged to the Trustee as security for payment of the principal of, premium, if
any, and interest on the Bonds and to the Bank and the Standby Letter of Credit
Bank as security for the payment of the obligations of the Borrower under the
Master Reimbursement Agreement and the Standby Reimbursement Agreement,
respectively.

          (d)  The Authority has not pledged and will not pledge its interest in
this Agreement for any purpose other than to secure the Bonds under the
Indenture and the obligations of the Borrower under the Master Reimbursement
Agreement and the Standby Reimbursement Agreement.

                                       2.
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          (e)  The Authority is not in default under any of the provisions of
the laws of the State which default would affect its existence or its powers
referred to in subsection (a) of this Section 2.1.

          (f)  The Authority has found and determined and hereby finds and
determines that (i) the Borrower is a "Company" as such term is defined in the
Act; (ii) the loan to be made hereunder with the proceeds of the Bonds will
promote the purposes of the Act by providing funds to finance the Construction
of the Project; (iii) said loan is in the public interest, serves the public
purposes and meets the requirements of the Act; and (iv) the portion of such
loan allocable to the Cost of the Project does not exceed the total cost thereof
as determined by the Borrower and approved by the Authority; and (v) the Project
proposed by the Borrower qualifies under the Authority's financial eligibility
standards.

          (g)  No member, officer or other official of the Authority has any
financial interest whatsoever in the Borrower or in the transactions
contemplated by this Agreement and the Indenture.

          SECTION 2.2.  REPRESENTATIONS OF THE BORROWER. The Borrower makes the
following representations as the basis for its undertakings herein contained:

          (a)  As set forth in Item 1 of Annex A, the Borrower is a corporation,
partnership, limited liability company, one or more individuals or other legal
entity, as applicable, duly incorporated or established under the laws of, and
validly existing and in good standing in, the jurisdiction specified in said
Item 1 of Annex A, and is duly qualified to transact business in the State, is
not in violation of any provision of any of the Borrower's Organization
Documents, has full power and authority to enter into this Agreement, and has
duly authorized the execution and delivery of this Agreement by proper action.

          (b)  The execution, delivery and performance by the Borrower of this
Agreement, the Master Reimbursement Agreement and all other documents
contemplated hereby to be executed by the Borrower are within the Borrower's
power and have been duly authorized by all necessary action, and neither the
execution and delivery of this Agreement, or the Master Reimbursement Agreement,
the consummation of the transactions contemplated hereby and thereby, nor the
fulfillment of or compliance with the terms and conditions hereof and thereof,
conflicts with or results in a breach of any of the terms, conditions or
provisions of any of the Borrower's Organization Documents, or of any law,
statute, rule, regulation, order, judgment, award, injunction, or decree or of
any agreement or instrument to which the Borrower is now a party or by which it
is bound or affected, or constitutes a default (or would constitute a default
with due notice or the passage of time or both) under any of the foregoing, or
results in or requires the creation or imposition of any prohibited lien, charge
or encumbrance whatsoever upon any of the property or assets of the Borrower
under the terms of any instrument or agreement to which the Borrower is now a
party or by which it is bound.

          (c)  The estimated Cost of the Project is as set forth in the Tax
Certificate and Agreement and has been determined in accordance with sound
engineering, construction, and accounting principles. All the information and
representations in the Tax Certificate and Agreement are true and correct as of
the date thereof.

          (d)  The Project consists and will consist of those facilities
described in Exhibit A and the Project will not be changed or operated in a
manner which would affect the qualification of the Project under the Act or
would cause interest on the Bonds not to be Tax-exempt. The Borrower intends to
own and will cause the Project to be operated or leased as a facility described
by the Act until the principal of, the premium, if any, and the interest on the
Bonds shall have been paid.

                                       3.
<PAGE>

          (e)  The Borrower has and will have title to the Project sufficient to
carry out the purposes of this Agreement.

          (f)  At the time of submission of an application to the State and the
Authority for financial assistance in connection with the Project and on the
dates on which action was taken on such application, permanent financing for the
Project had not otherwise been obtained or arranged.

          (g)  No member, officer or other official of the Authority has any
financial interest whatsoever in the Borrower or in the transactions
contemplated by this Agreement.

          (h)  All certificates, approvals, permits and authorizations with
respect to the Construction of the Project of applicable local governmental
agencies, the State, and the federal government have been obtained, or if not
yet obtained, are expected to be obtained in due course.

          (i)  No event has occurred and no condition exists which would
constitute a Loan Default Event or which, with the passing of time or with the
giving of notice or both, would constitute a Loan Default Event.

          SECTION 2.3.  BONDHOLDERS TO BENEFIT. The Borrower agrees that this
Agreement is executed in part to induce the purchase by others of the Bonds.
Accordingly, all covenants and agreements on the part of the Borrower set forth
in this Agreement are hereby declared to be for the benefit of the Bondholders
from time to time of such Bonds; provided, however, that such covenants and
agreements shall create no rights in any parties other than the Authority, the
Borrower, the Remarketing Agent, the Bank, the Standby Letter of Credit Bank,
the Trustee, the Tender Agent and such Bondholders.

                                  ARTICLE III

                         CONSTRUCTION OF THE PROJECT;
                             ISSUANCE OF THE BONDS

     SECTION 3.1.  CONSTRUCTION OF THE PROJECT; MODIFICATION OF PROJECT. The
Borrower agrees that, utilizing the proceeds of the Bonds loaned pursuant to
Section 4.1 and such other funds as may be necessary, it has or will construct,
or has or will cause the Construction of, the Project, and has or will acquire,
rehabilitate, equip, construct and install all other facilities and real and
personal property necessary for the operation of the Project as described in the
Borrower's application to the Authority for assistance in financing the Project,
substantially in accordance with the plans and specifications prepared therefor
by the Borrower, including any and all supplements, amendments, additions or
deletions thereto or therefrom, it being understood that the approval of the
Authority shall not be required for changes in such plans and specifications
which do not alter the purpose or description of the Project as set forth in
Exhibit A hereto. The Borrower further agrees to proceed with due diligence to
complete the Project within three years from the date hereof.

          In the event that the Borrower desires to modify the Project in a
manner which alters the purpose or description of the Project as set forth in
Exhibit A hereto, such modification shall be undertaken only upon an amendment
to Exhibit A which shall accurately set forth the description and purpose of the
Project as so modified and which amendment to Exhibit A shall become effective
upon receipt by the Authority and the Trustee of:

               (i)  a certificate of the Authorized Representative of the
     Borrower describing in detail the proposed changes and stating that they
     will not have the effect of disqualifying the

                                       4.
<PAGE>

     Project as a facility that may be financed pursuant to the Act nor reduce
     the employment benefits described in the Borrower's application to the
     Authority for assistance in financing the Project;

               (ii)  an opinion of Bond Counsel that the proposed changes to the
     Project will not have the effect of disqualifying the Project as a facility
     that may be financed pursuant to the Act or cause interest on the Bonds to
     not be Tax-exempt;

               (iii) a copy of the proposed form of amended or supplemented
     Exhibit A hereto; and

               (iv)  the written approval of the Standby Letter of Credit Bank.

          SECTION 3.2.  DISBURSEMENTS FROM THE PROJECT FUND AND COSTS OF
ISSUANCE FUND. The Borrower will authorize and direct the Trustee, upon
compliance with Section 3.03 of the Indenture, to disburse the moneys in the
Project Fund to or on behalf of the Borrower only for payment of Cost of the
Project. Each of the payments from the Project Fund referred to in this Section
shall be made upon receipt by the Trustee of a written requisition in the form
prescribed by Section 3.03 of the Indenture, signed by the Authorized
Representative of the Borrower accompanied by the written approval of the
Standby Letter of Credit Bank.

          Moneys in the Costs of Issuance Fund shall be disbursed by the Trustee
as provided in Section 3.03(E) of the Indenture to pay Costs of Issuance.

          SECTION 3.3.  ESTABLISHMENT OF COMPLETION DATE; OBLIGATION OF BORROWER
TO COMPLETE. As soon as the Construction of the Project is completed, an
Authorized Representative of the Borrower, on behalf of the Borrower, shall
evidence the completion date by providing a certificate to the Trustee stating
the Cost of the Project and further stating that (i) Construction of the Project
has been completed substantially in accordance with the plans and specifications
therefor, and all labor, services, materials and supplies used in Construction
have been paid for or stating the amount required to be retained in the Project
Fund to fully provide for any disputed amounts, and (ii) all other equipment and
facilities for the operation of the Project have been acquired, constructed and
installed in accordance with the plans and specifications therefor and all costs
and expenses incurred in connection therewith have been paid or provided for.
Notwithstanding the foregoing, such certificate may state that it is given
without prejudice to any rights of the Borrower against third parties.

          At the time such certificate is delivered to the Trustee, moneys
remaining in the Project Fund, including any earnings resulting from the
investment of such moneys, shall be used as provided in Section 3.03(D) of the
Indenture.

          In the event the moneys in the Project Fund available for payment of
the Cost of the Project should be insufficient to pay the Cost of the Project in
full, the Borrower agrees to pay directly, or to deposit in the Project Fund
moneys sufficient to pay, any costs of completing the Construction of the
Project in excess of the moneys available for such purpose in the Project Fund,
or otherwise cause the Construction of the Project to be completed. The
Authority makes no express or implied warranty that the moneys deposited in the
Project Fund and available for payment of the Cost of the Project under the
provisions of this Agreement will be sufficient to pay all the amounts which may
be incurred in connection with the Construction of the Project. The Borrower
agrees that if, after exhaustion of the moneys in the Project Fund, the Borrower
should pay, or deposit moneys in the Project Fund for the payment of, any
portion of the Cost of the Project pursuant to the provisions of this Section,
it shall not be

                                       5.
<PAGE>

entitled to any reimbursement therefor from the Authority, from the Trustee or
from the Holders of any of the Bonds, nor shall it be entitled to any diminution
of the amounts payable under Section 4.2.

          SECTION 3.4.  INVESTMENT OF MONEYS IN FUNDS. Any moneys in any fund
held by the Trustee shall, at the written request of an Authorized
Representative of the Borrower, but subject to the restrictions on investments
contained in the Indenture, the Tax Certificate and Agreement and applicable law
in connection with the Tax-exempt status of interest on the Bonds, be invested
or reinvested by the Trustee as provided in the Indenture. Such investments
shall be held by the Trustee and shall be deemed at all times a part of the fund
from which such investments were made, and the interest accruing thereon, and
any profit or loss realized therefrom, shall be credited or charged as provided
in Section 5.05 of the Indenture.

                                  ARTICLE IV

                    LOAN OF PROCEEDS; REPAYMENT PROVISIONS

          SECTION 4.1.  LOAN OF BOND PROCEEDS; ISSUANCE OF BONDS. The Authority
covenants and agrees, upon the terms and conditions in this Agreement, to loan
the proceeds of the sale of the Bonds to the Borrower for the purpose of
financing the Cost of the Project and the Costs of Issuance to the extent
permitted by the Indenture. Pursuant to said covenant and agreement, the
Authority will issue the Bonds upon the terms and conditions contained in this
Agreement and the Indenture and will cause the Bond proceeds to be applied as
provided in Article III of the Indenture. Except as provided in Section 3.02 of
the Indenture, such proceeds shall be disbursed to or on behalf of the Borrower
as provided in Section 3.2 hereof. The Borrower hereby approves the Indenture,
the assignment thereunder to the Trustee of the right, title and interest of the
Authority (with certain exceptions) in this Agreement, and the issuance
thereunder by the Authority of the Bonds.

          SECTION 4.2.  LOAN REPAYMENTS AND, OTHER AMOUNTS PAYABLE  .

          (a)  On or before each Bond Payment Date, until the principal of,
premium, if any, and interest on the Bonds shall have been fully paid or
provision for such payment shall have been made as provided in the Indenture,
the Borrower covenants and agrees to pay to the Trustee as a Loan Repayment on
the loan made to the Borrower from Bond proceeds pursuant to Section 4.1, a sum
equal to the amount payable on such Bond Payment Date as principal of, and
premium, if any, and interest on the Bonds as provided in the Indenture.

          Without limiting the generality of the foregoing provisions of this
Section, scheduled Loan Repayments shall be paid by the Borrower as follows: (i)
with respect to interest on the Bonds (a) before the Fixed Rate Date, on or
before the 15th day of the month preceding each Interest Payment Date, the sum
which, together with other moneys available therefor in the Interest Account,
will equal the Interest Requirement, and (b) after the Fixed Rate Date, on or
before the 15th day of the month preceding each Interest Payment Date, the sum
which, together with other moneys available therefor in the Interest Account,
will equal the interest accrued and unpaid and to accrue to the end of the
current month; (ii) with respect to principal of the Bonds, on or before the
15th day of each February, May, August and November, commencing February 15,
1996, the Borrower shall pay amounts equal to one quarter (1/4) of the amount of
principal of the Bonds maturing on the next succeeding Bond maturity date or the
amount of the Sinking Fund Installment due on the next succeeding Sinking Fund
Installment due date in accordance with the Sinking Fund Installment payment
schedule specified in Item 9 of Annex A.

                                       6.
<PAGE>

          The Loan Repayments made pursuant to this subsection (a) shall at all
times be sufficient to pay the total amount of interest and principal (whether
at maturity or upon redemption or acceleration) and premium, if any, becoming
due and payable on the Bonds on each Bond Payment Date; provided that any amount
held by the Trustee in the Revenue Fund on the due date for a Loan Repayment
pursuant to the immediately preceding paragraph shall be credited against the
Loan Repayment due on such date to the extent available for such purpose under
the terms of the Indenture; and provided further that, subject to the provisions
of this paragraph, if at any time the amounts held by the Trustee in the Revenue
Fund are sufficient to pay all of the principal of and interest and premium, if
any, on the Bonds as such payments become due, the Borrower shall be relieved of
any obligation to make any further Loan Repayments under the provisions of this
Section. Notwithstanding the foregoing, if on any date the amount held by the
Trustee in the Revenue Fund is insufficient to make any required payments of
principal of (whether at maturity or upon redemption or acceleration) and
interest and premium, if any, on the Bonds as such payments become due, the
Borrower shall forthwith pay such deficiency as a Loan Repayment hereunder.

          The obligation of the Borrower to make any payment under this
subsection (a) shall be deemed to have been satisfied to the extent of any
corresponding payment made by the Bank to the Trustee under the Master Letter of
Credit.

          (b)  On or before the fifteenth day of each month, commencing January
1, 1996 until the principal of, premium, if any, and interest on the Bonds shall
have been fully paid or provision for such payment shall have been made as
provided in the Indenture, the Borrower covenants and agrees to pay to the
Trustee for deposit in the Administrative Fee Fund one twelfth (1/12) of the
amount equal to 40 basis points (40/100 of 1 %) of the weighted average daily
principal amount of Bonds Outstanding during the immediately preceding calendar
month. The Administrative Fee Fund will be used to pay to (i) the Trustee's
reasonable annual fee for its ordinary services rendered as trustee, and its
reasonable ordinary expenses incurred under the Indenture, as and when the same
become due, (ii) the Trustee's reasonable fees, charges and expenses, as Bond
Registrar and Paying Agent, and the reasonable fees of any other paying agent
for the Bonds as provided in the Indenture, as and when the same become due,
(iii) the cost of providing any Bonds required to be provided by the Authority
at the expense of the Authority pursuant to the Indenture, (iv) the reasonable
fees of any rating agency then rating the Bonds required to maintain the rating
on the Bonds, (v) the reasonable fees of the Remarketing Agent, and (vi) other
necessary and ordinary administrative fees and expenses including the
Administrator's management fees. To the extent that amounts on deposit in the
Administrative Fee Fund are insufficient to pay the expenses identified in (i)
through (v) above, the Borrower agrees to pay an additional amount sufficient to
cover such expenses immediately upon demand by the Trustee. In addition, the
Borrower agrees to pay such extraordinary expenses incurred by the Trustee, the
Tender Agent, the Remarketing Agent and the Authority under the Indenture as and
when the same become due. The duties of the Borrower under this subsection (b)
shall survive the termination of this Agreement and the termination and
discharge of the Indenture.

          (c)  The Borrower also agrees to pay the periodic fees and expenses of
the Bank pursuant to the Master Reimbursement Agreement and the Standby Letter
of Credit Bank pursuant to the Standby Reimbursement Agreement.

          (d)  In the event the Borrower should fail to make any of the payments
required by subsections (a)-(c) of this Section, such payments shall continue as
obligations of the Borrower until such amounts shall have been fully paid.
Except as provided in the next sentence, the Borrower agrees to pay such
amounts, together with interest thereon until paid, to the extent permitted by
law, at the rate of ten percent (10%) per annum. With respect to amounts due the
Bank and the Standby Letter of Credit Bank, the Borrower agrees to pay such
amounts together with interest thereon pursuant to the Master

                                       7.
<PAGE>

Reimbursement Agreement and the Standby Reimbursement Agreement, respectively.
Interest on overdue payments required under subsection (a) above shall be paid
to Bondholders as provided in Section 2.02(B)(2) of the Indenture.

          SECTION 4.3.  RIGHT OF PURCHASE. The Borrower hereby recognizes and
agrees that the Indenture provides for the creation of an account or accounts to
facilitate the purchase of Bonds that have been tendered for purchase in
accordance with Section 4.06 of the Indenture by the Tender Agent, and the
Borrower agrees to provide the Master Letter of Credit for the payment of
amounts necessary to purchase such Bonds.

          SECTION 4.4.  UNCONDITIONAL OBLIGATIONS. The obligations of the
Borrower to make the payments required by Section 4.2 and to provide the Master
Letter of Credit pursuant to Section 4.3, and to perform and observe the other
agreements on its part contained herein, shall be absolute and unconditional,
irrespective of any defense or any rights of set-off, recoupment or counterclaim
it might otherwise have against the Authority, and during the term of this
Agreement, the Borrower shall pay absolutely net the payments to be made on
account of the loan made to the Borrower from Bond proceeds pursuant to Section
4.1 hereof, as prescribed in Section 4.2 hereof, the obligation to provide the
Master Letter of Credit pursuant to Section 4.3 hereof, and all other payments
required hereunder, free of any deductions and without abatement, diminution or
set-off. Until such time as the principal of, premium, if any, and interest on
the Bonds shall have been fully paid, or provision for the payment thereof shall
have been made as required by the Indenture, the Borrower (i) will not suspend
or discontinue any payments required to be made by the Borrower pursuant to this
Agreement, including, without limitation, the payments provided for in Section
4.2 and the obligation to provide the Master Letter of Credit pursuant to
Section 4.3; (ii) will perform and observe all of its other covenants contained
in this Agreement; and (iii) except as provided in Article VIII hereof, will not
terminate this Agreement for any cause, including, without limitation, failure
to complete the Project, the occurrence of any act or circumstances that may
constitute failure of consideration, destruction of or damage to the Project,
commercial frustration of purpose, any change in the tax or other laws of the
United States of America: or of the State, or any political subdivision or
either of these, or any failure of the Authority or the Trustee to perform and
observe any covenant, whether express or implied, or any duty, liability or
obligation arising out of or connected with this Agreement or the Indenture.

          SECTION 4.5.  ASSIGNMENT OF AUTHORITY'S RIGHTS. As security for the
payment of the Bonds, the Authority will assign to the Trustee the Authority's
rights under this Agreement, including the right to receive payments hereunder
(except the right of the Authority to receive certain payments, if any, with
respect to expenses and indemnification under Sections 4.2(b), 7.3, 9.2 and
9.3), and the Authority hereby directs the Borrower to make the payments
required hereunder (except such payments for expenses and indemnification)
directly to the Trustee as more fully set forth in this Agreement. The Borrower
hereby assents to such assignment, agrees to make such payments directly to the
Trustee and agrees that the provisions of Section 4.4 shall apply to its
obligation to maker such payments.

          SECTION 4.6.  AMOUNTS REMAINING IN FUNDS. It is agreed by the parties
hereto that after: (i) payment in full of the principal of, and premium, if any,
and interest on, the Bonds, or after provision for such payment shall have been
made as provided in the Indenture, (ii) payment, or provision for payment
satisfactory to the Trustee and paying agents, of the fees, charges and expenses
of the Trustee and paying agents in accordance with the Indenture, (iii)
payment, or provision for payment satisfactory to the affected parties, of all
other amounts required to be paid under this Agreement and the Indenture by the
Borrower, (iv) payment to the Bank of any amounts owed to the Bank by the
Borrower under the Master Reimbursement Agreement, and (v) payment to the
Standby Letter of Credit Bank of

                                       8.
<PAGE>

any amounts owed to the Standby Letter of Credit Bank under the Standby
Reimbursement Agreement or any other applicable agreement, any amounts remaining
in any fund held by the Trustee under the Indenture shall be paid in accordance
with the requirements of Section 10.04 of the Indenture.

                                   ARTICLE V

                       SPECIAL COVENANTS AND AGREEMENTS

          SECTION 5.1.  RIGHT OF ACCESS TO THE PROJECT. The Borrower agrees that
during the term of this Agreement the Authority, the Trustee and the duly
authorized agents of either of them shall have the right, after reasonable
notice to the Borrower, at all reasonable times during normal business hours to
enter upon the site of the Project to examine and inspect the Project. The
rights of access hereby reserved to the Authority, the Trustee, and their
respective agents, may be exercised only after the Person seeking such access
shall have executed such secrecy agreements, if any, as may be requested by the
Borrower and which are in the form required of all visitors to the Project site.
Nothing contained in this Section or in any other provision of this Agreement
shall be construed to entitle the Authority or the Trustee to any information or
inspection involving the confidential knowledge, expertise or know-how of the
Borrower.

          SECTION 5.2.  THE BORROWER'S MAINTENANCE OF ITS EXISTENCE. The
Borrower covenants and agrees that it shall maintain the existence of the
Borrower and shall not dissolve, sell, or otherwise dispose of all or
substantially all of its assets, nor consolidate with or merge into another
entity or permit one or more other entities to consolidate with or merge into
it. Notwithstanding the foregoing, the Borrower may, without violating the
covenants contained in this Section, consolidate with or merge into another
entity, or permit one or more other entities to consolidate with or merge into
it, or sell or otherwise transfer to another entity all or substantially all of
its assets as an entirety and thereafter dissolve, if:

          (a)  The surviving, resulting or transferee entity, as the case may
     be:

          (i)  assumes in writing, if such entity is not the Borrower, all of
     the obligations of the Borrower under this Agreement;

          (ii) certifies in writing that it is not, after such transaction,
     otherwise in default under any provisions of this Agreement;

          (b)  The Trustee and the Authority shall have received an opinion of
Bond Counsel to the effect that such merger, consolidation, sale or other
transfer will not cause interest on the Bonds not to be Tax-exempt; and

          (c)  The written consent of the Standby Letter of Credit Bank has been
received by the Trustee, together with an acknowledgment that the Standby Letter
of Credit will remain in effect.

          If a merger, consolidation, sale or other transfer is effected, as
provided in this Section, the provisions of this Section shall continue in full
force and effect and no further merger, consolidation, sale or transfer shall be
effected except in accordance with the provisions of this Section.

                                       9.
<PAGE>

          SECTION 5.3.  RECORDS AND FINANCIAL STATEMENTS OF BORROWER; EMPLOYMENT
PRACTICES.

          (a)  The Borrower covenants and agrees at all times to keep, or cause
to be kept, proper books of record and account, prepared in accordance with
generally accepted accounting principles, in which complete and accurate entries
shall be made of all transactions of or in relation to the business, properties
and operations of the Borrower. Such books of record and account shall be
available for inspection by the Authority or the Trustee, and the duly
authorized agents of either of them, at reasonable hours and under reasonable
circumstances.

          (b)  Upon the receipt of the written request of the Authority, the
Borrower further covenants and agrees to furnish the Authority, within one
hundred twenty (120) days after the end of each Fiscal Year, with copies of its
complete financial statements in such form as are required to be provided to the
Standby Letter of Credit Bank together with a Certificate of an Authorized
Representative of the Borrower stating that no event which constitutes a Loan
Default Event or which with the giving of notice or the passage of time or both
would constitute a Loan Default Event has occurred and is continuing as of the
end of such Fiscal Year, or specifying the nature of such event and the actions
taken and proposed to be taken by the Borrower to cure such default.

          (c)  Within thirty (30) days following the end of the Borrower's
Fiscal Year, the Borrower shall furnish a written report to the Authority
stating the number of full-time and part-time employees of the Borrower employed
at the Project during such Fiscal Year, and supplying such current information
as the Authority shall reasonably request regarding other matters covered in its
application for financing for the Project.

          SECTION 5.4.  INSURANCE. The Borrower agrees to insure the Project or
cause the Project to be insured during the term of this Agreement for such
amounts and for such occurrences as are customary for similar facilities within
the State, or as may be required by the Standby Letter of Credit Bank, by means
of policies issued by reputable insurance companies qualified to do business in
the State. The Borrower agrees to deliver annually prior to the last day of each
Fiscal Year, upon request and upon the renewal of any such policy, to the
Authority and the Trustee memorandum copies of the insurance policies or
certificates of insurance which memorandum copies of insurance policies or
certificates of insurance shall evidence that all insurance required to be in
effect under this Section is then currently in full force and effect. The
Trustee is not responsible for the adequacy or sufficiency of the coverage
evidenced by such policies or certificates.

          SECTION 5.5.  MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER
CHARGES. The Borrower agrees to maintain the Project, or cause the Project to
be maintained, during the term of this Agreement (i) in a safe condition and
(ii) in good repair and in good operating condition, ordinary wear and tear
excepted, making from time to time all necessary repairs thereto and renewals
and replacements thereof.

          The Borrower agrees to pay or cause to be paid during the term of this
Agreement all taxes, governmental charges of any kind lawfully assessed or
levied upon the Project or any part thereof, including any taxes levied against
the Project which, if not paid, will become a charge on the Project, all utility
and other charges incurred in the operation, maintenance, use, occupancy and
upkeep of the Project and all assessments and charges lawfully made by any
governmental body for public improvements that may be secured by a lien on the
Project; provided that with respect to special assessments or other governmental
charges that may lawfully be paid in installments over a period of years, the
Borrower shall be obligated to pay only such installments as are required to be
paid during the term of this Agreement.

                                      10.
<PAGE>

The Borrower may, at the Borrower's expense and in the Borrower's name, in good
faith, contest any such taxes, assessments and other charges and, in the event
of any such contest, may permit the taxes, assessments or other charges so
contested to remain unpaid during that period of such contest and any appeal
therefrom unless by such nonpayment the Project or any part thereof will be
subject to loss or forfeiture.

          SECTION 5.6.  QUALIFICATION IN CALIFORNIA. The Borrower agrees that
throughout the term of this Agreement it, or any successor permitted by Section
5.2, will be qualified to do business in the State.

          SECTION 5.7.  ALTERNATE CREDIT FACILITY. If the Borrower exercises its
option to convert to a Fixed Interest Rate pursuant to the terms and provisions
of the Indenture, the Borrower may deposit with the Trustee an Alternate Credit
Facility, effective as of the Fixed Rate Date, in lieu of keeping the Master
Letter of Credit and the Standby Letter of Credit in place as required by
Section 5.8.

          The Alternate Credit Facility must meet the following conditions:

          (a)  the Alternate Credit Facility must be approved by the Authority
and by the California Industrial Development Financing Advisory Commission or
any successors;

          (b)  the terms of the Alternate Credit Facility must provide an
unconditional obligation of the issuer of the Alternate Credit Facility to pay
all amounts with respect to the principal of, premium, if any, and interest on
the Bonds when the same shall become due; and

          (c)  the term of the Alternate Credit Facility must extend to the
final maturity of the Bonds.

          On or prior to the date of the delivery of an Alternate Credit
Facility to the Trustee, the Borrower shall cause to be furnished to the Trustee
(i) an opinion of Bond Counsel stating that the delivery of such Alternate
Credit Facility to the Trustee is authorized under the Indenture and complies
with the terms hereof and will not cause interest on the Bonds not to be Tax-
exempt, (ii) such opinions regarding the validity of the Alternate Credit
Facility as the Authority or the Trustee may require, and (iii) written evidence
from Moody's, if the Bonds. are then rated by Moody's, and S&P, if the Bonds are
then rated by S&P, to the effect that such rating agency has reviewed the
proposed Alternate Credit Facility and that the substitution of the proposed
Alternate Credit Facility for the Master Letter of Credit and the Standby Letter
of Credit will not, by itself, result in withdrawal of its rating of the Bonds
or a reduction from the rating which then exists as to the Bonds below the third
highest rating of such rating agency.

          SECTION 5.8.  LETTERS OF CREDIT  .

          (a)  The Borrower shall at all times throughout the term of this
Agreement (but subject to Section 5.7) maintain or cause to be maintained the
Master Letter of Credit with respect to the Bonds. At any time the Borrower may,
at its option, provide for the delivery to the Trustee of an Alternate Master
Letter of Credit and the Borrower shall, in any event, cause to be delivered an
Alternate Master Letter of Credit at least 23 days before the Expiration Date of
the then existing Master Letter of Credit. An Alternate Master Letter of Credit
shall be an irrevocable letter of credit or other irrevocable credit facility,
issued by a commercial bank or other financial institution, the terms of which
shall in all material respects be the same as the Master Letter of Credit;
provided, that the Expiration Date of such Alternate
--------

                                      11.
<PAGE>

Master Letter of Credit shall be a date not earlier than one year from its date
of issuance, subject to earlier termination upon payment of all Bonds in full or
provision for such payment in accordance with the Indenture. On or prior to the
date of the delivery of an Alternate Master Letter of Credit to the Trustee, the
Borrower shall cause to be furnished to the Trustee (i) an opinion of Bond
Counsel stating that the delivery of such Alternate Master Letter of Credit to
the Trustee is authorized under the Indenture and complies with the terms
hereof, (ii) such opinions regarding the validity of the Alternate Master Letter
of Credit as the Authority or the Trustee may require, and (iii) written
evidence from Moody's, if the Bonds are then rated by Moody's, and S&P, if the
Bonds are then rated by S&P, to the effect that such rating agency has reviewed
the proposed Alternate Master Letter of Credit and that the substitution of the
proposed Alternate Master Letter of Credit for the then existing Master Letter
of Credit will not, by itself, result in a reduction or withdrawal of its rating
of the Bonds from the rating which then exists as to the Bonds.

          (b)  The Borrower shall at all times throughout the term of this
Agreement (but subject to Section 5.7 hereof) maintain in effect a Standby
Letter of Credit acceptable to the Bank. Prior to any conversion of the Bonds to
a Fixed Interest Rate, the Borrower shall deposit with the Trustee an
irrevocable commitment of a Standby Letter of Credit Bank acceptable to the Bank
in a form required by the Master Reimbursement Agreement and otherwise having at
least the following features:

               (i)  a term at least equal to the period until 120 days after the
     first date on which the Outstanding Bonds would be subject to optional
     redemption pursuant to the Indenture; and

               (ii) coverage of the principal amount of the Outstanding Bonds,
     plus interest for a period as required by the Bank, plus the call premium
     at the first call date.

          (c)  It is understood that with proper notification to the Trustee,
the Borrower and the Bank, the Standby Letter of Credit Bank can declare that a
default has occurred under the Standby Reimbursement Agreement and such default
shall cause a mandatory redemption of Bonds pursuant to Section 4.01 of the
Indenture.

          SECTION 5.9.  COVENANTS OF THE BORROWER. It is the intention of the
parties hereto that interest on the Bonds shall be and remain Tax-exempt, and to
that end the representations, covenants, and agreements of the Authority and the
Borrower in this Section and in Sections 5.10 and 5.11 are for the benefit of
the Trustee and each and every Holder of the Bonds. The Authority and the
Borrower each (unless otherwise indicated below) represents, warrants and agrees
as follows:

          (a)  The Project consists, and at all times shall consist, of land or
property which is subject to the allowance for depreciation provided in Section
167 of the Code, and substantially all (97% or more) of the proceeds of the
Bonds including proceeds of investment thereof, shall be used to pay the Cost of
the Project which are chargeable to the capital account of the Borrower, and
which were paid or incurred after the date identified in Item 7 of Annex A
hereto. None of the proceeds of the Bonds shall be used to finance any portion
of the Project which was utilized by the Borrower one year or more prior to the
date of issuance of such Bonds.

          (b)  No portion of the proceeds of the Bonds shall be used to provide
for a private or commercial golf course, country club, massage parlor, tennis
club, skating facility (including roller skating, skate board and ice skating),
racquet sports facility (including any handball or racquetball court), hot tub
facility, suntan facility, race track, automobile sales or service facility,
retail food or beverage

                                      12.
<PAGE>

facility, entertainment facility, airplane, gambling establishment, health club,
liquor store, skybox or luxury box.

          (c)  Less than 25% of the net proceeds of the Bonds (after Costs of
Issuance and the initial deposit in the Revenue Fund specified in Item 5 of
Annex A hereto) shall be used to purchase land or interests in land. The
Borrower covenants to spend sufficient sums from the Project Fund on Costs of
the Project to assure compliance with this covenant.

          (d)  No proceeds of the Bonds shall be used to acquire any personal
property or facilities unless the first use of such property or facilities shall
be pursuant to such acquisition, except that if the Project consists of
acquisition of a building, the Borrower shall, within two years after the Date
of Delivery or the date of acquisition of such building, whichever is earlier,
expend an amount, from proceeds of the Bonds or otherwise, equal to 15% of the
value of such building on rehabilitation costs of such building as required by
Section 147(d) of the Code.

          (e)  During the three-year period following the date the Project is
placed in service, the Borrower shall not allow any other Person to become a
"test-period beneficiary" of the Bonds who is a beneficiary of industrial
development bonds in an amount which would cause the issuance of the Bonds to
exceed such Person's aggregate per taxpayer limit under Section 144(a)(10) of
the Code.

          (f)  The Borrower shall not enter into any agreement which would
result in the payment of principal or interest on the Bonds being "federally
guaranteed" within the meaning of Section 149(b) of the Code.

          (g)  There is no outstanding issue of industrial development bonds
which was used to finance any facilities which, in relation to the Project,
would constitute (i) a single building, (ii) an enclosed shopping mall, or (iii)
a strip of offices, stores or warehouses using substantial common facilities.

          (h)  Subject to the provisions of the final paragraph of Section 5.10,
the Borrower shall not take or permit to be taken any action which would have
the effect, directly or indirectly, of making interest on any of the Bonds to
not be Tax-exempt.

          (i)  No changes shall be made in the Project and no actions shall be
taken, or omitted to be taken, which shall in any way impair the Tax-exempt
status of interest on the Bonds.

          (j)  The Borrower shall not make any use of the proceeds of the Bonds
and shall not direct or knowingly permit the Trustee to invest any proceeds from
the issuance of the Bonds or any acquired obligation in any manner which would
cause the Bonds to become "arbitrage bonds" within the meaning of Section 148 of
the Code and any Regulations thereunder, and the Borrower shall comply with the
requirements of said Section of the Code and said Regulations, as the same may
be amended from time to time, so long as any Bonds remain Outstanding.

          (k)  The Borrower shall comply with Section 91533(l) of the Act
relating to payment of prevailing wages for construction or rehabilitation work
done on the Project.

          (l)  The Borrower shall use due diligence to cause the Project to be
operated in accordance with all applicable laws, rulings, regulations and
ordinances.

                                      13.
<PAGE>

          (m)  The Borrower shall comply with all conditions imposed by the
Authority and any State agency in its approval of the Project.

          (n)  The Borrower shall fully and faithfully perform all the duties
and obligations which the Authority has covenanted and agreed in the Indenture
to cause Borrower to perform and any duties and obligations which Borrower is
required in the Indenture to perform. The foregoing shall not apply to any duty
or undertaking of the Authority which by its nature cannot be delegated or
assigned.

          (o)  The Borrower shall provide for the payment of relocation
assistance as provided by Chapter 16 of Division 7 of Title 1 of the California
Government Code, and shall reimburse the Authority or others, as the case may
be, for relocation assistance services, to the extent required by law.

          (p)  Within thirty (30) days following the end of the Borrower's
Fiscal Year, the Borrower shall furnish a written report to the Authority, and
upon request, to the California Industrial Development Financing Advisory
Commission, stating the number of full-time and part-time employees employed at
the Project during such Fiscal Year, and supplying such current information as
the Authority shall reasonably request regarding other matters covered in the
Borrower's application for industrial revenue bond financing except financial
information confidential in nature.

          (q)  The Borrower shall comply with the covenants in the Borrower's
letter of representation delivered to the Remarketing Agent in connection with
the issuance of the Bonds and acknowledges, approves and accepts the rights,
duties and obligations imposed on the Borrower pursuant to the Remarketing
Agreement.

          (r)  The Borrower shall faithfully perform at all times any and all
covenants, undertakings, stipulations and provisions to be observed or performed
by the Borrower contained in the Indenture, in the Bonds, and in all proceedings
of the Authority pertaining thereto, or otherwise required of the Borrower to be
observed or performed, whether express or implied.

          (s)  The Borrower shall comply with the covenants of the Borrower
contained in the Master Reimbursement Agreement and the Standby Reimbursement
Agreement and to pay the Bank and the Standby Letter of Credit Bank, fees in
accordance with the Master Reimbursement Agreement and the Standby Reimbursement
Agreement and any other applicable agreement.

          (t)  The Borrower covenants that it shall use less than twenty-five
percent (25%) of the net proceeds of the Bonds (after deducting Costs of
Issuance) to provide facilities which are directly related and ancillary to the
manufacturing facility being financed with the proceeds of the Bonds, in
accordance with Section 144(a)(12)(C) of the Code.

          (u)  Neither the Borrower nor the Authority shall become a Holder of
the Bonds, and the Borrower and the Authority shall not, directly or indirectly,
purchase Bonds from the Remarketing Agent.

          Notwithstanding any other provision of this Agreement or the
Indenture, including in particular Article X of the Indenture, the obligations
of the Borrower and the Authority to comply with the covenants set forth in this
Section and Section 5.10, if applicable, shall survive the defeasance or payment
in full of the Bonds.

                                      14.
<PAGE>

          SECTION 5.10.  CAPITAL EXPENDITURES. The following covenants shall
apply only if the principal amount of the Bonds exceeds $1,000,000. For the
purpose of this Section and Section 5.09 the following terms shall have the
following meanings:

          "Facilities" shall mean those facilities described in Section
    144(a)(1) of the Code and Regulations thereunder, including Section 1.103-
    10(b)(2)(ii)(e) and Section 1.103-10(d)(2) of the Regulations, and shall
    include those facilities any Principal User of which is the Borrower or a
    related person, as defined in Section 144(a)(3) of the Code, located in the
    Project Location, and any contiguous or integrated facility treated as being
    located in the Project Location by reason of the fact that such facility is
    located on both sides of a border between the Project Location and one or
    more other political jurisdictions.

          "Principal User" means any principal user of the Project as defined in
    Proposed Treasury Regulations Section 1.103-10(h).

          "Project Location" shall mean the area within the incorporated area of
    the City or County identified on Exhibit A attached hereto.

          "Regulations" shall mean those regulations, whether now or hereafter
    adopted, prepared by the United States Department of the Treasury with
    respect to Section 103 or Part IV of subchapter B of chapter 1 of the Code.

          "Section 144 Capital Expenditures" shall mean those expenditures
    required to be taken into account with respect to the Bonds pursuant to
    Section 144(a)(1) and (4) of the Code and Regulations thereunder, including
    Section 1.103-10(b)(2)(ii) and (iii) of the Regulations, including any
    expenditure with respect to Facilities, no matter by whom made (regardless
    of how paid, whether in cash, notes or stock in a taxable or nontaxable
    transaction), paid or incurred during the six-year period beginning 3 years
    before the date of issuance and delivery of the Bonds, which may, under any
    rule or election under the Code, be treated as a capital expenditure
    (whether or not such expenditure is so treated), and which is not paid or
    reimbursed out of the original principal proceeds (exclusive of investment
    income) of the Bonds, but not including excluded expenditures pursuant to
    Section 144(a)(4)(C) of the Code and Regulations thereunder, including
    Section 1.103-10(b)(2)(iv) and (v) of the Regulations. Such term shall also
    include research and development costs properly allocable to the Project no
    matter where paid or incurred, unless specifically excluded by Section
    144(a)(4)(C).

          The Borrower represents and warrants that substantially all of the
proceeds of the Bonds are to be used with respect to the Project to be located
in the Project Location; that there are no other outstanding obligations issued
subsequent to September 30, 1968, of any state, territory or possession of the
United States of America, or any political subdivision of the foregoing or of
the District of Columbia, the proceeds of which have been or are to be used
primarily with respect to Facilities; and that the sum of the principal amount
of the Bonds plus the amount of Section 144 Capital Expenditures for the three-
year period ending on the date of issuance and delivery of the Bonds does not
exceed $10,000,000.

          The Authority covenants and agrees that it has not taken and shall not
take any action which will cause interest on the Bonds to not be Tax-exempt.

          The Authority hereby elects to have the provisions of Section
144(a)(4)(A) of the Code apply to the Bonds. The Borrower covenants that it
shall furnish to the Authority prior to the issuance and delivery of the Bonds
whatever information is necessary for the Authority to make such election.

                                      15.
<PAGE>

          The Borrower further covenants that it shall take, and shall cause any
other Principal User to take, such further actions as are required of a
Principal User of property financed by an issue of obligations which are subject
to the $10,000,000 limitation of Section 144(a)(4)(A) of the Code, which actions
are set forth in Section 144(a)(4)(A) of the Code and in the Regulations,
including Section 1.103-10(b) of the Regulations.

          The Borrower further covenants and agrees, so long as any of the Bonds
are Outstanding under the Indenture, that the aggregate principal of Bonds being
issued plus the aggregate amount of Section 144 Capital Expenditures made or to
be made with respect to Facilities during the six-year period beginning three
years before the date of issuance and delivery of the Bonds shall not exceed
$10,000,000 (or any such larger amount as may be hereafter permitted by law).

          Notwithstanding anything in Section 5.9(h) or this Section 5.10 to the
contrary, neither the Borrower nor the Authority shall have violated the
covenants contained in Section 5.9(h) or this Section 5.10 if the interest on
any of the Bonds becomes taxable to a Person solely because such Person is a
"substantial user" of the Project or a "related person" within the meaning of
Section 147(a) of the Code; and none of the covenants and agreements herein
contained shall require either the Borrower or the Authority to enter an
appearance or intervene in any administrative, legislative or judicial
proceeding in connection with any changes in applicable laws, rules or
regulations or in connection with any decisions of any court or administrative
agency or other governmental body affecting the taxation of interest on the
Bonds.

          SECTION 5.11.  SPECIAL ARBITRAGE CERTIFICATIONS. (a) The Authority
hereby certifies to the Borrower that the issuance of the Bonds will not violate
any provisions of Section 103 of the Code or, Section 148 of the Code, or the
Regulations issued under such Sections of the Code, such that Bonds are not Tax-
exempt.

          (b)  The Borrower and the Authority covenant and agree to comply with
the Tax Certificate and Agreement (attached hereto as Exhibit B) provided to the
Borrower at the time of issuance and delivery of the Bonds, as such Tax
Certificate and Agreement shall be amended from time to time in order that
interest on the Bonds remain Tax-exempt.

          SECTION 5.12.  CONTINUING DISCLOSURE. The Borrower hereby covenants
and agrees, upon the conversion of the Weekly Interest Rate borne on the Bonds
to a Fixed Interest Rate pursuant to Section 2.03 of the Indenture and the
remarketing of the Bonds pursuant to Section 8.09 of the Indenture, to comply
with the continuing disclosure requirements promulgated under S.E.C. Rule 15c2-
12, as it may from time to time hereafter be amended or supplemented.
Notwithstanding any other provision of this Loan Agreement, failure of the
Borrower to comply with the requirements of S.E.C. Rule 15c2-12, as it may from
time to time hereafter be amended or supplemented, shall not be considered a
Loan Default Event under this Loan Agreement; however, the Trustee may (and, at
the request of the Remarketing Agent or Holders of at least 25% aggregate
principal amount in Outstanding Bonds, shall) or any Bondholders or beneficial
owner of the Bonds may take such actions as may be necessary and appropriate,
including seeking mandate or specific performance by court order, to cause the
Borrower to comply with its obligations pursuant to this Section 5.12.

          SECTION 5.13.  LIMITATIONS ON DISPOSITION OF ASSETS; ASSIGNMENT, SALE
OR LEASE OF PROJECT. Except as provided in Section 5.2 of this Agreement, the
Borrower's rights hereunder, the proceeds of the Bonds and the use thereof may
not be assigned by the Borrower without the prior written consent of Authority
or the Bank. In addition, any assignee or transferee shall assume the
obligations of the Borrower hereunder to the extent of the interest assignee or
transferee shall assume the obligations of the Borrower hereunder to the extent
of the interest

                                      16.
<PAGE>

assigned or transferred, and the Borrower shall forthwith furnish or cause to be
furnished to the Authority and the Trustee a true and complete copy of all
documents evidencing such assignment or transfer and assumption of obligations.

                                  ARTICLE VI

                     DAMAGE, DESTRUCTION AND CONDEMNATION;
                                USE OF PROCEEDS

          SECTION 6.1.  OBLIGATION TO CONTINUE PAYMENTS. If prior to full
payment of the Bonds (or provision for payment thereof in accordance with the
provisions of the Indenture) (i) the Project or any portion thereof is destroyed
(in whole or in part) or is damaged by fire or other casualty, or (ii) title to,
or the temporary use of, the Project or any portion thereof shall be taken under
the exercise of the power of eminent domain by any governmental body or by any
Person acting under governmental authority, the Borrower shall nevertheless be
obligated to continue to pay the amounts specified in Article IV hereof, to the
extent not prepaid in accordance with Article VIII hereof.

          SECTION 6.2.  APPLICATION OF NET PROCEEDS. The Borrower shall be
entitled to the Net Proceeds, if any, of any insurance or condemnation awards
resulting from the damage, destruction or condemnation of the Project or any
portion thereof for application as provided in this Section. All Net Proceeds
shall be deposited by the Borrower in an escrow account with the Trustee, and
the Borrower shall have delivered notice of such deposit to the Standby Letter
of Credit Bank, with a copy of such notice to the Trustee, the Authority and the
Bank, all such Net Proceeds shall be applied in one or more of the following
ways at the election of the Borrower, with the consent of the Standby Letter of
Credit Bank, by written notice to Authority, the Trustee and the Bank:

          (a)  The prompt repair, restoration, relocation, modification or
improvement of the damaged, destroyed or condemned portion of the Project to
enable such portion of the Project to accomplish at least the same function as
such portion of the Project was designed to accomplish prior to such damage or
destruction or exercise of such power of eminent domain. If the Borrower elects
to proceed as provided in this subsection (a), it shall give the Authority, the
Trustee, and the Bank written notice thereof, and evidence of the Standby Letter
of Credit Bank's consent, within 90 days of the deposit of the Net Proceeds with
the Trustee. Any balance of the Net Proceeds remaining after such work has been
completed shall be deposited in the Revenue Fund to be applied, with the written
consent of the Standby Letter of Credit Bank, to the payment of principal of and
premium, if any, and interest on the Bonds, or, if the Bonds have been fully
paid (or provision for payment thereof has been made in accordance with the
provisions of the Indenture), any balance remaining in the Revenue Fund shall be
paid in accordance with the requirements of Section 10.04 of the Indenture.

          (b)  The prepayment of all or a portion of the Loan Repayments payable
pursuant to Section 4.2(a) hereof, in accordance with Article VIII hereof, and
redemption of Bonds. If the Borrower fails to give the notice and evidence of
the Standby Letter of Credit Bank's consent required by Section 6.2(a) above
within 90 days of the deposit of the Net Proceeds with the Trustee, the Borrower
shall be deemed to have elected to apply the Net Proceeds to the prepayment of
all or a portion of the Loan Repayments as provided in this subsection (b) in
accordance with Section 8.2(a) hereof, the Standby Letter of Credit Bank shall
be deemed to have consented to such application (unless the Borrower shall have
failed to notify the Standby Letter of Credit Bank of such deposit), and the
Authority, the Trustee and the Bank shall be deemed to have received written
notice thereof for purposes of this Section 6.2.

                                      17.
<PAGE>

          SECTION 6.3.  INSUFFICIENCY OF NET PROCEEDS. If the Project or a
portion thereof is to be repaired, restored, relocated, modified or improved
pursuant to Section 6.2(a) hereof, and if the Net Proceeds are insufficient to
pay in full the cost of such repair, restoration, relocation, modification or
improvement, the Borrower will nonetheless complete the work or cause the work
to be completed and will pay or cause to be paid any cost thereof in excess of
the amount of the Net Proceeds held in escrow.

          SECTION 6.4.  DAMAGE TO OR CONDEMNATION OF OTHER PROPERTY. The
Borrower shall be entitled to the Net Proceeds of any insurance or condemnation
award or portion thereof made for damages to or takings of its property not
included in the Project.

                                  ARTICLE VII

                       LOAN DEFAULT EVENTS AND REMEDIES

          SECTION 7.1.  LOAN DEFAULT EVENTS. Any one of the following which
occurs and continues shall constitute a Loan Default Event:

          (a)  failure of the Borrower to pay any Loan Repayment when and as the
same shall become due and payable pursuant to Section 4.2(a), which failure
continues for a period of 10 days after written notice delivered to the
Borrower, the Bank, and the Standby Letter of Credit Bank, which notice shall
specify such failure and request that it be remedied, given by the Authority or
the Trustee; or

          (b)  failure of the Borrower to pay any amounts payable hereunder,
other than Loan Repayments, when and as the same shall become due, which failure
continues for a period of 30 days after written notice delivered to the
Borrower, the Bank and the Standby Letter of Credit Bank, which notice shall
specify such failure and request that it be remedied, given by the Authority or
the Trustee, unless the Authority and the Trustee shall agree in writing to an
extension of such time; or

          (c)  failure of the Borrower to observe and perform any covenant,
condition or agreement on its part required to be observed or performed by this
Agreement, other than a covenant described in subsection (a) or subsection (b)
above, which failure continues for a period of 30 days after written notice
delivered to the Borrower, the Bank and the Standby Letter of Credit Bank, which
notice shall specify such failure and request that it be remedied, given to the
Borrower by the Authority or the Trustee, unless the Authority and the Trustee
shall agree in writing to an extension of such time; provided, however, that if
the failure stated in the notice cannot be corrected within such period, the
Authority and the Trustee will not unreasonably withhold their consent to an
extension of such time if corrective action is instituted within such period and
diligently pursued until the default is corrected; or

          (d) existence of an Event of Default under and as defined in Section
7.01 of the Indenture.

The provisions of subsection (c) of this Section are subject to the limitation
that the Borrower shall not be deemed in default if and so long as the Borrower
is unable to carry out its agreements hereunder by reason of strikes, lockouts
or other industrial disturbances; acts of public enemies; orders of any kind of
the government of the United States or of the State or any of their departments,
agencies, or officials, or any civil or military authority; insurrections,
riots, epidemics, landslides; lightning; earthquake; fire; hurricanes; storms;
floods; washouts; droughts; arrests; restraint of government and people; civil
disturbances; explosions; breakage or accident to machinery, transmission pipes
or canals; partial or entire failure of utilities; or any other cause or event
not reasonably within the control of the Borrower; it being

                                      18.
<PAGE>

agreed that the settlement of strikes, lockouts and other industrial
disturbances shall be entirely within the discretion of the Borrower, and the
Borrower shall not be required to make settlement of strikes, lockouts and other
industrial disturbances by acceding to the demands of the opposing party or
parties when such course is, in the judgment of the Borrower, unfavorable to the
Borrower. This limitation shall not apply to any default under subsections (a),
(b), or (d) of this Section. Notwithstanding any other provision of this
Agreement to the contrary, so long as the Bank is not in default under the
Master Letter of Credit, the Trustee shall not without the prior written consent
or direction of the Bank exercise any remedies under the Agreement in the case
of any Loan Default Event described in subsections (a), (b), or (c) above.

          SECTION 7.2.  REMEDIES ON DEFAULT. Subject to the last sentence of
Section 7.1 above, whenever any Loan Default Event shall have occurred and shall
be continuing,

          (a)  The Trustee, by written notice to the Borrower, the Standby
Letter of Credit Bank, and the Bank, shall declare all unpaid amounts payable
under Section 4.2(a) of this Agreement to be due and payable immediately,
provided that concurrently with or prior to such notice the unpaid principal
amount of the Bonds shall have been declared to be due and payable under the
Indenture. Upon any such declaration such amount shall become and shall be
immediately due and payable in the amount set forth in Section 7.01 of the
Indenture.

          (b)  The Trustee may have access to and may inspect, examine and make
copies of the books and records and any and all accounts, data and federal
income tax and other tax returns of the Borrower.

          (c)  The Authority or the Trustee may take whatever action at law or
in equity as may be necessary or desirable to collect the payments and other
amounts then due and thereafter to become due or to enforce performance and
observance of any obligation, agreement or covenant of the Borrower under this
Agreement.

          In case the Trustee or the Authority shall have proceeded to enforce
its rights under this Agreement and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Trustee or the Authority, then, and in every such case, the Borrower, the
Trustee and the Authority shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Borrower, the Trustee and the Authority shall continue as though no such action
had been taken.

          The Borrower covenants that, in case a Loan Default Event shall occur
and all unpaid amounts payable under Section 4.2(a) hereof shall have been
declared due and payable immediately pursuant to Section 7.2(a) hereof, then,
upon demand of the Trustee, the Borrower will pay to the Trustee the whole
amount that then shall have become due and payable under said Section, with
interest on the amount then overdue at the rate of ten percent (10%) per annum
until such amount has been paid or, if ten percent is greater than the rate then
permitted by law, at the greatest rate then permitted.

          In case the Borrower shall fail forthwith to pay such amounts upon
such demand, the Trustee shall be entitled and empowered to institute any action
or proceeding at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Borrower
and collect in the manner provided by law the moneys adjudged or decreed to be
payable.

          In case proceedings shall be pending for the bankruptcy or for the
reorganization of the Borrower under the federal bankruptcy laws or any other
applicable law, or in case a receiver or trustee shall have been appointed for
the property of the Borrower or in the case of any other similar judicial

                                      19.
<PAGE>

proceedings relative to the Borrower, or the creditors or property of the
Borrower, then the Trustee shall be entitled and empowered, by intervention in
such proceedings or otherwise, to file and prove a claim or claims for the whole
amount owing and unpaid pursuant to this Agreement and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee allowed in
such judicial proceedings relative to the Borrower, its creditors or its
property, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute such amounts as provided in
the Indenture after the deduction, to the extent not prohibited by the
Indenture, of its reasonable charges and expenses. Any receiver, assignee or
trustee in bankruptcy or reorganization is hereby authorized to make such
payments to the Trustee, and to pay to the Trustee any amount due it for
reasonable compensation and expenses, including reasonable expenses and fees of
counsel incurred by it up to the date of such distribution.

          SECTION 7.3.  AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the
event the Borrower should default under any of the provisions of this Agreement,
whether or not such default constitutes a Loan Default Event hereunder, and the
Authority or the Trustee should employ attorneys or incur other expenses for the
collection of the payments due under this Agreement or the enforcement of
performance or observance of any obligation or agreement on the part of the
Borrower herein contained, the Borrower agrees to pay to the Authority or the
Trustee the reasonable fees and expenses of such attorneys and such other
reasonable expenses so incurred by the Authority or the Trustee.

          SECTION 7.4.  NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to the Authority or the Trustee is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any default shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. To entitle the Authority or the Trustee to exercise any
remedy reserved to it in this Article, it shall not be necessary to give any
notice, other than such notice as may be herein expressly required. Such rights
and remedies as are given the Authority hereunder shall also extend to the
Trustee, and the Trustee and the Holders of the Bonds shall be deemed third
party beneficiaries of all covenants and agreements herein contained.

          SECTION 7.5.  WAIVERS. No delay or omission of the Authority or the
Trustee to exercise any right or power arising upon the occurrence of any
default shall impair any such right or power or shall be construed to be a
waiver of any such default or an acquiescence therein; and every power and
remedy given by this Agreement to the Authority or the Trustee may be exercised
from time to time and as often as may be deemed expedient. In the event any
agreement or covenant contained in this Agreement should be breached by the
Borrower and thereafter waived by the Authority or the Trustee, such waiver
shall be limited to the particular breach so waived and shall not be deemed to
waive any other breach hereunder.

                                 ARTICLE VIII

                                  PREPAYMENT

          SECTION 8.1.  REDEMPTION OF BONDS WITH PREPAYMENT MONEYS. By virtue of
the assignment of the rights of the Authority under this Agreement to the
Trustee as is provided in Section 4.5, the Borrower agrees to and shall pay
directly to the Trustee any amount permitted or required to be paid by it under
this Article VIII. The Indenture provides that the Trustee shall

                                      20.
<PAGE>

use the moneys so paid to it by the Borrower, pursuant to the written
instructions of the Borrower, to redeem the Bonds on the date set for such
redemption pursuant to Section 8.5.

          SECTION 8.2.  OPTIONS TO PREPAY INSTALLMENTS. The Borrower shall have
the option to prepay the Loan Repayments payable under Section 4.2(a) hereof by
paying to the Trustee the amount set forth in Section 8.4, for deposit in the
Revenue Fund, to be applied to the redemption of Bonds as set forth below on the
earliest date such Bonds are subject to redemption pursuant to the Indenture and
as to which notice of redemption can be given in accordance with the Indenture,
at the redemption prices set forth below, under the following circumstances:

          (a)  The Borrower may prepay such amounts in whole, and cause all of
the Outstanding Bonds to be redeemed at the redemption price set forth in
Section 4.01(5) of the Indenture, if any of following shall have occurred and
written consent shall have been received from the Standby Letter of Credit Bank:

               (i)  The Project shall have been damaged or destroyed, in whole
     or in part, by fire or other casualty and the Authority and the Trustee
     receive a Certificate of an Authorized Representative of the Borrower to
     the effect that: (1) it is not practicable or desirable to rebuild, repair
     or restore the Project within a period of six consecutive months following
     such damage or destruction, (2) the Borrower is or will be thereby
     prevented from carrying on its normal operations at the Project for a
     period of at least six consecutive months, or (3) the cost of restoration
     of the Project would substantially exceed the Net Proceeds of insurance
     carried thereon; or

               (ii) Title to, or the temporary use of, all or substantially all
     of the Project shall have been taken by any governmental authority, or any
     Person acting under governmental authority, exercising the power of eminent
     domain and the Authority and the Trustee receive a Certificate of an
     Authorized Representative of the Borrower to the effect that: (1) the
     Borrower is thereby prevented from carrying on its normal operations at the
     Project for a period of at least six consecutive months or (2) the Project
     is unsuitable for use by the Borrower;

          (b)  The Borrower may prepay all or any part of the Loan Repayments
payable under Section 4.2(a) hereof from any available funds and cause all or
any part of the Outstanding Bonds to be redeemed at the redemption prices set
forth in Section 4.01(2) or 4.01(6) of the Indenture, as applicable, but subject
to any additional requirements of the Master Reimbursement Agreement or the
Standby Reimbursement Agreement.

          SECTION 8.3.  MANDATORY PREPAYMIENT. (a) The Borrower shall have and
hereby accepts the obligation to prepay in full the Loan Repayments payable
under Section 4.2(a) hereof, by paying to the Trustee the amount set forth in
Section 8.4 for deposit to the Revenue Fund to be used to redeem all the
Outstanding Bonds on the earliest date such Bonds are subject to redemption
pursuant to the Indenture and as to which notice of the redemption can be given
in accordance with the Indenture, at the redemption prices set forth in Section
4.01(5) of the Indenture with respect to subsection (i) below, Section 4.01(3)
of the Indenture with respect to subsections (ii) and (iii) below, and in the
Indenture Sections noted with respect to subsection (iv) below:

               (i)  if and when as a result of any changes in the Constitution
     of the United States of America or the California Constitution or as a
     result of any legislative, judicial or administrative action, this
     Agreement shall have become void or unenforceable or impossible of

                                      21.
<PAGE>

     performance in accordance with the intention and purposes of the parties
     hereto, or shall have been declared unlawful.

               (ii)  if, due to the untruth or inaccuracy of any representation
     or warranty made by the Borrower herein or in connection with the offer and
     sale of the Bonds, or the breach of any covenant or warranty of the
     Borrower contained in this Agreement, interest on the Bonds, or any of
     them, is determined not to be Tax-exempt to the Holders thereof (other than
     a Holder who is a "substantial user" of the Project or a "related person"
     within the meaning of Section 147(a) of the Code) by a final administrative
     determination of the Internal Revenue Service or final judicial decision of
     a court of competent jurisdiction in a proceeding of which the Borrower
     received notice and was afforded an opportunity to participate in to the
     full extent permitted by law. A determination or decision will be
     considered final for this purpose when all periods for administrative and
     judicial review have expired.

               (iii) if the amount set forth in Item 3 of Annex A exceeds
     $1,000,000 and if either: (i) the Borrower or any other Principal User of
     the Project files a notice with the Authority and the Trustee to the effect
     that the capital expenditure limitation of Section 144(a)(4) of the Code
     has been exceeded, or will be exceeded, within a period of 60 days; or (ii)
     there is a final determination (as defined in subsection (b) above) by the
     Internal Revenue Service or a court of competent jurisdiction that such
     capital expenditures limitation has been exceeded.

               (iv)  if mandatory redemption is required by any of Sections
     4.01(4), (7), (8), (9) or (10) of the Indenture.

The amount payable by the Borrower in the event of a prepayment required by this
Section shall be determined as set forth in Section 8.4 hereof and shall be
deposited in the Revenue Fund upon demand by the Authority or the Trustee.

          (b)  The Borrower shall prepay all or any part of the Loan Repayments
     payable under Section 4.2(a) from Net Proceeds under the circumstances
     described in Section 6.2(b) hereof, and cause all or any part of the
     Outstanding Bonds to be redeemed at the redemption price set forth in
     Section 4.01(5) of the Indenture.

          SECTION 8.4.  AMOUNT OF PREPAYMENT. In the case of a prepayment in
full of the Loan Repayments payable under Section 4.2(a) pursuant to Section 8.2
or 8.3, the amount to be paid shall be a sum sufficient, together with other
funds deposited with the Trustee and available for such purpose, to pay (1) the
redemption price specified in the applicable subsections of Section 8.2 or 8.3,
for all Outstanding Bonds, plus all interest accrued and to accrue to the
redemption date, (2) all reasonable and necessary fees and expenses of the
Authority, the Trustee and any paying agent allowable pursuant to this Agreement
and the Indenture accrued and to accrue through final payment of the Bonds and
(3) all other liabilities of the Borrower accrued and to accrue under this
Agreement.

          In the case of partial prepayment of the Loan Repayments payable under
Section 4.2(a) pursuant to Section 8.2 or 8.3, the amount to be paid shall be a
sum sufficient, together with other funds deposited with the Trustee and
available for such purpose, to pay the redemption price specified in the
applicable subsections of Section 8.2 or 8.3, for the Bonds to be redeemed, plus
all interest accrued and to accrue to the redemption date, and to pay expenses
of redemption of such Bonds. All partial prepayments of the Loan Repayments
shall be applied in inverse order of the due dates thereof, or as otherwise
provided in the Indenture.

                                      22.
<PAGE>

          SECTION 8.5.  NOTICE OF PREPAYMENT. To exercise an option to prepay
Loan Repayments granted by this Article VIII, the Borrower shall give written
notice to the Authority, the Bank, the Standby Letter of Credit Bank and the
Trustee not less than ten (10) days prior to such prepayment specifying the date
upon which any prepayment will be made and the amount of such prepayment. If the
Borrower fails to give such notice of a prepayment of Loan Repayments, the
Indenture provides that the Trustee shall hold such prepayment in the Redemption
Fund.

                                  ARTICLE IX

             NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

          SECTION 9.1.  NON-LIABILITY OF AUTHORITY. The Authority shall not be
obligated to pay the principal of, or premium, if any, or interest on the Bonds,
except from Revenues. The Borrower hereby acknowledges that the Authority's sole
source of moneys to repay the Bonds will be provided by the payments made by the
Borrower pursuant to this Agreement, together with other Revenues, including
investment income on certain funds and accounts held by the Trustee under the
Indenture, and hereby agrees that if the payments to be made hereunder shall
ever prove insufficient to pay all principal of, and premium, if any, and
interest on the Bonds as the same shall become due (whether by maturity,
redemption, acceleration or otherwise), then upon notice from the Trustee, the
Borrower shall pay such amounts as are required from time to time to prevent any
deficiency or default in the payment of such principal, premium or interest,
including, but not limited to, any deficiency caused by acts, omissions,
nonfeasance or malfeasance on the part of the Trustee, the Borrower, the
Authority or any third party.

          SECTION 9.2.  EXPENSES. The Borrower covenants and agrees to pay, and
to indemnify the Authority and the Trustee against, all costs and charges,
including reasonable fees and disbursements of attorneys, accountants,
consultants and other experts, incurred in good faith in connection with this
Agreement, the Bonds or the Indenture.

          SECTION 9.3.  INDEMNIFICATION. The Borrower releases the Authority and
the Trustee from, and covenants and agrees that neither the Authority nor the
Trustee shall be liable for, and covenants and agrees to indemnify and hold
harmless the Authority and the Trustee and their officers, employees and agents
from and against, any and all losses, claims, damages, liabilities or expenses,
of every conceivable kind, character and nature whatsoever arising out of,
resulting from, or in any way connected with (1) the Project, or the conditions,
occupancy, use, possession, conduct or management of, or work done in or about,
or from the planning, design, acquisition, installation or construction of, the
Project or any part thereof; (2) the issuance of any Bonds or any certifications
or representations made in connection therewith and the carrying out of any of
the transactions contemplated by the Bonds, the Indenture, or this Agreement;
(3) the Trustee's acceptance or administration of the trusts under the
Indenture, or the exercise or performance of any of its powers or duties under
the Indenture; or (4) any untrue statement or alleged untrue statement of any
material fact or omission or alleged omission to state a material fact necessary
to make the statements made, in light of the circumstances under which they were
made, not misleading, in any official statement or other offering circular
utilized by any underwriter or placement agent in connection with the sale of
any Bonds; provided that in each case such indemnity. shall not be required for
damages that result from the willful misconduct on the part of the party seeking
such indemnity. The indemnity required by this Section shall be only to the
extent that any loss sustained by the Authority or the Trustee exceeds the Net
Proceeds the Authority or the Trustee receives from any insurance carried by the

                                      23.
<PAGE>

Borrower with respect to the loss sustained. The Borrower further covenants and
agrees to pay or to reimburse the Authority and the Trustee and their officers,
employees and agents for any and all costs, reasonable attorneys fees,
liabilities or expenses incurred in connection with investigating, defending
against or otherwise in connection with any such losses, claims, damages,
liabilities, expenses or actions, except to the extent that the same arise out
of the willful misconduct of the party claiming such payment or reimbursement.
The provisions of this Section shall survive the retirement of the Bonds and the
termination of this Agreement.

                                   ARTICLE X

                                 MISCELLANEOUS

          SECTION 10.1.  NOTICES. All notices, certificates, or other
communications given hereunder shall be deemed sufficiently given on (i) the day
such notices, certificates or other communications are received when sent by
personal delivery, including tested telex or facsimile communication, or (ii)
the third day following the day on which the same have been mailed by first
class, postage prepaid, addressed to the Authority, the Borrower, the Trustee,
the Tender Agent, the Bank or the Standby Letter of Credit Bank, as the case may
be, at the address set forth for such party in Item 8 of Annex A hereto. A
duplicate copy of each notice, certificate, or other communication given
hereunder by either the Authority or the Borrower to the other shall also be
given to the Trustee, the Tender Agent, Borrower's counsel, the Standby Letter
of Credit Bank and the Bank. The Authority, the Borrower, the Trustee, the
Tender Agent, the Standby Letter of Credit Bank, and the Bank may, by notice
given hereunder, designate any different addresses to which subsequent notices,
certificates, or other communications shall be sent.

          SECTION 10.2.  SEVERABILITY. If any provision of this Agreement shall
be held or deemed to be, or shall in fact be, illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative, or unenforceable to
any extent whatever.

          SECTION 10.3.  EXECUTION OF COUNTERPARTS. This Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument; provided, however, that
for purposes of perfecting a security interest in this Agreement by the Trustee
and the Bank under Division 9 of the California Uniform Commercial Code, only
the counterpart delivered, pledged, and assigned to the Trustee shall be deemed
the original.

          SECTION 10.4.  AMENDMENTS, CHANGES AND MODIFICATIONS. Except as
otherwise provided in this Agreement or the Indenture, subsequent to the initial
issuance of Bonds and prior to their payment in full, or provision for such
payment having been made as provided in the Indenture, this Agreement may not be
effectively amended, changed, modified, altered or terminated without the
written consent of the Trustee, the Bank, and the Standby Letter of Credit Bank.

          SECTION 10.5.  GOVERNING LAW. This Agreement shall be governed
exclusively by and construed in accordance with the applicable laws of the State
as a contract executed and delivered within the State and to be fully performed
within the State.

          SECTION 10.6.  AUTHORIZED REPRESENTATIVE OF THE BORROWER. Whenever
under the provisions of this Agreement the approval of the Borrower is required
or the Authority or the Trustee is required to take some action at the request
of the Borrower, such approval or such request shall be given on behalf of the
Borrower by the Authorized Representative of the Borrower,

                                      24.
<PAGE>

and the Authority and the Trustee shall be authorized to act on any such
approval or request and neither party hereto shall have any complaint against
the other or against the Trustee as a result of any such action taken.

          SECTION 10.7.  TERM OF THE AGREEMENT. This Agreement shall be in full
force and effect from the date hereof and shall continue in effect as long as
any of the Bonds remain Outstanding or the Master Letter of Credit remains in
effect, whichever is later. All representations and certifications by the
Borrower as to all matters affecting the Tax-exempt status of the Bonds and all
indemnifications by the Borrower to the Authority or the Trustee shall survive
the termination of this Agreement.

          SECTION 10.8.  BINDING EFFECT. This Agreement shall inure to the
benefit of and shall be binding upon the Authority, the Borrower and their
respective successors and assigns; subject, however, to the limitations
contained in Section 5.2 hereof.

          SECTION 10.9.  BROKERAGE CONFIRMATIONS. To the extent regulations of
the Comptroller of Currency or other applicable regulatory entity require the
Trustee to deliver to the Borrower brokerage confirmations of investment
transactions as they occur, the receipt of such confirmations is specifically
waived to the extent permitted by law. The Trustee shall provide to the Borrower
monthly transaction statements which shall include details with respect to all
investment transactions made, pursuant to Section 5.05 of the Indenture, by the
Trustee, on behalf of and at the written direction of the Borrower.

                                      25.
<PAGE>

          IN WITNESS WHEREOF, the California Statewide Communities Development
Authority has caused this Agreement to be executed in its name and the Borrower
has caused this Agreement to be executed in its name, all as of the date first
above written.

                                      CALIFORNIA STATEWIDE COMMUNITIES
                                      DEVELOPMENT AUTHORITY

                                      By: /s/ (Member of Commission)
                                          --------------------------
                                                       Member of Commission
                                                         of the Authority

                                      PEET'S COFFEE & TEA, INC.

                                      By: /s/ Bob C. Donogan
                                          -------------------------------
                                                       Authorized Representative
<PAGE>

                                   EXHIBIT A

                                  THE PROJECT
                                  -----------

          The rehabilitation and equipping of an approximately 60,000 square
foot manufacturing facility to be used for the roasting and processing of coffee
beans.

                               PROJECT LOCATION
                               ----------------

                               1400 Park Avenue
                               Emeryville, California
<PAGE>

                                   EXHIBIT B
                                   ---------

          A copy of the Tax Certificate and Agreement is included in this
transcript under Tab No. 13.
<PAGE>

                                    ANNEX A
                                    -------

Item 1 -       Peet's Coffee & Tea, Inc., a corporation duly organized and
               existing under and pursuant to the laws of the State of
               Washington.

Item 2 -       California Statewide Communities Development Authority Weekly
               Adjustable/Fixed Rate Industrial Development Revenue Bonds,
               Series 1995E (Peet's Coffee & Tea, Inc. Project)

Item 3 -       $3,500,000 (aggregate principal amount).

Item 4 -       Date of Delivery: December 6, 1995.

Item 5 -       $40,274 (Deposit to Revenue Fund from proceeds).

Item 6 -       A. $70,000     (Deposit to Costs of Issuance Fund from proceeds).
               B. $77,200     (Deposit to Costs of Issuance Fund from Borrower
                              Funds).
               C. $3,389,726  (Deposit to Project Fund).

Item 7 -       Inducement Resolution Date: September 6, 1995.

Item 8 -       If to the Authority -

               California Statewide Communities
               Development Authority
               1100 K Street, Suite 101
               Sacramento, California 95814

If to the Trustee -

               First Trust of California,
               National Association
               101 California Street, Suite 1150
               San Francisco, California 94111
               Attn: Municipal Trusts and Agency

If to the Bank -

               State Teachers' Retirement System
               7667 Folsom Boulevard
               P.O. Box 163749
               Sacramento, California 95816

                                     A-1.
<PAGE>

If to the Borrower -

               Peet's Coffee & Tea, Inc.
               1310 65th Street
               Emeryville, California 94608
               Attn: Robert C. Donegan

If to the Standby Letter of Credit Bank -

               Union Bank
               1800 Harrison Street
               Oakland, California 94612
               Attn: David Jochim

If to the Tender Agent -

               First Trust of California, National Association
               101 California Street, Suite 1150
               San Francisco, CA 94111
               Attn: Municipal Trusts and Agency

If to the Administrator -

               HB Capital Resources, Ltd.
               1470 Maria Lane, Suite 400
               Walnut Creek, California 94596

                                     A-2.
<PAGE>

Item 9 -       Sinking Fund Installments:

                                Principal
               December 1         Amount
              ------------     -----------
                1997            $440,000
                1998             440,000
                1999             440,000
                2000             440,000
                2001             440,000
                2002             440,000
                2003             440,000
                2004             140,000
                2005             140,000
                2006             140,000

Item 10 -      Maturity Date - December 1, 2006.

Item 11 -      Date Bonds Are Eligible To Be Tendered - January 3, 1996.

                                     A-3.<PAGE>

                                                                    Exhibit 10.5

                            PEET'S COMPANIES. INC.
                  AMENDED AND RESTATED 1993 STOCK OPTION PLAN

1.   Purpose

     The purpose of the Amended and Restated 1993 Stock Option Plan (this
"Plan") is to provide a means whereby selected employees, directors, officers,
agents, consultants, advisors and independent contractors of Peet's Companies,
Inc. (the "Company"), or of any parent or subsidiary (as defined in subsection
5.8 and referred to hereinafter as "related corporations") thereof, may be
granted incentive stock options and/or nonqualified stock options to purchase
the Common Stock (as defined in Section 3) of the Company, in order to attract
and retain the services or advice of such employees, directors, officers,
agents, consultants, advisors and independent contractors and to provide added
incentive to such persons by encouraging stock ownership in the Company.

2.   Administration

     This Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the event the Board shall appoint and/or authorize a
committee to administer this Plan, by such committee.  The administrator of this
Plan shall hereinafter be referred to as the "Plan Administrator."

     In the event a member of the Plan Administrator (or the committee) may be
eligible, subject to the restrictions set forth in Section 4, to participate in
or receive or hold options under this Plan, no member of the Plan Administrator
shall vote with respect to the granting of an option hereunder to himself or
herself, as the case may be, and, if state corporate law does not permit a
committee to grant options to directors, then any option granted under this Plan
to a director for his or her services as such shall be approved by the full
Board.

     The members of any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine.  The Board may
from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, shall be filled by the Board.

     With respect to grants made under this Plan to individuals who are subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Plan Administrator shall be constituted at all times so as to meet
the requirements of Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act if any of the Company's equity securities are registered pursuant to Section
12(b) or 12(g) of the Exchange Act.

     2.1  Procedures.

          The Board shall designate one of the members of the Plan Administrator
as chairman.  The Plan Administrator may hold meetings at such times and places
as it shall determine.  The acts of a majority of the members of the Plan
Administrator present at meetings

                                       1.
<PAGE>

at which a quorum exists, or acts reduced to or approved in writing by all Plan
Administrator members, shall be valid acts of the Plan Administrator.

     2.2  Responsibilities.

          Except for the terms and conditions explicitly set forth in this Plan,
the Plan Administrator shall have the authority, in its discretion, to determine
all matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options.  Grants under this Plan need not be identical in any respect,
even when made simultaneously.  The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), the regulations thereunder and any amendments
thereto.

     2.3  Rule 16b-3 Compliance and Bifurcation of Plan.

          It is the intention of the Company that, if any of the Company's
equity securities are registered pursuant to Section 12(b) or 12(g) of the
Exchange Act, this Plan shall comply in all respects with Rule 16b-3 under the
Exchange Act.  If any Plan provision is later found not to be in compliance with
such Rule, the provision shall be deemed null and void, and in all events this
Plan shall be construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the application of any provision of this Plan to participants who are
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning this Plan with respect to other participants.

3.   Shares Subject to This Plan

     The shares subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), currently authorized but unissued.  Subject to adjustment as
provided in Section 7, the aggregate amount of Common Stock to be delivered upon
the exercise of all options granted under this Plan shall not exceed 415,800
shares as such Common Stock was constituted on the effective date of this Plan;
provided, however, that the number of shares of Common Stock available for
issuance under this Plan shall be reduced from time to time in direct proportion
to the number of shares of Common Stock reserved for issuance pursuant to
options granted under the Company's 1994 California Stock Option Plan.  If any
option granted under this Plan shall expire or be surrendered, exchanged for
another option, canceled or terminated for any reason without having been
exercised in full, the unpurchased shares subject thereto shall thereupon again
be available for purposes of this Plan, including for replacement options which
may be granted in exchange for such expired, surrendered, exchanged, canceled or
terminated options.

4.   Eligibility

     An incentive stock option may be granted only to any individual who, at the
time the option is granted, is an employee of the Company or any related
corporation.  A nonqualified

                                       2.
<PAGE>

stock option may be granted to any employee, director, officer, agent,
consultant, or advisor of the Company or any related corporation, whether an
individual or an entity. Any party to whom an option is granted under this Plan
shall be referred to hereinafter as an "Optionee."

5.   Terms and Conditions of Options

     Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan.  Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:

     5.1  Number of Shares and Price.

          The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator, provided that the Plan Administrator shall act in good faith to
establish the exercise price which shall be not less than the fair market value
per share of the Common Stock at the time the option is granted with respect to
incentive stock options and not less than 85% of the fair market value of the
Common Stock at the time the option is granted with respect to nonqualified
stock options, and also provided that, with respect to incentive stock options
granted to greater than 10% shareholders, the exercise price shall be as
required by subsection 6.1.  The foregoing notwithstanding, the maximum number
of shares with respect to which an option or options may be granted to any
Optionee in any one fiscal year of the Company shall not exceed 300,000 shares
(the "Maximum Annual Optionee Grant").

     5.2  Term and Maturity.

          Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the term of
each incentive stock option shall be as established by the Plan Administrator
and, if not so established, shall be 10 years from the date it is granted but in
no event shall it exceed 10 years.  The term of each nonqualified stock option
shall be as established by the Plan Administrator and, if not so established,
shall be 10 years.  To ensure that the Company or related corporation will
achieve the purpose and receive the benefits contemplated in this Plan, any
option granted to any Optionee hereunder shall, unless the condition of this
sentence is waived or modified in the agreement evidencing the option or by
resolution adopted at any time by the Plan Administrator, be exercisable
according to the following schedule:

  Period Of Optionee's Continuous Relationship            Portion of Total
     With The Company Or Related Corporation               Option Which Is
       From The Date The Option Is Granted                    Exercisable

                    Upon Grant                                     60%
                    After 1 year                                   80%
                    After 2 years                                 100%

                                       3.
<PAGE>

     5.3  Exercise.

          Subject to the vesting schedule described in subsection 5.2, each
option may be exercised in whole or in part at any time and from time to time.
However, the Plan Administrator may in its discretion require that a minimum
number of shares be purchased upon any exercise of option rights hereunder,
provided that such minimum may in no event exceed 100 shares.  Only whole shares
will be issued pursuant to the exercise of any option.  An option shall be
exercised by delivery to the Company of notice of the number of shares with
respect to which the option is exercised, together with payment of the exercise
price.

     5.4  Payment of Exercise Price.

          Payment of the option exercise price shall be made in full at the time
the notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to accept a
personal check) for the shares being purchased.

     The Plan Administrator can determine at any time before exercise that
additional forms of payment will be permitted.  To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:

          (a)  delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator; provided,
however, that payment in stock held by an Optionee shall not be made unless the
stock shall have been owned by the Optionee for a period of at least six months;

          (b)  delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions to the imputed interest rules) for federal income tax purposes, (ii)
the Plan Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is granted or at
any time prior to exercise of a nonqualified stock option, (iii) the Plan
Administrator may require that the Optionee pledge to the Company for the
purpose of securing the payment of such note the shares of Common Stock to be
issued to the Optionee upon exercise of the option and may require that the
certificate representing such shares be held in escrow in order to perfect the
Company's security interest, and (iv) the Plan Administrator in its sole
discretion may at any time restrict or rescind this right upon notification to
the optionee; or

          (c)  delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise.

                                       4.
<PAGE>

     5.5  Withholding Tax Requirement.

          The Company or any related corporation shall have the right to retain
and withhold from any payment of cash or shares of Common Stock under this Plan
the amount of taxes required by any government to be withheld or otherwise
deducted and paid with respect to such payment.  At its discretion, the Company
may require an Optionee receiving shares of Common Stock to reimburse the
Company for any such taxes required to be withheld by the Company and withhold
any distribution in whole or in part until the Company is so reimbursed.  In
lieu thereof, the Company shall have the right to withhold from any other cash
amounts due or to become due from the Company to the Optionee an amount equal to
such taxes.  The Company may also retain and withhold or the Optionee may elect,
subject to approval by the Company at its sole discretion, to have the Company
retain and withhold a number of shares having a market value not less than the
amount of such taxes required to be withheld by the Company to reimburse the
Company for any such taxes and cancel (in whole or in part) any such shares so
withheld.  In order to qualify such election for exemption under Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, any individual who is
subject to Section 16 under the Exchange Act must exercise the option during the
quarterly 10-day window period required under Section 16(b) of the Exchange Act
for exercises of stock appreciation rights, and the election relating to such
option exercise must be (i) an irrevocable election made six months prior to the
date the option exercise becomes taxable; (ii) an election that is made during a
window period; or (iii) an election that is made prior to a window period,
provided the election becomes effective as of the next window period.

     5.6  Holding Periods.

          5.6.1     Securities and Exchange Act Section 16. If an individual
subject to Section 16 of the Exchange Act sells shares of Common Stock obtained
upon the exercise of a stock option within six months after the date the option
was granted, such sale may result in short-swing profit recovery under Section
16(b) of the Exchange Act.

          5.6.2     Taxation of Stock Options.  In order to obtain certain tax
benefits afforded to incentive stock options under Section 422 of the Code, an
optionee must hold the shares issued upon the exercise of an incentive stock
option for two years after the date of grant of the option and one year from the
date of exercise.  An optionee may be subject to the alternative minimum tax at
the time of exercise of an incentive stock option.

     The Plan Administrator may require an Optionee to give the Company prompt
notice of any disposition of shares acquired by the exercise of an incentive
stock option prior to the expiration of such holding periods.

     Tax advice should be obtained by an Optionee when exercising any option and
prior to the disposition of the shares issued upon the exercise of any option.

     5.7  Transferability of Options.

          Options granted under this Plan and the rights and privileges
conferred hereby may not be transferred, assigned, pledged or hypothecated in
any manner (whether by operation of law or otherwise) other than by will or by
the applicable laws of descent and distribution and

                                       5.
<PAGE>

shall not be subject to execution, attachment or similar process. During an
Optionee's lifetime, any options granted under this Plan are personal to him or
her and are exercisable solely by such Optionee. Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any option under this Plan
or of any right or privilege conferred hereby, contrary to the Code or to the
provisions of this Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby shall be null and void.
Notwithstanding the foregoing, to the extent pertained by Rule 16b-3 under the
Exchange Act and other applicable law and regulation, the Plan Administrator may
permit an Optionee to (i) during the Optionee's lifetime, designate a person who
may exercise the option after the Optionee's death by giving written notice of
such designation to the Company. Such designation may be changed from time to
time by the Optionee by giving written notice to the Company revoking any
earlier designation and making a new designation or (ii) with respect to
nonqualified stock options, transfer the option and the rights and privileges
conferred hereby.

     5.8  Termination of Relationship.

          If the Optionee's relationship with the Company or any related
corporation ceases for any reason other than termination for cause, death or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee may exercise, for a three-month period, that portion
of the Optionee's option which is exercisable at the time of such cessation, but
the Optionee's option shall terminate at the end of such period following such
cessation as to all shares for which it has not theretofore been exercised,
unless such provision is waived in the agreement evidencing the option.  If, in
the case of an incentive stock option, an Optionee's relationship with the
Company or any related corporation changes (i.e., from employee to nonemployee,
such as a consultant), such change shall constitute a termination of an
Optionee's employment with the Company or any related corporation and the
Optionee's incentive stock option shall terminate in accordance with this
subsection 5.8.  Upon the expiration of the three-month period following
cessation of employment in the case of an incentive stock option, or at any time
prior to the expiration of the option in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in a particular
circumstance to extend the exercise period following such cessation to any date
up to the termination or expiration of the option.  If, however, in the case of
an incentive stock option, the Optionee does not exercise the Optionee's option
within three months after cessation of employment, the option will no longer
qualify as an incentive stock option under the Code.

     If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option.  Termination for cause shall mean
dismissal for dishonesty, conviction or confession of a crime punishable by law
(except minor violations), fraud, misconduct or disclosure of confidential
information.  If an Optionee's relationship with the Company or any related
corporation is suspended pending an investigation of whether or not the Optionee
shall be terminated for cause, all the Optionee's rights under any option
granted hereunder likewise shall be suspended during the period of
investigation.

     If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the Optionee's option shall not terminate
or, in the case of an incentive stock

                                       6.
<PAGE>

option, cease to be treated as an incentive stock option until the end of the
12-month period following such cessation (unless by its terms it sooner
terminates and expires). As used in this Plan, the term total disability refers
to a mental or physical impairment of the Optionee which is expected to result
in death or which has lasted or is expected to last for a continuous period of
12 months or more and which causes the Optionee to be unable, in the opinion of
the Company and two independent physicians, to perform his or her duties for the
Company and to be engaged in any substantial gainful activity. Total disability
shall be deemed to have occurred on the first day after the Company and the two
independent physicians have furnished their opinion of total disability to the
Plan Administrator.

     Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, advisor or independent
contractor of the Company or of a related corporation; however, a change in an
Optionee's status from an employee to a nonemployee (e.g., consultant or
independent contractor) shall result in the termination of an outstanding
incentive stock option held by such Optionee.  The Plan Administrator, in its
absolute discretion, may determine all questions of whether particular leaves of
absence constitute a termination of services; provided, however, that with
respect to incentive stock options, such determination shall be subject to any
requirements contained in the Code.  The foregoing notwithstanding, with respect
to incentive stock options, employment shall not be deemed to continue beyond
the first 90 days of such leave, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.

     As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain.  When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

     5.9  Death of Optionee.

          If an Optionee dies while he or she has a relationship with the
Company or any related corporation or within the three-month period (or 12-month
period in the case of totally disabled optionees) following cessation of such
relationship, any option held by such optionee to the extent that the Optionee
would have been entitled to exercise such option, may be exercised within one
year after his or her death by the personal representative of his or her estate
or by the person or persons to whom the Optionee's rights under the option shall
pass (i) by will or by the applicable laws of descent and distribution or (ii)
by a designation or transfer pursuant to Section 5.7.

                                       7.
<PAGE>

     5.10 No Status As Shareholder.

          Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.

     5.11 Continuation of Relationship.

          Nothing in this Plan or in any option shall confer upon any Optionee
any right to continue in the employ or other relationship of the Company or of a
related corporation, or to interfere in any way with the right of the Company or
of any such related corporation to terminate his or her employment or other
relationship with the Company at any time.

     5.12 Modification and Amendment of Option.

          Subject to the requirements of Code Section 422 with respect to
incentive stock options and to the terms and conditions and within the
limitations of this Plan, the Plan Administrator may modify or amend outstanding
options granted under this Plan.  The modification or amendment of an
outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option.  Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee.

     5.13 Limitation on Value for Incentive Stock Options.

          As to all incentive stock options granted under the terms of this
Plan, to the extent that the aggregate fair market value of the shares
(determined at the time the incentive stock option is granted) with respect to
which incentive stock options are exercisable for the first time by the Optionee
during any calendar year (under this Plan and all other incentive stock option
plans of the Company, a related corporation or a predecessor corporation)
exceeds $100,000, such options shall be treated as nonqualified stock options.
The previous sentence shall not apply if the Internal Revenue Service issues a
public rule, issues a private ruling to the Company, any Optionee or any
legatee, personal representative or distributee of an Optionee or issues
regulations changing or eliminating such annual limit.

6.   Greater Than 10% Shareholders

     6.1  Exercise Price and Term of Incentive Stock Options.

          If an incentive stock option is granted under this Plan to any
employee who owns more than 10% of the total combined voting power of all
classes of stock of the Company or any related corporation, the term of such
incentive stock options shall not exceed five years and the exercise price shall
be not less than 110% of the fair market value of the shares at the time the
incentive stock option is granted.  This provision shall control notwithstanding
any contrary terms contained in an option agreement or any other document.

                                       8.
<PAGE>

     6.2  Attribution Rule.

          For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the shares owned, directly or indirectly, by or
for his or her brothers, sisters, spouse, ancestors and lineal descendants.
Shares owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries.  If an employee or a person related to
the employee owns an unexercised option or warrant to purchase shares of the
Company, the shares subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock ownership.  For purposes
of this Section 6, shares owned by an employee shall include all shares actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.

7.   Adjustments Upon Changes in Capitalization

     The aggregate number and class of shares for which options may be granted
under this Plan, the Maximum Annual Optionee Grant set forth in Section 5.1, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.

     7.1  Effect of Liquidation or Reorganization.

          7.1.1     Cash, Stock or Other Property for Stock. Except as provided
in subsection 7.1.2, upon a merger (other than a merger of the Company in which
the holders of shares of Common Stock immediately prior to the merger have the
same proportionate ownership of shares of Common Stock in the surviving
corporation immediately after the merger), consolidation, acquisition of
property or stock, separation, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise such Optionee's
option in whole or in part whether or not the vesting requirements set forth in
the option agreement have been satisfied.

          7.1.2     Conversion of Options on Stock for Stock Exchange.  If the
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion,

                                       9.
<PAGE>

determine that any or all such options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 7.1.1. The amount and price of
converted options shall be determined by adjusting the amount and price of the
options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. The converted options shall be fully vested whether or not the
vesting requirements set forth in the option agreement have been satisfied.

     7.2  Fractional Shares.

          In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.

     7.3  Determination of Board to Be Final.

          All Section 7 adjustments shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.  Unless an Optionee agrees otherwise,
any change or adjustment to an incentive stock option shall be made in such a
manner so as not to constitute a "modification" as defined in Code Section
425(h) and so as not to cause his or her incentive stock option issued hereunder
to fail to continue to qualify as an incentive stock option as defined in Code
Section 422(b).

8.   Securities Regulation

     Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability, if applicable, of an exemption from registration for the issuance
and sale of any shares hereunder.  Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.

     As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws.  At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of

                                      10.
<PAGE>

counsel is provided (concurred in by counsel for the Company) stating that such
transfer is not in violation of any applicable law or regulation, may be stamped
on stock certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Optionees
as may from time to time be necessary to comply with the federal and state
securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.

     Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.

9.   Amendment and Termination

     9.1  Board Action.

          The Board may at any time suspend, amend or terminate this Plan,
provided that, to the extent required for compliance with Rule 16b-3 promulgated
under Section 16(b) of the Exchange Act, Section 422 of the Code or by any
applicable law or regulation, the Company's shareholders must approve any
amendment which will:

          (a)  increase the number of shares that may be issued under this Plan;

          (b)  with respect to nonqualified stock options, materially modify the
requirements as to eligibility for participation in this Plan or, with respect
to incentive stock options, change the designation of the participants or class
of participants eligible for participation in this Plan;

          (c)  materially increase the benefits accruing to the participants
under this Plan; or

          (d)  otherwise require shareholder approval under any applicable law
or regulation.

     Such shareholder approval must be obtained (i) within 12 months of the
adoption by the Board of such amendment or (ii) if earlier, and to the extent
required for compliance with Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, at the next annual meeting of shareholders after such adoption by
the Board.

     Any amendment made to this Plan which would constitute a "modification" to
incentive stock options outstanding on the date of such amendment, shall not be
applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.

     9.2  Automatic Termination.

          Unless sooner terminated by the Board, this Plan shall terminate ten
years from the earlier of (a) the date on which this Plan is adopted by the
Board or (b) the date on which this

                                      11.
<PAGE>

Plan is approved by the shareholders of the Company. No option may be granted
after such termination or during any suspension of this Plan. The amendment or
termination of this Plan shall not, without the consent of the option holder,
alter or impair any rights or obligations under any option theretofore granted
under this Plan.

10.  Effectiveness of This Plan

     This Plan shall become effective upon adoption by the Board so long as it
is approved by a majority of stock represented by shareholders voting either in
person or by proxy at a duly held shareholders' meeting any time within 12
months before or after the adoption of this Plan.

     Plan adopted by the Board of Directors on December 20, 1993 and approved by
the shareholders on January 11, 1994.  Amended by the Board of Directors on July
20, 1994 and approved by the shareholders on August 29, 1994.  Amended by the
Board of Directors on February 22, 1995.

                                      12.

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