EXHIBIT 10.1

CONVERSE INC.

FORM OF INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("AGREEMENT") is made as of this ____________ by and between Converse Inc., a Delaware corporation (the "COMPANY"), and _________________________("INDEMNITEE").

RECITALS

A. The Company desires to attract and retain qualified directors, officers, employees and other agents, and to provide them with protection against liability and expenses incurred while acting in that capacity;

B. The Certificate of Incorporation and Bylaws of the Company contain provisions for indemnifying directors and officers of the Company, and the Bylaws and Delaware law contemplate that separate contracts may be entered into between the Company and its directors and officers, employees and other agents with respect to their indemnification by the Company, which contracts may provide greater protection than is afforded by the Certificate of Incorporation and Bylaws;

C. The Company understands that Indemnitee has reservations about serving or continuing to serve the Company without adequate protection against personal liability arising from such service, and that it is also of critical importance to Indemnitee that adequate provision be made for advancing costs and expenses of legal defense; and

D. The Board of Directors and the stockholders of the Company have approved as being in the best interests of the Company indemnity contracts substantially in the form of this Agreement for directors and officers of the Company and its subsidiaries and for certain other employees and agents of the Company designated by the Board of Directors.

NOW, THEREFORE, in order to induce Indemnitee to serve or to continue to serve as a director and/or officer of the Company, and in consideration of Indemnitee's service to the Company, the parties agree as follows:

1. Contractual Indemnity. In addition to the indemnification provisions of the Bylaws of the Company, the Company hereby agrees, subject to the limitations of Sections 2 and 5 hereof:

(a) To indemnify, defend and hold Indemnitee harmless to the greatest extent possible under applicable law from and against any and all judgments, fines, penalties, amounts paid in settlement and any other amounts reasonably incurred or suffered by Indemnitee (including attorneys' fees) if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal,

administrative or investigative, including an action by or in the right of the Company, to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Indemnitee is, was or at any time becomes a director, officer, employee or agent of the Company or is or was serving or at any time serves at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (collectively referred to hereafter as a "Claim"), whether or not arising prior to the date of this Agreement.

(b) To pay any and all expenses reasonably incurred by Indemnitee in defending any Claim or Claims (including reasonable attorneys' fees and expenses and other reasonable costs of investigation and defense), as the same are incurred and in advance of the final disposition of any such Claim or Claims, upon receipt of a written undertaking by or on behalf of Indemnitee (which shall be unsecured and shall not bear interest) to reimburse such amounts if it shall be ultimately determined that Indemnitee (i) is not entitled to be indemnified by the Company under this Agreement, and (ii) is not entitled to be indemnified by the Company under the Certificate of Incorporation or the Bylaws of the Company.

(c) The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful.

2. Limitations on Contractual Indemnity. Indemnitee shall not be entitled to indemnification or advancement of expenses under Section 1:

(a) if a court of competent jurisdiction, by final judgment or decree, shall determine that (i) the Claim or Claims in respect of which indemnity is sought arise from Indemnitee's fraudulent, dishonest or willful misconduct, or (ii) such indemnity is not permitted under applicable law; or

(b) on account of any suit in which judgment is rendered for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company in violation of the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or

(c) for any acts or omissions or transactions from which a director may not be relieved of liability under the Delaware General Corporation Law; or

(d) with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to proceedings brought in good faith to establish or enforce a right to indemnification under this Agreement or any other statute or law, or (ii) at the Company's discretion, in specific cases if the Board of Directors of the Company has approved the initiation or bringing of such suit; or

(e) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability insurance maintained by the Company; or

(f) for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous.

Notwithstanding any limitations set forth in this Section 2, regarding the Company's obligation to provide indemnification, Indemnitee shall be entitled under Section 4 to receive expense advances hereunder with respect to any such Claim unless and until a court having jurisdiction over the Claim shall have made a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under this Section 2.

3. Continuation of Contractual Indemnity. Subject to the termination provisions of Section 11, all agreements and obligations of the Company contained herein shall continue for so long as Indemnitee shall be subject to any possible action, suit, proceeding or other assertion of a Claim or Claims.

4. Expenses; Indemnification Procedure. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1 hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company.

5. Notification and Defense of Claim. If any action, suit, proceeding or other Claim is brought against Indemnitee in respect of which indemnity may be sought under this Agreement:

(a) Indemnitee will promptly notify the Company in writing of the commencement thereof, and the Company and any other indemnifying party similarly notified will be entitled to participate therein at its own expense or to assume the defense thereof and to employ counsel reasonably satisfactory to Indemnitee provided however, that failure to provide such notice in accordance with this
Section 2(b) shall not affect Indemnitee's rights to receive any expenses or expense advances hereunder unless and except to the extent that the Company did not otherwise learn of such Claim and such failure of Indemnitee to provide such notice results in the forfeiture by the Company of substantial rights and defenses. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three (3) business days after the date postmarked if sent by domestic

certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. Indemnitee shall have the right to employ its own counsel in connection with any such Claim and to participate in the defense thereof, and the reasonable fees and expenses of such counsel to the Indemnitee shall be borne by the Company upon delivery to the Company of the undertaking referred to in subparagraph (b) of Section 1. However, in no event will the Company be obligated to pay the fees or expenses of more than one firm of attorneys representing Indemnitee and any other agents of the Company in connection with any one Claim or separate but substantially similar or related Claims in the same jurisdiction arising out of the same general allegations or circumstances.

(b) The Company shall not be liable to indemnify Indemnitee for any amounts paid in settlement of any Claim effected without the Company's written consent, and the Company shall not settle any Claim in a manner which would impose any penalty or limitation on Indemnitee or require the admission of guilt or responsibility without Indemnitee's written consent; provided, however, that neither the Company nor Indemnitee will unreasonably withhold its consent to any proposed settlement and, provided further, that if a claim is settled by the Indemnitee with the Company's written consent, or if there be a final judgment or decree for the plaintiff in connection with the Claim by a court of competent jurisdiction, the Company shall indemnify and hold harmless Indemnitee from and against any and all losses, costs, expenses and liabilities incurred by reason of such settlement or judgment.

(c) Indemnitee shall give the Company such information in the possession of, or reasonably obtainable by, Indemnitee, and cooperation as it may reasonably require and as shall be within Indemnitee's power and control.

(d) Any indemnification provided for in Section 1 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a Claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to
Section 13 of this Agreement, Indemnitee shall also be entitled to be reimbursed for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 4 unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable

law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(e) If, at the time of the receipt of a notice of a Claim, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies, provided however, that nothing contained in this Section 5(e) shall excuse the Company from its obligations to pay expenses or expense advances to Indemnitee as provided herein.

6. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee against any Claim to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors, an officer or other corporate agent, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute, or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors, an officer, or other corporate agent, such changes, to the extent not otherwise required by applicable law to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder.

7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

8. Public Policy. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.

9. Insurance. Although the Company may from time to time maintain insurance for the purpose of indemnifying Indemnitee and other agents of the Company against personal liability, including costs of legal defense, nothing in this Agreement shall obligate the Company to do so.

10. No Restrictions. The rights and remedies of Indemnitee under this Agreement shall not be deemed to exclude or impair any other rights or remedies to which Indemnitee may be entitled under the Certificate of Incorporation or Bylaws of the Company, or under any other agreement, provision of law or otherwise, nor shall anything contained herein restrict the right of the Company to indemnify Indemnitee in any proper case even though not specifically provided for in this Agreement, nor shall anything contained herein restrict Indemnitee's right to contribution as may be available under applicable law. The indemnification provided under this Agreement shall continue as to Indemnitee for any action Indemnitee took or did not take while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.

11. Termination. The Company may terminate this Agreement at any time upon ninety (90) days written notice, but any such termination will not affect Claims relating to events occurring prior to the effective date of termination.

12. Severability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

13. Attorneys' Fees. In the event of any litigation or other action or proceeding to enforce or interpret this Agreement, the prevailing party as determined by the court shall be entitled to an award of its reasonable attorneys' fees and other costs, in addition to such relief as may be awarded by a court or other tribunal.

14. Further Assurances. The parties will do, execute and deliver, or will cause to be done, executed and delivered, all such further acts, documents and things as may be reasonably required for the purpose of giving effect to this Agreement and the transactions contemplated hereby.

15. Acknowledgment. The Company expressly acknowledges that it has entered into this Agreement and assumed the obligations imposed on the Company hereunder in order to induce Indemnitee to serve or to continue to serve as an agent of the Company, and acknowledges that Indemnitee is relying on this Agreement in serving or continuing to serve in such capacity.

16. Construction of Certain Phrases.

(a) "Company": For purposes of this Agreement, references to the "Company" shall also include, in addition to the resulting corporation in any consolidation or merger to which Converse Inc. is a party, any constituent corporation (including any constituent of a constituent) absorbed in consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at

the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b) Benefit Plans: References to "fines" contained in this Agreement shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries.

17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

18. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

19. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

20. Governing Law; Binding Effect; Amendment.

(a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware applicable to contracts entered into in Delaware.

(b) This Agreement shall be binding upon Indemnitee and the Company, their successors and assigns, and shall inure to the benefit of Indemnitee, his heirs, personal representatives and assigns and to the benefit of the Company, its successors and assigns.

(c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

CONVERSE INC.

AGREED TO AND ACCEPTED:

Address:

EXHIBIT 10.3

CONVERSE INC.

2001 STOCK PLAN

1. Purposes of the Plan. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.

(b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options are granted under the Plan.

(c) "Board" means the Board of Directors of the Company.

(d) "Change in Control" means the occurrence of any of the following events:

(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or

(ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company's assets; or

(iii) The consummation of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

(e) "Code" means the Internal Revenue Code of 1986, as amended.

(f) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof.

(g) "Common Stock" means the Common Stock of the Company.

(h) "Company" means Converse Inc., a Delaware corporation.

(i) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.

(j) "Director" means a member of the Board.

(k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code.

(l) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 90th day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or

(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator based on a stock valuation obtained from an independent accounting firm or business valuation firm of national recognition, such valuation to be obtained at least once a year or promptly after the occurrence of any material business event or financing transaction reasonably expected to materially impact the valuation of the Company's Common Stock.

(o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(p) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.

(q) "Option" means a stock option granted pursuant to the Plan.

(r) "Option Agreement" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

(s) "Optioned Stock" means the Common Stock subject to an Option.

(t) "Optionee" means the holder of an outstanding Option granted under the Plan.

(u) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.

(v) "Plan" means this 2001 Stock Plan.

(w) "Service Provider" means an Employee, Director or Consultant.

(x) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 below.

(y) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold under the Plan is 1,750,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.

If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of an Option, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of restricted stock issued pursuant to an Option are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

4. Administration of the Plan.

(a) The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options may from time to time be granted hereunder;

(iii) to determine the number of Shares to be covered by each such Option granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;

(vi) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;

(vii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and

(viii) to construe and interpret the terms of the Plan and Options granted pursuant to the Plan.

(c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.

5. Eligibility. Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

6. Limitations.

(a) Incentive Stock Option Limit. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares

with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(b) At-Will Employment. Neither the Plan nor any Option shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause, and with or without notice.

7. Term of Plan. Subject to shareholder approval in accordance with
Section 18, the Plan shall become effective upon its adoption by the Board. Unless sooner terminated under Section 14, it shall continue in effect for a term of ten (10) years from the later of (i) the effective date of the Plan, or
(ii) the date of the most recent Board approval of an increase in the number of shares reserved for issuance under the Plan.

8. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator.

(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction.

(b) Forms of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of, without limitations, (1) cash, (2) check, (3) other Shares, provided Shares acquired from the Company, either directly or indirectly, (x) have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (4) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan and administered by a third-party broker, or (5) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, each Option shall vest at a rate of 25% of the Shares subject to the Option on the first anniversary of the grant date and 1/48 of the Shares subject the Option shall vest monthly thereafter, subject to the applicable Optionee continuing to be a Service Provider on such dates. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination

(but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's total and permanent disability, as defined in Section 22(e)(3) of the Code, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's designated beneficiary, provided such beneficiary has been designated prior to Optionee's death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee's estate or by the person(s) to whom the Option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

11. Limited Transferability of Options. Unless determined otherwise by the Administrator, Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be exercised during the lifetime of the Optionee, only by the Optionee. If the Administrator in its sole discretion makes an Option transferable, such Option may only be transferred by (i) will,
(ii) the laws of descent and distribution, (iii) instrument to an inter vivos or testamentary trust in which the Option is to be passed to beneficiaries upon the death of the Optionee, or (iv) gift to a member of Optionee's immediate family (as such term is defined in Rule 16a-1(e) of the Exchange Act). In addition, any transferable Option shall contain additional terms and conditions as the Administrator deems appropriate.

12. Adjustments Upon Changes in Capitalization, Merger or Change in Control.

(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number and type of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, and the number and type of Shares covered by each outstanding Option, as well as the price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number or type of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number, type or price of Shares subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.

(c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. If the successor corporation in a merger or Change in Control refuses to assume or substitute for the Option, then the Optionee shall fully vest in and have the right to exercise his or her Option as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or Change in Control, the Administrator shall notify the Optionee in writing or electronically that the Option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and this Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger or Change in Control, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the

consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

13. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such later date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option is so granted within a reasonable time after the date of such grant.

14. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Shareholder Approval. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

15. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option 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.

16. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

17. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

18. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws.

EXHIBIT 10.5

SUBLEASE

BETWEEN

SCHNEIDER AUTOMATION INC.

AND

CONVERSE INC.

DATE:

JULY 27, 2001

PREMISES AT

ONE HIGH STREET, NORTH ANDOVER, MA

AGREEMENT NUMBER: SUB - 07 - 01

SUBLEASE

1. PARTIES

This Sublease is made as of July 27, 2001, between SCHNEIDER AUTOMATION INC., a Delaware corporation (hereinafter "Sublessor") of One High Street, North Andover, MA 01845, and CONVERSE INC., a Delaware corporation (hereinafter "Sublessee") of One Fordham Road, North Reading, MA 01864.

2. MASTER LEASE

Sublessor is the holder of the tenant's interest in that certain lease agreement dated August 28, 1986, originally between North Andover Mills Realty as landlord and Gould Inc as tenant, as amended by three amendments dated March 1, 1991, February 1, 1992, and February 19, 1993, (collectively hereinafter the "Master Lease") a copy of which is attached hereto and made a part hereof as Attachment C, for premises originally known as the David & Furber Mill in North Andover, MA. Landlord's interest in the Master Lease is currently held by NAM Partners Limited Partnership (hereinafter "Master Sublessor" or "Landlord"). This Sublease at all times shall be subject and subordinate to the Master Lease. This Sublease shall be null and void and of no effect unless and until Master Sublessor has consented to this Sublease pursuant to the provisions of the Master Lease.

3. PREMISES

Sublessor hereby subleases to Sublessee a portion of the premises leased to Sublessor under the Master Lease containing approximately 65,800 square feet of rentable space and consisting of the entirety of the 3rd, 4th and 5th floors of Building 14, known as One High Street, North Andover, MA, as shown in Attachment A hereto (the "Premises"). The building in which the Premises is contained shall be referred to as the "Building." Sublessee is also hereby granted the right to use in common with others entitled thereto, the hallways, stairways, elevators and other common areas of the Building, including, without limitation, both passenger elevators and the handicapped elevator, necessary for access to the Premises, and lavatories nearest thereto. Prior to the commencement of the Term, Sublessor shall allow Sublessee to prepare the Premises for its occupancy. This preparation shall include the removal of the existing carpeting and demolition of certain interior walls of the Premises, except for the area known as the "Computer Room" which shall remain "as is," as per Attachment B, and the construction of certain other interior walls and related construction, as per Attachment D. Sublessee shall be responsible for all expenses related to this preparation except that Sublessor shall reimburse Sublessee for documented out of pocket costs related to demolition of interior walls and removal of existing carpet up to a maximum reimbursable amount of $60,000.00. Payment terms for reimbursement will be net ten (10) days from receipt of invoice. Sublessor shall be responsible for removal of all moveable office partitions and furniture from the

Premises, within one week of execution of Sublease. In addition, Sublessor shall complete renovation of the lobby of the Building pursuant to certain specifications more particularly set forth as Attachment B hereto. Upon completion of the lobby renovations, Sublessee shall reimburse Sublessor for an amount equal to 50% of the documented out-of-pocket third party costs of Sublessor with respect to such lobby renovation, up to a maximum reimbursable amount equal to $25,000. The Premises together with all bathroom facilities located thereon shall be delivered to Sublessee in compliance with all building codes and other applicable laws. Sublessor shall provide access to the Premises to Sublessee and its employees 7 days a week, 24 hours per day pursuant to a card system which Sublessor shall maintain throughout the Term, said maintenance shall include the issuance and inventory of the access. cards to employees of Sublessee. Access cards shall remain the property of Sublessor, and shall be surrendered to Sublessor immediately upon termination of an employee, or the expiration or termination of this Sublease.

4. TERM

The term of this lease shall be for five (5) years, commencing on September 1, 2001, and ending on August 31, 2006 ("The Term").

5. RENT

The Sublessee shall pay to the Sublessor rent at the rate of $18/per rentable square foot gross ($1,184,400.00) per year, payable in advance in monthly installments of $98,700. Upon execution of this Sublease, Sublessee shall pay the sum of $394,800 which shall constitute rent in advance for the first month of the Term (September, 2001) and the last three months of the Term (June, July and August, 2006). Effective with the October, 2001 rent, and each month thereafter through and including May, 2006, rent of $98,700 shall be due and payable the first of each month.

6. UTILITIES

The Sublessor agrees to provide at its sole cost and expense, all electricity and other utility service, and to furnish reasonably hot and cold water and reasonable heat and air conditioning. to the Premises, the hallways, stairways, elevators, and lavatories during normal business hours from 8:00 a.m. to 10:00 p.m. Monday through Friday and from 8:00 a.m. through 5:00 p.m. on Saturday of the heating and air conditioning seasons of each year, to furnish elevator service, and to light passage-ways and stairways during business hours, and to furnish such cleaning service as is customary in similar buildings in said city or town, all subject to interruption due to any accident, to the making of repairs, alterations, or improvements, to labor difficulties, to trouble in obtaining fuel, electricity, service, or supplies from the sources from which they are usually obtained for said building, or to any cause beyond the Sublessor's control.

With respect to any interruptions due to alterations or improvements made by Sublessor, Sublessor agrees to use reasonable efforts to minimize disruption to Sublessee. Sublessor at its sole cost and expense shall provide air conditioning to Sublessee's computer room located on the 4th floor of the Building, 24 hours per day, seven days per week.

Except as provided herein, Sublessor shall have no obligation to provide utilities or equipment other than the utilities and equipment within the Premises as of the commencement date of this Sublease. In the event Sublessee requires additional utilities or equipment, the installation and maintenance thereof shall be the Sublessee's sole obligation, provided that such installation shall be subject to the written consent of the Sublessor and Master Lessor, which consent may be withheld if said installation, in Sublessor's sole discretion, negatively impacts Sublessor's operations at the Building.

7. USE OF PREMISES

The Sublessee shall use the Premises only for the purpose of general office space and other uses ancillary thereto (the "Permitted Use").

8. COMPLIANCE WITH LAWS

The Sublessee acknowledges that no trade or occupation shall be conducted in the (Premises or use made thereof which will be unlawful, improper, noisy, or offensive, or contrary to any law or any municipal by-law or ordinance in force in the city or town, state or federal jurisdiction in which the Premises are situated.

9. INSURANCE, INDEMNITY

Sublessee shall not do or permit to be done any act or thing in or upon the Premises which will invalidate or be in conflict with the Certificate of Occupancy or the terms of the standard form of fire, boiler, sprinkler, water damage or other insurance policies covering the Building and the fixtures and property therein; and Sublessee shall, at its own expense, comply with all rules, orders, regulations or requirements of the Board of Fire Underwriters or any other similar body having jurisdiction applicable to the Premises, as well as comply with FM Global loss prevention recommendations, with respect to its use thereof.

If, by reason of any failure of Sublessee to comply with the provisions of this Lease or Sublessee's use of the Premises for other than the Permitted Use, the rate of fire, boiler, sprinkler, water damage or other insurance (with extended coverage) on the Building and property and equipment of Sublessor shall be higher than it otherwise would be, Sublessee shall reimburse Sublessor, as additional rent for that part of the fire, boiler, sprinkler, water, damage or other insurance premiums thereafter paid by Sublessor which shall have been charged because of such failure of Sublessee, and Sublessee shall make the reimbursement within fifteen (15) days of its receipt from Sublessor of a bill for the same.

Sublessee shall obtain and keep in full force and effect during the term, at its own cost and expense, naming and protecting Sublessee as insured and naming Sublessor, and any of Sublessor's agents, Master Lessor and any mortgagee of the Building of which Sublessee has received written notice from Sublessor, as additional insureds, public liability insurance (with contractual liability endorsements) to afford protection against any and all claims for personal injury, death, or property

damage occurring in, upon, about, or connected with the Premises or any part thereof in an amount not less than $2,000,000 for injury or death arising out of any one occurrence and $1,000,000 for damage to property in respect to any one occurrence, or in any increased amount reasonably required by Sublessor. Sublessee agrees to carry and maintain insurance against loss or damage by fire or such other risks or hazards as are insurable under then available standard forms of fire insurance policies with extended coverage, personal property equal to 100% of the full insurable value thereof.

All such insurance shall be written in form and substance reasonably satisfactory to Sublessor by an insurance company of recognized responsibility qualified to do business in Massachusetts and may be carried as part of a blanket policy (separately scheduled). Upon failure of Sublessee to procure, maintain and pay all premiums therefor, Sublessor at its option may, upon not less than three (3) days prior written notice, obtain said insurance on Sublessee's behalf, and Sublessee agrees to pay the cost thereof to Sublessor within five (5) days after receipt of written demand as additional rent. Sublessee shall cause to be included in all such insurance policies a provision to the effect that the same will be noncancellable and not permitted to lapse except upon thirty (30) days prior notice to Sublessor. On the Commencement Date appropriate certificates shall be deposited with Sublessor. Any renewals, replacements or endorsements thereto shall also be so deposited.

Sublessee shall indemnify and hold Sublessor harmless from and against all claims or damage (including attorneys' fees) to person or property occurring in or about the Building or arising from, related to or in connection with the use or occupancy of the Premises or the conduct, of Sublessee's business therein or therefrom (other than due to the negligence or willful misconduct of Sublessor, its agents or employees).

Sublessor shall indemnify and hold Sublessee harmless from and against all claims or damage (including attorneys' fees) to person or property accruing in or about the Property and arising from the negligence or willful misconduct of Sublessor, its agents or employees.

Sublessor agrees to maintain, or have maintained, with insurance companies of recognized responsibility qualified to do business in the Commonwealth of Massachusetts, in full force during the term hereof a policy or blanket policy or policies (separately scheduled) of all risk fire and casualty insurance covering the Building and Premises (excluding Sublessee's personal property) for the full replacement value and Sublessor shall deliver to Sublessee certificates of such insurance along with a fully executed copy of this Sublease.

10. MAINTENANCE

A. SUBLESSEE'S OBLIGATIONS

The Sublessee agrees to maintain the Premises in good condition, damage, by fire and other casualty only excepted, and whenever necessary, to replace plate glass and other glass therein, acknowledging that, except for Sublessor's obligations to be performed pursuant to Section 3 above, the Premises are now in good order and the glass whole. The Sublessee shall not permit the Premises to be overloaded, damaged, stripped, or defaced, nor suffer any waste. Sublessee shall

obtain written consent of Sublessor before erecting any sign on the Premises, and shall remove said sign at the expiration or earlier termination of this Sublease. Sublessee shall be responsible for maintaining, and upgrading if necessary, the Uninterruptible Power Supply (defined as a power protection system, manufactured by Liebert Corporation, through which the electric current for the computer system flows. This system is designed to eliminate power surges and short term power outages until the emergency generator can provide adequate power.) and generator system for computer room, at Sublessee's expense.

B. SUBLESSOR'S OBLIGATIONS

The Sublessor agrees at its sole cost to maintain the structure of the Building and all common areas, operating, electrical, plumbing and mechanical systems, except for the Uninterruptible Power Supply and generator system for the computer room which shall be Sublessee's sole responsibility, and the elevators in good operating condition and repair and in compliance with all applicable laws, reasonable wear and tear, damage by fire and other casualty only excepted, unless such maintenance is required by the Sublessee pursuant to this Sublease. Sublessor shall clean and maintain the common areas of the Building and the lobby in good condition and repair and shall keep all walkways and driveways reasonably clear of snow and ice. Sublessor shall maintain security and guard service at the same level of service as is provided to Sublessor at no additional cost to Sublessee. Sublessor shall provide nightly janitorial service to the Premises at the same level of service as is provided to Sublessor and in any event (i) bathrooms shall be cleaned nightly, (ii) carpets in the Premises shall be vacuumed weekly, (iii) trash removed nightly from the Premises and hallways and (iv) common areas of the Building shall be vacuumed nightly and (v) spot cleaning and internal window washing shall be provided as needed. Sublessor shall perform all obligations required of it under the Master Lease other than those obligations with respect to the Premises to be performed by Sublessee pursuant to the terms hereof. Sublessor shall not voluntarily amend, modify or cancel the Master Lease in any manner so as to adversely affect Sublessee's use and enjoyment of the Premises during the term of this Sublease. Sublessor warrants and represents to Sublessee that the Master Lease is in full force and effect and constitutes the entire agreement between Landlord and Sublessor and has not been modified except as noted above and there is no default by Sublessor thereunder.

11. ALTERATIONS, ADDITIONS

The Sublessee shall not make structural alterations or additions to Premises, but may make non-structural alterations provided the Sublessor consents thereto in writing, which consent shall not be unreasonably withheld or delayed. All such allowed alterations shall be at Sublessee's expense and shall be in quality at least equal to the present construction. Sublessee shall not permit any mechanics' liens, or similar liens, to remain upon the Premises for labor furnished to Sublessee or claimed to have been furnished to Sublessee in connection with work of any character performed or claimed to have been performed at the direction of Sublessee and shall cause any such lien to be released of record forthwith without cost to Sublessor. Any alterations or improvements made by the Sublessee shall become the property of the Sublessor at the termination of occupancy as provided herein. Sublessee, as a condition for receiving Sublessor's approval herein, may be required to remove said improvements or alterations at the expiration or earlier termination hereof.

Sublessor consents to the improvements to be performed by Sublessee as more particularly described in Attachment B hereto. Sublessee may make minor alterations (which shall be deemed to consist of those nonstructural alterations costing less than $10,000 in aggregate for each calendar year) without the consent of Sublessor. In addition, Sublessee, at its own expense, shall be permitted to place interior signage in the lobby of the Building, on the doors leading to the lobby of the Building and on floors in the Building in which the Premises are contained, and two "tombstones" at the Building entrances, front and rear, subject to the consent of Landlord and the consent of Sublessor, such consent not to be unreasonably withheld or delayed, provided said tombstones shall meet all code requirements.

12. ASSIGNMENT, SUBLEASING

The Sublessee shall not assign or sublet the whole or any part of the Premises without Sublessor's and Master Sublessor's prior written consents. Sublessor agrees not to unreasonably withhold its consent to such Sublease. Notwithstanding such consents, Sublessee shall remain liable to Sublessor for the payment of all rent and for the full performance of the covenants and conditions of this Sublease.

13. SUBORDINATION

This Sublease shall be subject and subordinate to any and all mortgages, deeds of trust and other instruments in the nature of a mortgage, now or at any time hereafter, a lien or liens on the property of which the Premises are a part and the Sublessee shall, when requested, promptly execute and deliver such written instruments as shall be necessary to show the subordination of this lease to said mortgages, deeds of trust, or other such instruments in the nature of a mortgage. Failure of Sublessee to execute said documents within five (5) business days shall constitute default hereunder and shall establish conclusively that this Sublease is subordinate to said instrument, that Sublessor is not in default hereunder, and that Subtenant has not paid more than one month's rent in advance. With respect to any such mortgage, deed of trust or other instrument, Sublessee's obligations to subordinate shall be conditioned upon the holder of such mortgage, deed of trust or other instrument executing and delivering to Sublessee a nondisturbance and attornment agreement in form and substance reasonably satisfactory to Sublessee and such holder.

14. SUBLESSOR'S ACCESS

The Sublessor or agents of the Sublessor may, at reasonable times and in case of emergency, enter to view the Premises and may remove placards and signs not approved and affixed as herein provided, and make repairs and alterations as Sublessor should elect to do and may show the Premises to others, and at any time within three (3) months before the expiration of the Term, may affix to any suitable part of the Premises a notice for letting or selling Premises or Building and keep the same so affixed without hindrance or molestation.

15. INDEMNIFICATIONS AND LIABILITY

The Sublessee shall save the Sublessor harmless from all loss and damage occasioned by the use or escape of water or by the bursting of pipes, as well as from any claim or damage resulting from neglect in not removing snow and ice from the roof or the building or from the sidewalks bordering upon the Premises so leased, or by any nuisance made or suffered on the Premises, unless such loss is caused by the neglect of the Sublessor, its agents or employees. The removal of snow and ice from the sidewalks and parking areas bordering upon the Premises shall be Sublessor's responsibility.

16. FIRE, CASUALTY, EMINENT DOMAIN

Should a substantial portion of the Premises, or of the Building, be substantially damaged by fire, or other casualty, or be taken by eminent domain and Sublessor is not reasonably able to restore such property within six (6) months, then Sublessor may elect to terminate this lease by written notice to Sublessee given within Sixty (60) days of such casualty or taking. When such fire, casualty, or taking renders the Premises substantially unsuitable for their intended use, a just and proportionate abatement of rent shall be made, and the Sublessee may elect to terminate this lease if:

A. the Sublessor fails to give written notice within sixty (60) days of intention to restore the Building and the Premises; or

B. the Sublessor fails to restore the Building and Premises to a condition substantially suitable for their intended use within eight (8) months after said fire, casualty, or taking.

The Sublessor reserves, and the Sublessee grants to the Sublessor, all rights and compensation which the Sublessee may have or receive for damages or injury to the Premises for any taking by eminent domain, except for damage to the Sublessee's fixtures, personal property, or equipment. Notwithstanding the above, Sublessee shall have the right to pursue compensation for damages suffered as a result of any eminent domain action.

17. DEFAULT AND BANKRUPTCY

In the event that:

A. the Sublessee shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for five (5) days after written notice thereof; or

B. the Sublessee shall default in the observance or performance of any other of the Sublessee's covenants, agreements, or obligations hereunder and such default shall not be corrected within thirty (30) days after written. notice or such longer period as may be reasonably .necessary to cure such default, provided that Sublessee commences to cure such default within thirty
(30) days after written notice and diligently prosecutes such default to completion; or

C. the Sublessee shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of Sublessee's property for the benefit of creditors,

then the Sublessor shall have the right thereafter, while such default continues, to re-enter and take complete possession of the Premises, to declare the Term ended, and remove the Sublessee's effects without prejudice to any remedies which might be otherwise used for arrears of rent or other default. The Sublessee shall indemnify the Sublessor against all loss of rent and other payments which the Sublessor may incur by reason of such termination during. the residue of the term. If the Sublessee shall default, after reasonable notice thereof, in the observance or performance of any conditions or covenants on Sublessee's part to be observed or performed under or by virtue of any of the provisions in any article of this Sublease, the Sublessor, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of the Sublessee. If the Sublessor makes any expenditures or incurs any obligations for the payment of money in connection therewith, including but not limited to, reasonable attorney's fees in instituting, prosecuting, or defending any action or proceeding, such sums paid or obligations incurred, with interest at the rate of eight percent (8%) per annum and costs, shall be paid to the Sublessor by the Sublessee as additional rent.

18. RIGHT TO RELOCATE

The Sublessor shall have no right to relocate Sublessee at any time during the Term, unless Sublessee agrees to relocation in advance.

19. PARKING

Sublessor will provide Sublessee with reasonable access to parking spaces in the parking area adjacent to the Building and shall maintain, repair and light such parking area and be responsible for the removal of snow and ice from such parking area in keeping with the Master Lease, and at no cost to Sublessee. Sublessor shall designate for Sublessee's exclusive use one handicapped parking space next to the handicapped elevator in the Building.

20. CAFETERIA, CONFERENCE CENTER

During the Term, Sublessor shall provide Sublessee reasonable access to and use of Sublessor's cafeteria facilities and services during Sublessor's normal hours of operation. Sublessor shall permit Sublessee to use Sublessor's conference center, including all audio/visual equipment located in the conference center, at a cost of $1,000 per day subject to availability.

21. NOTICE

Any notice from the Sublessor to the Sublessee relating to the Premises or this Sublease shall be deemed duly served if mailed to the Sublessee at the Premises, registered or certified mail, return receipt requested, postage prepaid, addressed to the Sublessee with a copy of such notice being sent

to Goodwin Procter LLP, Exchange Place, Boston, MA 02109; attn Michael H. Glazer, P.C. Any notice from the Sublessee to the Sublessor relating to the Premises or this Sublease shall be deemed duly served, if mailed to the Sublessor by registered or certified mail, return receipt requested, postage prepaid, addressed to the Sublessor at the address below or such address as the Sublessor may from time to time advise in writing. All rent and notices shall be paid and sent to the Sublessor at One High Street, North Andover, Massachusetts 01845, unless and until Sublessor notifies Sublessee to the contrary.

22. SURRENDER

The Sublessee shall at the expiration or other termination of this Sublease remove all Sublessee's goods and effects from the Premises (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by the Sublessee or on Sublessee's behalf, either inside or outside the Premises). Sublessee shall deliver to the Sublessor the Premises and all keys, locks thereto, and other fixtures connected therewith and all alterations and additions made to or upon the Premises (unless removal is required as a condition of Sublessor's consent), in good condition, reasonable wear and tear and damage by fire or other casualty only excepted. In the event of the Sublessee's failure to remove any of Sublessee's property from the Premises, Sublessor is hereby authorized, without liability to Sublessee for loss or damage thereto, and at the sole risk of Sublessee, to remove and store any of the property at Sublessee's expense, or to retain same under Sublessor's control or to sell at public or private sale, without notice any or all of the property not so removed and to apply the net proceeds of such sale to the payment of any sum due hereunder, or to destroy such property.

23. QUIET ENJOYMENT

Sublessor covenants that Sublessee, on paying the rent and performing its obligations under this lease, shall peacefully and quietly have, hold, and enjoy the Premises, free from disturbance by Sublessor and anyone claiming by, through, or under Sublessor, subject to this Sublease and the provisions of law and rights of record to which this Sublease may become subordinate pursuant to the terms hereof.

24. WAIVER OF SUBROGATION

Sublessor and Sublessee will each use its best efforts to cause all policies of fire; extended coverage, and other physical damage insurance covering the Premises, the Building, and any property therein to contain the insurers' waiver of subrogation and consent to pre-loss rights over by the insured. Notwithstanding any provisions of this Sublease to contrary, Sublessor and Sublessee respectively waive all claims and rights to recover against the other for injury or loss due to hazards covered by insurance containing said clause or endorsement to the extent of the injury or loss covered thereby.

If such provision or waiver is not obtainable without the payment of an additional premium, the party hereto and the party giving such notice shall be relieved of its obligation to obtain or

continue such provision or waiver in its policy or policies unless, in the case in which the same is obtainable upon payment of an additional premium, the other party pays such additional premium.

25. BROKERAGE

Sublessor and Sublessee represent and warrant that they have dealt with no other broker than The Codman Company representing Sublessor and Sam Oddo Inc. representing Sublessee in connection with this transaction and that no other broker, agent, or other person has brought about this transaction. Sublessor and Sublessee indemnify and hold each other harmless from the claims of other broker, agent, or person claiming any form of compensation by virtue of this transaction. Sublessor shall pay a brokerage commission in accordance with the Brokerage Agreement between Sublessor and The Codman Company. Payment of a brokerage commission to Sam Oddo Inc. shall be the responsibility of The Codman Company s and not the responsibility of Sublessor or Sublessee.

IN WITNESS WHEREOF, the said parties hereunto set their hands and seals this __th day of July, 2001.

/s/ Marsden S. Cason                      /s/ Signature illegible
------------------------------------      -------------------------------------
               SUBLESSEE                                  SUBLESSOR


                                          /s/ Robert W. Bell
------------------------------------      -------------------------------------
               SUBLESSEE                                  SUBLESSOR

August 13, 2001

Schneider Automation Inc.                 Converse Inc.
One High Street                           One Fordham Road
North Andover, Massachusetts 01845        North Reading, MA 01864


Re:   Property:               North Andover Mills, High Street, North Andover,
                              Massachusetts

      Landlord:               North Andover High Street Limited Partnership;
                              successor in title to NAM Partners Limited
                              Partnership

      Prime Tenant:           Schneider Automation Inc.

      Prime Lease:            "Lease" between North Andover Mills Realty Limited
                              Partnership and Gould, Inc., dated August 28,
                                1986, as. amended

      Sublet Premises:        The entirety of the third (3rd), fourth (4th) and
                              fifth (5th) floors of Building 14 of the Property,
                              consisting of approximately 65,800 square feet, as
                              more particularly_ shown in the Sublease.

      Subtenant:              Converse, Inc.

      Date of Sublease:       As of July 27, 2001

Gentlemen:

Pursuant to terms of the Prime Lease, you have asked for Landlord's consent to the Sublease, a true, complete and correct copy of which is annexed hereto as Exhibit A and made a part hereof.

This document (the "Consent") evidences Landlord's consent to the Sublease upon the following express terms and conditions:

1. The Sublease is and continues to be subject and subordinate to the Prime Lease and to all of the terms, covenants, conditions, provisions and agreements in the Prime Lease and in this Consent.

2. Neither the Sublease nor this Consent shall: .

(a) release or discharge the Prime Tenant from any liability, whether present or future, under the Prime Lease;

(b) operate as a consent or approval by Landlord to any of the particular terms, covenants, conditions, provisions or agreements of the Sublease and Landlord shall not be bound thereby;

(c) be construed to modify, waive or affect any of the terms, covens, conditions, provisions or agreements of the Prime Lease, or to waive any breach thereof, or any of the rights of Landlord thereunder, or to enlarge or increase Landlord's obligations or Prime Tenant's rights thereunder; or

(d) be construed as a consent by Landlord to any further subletting either by Prime Tenant or by Subtenant or to any assignment by Prime Tenant of the Prime Lease or assignment by the Subtenant of the Sublease, whether or not the Sublease purports to permit the same and, without limiting the generality of the foregoing, both Prime Tenant and Subtenant agree that the Subtenant has no right, without having caused Prime Tenant to obtain the prior written consent of the Landlord, to assign, mortgage or encumber the Sublease nor to sublet any portion of the Sublet Premises nor to permit any portion of the Sublet Premises to be used or occupied by any other party.

3. In the event of Prime Tenant's continued default beyond any applicable notice and/or cure periods under the provisions: of the Prime Lease, the rent due from the Subtenant under the Sublease shall be deemed assigned to Landlord and Landlord shall have the right at any time thereafter to give notice of such assignment to the Subtenant. Landlord shall credit Prime Tenant with any rent received by Landlord under such assignment, but the acceptance of any payment on account of rent from the Subtenant as the result of any such default shall in no manner whatsoever be deemed an attornment by the Subtenant to Landlord in the absence of a specific written agreement signed by Landlord to such effect, or serve to release Prime Tenant from any liability under the terms, covenants, conditions, provisions or agreements of the Prime Lease.

4. Any breach or violation of any provision of the Prime Lease by Subtenant shall be deemed to be and shall constitute a default by Prime Tenant under the Prime Lease.

5. Prime Tenant and Subtenant agree and acknowledge that Landlord's consent herein is not an assignment or partial assignment of the Prime Lease, and thus does not create any privity of contract relative to the Prime Lease. This Consent shall not create nor be deemed to be the basis of creating any covenant, representation or warranty, express or implied (including, without limitation, any covenant of quiet enjoyment), on the part of Landlord with respect to the terms of the Sublease, Subtenant's use and enjoyment of the Sublet Premises, or any other matter arising out of or in

connection with the Sublease. Notwithstanding any provisions of the Sublease to the contrary, Subtenant shall have no right to enforce any of Prime Tenant's rights under the Prime Lease against the Landlord, all of such rights being personal to the Prime Tenant.

6. The term of the Sublease shall expire and come to an end on the earliest of (i) its natural expiration date, (ii) any earlier termination date,
(iii) the natural expiration date of the Prime Lease, or (iv) any earlier termination of the Prime Lease for any reason whatsoever (including, without limitation, any termination by mutual consent or other right, now or hereafter agreed to by Landlord or Prime Tenant, or by operation of law or at Landlord's option in the event of a default by Prime Tenant). Upon the expiration or any earlier termination of the term of the Sublease, Subtenant shall vacate the Sublet Premises on or before such date, provided, however, that if the Prime Lease shall expire or terminate during the term of the Sublease, Landlord, in its sole discretion (upon written notice given to Prime Tenant and Subtenant not later than the effective date of such expiration or termination and without any additional further agreement of any kind on the part of the Subtenant), may elect to continue the Sublease with the same force and effect as if Landlord as lessor and Subtenant as tenant had entered into a lease as of such effective date for a term equal to the then unexpired term of the Sublease and containing the same terms and conditions as those contained in the Sublease. In such event, Subtenant shall attorn to Landlord, and Landlord and Subtenant shall have the same rights, obligations and remedies thereunder as were had by Prime Tenant and Subtenant thereunder prior to such effective date, respectively, except that in no event shall Landlord be (a) liable for any act or omission by Prime Tenant,
(b) subject to any offsets or defenses which Subtenant had or might have against Prime Tenant, (c) bound by any rent or additional rent or other payment paid. by Subtenant to Prime Tenant in advance, or (d) bound by any amendment or modification to the Sublease not consented to by Landlord. In the event of the failure of Subtenant to vacate the Sublet Premises at the end of the term of the Prime Lease (if Landlord declines to elect to continue the Sublease) or at the end of the Sublease term (if Landlord elects to continue the Sublease), Landlord shall be entitled to exercise, as against Subtenant, all the rights and remedies available to a landlord against a tenant holding over after the expiration of a term, including, without limitation, the rights and remedies available to Landlord under the Prime Lease against Prime Tenant for holding over after the expiration or earlier termination of the term of the Prime Lease.

7. Both Prime Tenant and Subtenant shall be and continue to be jointly and severally liable for all invoices rendered by Landlord for charges incurred by or imposed upon Subtenant for any services rendered and materials supplied to the Sublet Premises.

8. This Consent is not assignable, nor shall this Consent be deemed a consent to any amendment or modification of the Sublease without Landlord's prior written consent.

9. Prime Tenant and Subtenant covenant and agree that under no circumstances shall Landlord be liable for any brokerage commission or other charge or expense in connection with the Sublease, and Prime Tenant and Subtenant agree to indemnify Landlord against same and against any cost or expense (including but not limited to attorneys' fees) incurred by Landlord in connection with any claim for any such brokerage commission.

10. Subtenant agrees, at its expense, to maintain at all times during its occupancy of the Sublet Premises or any other space in the Building, the insurance policies required to be maintained by Prime Tenant pursuant to the terms of the Prime Lease. All such policies shall name Landlord, North Andover High Street II, LLC and any property manager designated by Landlord as additional insureds, and shall contain clauses which provide that such insurance shall not be cancelled or not renewed by the provider thereof without thirty
(30) days prior written notice to Landlord of such cancellation or non-renewal. Subtenant shall, prior to the commencement of the term of the Sublease, and within ten (10) days after request therefor by Landlord, deliver to Landlord certificates evidencing said insurance.

11. Subtenant and Prime Tenant each acknowledge that applicable laws prohibit multiple tenants or occupants of the individual floors comprising the Sublet Premises, as the same is presently constructed. Subtenant and Prime Tenant therefore agree that so long as Subtenant occupies any portion of the Sublet Premises, Prime Tenant shall have no right to occupy any portion of the Sublet Premises without Landlord's prior consent, with the effect that there shall be only one (1) occupant of each individual floor comprising the Sublet Premises at all times. Landlord shall not unreasonably withhold its consent to the occupancy of the Sublet Premises by multiple tenants (and Landlord shall grant its consent to Prime Tenant's occupancy) provided (in each case) appropriate improvements are hereafter constructed to Landlord's reasonable satisfaction and in any event in such a manner so that multiple tenants may occupy any such floor in compliance with all applicable law relating thereto.

12. Subtenant and Prime Tenant shall be permitted to perform any alterations to the Sublet Premises permitted under the terms of the Prime Lease, provided the cost and expense of the same shall be borne entirely by such parties and shall result in no cost to Landlord, and the performance of such alterations shall in any event be and remain expressly subject to full compliance with all applicable state, federal and local laws, regulations and ordinances, as well as each and every term of the Prime Lease, including, without limitation, Article 13 thereof. Notwithstanding the foregoing, Prime Tenant and Subtenant expressly agree that in no event shall any partition, demising wall or any other alteration to the Sublet Premises designed to partition any portion of the Sublet Premises into space to be occupied by multiple occupants (including Prime Tenant) be performed without Landlord's prior consent (which consent shall not be unreasonably withheld and provided such alterations are in full compliance with all applicable law). Without limiting the foregoing, Landlord hereby consents to the performance of the work shown in the permit set of plans dated as of July 27, 2001 prepared by Siemasko
+ Verbridge Inc. Architectural and Interior Design Firm and submitted to Landlord. The following drawings have been reviewed and approved for construction: Drawings dated July 27, 2001, T1, D1, D2, D3, and Al through A9.

13. Landlord's consent herein shall not constitute an agreement, representation, warranty or verification that the Sublease is in compliance with the Prime Lease or that the Sublet Premises are fit for Subtenant's purposes.

14. Prime Tenant and Subtenant represent and warrant to Landlord that no compensation or consideration of any kind other than as expressly set forth in the Sublease or this Consent has been, or will be, paid by Subtenant to Prime Tenant in connection with the Sublease.

15. Notwithstanding any provisions of the Sublease to the contrary, Landlord shall have no obligation to deliver any notices or copies of notices to Subtenant, and no obligation to accept, consider or respond to any request, inquiry, demand or other communication from Subtenant, whether of a type described in the Prime Lease, the Sublease or otherwise.

16. Except as between Subtenant and Prime Tenant, in the event of any conflict between the terms and provisions of the Prime Lease and the terms and provisions of the Sublease, the terms and provisions of the Prime Lease shall control, unaffected by the Sublease. In the event of any conflict between the terms and provisions of this Consent and the Sublease, the terms and provisions of this Consent shall control.

17. Without implied waiver of any of Landlord's rights under the Lease or this Consent, Prime Tenant and Subtenant agree that Landlord shall be entitled to withhold its consent to any future assignment or sublease of all or any portion of the Prime Tenant's Demised Premises, in Landlord's sole discretion and without any liability to Prime Tenant, in the event that such proposed assignment or sublease (a) is to a party which, during the term of this Lease, is, was ever, or has previously negotiated with Landlord to be, a tenant (or a sublessee, successor or assignee of such a tenant) of Landlord (or an affiliate of Landlord), at the Property, or (b) does not provide for the construction of improvements (at no expense to Landlord) to partition via interior walls, doors and other improvements to Landlord's reasonable satisfaction and in any event in compliance with all applicable law) any partial floor of the Demised Premises to be demised thereunder from the remainder of the Demised Premises (including any portion of the Demised Premises previously sublet or transferred). In such an event, such demising improvements shall be considered a cost directly incurred in connection with such sublease or transfer.

18. Prime Tenant acknowledges and agrees that Prime Tenant shall pay to Landlord upon demand all reasonable attorney's fees and expenses incurred by Landlord in connection with the Sublease and this Consent. Prime Tenant shall also pay to Landlord, in advance and on a monthly basis, an amount (the "Sublease Profit") equal to fifty percent (50%) of the amount by which the monthly rent payable by Subtenant under the Sublease exceeds the sum of (a) Prime Tenant's monthly payments of Fixed Rent and Tenant's Percentage of Taxes and Expenses payable under the Prime Lease and allocable to the Sublet Premises and (b) all of Prime Tenant's out-of-pocket expenses directly incurred in connection with the Sublease, amortized monthly on a straight-line basis over the term of the Sublease. A spreadsheet detailing all of Prime Tenant's out of-pocket costs and the payments of Fixed Rent and Taxes and Expenses allocable to the Sublet Premises, in substantially the form of Exhibit B attached hereto, shall be tendered by Prime Tenant to Landlord within 90 days of the date of this Consent together with a full accounting of Prime Tenant's out-of-pocket expenses incurred in connection with the Sublease. Landlord shall have the right from time to time to review Prime Tenant's books and records and require Prime Tenant to substantiate its accountings with respect to such costs, and Landlord and Prime Tenant shall make adjustments to the Sublease Profit based on the actual amounts received and properly expended by Prime Tenant as a result of the Sublease. Prime Tenant further agrees that in no event shall Landlord be required to recognize and give due credit to Prime Tenant in the computation of Sublease Profit, whether for the Sublease or for any future sublease or assignment of any portion of Prime Tenant's Demised Premises, for any out-of-pocket costs of Prime Tenant other than those categories/line items listed on Exhibit B hereto.

19. Without waiving any rights or objections with respect to any future requests or Landlord's consent to any future sublease, Prime Tenant and Subtenant, by their signatures below, expressly acknowledge and agree that (i) the foregoing conditions and agreements provide a material inducement to Landlord's agreement to provide its consent to the Sublease, (ii) that Landlord has represented to Prime Tenant and Subtenant that it would not otherwise have provided such consent without Prime Tenant and Subtenant's collective agreement with the foregoing terms and conditions, and (iii) that Landlord would have been within its rights under the terms of the Lease to withhold such consent absent Prime Tenant and Subtenant's collective agreement with the foregoing terms and conditions.

20. This Consent shall be construed in accordance with the laws of the Commonwealth of Massachusetts, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, but only by a written agreement signed by the party against whom enforcement is sought.

All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Lease. The execution of a copy of this Consent by Prime Tenant and by Subtenant shall indicate the joint and several confirmation of the foregoing conditions and their agreement to be bound thereby and shall constitute their representation that the copy of the Sublease annexed hereto is true, complete and correct.

[continued on following page]

This consent shall be null and void unless a duly countersigned copy is returned to Landlord not later than seven (7) business days following the date first above written.

Very truly yours,

LANDLORD:                         North Andover High Street Limited Partnership

                                  By:  North Andover High Street II, L.L.C.,
                                       its general partner

                                       By:
                                           ------------------------------------
                                           Robert Mashaal, a member

CONFIRMED AND AGREED:

PRIME TENANT:                     SCHNEIDER AUTOMATION INC.,
                                  a Delaware corporation

                                  By:  /s/ Robert W. Bell
                                       ----------------------------------------
                                  Its: Corporate Secretary
                                       ----------------------------------------

                                  Date: 8/21/01
                                        ---------------------------------------


PRIME TENANT:                     CONVERSE INC.,
                                  a Delaware corporation

                                  By:  /s/ Marsden S. Cason
                                       ----------------------------------------
                                  Its:
                                       ----------------------------------------

                                  Date:
                                        ---------------------------------------

EXHIBIT 10.6

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1. BASIC PROVISIONS ("BASIC PROVISIONS").

1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, May ____, 2002, is made by and between PRINCIPAL LIFE INSURANCE COMPANY, an Iowa Corporation ("LESSOR") and CONVERSE INC., a Delaware corporation ("LESSEE"), (collectively the "PARTIES," or Individually a "PARTY").

1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as the Northeast corner of Etiwanda and Jurupa in the City of the City of Fontana (the "City"), located in the County of San Bernardino, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) approximately 250,430 square foot freestanding concrete and steel tilt-up industrial building located on approximately 13.4 acres of land
("PREMISES"). (See also Paragraph 2.)

Subject to Lessors obligations described in this Section 1.2 and in Section 2.2, below, Lessee is leasing the Premises in an AS-IS condition. Lessee has had the full opportunity to inspect and approve the condition of the Premises. Lessee acknowledges that there are no other improvements of any type which are not present in the Premises as they exist as of April 2, 2002 which are to be provided by Lessor, except for the completion of the (i) base building in accordance with the plans, specifications and working drawings approved for it by the City, and (ii) Tenant Improvements, as set forth below.

Subject to the limitations set forth herein, including, without limitation, those with respect to the Lessor's maximum contribution to the cost of certain items thereof, Lessor shall construct or cause to be constructed for Lessee certain improvements ("Tenant Improvements"). Except in the event that the cost of any items subject to maximum cost contributions, ("MCC's") are exceeded, in which event the Lessee shall bear such cost, Lessor shall pay the costs of the Tenant Improvements. The Tenant Improvements shall consist of the following:

1. Installation of a complete ESFR system prior to the Commencement Date, in accordance with plans and specifications prepared by Lessor's consultants, to include fully automatic wet pipe fire system, 75 psi, with all pumps, hydrants, alarms, emergency fire exits and other equipment required to provide a complete ESFR system in accordance with all applicable laws, rules and regulations.

2. Provided 1,200 AMP, 277/480 VAC, 3 phase, 4 wired electrical service to the Building, expandable, at Lessee's expense, to 2,000 amps in the future.

3. 350 watt pulse start HID lamps, providing 30 foot candle lighting in the warehouse area, and 40 foot candle lighting in the staging area. All lighting fixtures shall be equipped with 15 foot extension whips, and shall be the same as those in the 4450 Lowell Street Building (the "Original Building").

4. 6" diameter steel, concrete filled bollards at (i) all truck door locations,
(ii) 2 each at interior power panel, and sprinkler riser locations, (iii) 2 at interior and exterior of drive in door locations, and (iv) exterior pad mounted equipment, transformers, gas rises, and fire hydrants.

5. Construct 3,000 square feet of single story office space with standard commercial finishes and utility supply and outlet and fixture placement, with legally sufficient restrooms to accommodate fifty (50) employees. The maximum allowance for the office space, including all restrooms and ceiling, wall, and floor finishes shall be One Hundred Thirty Five Thousand Dollars ($135,000.00).

6. Provide protective guard rails for the entire length of the office walls adjacent to the warehouse areas.

7. Warehouse ceiling to be insulated with white foil type insulation with scrim reinforcing, on the underside of the roof sheathing, stapled to the joists, and ventilated to prevent condensation.

8. Powered and thermostat controlled roof ventilation to accommodate at least one air change per hour. Minimum of two percent (2%) of mechanically ventilated skylights to meet local fire codes for high-pile Class IV commodities with narrow aisle storage capabilities.

9. All interior walls and columns painted off-white. All columns painted yellow for the first ten (10) feet from the floor.

10. Lessor to provide a $2,500.00 allowance for signage, to be used in accordance with paragraph 34, below.

11. Asphalt paved parking for 104 cars.

12. Concrete paved, fenced and secured (on going security to be provided by Lessee) truck yards sufficient for parking approximately Seventy Two (72) truck trailers. Southern California Edison ("SCE") License Area, as defined below, shall be improved to same truck yard standards to the extent permissible under the governing document for such area. Said governing document is that certain License Agreement for SCE's Property No. PSETV643J22, dated January 9, 2002, between SCE as Licensor, and Lessor as Licensee, a copy of which is attached hereto as Exhibit A (the "License Agreement"). The SCE License Area shall be the area described in the License Agreement as the "Site".

13. One (1) 9' x 10' dock door equipped for electrical service to accommodate a trash compactor (by Lessee).

14. Twenty (20) of the fifty eight (58) dock high doors in the Building to be equipped with 35,000 pound mechanical load levers, seals, and dock lights. The Building also will have one (1) grade level door.

15. Twenty five (25) forklift battery charging stations, located adjacent to the electrical room, with required eyewash, ventilation and other equipment required for the stations to satisfy all applicable governmental laws, rules, and regulations.

Lessor and Lessee shall cooperate to finalize the plans, specifications and working drawings for the Tenant Improvements, which shall be consistent with the terms hereof. Upon mutual approval of the plans, specifications, and working drawings, the parties shall execute a copy of same, indicating their agreement to them. Lessee acknowledges that full cooperation and prompt responses and approvals are necessary in order for Lessor to be able to cause the completion of the Tenant Improvements in time for Lessee's preferred occupancy date. Accordingly, Lessee agrees that it shall have approved the plans, specifications and working drawings for the Tenant Improvement no later than May 8, 2002, and the failure to do so shall constitute a Lessee Delay for purposes of this Lease. The Tenant Improvements shall be constructed by a contractor or specialty contractors selected by Lessor (each, a "Contractor"), pursuant to arm's length contract(s) entered into with Lessor.

At the request of Lessee, Lessor and Lessee shall communicate on a weekly basis concerning the ongoing progress of the Tenant Improvements, including the estimated completion date.

As used herein, the Tenant Improvements shall be deemed to be substantially complete at such time as Lessor has completed the Tenant Improvements to the point where it is useable by Lessee, with all the Tenant Improvements in place, but subject to "punch list" items, i.e., items to completed, added, or modified but which do not unreasonably interfere with Lessee's use and enjoyment of the premises (See also Paragraph 3.)

As used herein, "Lessee Delay" shall mean any delay in the commencement or completion of the Tenant Improvements caused by Lessee, including, without limitation, Lessee's delay in approving any working drawings or plans and specifications with respect to which Lessee's approval, change orders resulting in delays, or interference by Lessee, or Its contractors, consultants, or fixture installers with the orderly progress of the construction of the Tenant Improvements.

Lessor shall have no obligation to contribute or advance any funds; or undertake any work or improvements except as provided expressly herein, and Lessee shall bear all other costs for all work, improvements, furniture, fixtures, and equipment. (see also Paragraph 2.)

1.3 TERM: Six years and one month ("ORIGINAL TERM") commencing September 1, 2002 ("COMMENCEMENT DATE") and ending September 30, 2008
("EXPIRATION DATE"). (See also Paragraph 3.)

1.4 EARLY POSSESSION: Subject to the limitations set forth below, the LESSEE SHALL BE ALLOWED TO ENTER THE PREMISES FOR THE PURPOSES OF INSTALLING ITS FIXTURES AND EQUIPMENT, provided that Lessee has then provided Lessor with copies of Certificates of Insurance, complying in all respects with the terms of this Lease, for all insurance required to be carried hereunder (the "Lessee Insurance Evidence"). Lessor shall make the Building available for Lessee's Early Possession upon the later to occur of (i) the providing to Lessor of Lessee's Insurance Evidence, the completion of mutual Lease execution, and the delivery to Lessor of all funds required to be delivered on or before Lease Commencement, including, without limitation, the Security Deposit as described in Paragraph 1.7, below, and the Base Rent to be paid upon execution, as described in Paragraph 1.6, below, and (ii) the completion of the building shell to the point where it is weather proof and lockable, which the parties acknowledge shall be no sooner than June 10, 2002. Lessee acknowledges that the ESFR system for the Building will not be completed upon the delivery to Lessee of the Building for such Early Possession, and that the earliest anticipated completion date for the ESFR is July 1, 2002. Lessee acknowledges that Lessor will be completing the shell Building and related improvements and constructing Lessee's Tenant Improvements during the period of Early Possession, and that accordingly the ability of Lessee to freely install its fixtures and equipment or otherwise use the Premises during this period will be limited by Lessor's activities in the Premises. Lessee agrees that in all events Lessor shall have priority over Lessee in construction or similar activities, that Lessee will follow all reasonable rules and regulations concerning its activities in and about the Premises during this period promulgated by Lessor, Its Contractor, or Property Manager: Due to the ongoing construction and other activities, Lessee hereby forever releases and discharges Lessor, its contractors, agents, employees, and managers from and against any and all claims of loss, damage or injury to persons or property, including, without limitation, its product inventory, which loss, damage or injury occurs, or is alleged to have occurred, during the period of Early Possession, except to the extent caused by Lessor's gross negligence or intentional malfeasance. Lessee acknowledges that Lessor does not guarantee or warrant the safety of the Premises, or its security during such period, as construction and other activities will be ongoing.

("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3.)

1.5 BASE RENT: $70,120.40 per month ("BASE RENT"), payable on the first day of each month commencing September 1, 2002, but subject to the adjustments and abatements described below. (See also Paragraph 4.)

[ ] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

The Rent for months 4 through 36 shall be $70,120.40 and Base Rent for months 37 through 73 shall be $75,129.00. Subject to the terms and conditions of this Lease, including without limitation paragraphs 1.4 and 13.3, Base Rent, real property taxes, insurance and other building or project expenses shall be abated for the first three (3) months of the Term. Such Rent and expense abatements shall be considered inducements within the meaning of paragraph 13.3 of this Lease.

As Additional Rent, Lessee shall also pay a Management Fee equal to One and One-half Percent (1-1/2%) of the Base Rent, payable monthly in advance with each payment of Base Rent. Lessee shall also pay to Lessor with each monthly installment of Base Rent all amounts due pursuant to the License Agreement. Lessor shall advise Lessee of any changes in such amounts reasonably in advance of their due date.

1.6 BASE RENT PAID UPON EXECUTION: $140,280.80 as Base Rent for the period December __,2002 and January 2003.

1.7 SECURITY DEPOSIT: $105,180.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5.)

1.8 AGREED USE: WAREHOUSING AND DISTRIBUTION OF FOOTWEAR, APPAREL, AND
RELATED ACCESSORIES. (See also Paragraph 6.)

1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated herein: (See also Paragraph 8.)

1.10 REAL ESTATE BROKERS: (See also Paragraph 15.)

(a) REPRESENTATION: The following real estate brokers (collectively, the "Brokers") and brokerage relationships exist in this transaction: (Check applicable boxes):

[x] Cushman & Wakefield represents Lessor exclusively ("LESSOR'S BROKER");

[x] CB Richard Ellis represents Lessee exclusively ("LESSEE'S BROKER"); or

[ ] none represents both Lessor and Lessee ("DUAL AGENCY").

(b) PAYMENT TO BROKERS: Lessor shall pay to the Broker the fee agreed to in their separate written agreement for the brokerage services rendered by the Broker), as and when set forth therein.

1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by none ("Guarantor"). (See also Paragraph 37.)

2. PREMISES.

2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less. During the term of this Lease, Lessee shall have the exclusive right to use 106 parking spaces which are on the property where the Building is located.

2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date, and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30) days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, landscape irrigation system and parking lot, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as other otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting froth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Commencement Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. Lessee shall notify Lessor of any claimed defect in the terms which are Lessor's responsibility under paragraph 7.2, below, as soon as practicable after Lessee discovers same, failing which Lessee shall be responsible for any damage caused by its failure to provide such notice to Lessor and thereby provide Lessor an opportunity to repair same.

2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises and the Tenant Improvements to be constructed by Lessor upon completion, comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE

REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by :Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), the Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance o the Rend due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon thirty (30) days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in quality of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.

2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use; (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises; and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

3. TERM.

3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are specified in Paragraph 1.3.

3.2 EARLY POSSESSION. Except as otherwise set forth herein, if Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the prior of such early possession. Except as otherwise set forth herein, all other terms of this Lease (including, but not limited to, the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall however, be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. IF, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefore, nor shall such failure affect the validity of their Lease.

3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee unless Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Ate, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4. RENT.

4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").

4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall

within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control or Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen
(14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6. USE.

6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturb owners and/or occupants of, or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use.

6.2 HAZARDOUS MATERIALS.

6.2.1 DEFINITIONS.

(a) "Hazardous Material" means any substance, whether solid, liquid or gaseous in nature:

(i) the presence of which requires investigation or remediation under any federal, state or local statute, regulation ordinance, order, action, policy or common law, or

(ii) which is or becomes defined as a "hazardous waste," "hazardous substance," pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et sect.) and or the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 8401 et seq.) the Toxic Substances Control Act, as amended (15 U.S.C.
Section 2601 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), as these law have been amended or supplemented; or

(iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous or is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of California or any political subdivision thereof, or

(iv) the presence of which on the Property causes or threatens to cause a nuisance upon the Property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Property; or

(v) the presence of which on adjacent properties could constitute a trespass by Lessee; or

(vi) without limitation which contains gasoline, diesel fuel or other petroleum hydrocarbons; or

(vii) without limitation which contains polychlorinated biphenyls, (PCBs), asbestos or urea formaldehyde foam insulation; or

(viii) without limitation with contains radon gas.

(b) "Environmental Requirements" means all applicable present and future:

(i) statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items (including, but not limited to those pertaining to reporting, licensing, permitting, investigations and remediation), of all Governmental Agencies; and

(ii) all applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation, all requirements pertaining to emissions, discharges, releases, or threatened cases of Hazardous Materials or chemical substances into the air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials or chemical substances.

(c) "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances, liens, costs, and expenses (including the expense of investigation and defense of any claim, whether or not such claim is ultimately defeated, or the amount of any good faith settlement or judgment arising from any such claim) of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable to unforeseeable (including without limitation reasonable attorneys' fees and disbursements and consultants' fees) any of which are incurred at any time as a result of the existence of Hazardous Material upon, about, or beneath the Property or migrating or threatening to migrate to or from the Property, or the existence of a violation of Environmental Requirements pertaining to the Property and the activities thereon, regardless of whether the existence of such Hazardous Material or the violation of Environmental Requirements arose prior to the present ownership or operation of the Property. Environmental Damages include, without limitation:

(i) damages for personal injury or injury to property or natural resources occurring upon or off of the Property, including, without limitation, lost profits, consequential damages, the cost of demolition and rebuilding of any improvements on real property, interest, penalties and damages arising from claims brought by or on behalf of employees of Lessee (with respect to which Lessee waives any right to raise as a defense against Lessor any immunity to which it may be entitled under any industrial or worker's compensation laws);

(ii) fees, costs or expenses incurred for the service of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of such Hazardous Materials or violation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration or monitoring work required by any Governmental Agency or reasonably necessary to make full economic use of the Property or any other property in a manner consistent with its current use or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing the provisions of this Lease or collecting any sums due hereunder;

(iii) Liability to any third person or Governmental Agency to indemnify such person or Governmental Agency for costs expensed in connection with the items referenced in subparagraph (ii) above; and

(iv) diminution in the fair market value of the Property, including, without limitation, any reduction in fair market rental value or life expectancy of the Property or the improvements located thereon or the restriction on the use of or adverse impact on the marketing of the Property or any portion thereof.

(d) "Governmental Agency" shall mean all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states, counties, cities and political subdivisions thereof.

(e) The "Lessee Group" means Lessee, Tenant's successors, assigns, guarantors, officers, directors, agents, employees, invitees, permittees, or other parties under the supervision or control of Lessee or entering the Property during the term of this Lease with the permission or knowledge of Lessee other than Lessor or its agents or employees.

6.2.2 PROHIBITIONS.

(a) Other than commercially reasonable quantities of general office supplies AND SUCH OTHER CHEMICALS AS IT REASONABLY DEEMS NECESSARY FOR THE CONDUCT OF ITS BUSINESS in THE PREMISES, and provided Lessee's use of same complies with all APPLICABLE REQUIREMENTS AND Environmental requirements and is incidental to Lessee's operation of its business, Lessee shall not cause, permit or suffer any Hazardous Material to be brought upon, treated, kept, stored, disposed of, discharged, released, produced, manufactured, generated, refined or sued upon, about or beneath the Property by the Lessee Group, without the prior written consent of Lessor. From time to time during the term of this Lease, Lessee may request Lessor's approval of Lessee's use of other Hazardous Materials, which approval may be withheld in Lessor's sole discretion. Lessee shall, prior to the Commencement Date, provide to Lessor all "community right to know" plans or disclosures and/or emergency response plans which Lessee is required to supply to local governmental agencies pursuant to any Environmental Requirements.

(b) Lessee shall not cause or permit the commission by the Lessee Group, of a violation of any Environmental Requirements upon, about or beneath the Property.

(c) Lessee shall neither create, cause to be created, allow nor permit the Lessee Group to create any lien, security interest or other charge or encumbrance of any kind with respect to the Property, including without limitation, any lien imposed pursuant to Section 107(f) of the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9607(1) or any similar statute.

(d) Lessee shall not install, operate or maintain any above or below grade tank, sump, pit, pond, lagoon or other storage or treatment vessel or device on the Property, without Lessor's prior written consent, which consent may be withheld in Lessor's sole discretion.

6.2.3 INDEMNITY.

(a) Lessee, its successors, assigns and guarantors, agree to indemnify, defend, reimburse and hold harmless:

(i) Lessor; and

(ii) any other person who acquires title to all or a portion of the Premises in any manner (including purchase at a foreclosure sale) or who becomes entitled to exercise the rights and remedies of Lessor under this Lease; and

(iii) the directors, officers, shareholders, employees, partners, agents, contractors, subcontractors, experts, licensees, affiliates, lessees, mortgagees, trustees, heirs, devisees, successors, assigns and invitees of such persons.

from and against any and all Environmental Damages which exist as a result of the activities and negligence of the Lessee Group during the Lessee's occupancy of the Property or which exist as a result of the breach of any warranty or covenant or the inaccuracy of any representation of Lessee contained in this Lease, or by Lessee's remediation of the Property or failure to meet its remediation obligations contained in this Lease.

(b) The obligations contained in this Section 6.2.3 shall include, but not be limited to, the burden and expense of defending all claims, suite and administrative proceedings, even if such claims, suits or proceedings are groundless, false or fraudulent, and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments, penalties, consequential damages or other sums due against such indemnified persons. Lessor, at it sole expense, may employ additional counsel of its choice to associate with Lessee's counsel.

(c) Lessor shall have the right, but not the obligation, to join and participate in, and control, if it so elects, any legal proceedings or actions initiated in connection with Lessee's activities. Lessor may also negotiate, defend, approve and appeal any action taken or issued by any applicable governmental authority with regard to contamination of the Property by a Hazardous Material.

(d) The obligations of Lessee under this paragraph shall not be affected by any investigation by or on behalf of Lessor, or by any information which Lessor may have or obtain with respect thereto.

6.2.4 OBLIGATION TO REMEDIATE.

In addition to the obligation of Lessee to indemnify Lessor pursuant to this Lease, Lessee shall, upon approval and demand of Lessor, at its sole cost and expense and using contractors approved by Lessor, promptly take all actions to remediate the Property which is required by any Governmental Agency, or which are reasonably necessary to mitigate Environmental Damager, or to allow full economic use of the Property, which remediation is necessitated from the presence upon, about or beneath the Property, at any time during or upon termination of this Lease, of a Hazardous Material or a violation of Environmental Requirements, existing as a result of the activities or negligence of the Lessee Group. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Property, the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, remediation, containment, operation, maintenance, monitoring or restoration work, whether on or off the Property, which shall be performed in a manner approved by Lessor. Lessee shall take all actions necessary to restore the Property to the condition existing prior to the introduction of Hazardous Material upon, about or beneath the Property, notwithstanding any lesser standard of remediation allowable under applicable law or governmental policies.

6.2.5 RIGHT TO INSPECT.

Lessor shall have the right in its sole and absolute discretion, but not the duty, to enter and conduct an inspection of the Property, including invasive tests, at any reasonable time to determine whether Lessee is complying with the terms of the Lease, including but not limited to the compliance of the Property and the activities thereon with Environmental Requirements and the existence of Environmental Damages as a result of the condition of the Property or surrounding properties and activities thereon. Lessor shall have the right, but not the duty, to retain any independent professional consultant (the "CONSULTANT") to enter the Property to conduct such an inspection or to review any report prepared by or for Lessee concerning such compliance. The cost of the Consultant shall be paid by Landlord unless such investigation discloses a violation of any Environmental Requirement by the Lessee Group or the existence of a Lessor Hazardous Material on the Property or any other property caused by the activities or negligence of the Lessee Group (other than Hazardous Materials used in compliance with all Environmental Requirements and previously approved by Lessor), in which case Lessee shall pay the cost of the Consultant. Lessee hereby grants to Lessor, and the agents, employees, consultants and contractors of Lessor the right to enter the Property and to perform such tests on the Property as are reasonably necessary to conduct such reviews and investigations. Lessor shall use its best efforts to minimize interference with the business of Lessee.

6.2.6 NOTIFICATION.

If Lessee shall become aware of or receive notice or other communication concerning any actual, alleged, suspected or threatened violation of Environmental Requirements, or liability of Lessee for Environmental Damages in connection with the Property or past or present activities of any person thereon, including, but not limited to, notice or other communication concerning any

actual or threatened Investigation, inquiry, lawsuit, claim, citation, directive, summons, proceeding, complaint, notice, order, writ, or injunction, relating to same, then Lessee shall deliver to Lessor within ten (10) days of the receipt of such notice or communication by Lessee, a written description of said violation, liability, or actual or threatened event or condition, together with copies of any documents evidencing same. Receipt of ouch notice shall not be deemed to create any obligation on the part of Lessor to defend or otherwise respond to any such notification.

If requested by Lessor, Lessee shall disclose to Lessor the names and amounts of all Hazardous Materials, other than general office supplies referred to in Section 6.2 of this Lease, which were used, generated , treated, handled, stored or disposed of on the property or which Lessee intends to use, generate, treat, handle, store or dispose of on the Property. The foregoing in no way shall limit the necessity for Lessee obtaining Lessor's consent pursuant to
Section 6.2 of this Lease.

6.2.7 SURRENDER OF PREMISES.

In the ninety (90) days prior to the expiration or termination of the Lease Term, and for up to ninety (90) days after Lessee fully surrenders possession of the Property, Lessor may have an environmental assessment of the Property performed in accordance with Section 6.2 of this Lease. Lessee shall perform, at its sole cost and expense, any cleanup or remedial work recommended by the Consultant which Is necessary to remove, mitigate or remediate any Hazardous Materials and/or contaminations of the Property caused by the activities or negligence of the Lessee Group.

6.2.8 ASSIGNMENT AND SUBLETTING.

In the event the Lease provides that Lessee may assign the Lease or sublet the Property subject to Lessor's consent and/or certain other conditions, and if the proposed assignee's or sublessee's activities in or about the Property involve the use, handling, storage or disposal of any Hazardous Materials other than those used by Lessee and in quantities and processes similar to Lessee's uses in compliance with the Lease, (i) it shall be reasonable for Lessor to withhold its consent to such assignment or sublease in light of the risk of contamination posed by such activities and/or (ii) Lessor may impose an additional condition to such assignment or sublease which requires Lessee to reasonably establish that such assignee's or sublessee's activities pose no materially greater risk of contamination to the Property than do Lessee's permitted activities in view of the (a) quantities, toxicity and other properties of the Hazardous Materials to be used by such assignee or sublessee,
(b) the precautions against a release of Hazardous Materials such assignee or sublessee agrees to implement, (c) such assignee's or sublessee's financial condition as it relates to its ability to fund a major cleanup and (d) such assignee's or sublessee's policy and historical record respecting its willingness to respond to the clean up of a release of Hazardous Materials. Lessor shall also have its approval rights as set forth in Section 12.

6.2.9 SURVIVAL OF HAZARDOUS MATERIALS OBLIGATION.

Lessee's breach of any of its covenants or obligations under this Lease shall constitute a material default under the Lease. The obligations of Lessee under this Paragraph 6.2 shall survive the expiration or earlier termination of the Lease without any limitation, and shall constitute obligations that are independent and severable from Lessee's covenants and obligations to pay rent under the Lease.

6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, Including, without limitation, in Paragraph 2.3, above, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, and on reasonable notice (24 hours being reasonable in all events) for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority and was occasioned by Lessee's operations in the Premises, or a good faith belief that Lessee is not in compliance with all Applicable Requirements. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.

7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.

7.1 LESSEE'S OBLIGATIONS.

(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), ceilings, roof membrane and surface, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, sign, sidewalks and parkways located in, or on, the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals

when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition, consistent with the present condition of the Building, and the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the removal of graffiti or similar defacement of the exterior of the Building.

(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor.

(c) REPLACEMENT. Subject to Lessee's Indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator f which is one, and the denominator of which is the number of months of the useful life of such replacement as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor's accountants), with Lessee reserving the right to prepay its obligation at any time.

7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are Intended to be that of the Lessee. It is the Intention of the Panties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. Notwithstanding anything to the contrary herein, Lessor, at its sole cost and expense, shall be responsible for the repair of any and all structural defects, floor slab and foundation defects, and latent structural defects in the Building during the original term of the Lease. Lessor shall also be responsible for, and keep in good order, maintenance and repair, including restoration, replacement and renewal, the structural elements of the roof.

7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion.
LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are no yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the Interior of the Premises (excluding the. roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during any twelve month period during the Term of this Lease as extended does not exceed $50,000 in the aggregate.

(b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations she be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.

(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furor shed to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered here before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, Indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.

7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

(a) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7A(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations the approval of which by Lessor was conditioned upon their removal at the time the approval was granted, be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender/Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear and casualty damage for which Lessee has no responsibility under the terms of this Lease excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. Notwithstanding anything else herein to the contrary, "ordinary wear and tear" shall not include any condition which results in, or the fact of, failure of any building system (including, without limitation, the HVAC, plumbing, electrical, load levelers, and similar items) to operate effectively for the purpose for which it was intended. Lessee fully understands that its surrender obligations shall be performed on or prior to he Expiration Date or earlier termination of the Lease. In the event that the Premises are left in a condition at such time which does not comply with the terms and conditions hereof, Lessor shall be entitled to treat Lessee as a holdover tenant, on

a day to day basis, with Base Rent and all Rent and Expenses charged in accordance with paragraph 26 hereof. During such holdover period Lessor shall have the right, but not the obligation, to enter into the Premises, without notice to Lessee, and without terminating Lessee's holdover status, for the purpose of assessing the condition of the Premises, and undertaking the clean up and restoration of same as required to bring the Premises into compliance with the terms of this paragraph 7. Lessee shall pay and be responsible for (either from the Security Deposit, or otherwise as Lessor elects) the cost of such clean up and restoration, which Lessor shall perform, or cause to be performed, pursuant to an arms length agreement with the appropriate consultants and contractors and laborers. In the event that Lessee's Security Deposit is inadequate to pay for such costs, Lessee shall pay same to Lessor within five
(5) days of the date of the invoice for same provided to Lessee. Lessor shall also have the right, but not the obligation, to remove any personal property, inventory, machinery, or other items left on the Premises by Lessee following the Expiration Date or earlier termination of the Lease, and to store same, as Lessee's expense, or dispose of same, in accordance with Lessor's rights under law, and Lessor may charge the cost of same against any remaining Security Deposit, or invoice same to Lessee, who shall pay such costs within five (5) days of the date of such invoice.

8. INSURANCE; INDEMNITY.

8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an Invoice.

8.2 LIABILITY INSURANCE.

(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily Injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an 'Insured contract' for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar Insurance carried by Lessor, whose insurance shall be considered excess insurance only. All policies required to be maintained by Lessee shall name Lessor, its property manager, and any lender of Lessor's, as additional insureds. in addition, Lessee shall obtain and keep in force during the term of the Lease, an "excess" or "umbrella" policy, in the amount of $5,000,000.00, which shall in all other respects conform to the requirements set forth herein for insurance to be carried by the Lessee, including, without limitation, those requirements concerning the named and additional insureds, the characteristics of the Insurer, and the providing of proof of coverage to Lessor.

(b) CARRIED BY LESSOR. Lessor may, but shall not be obligated to, maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional Insured therein.

8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be equal to ninety percent (90%) of the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be Insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct

physical loss or damage - including the perils of flood and/or earthquake if Lessor so desires , including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such Insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss..

(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said Insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12 month period. Lessee shall be liable for any deductible amount in the event of such loss.

(c) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.

8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.

(a) PROPERTY DAMAGE. Lessee shall obtain and maintain Insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such Insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense Insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.

8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the Insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to Its property arising out of or Incident to the perils required

to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles; applicable hereto. The Parties agree to have their respective property damage Insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the Insurance is not invalidated thereby.

8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or Indemnified.

8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of Income or profit therefrom.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the Improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition Involving the presence of, or contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.

9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect;

Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effects such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain full force and effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that to not an insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee falls to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished. If during such last six month period Lessee has already irrevocably exercised its Option to Extend, then the provisions of paragraphs 9.1 through 9.4 shall prevail without regard to the time at which the damage has occurred.

9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.

(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value Insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, or, having commenced, does not thereafter diligently pursue same to completion (subject to Lessee Delay and paragraph 50 of this Lease) Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease to on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice, and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) lays, this Lease shall continue in full force and effect. "COMMENCE" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 TERMINATION -ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor, and of Additional Rent or other sums owed by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. REAL PROPERTY TAXES.

10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income, excise, franchise or corporate, transfer attributable to Lessor, or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises.

10.2

(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. However, Lessor, in its sole and absolute discretion, may elect to pay such taxes directly, and then invoice Lessee for same. Lessee's shall reimburse Lessor for such amounts within ten
(10) business days of the date of same. Unless and until Lessor advises Lessee, in writing, to the contrary, Lessor shall initially pay all such taxes directly.

(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All monies paid to Lessor under this Paragraph may be intermingled with other monies of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, at the option of Lessor, be treated as an additional Security Deposit.

10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.

10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement.

10.5 RIGHT TO CONTEST. Lessee shall have the right to contest any Real Property Tax with the applicable taxing authority or authorities in accordance with all applicable tax contest procedures provided by law so long as (a) Lessee continues to; ay all Rent (including all Real Property Taxes then assessed) as required under this Lease, and (b) such Real Property Tax is being diligently contested in good faith. In the event that Lessee elects to contest any assessment of Real Property Taxes, Lessee shall first notify Lessor of any such intended contest and shall consult and coordinate with, and permit participation by Lessor and Lessor's legal counsel in connection with such contest, including any tax contests being concurrently contemplated, undertaken or advocated by Lessor. Any such contest by Lessee shall be conducted solely at Lessee's cost and expense. Lessor agrees to cooperate fully with Lessee in such contest, including executing any documents of authorization necessary in connection therewith.

11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered.

12. ASSIGNMENT AND SUBLETTING.

12.1 LESSOR'S CONSENT REQUIRED.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.

(b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose, except in the normal course of business if Lessee is a publicly traded company, and except in the course of a bona-fide public offering of stock, which complies in all respects with all Applicable Requirements.

(c) Except as provided in subparagraph (f), below, the involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition,

financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.

(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Notwithstanding anything in this Paragraph 12.1 to the contrary, Lessee may assign this Lease, or sublet the Premises or any portion thereof, without Lessor's consent (a "Permitted Transfer") to any parent, subsidiary, or affiliate corporation or other business entity which controls, is controlled by or is under common control with Lessee, or to any person or entity which acquires all the assets of Lessees business as a going concern,
(collectively, a "Permitted Transferee") provided that: (i) at least thirty (30) days prior to such assignment or sublease, or as soon thereafter as practicable, Lessee delivers to Lessor the financial statements and other financial and background information of the assignee or sublessee as is required for other transfers; (ii) if the transfer is an assignment, the assignee assumes, in full, the obligations of Lessee under this Lease (or if a sublease, the sublessee assumes, in full, the obligations of Lessee with respect to such portion as sublessee has subleased); (iii) the financial net worth of the assignees or sublessees as of the time of the proposed transfer is sufficient for such assignee or sublessee to fulfill its obligations pursuant to such assignment or sublease (and in considering same, Lessor shall have the right to consider the long term prospects for sustaining such ability to perform for the period of any extended term, if applicable); (iv) Lessee remains fully liable under this Lease; and (v) unless Lessor consents to same, the use of the Premises set forth herein remains unchanged.

12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease; (ii) release Lessee of any obligations hereunder; or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.

(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's

remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any. Lessee shall reimburse Lessor, as Additional Rent, for its actual, reasonable costs and expenses, including reasonable attorneys' fees, incurred in considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to b observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor may refuse to consent on any commercially reasonable grounds, including, without limitation: the potential inability of the proposed assignee to fulfill the Lease terms and the financial irresponsibility or instability of the proposed assignee or sublessee, the lack of suitability of the Premises for the intended use by the proposed assignee or sublessee, the potential for unlawful or undesirable use of the Premises by the proposed assignee or sublessee, or the character or business reputation of the proposed assignee or sublessee. In any dispute which arises under this paragraph, Lessee shall pay to Lessor all of Lessor's costs and expense reasonably incurred by Lessor in making the investigation and factual findings provided for in this paragraph.

12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim; from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any,

specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

12.4 TRANSFER PREMIUMS. Fifty percent (50%) of any sums or other economic consideration received by Lessee as a result of any assignment or subletting entered into pursuant to this Paragraph 12, however denominated under the assignment or sublease, which exceed, in the aggregate (a) the total sums which Lessee is obligated to pay Lessor under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (b)(i) reasonable real estate brokerage commissions or fees payable by Lessee in connection with such assignment or subletting, (ii) the reasonable fees of attorneys, architects and engineers, and (iii) reasonable costs of tenant improvements required to be constructed by Lessee for any such assignee or subtenant, shall be paid by Lessee to Lessor as additional rent under this Lease without affecting or reducing any other obligations of Lessee hereunder. Lessee understands, acknowledges and agrees that Lessor's right to recapture any consideration paid in connection with an approved assignment or subletting is a material inducement for Lessor's agreement to lease the Premises to Lessee upon the terms and conditions, set forth herein.

12.5 LESSOR'S OPTION AS TO SUBJECT SPACE. Notwithstanding the foregoing provisions contained in this Paragraph 12 to the contrary, Lessor shall have the option, by giving written notice to Lessee within twenty (20) days after Lessor's receipt of written notice by Lessee (accompanied by all of the items set forth in this Paragraph 12 concerning the nature of the transfer and the transferee) of any proposed assignment or sublease (except to a Permitted Transferee) for a term of three (3) years or more by Lessee (a "Transfer Notice"), to recapture the space which is the subject of such proposed transfer (the "Subject Space"), provided the subject space constitutes not less than 100,000 square feet; or, if prior transfers have occurred, would result in having 100,000 square feet in the aggregate assigned or sublet. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice. In the event of a recapture by Lessor, if this Lease shall be canceled with respect to less than the entire Premises, the rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Lessee in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute confirmation of same. If Lessor declines, or fails to elect in a timely manner to recapture the Subject Space under this Paragraph 12.5, then, provided Lessor has consented to the proposed transfer pursuant to Paragraph 12.2, Lessee shall be entitled to proceed to transfer the Subject Space to the proposed transferee, subject to the other provisions of this Paragraph 12 (including Paragraph 12.4 above).

13. DEFAULT; BREACH; REMEDIES.

13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of fifteen (15) days following written notice to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's Interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the guaranty; or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right

to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions if this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.

13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease, including without limitation, the timely payment (i.e., prior to the time Lessee is in default, as set forth in Paragraph 13.1(b)) of all rent due hereunder. Upon Breach of this Lease by Lessee (which shall be deemed to include any late payment of rent or other sums due hereunder, or the presentation in payment of any obligation hereunder of any check which is not honored on the first attempt to realize on it), any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of Rent or the cure of the Breach which Initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. Notwithstanding anything else herein to the contrary, Lessee shall not be subject to the loss of an Inducement due to a default in the payment of Rent if Lessee has not been late with respect to the payment of Rent more than three times in the first thirty months of the Term, and all such late payments have been made within the cure periods allowed by this Lease.

13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs Include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.

13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to

non-scheduled payments. The Interest ("INTEREST") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 BREACH BY LESSOR.

(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, (except in the event of an emergency, in which event the reasonableness of the time of Lessor's response shall be determined in relationship to the nature and extent of the emergency) a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.

(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.

13.7 MORTGAGEE PROTECTION. Lessee to send by certified or registered mail to any Lender whose address has been furnished to Lessee, a copy of any notice of default served by Lessee on Lessor. If Lessor fails to cure such default within the time provided for in this Lease, such Lender shall have an additional thirty (30) days to cure such default; provided, however, that if such default cannot reasonably be cured within that thirty (30) day period, then such Lender shall have such additional time to cure the default as is reasonably necessary under the circumstances (including, without limitation, the time to obtain possession of the Premises by foreclosure or similar proceedings).

14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the Premises, or more than twenty-five percent (25%) of the land area portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation; Lessor shall repair any damage to the Premises caused by such Condemnation.

15. BROKERS' FEE.

15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto.

16. ESTOPPEL CERTIFICATES.

(a) Each Party (as "RESPONDING PARTY") shall within fifteen
(15) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, or such form as is reasonably required by any lender of Lessor, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such fifteen (15) day period, the requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party not more than one month's Rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including, but not limited to, Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender r purchaser in confidence and shall be used only for the purposes herein set forth.

17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent

holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.

18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.

20. LIMITATION OF LIABILITY. See paragraph 51, below.

21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.

23. NOTICES.

23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered la delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the

obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.

26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. Unless Lessor and Lessee have reached an agreement in writing to the contrary, if Lessee fails to surrender the Premises upon the expiration or earlier termination of the Lease despite Lessor's demand to do so, in addition to the rent and other obligations of Lessee as provided in this Lease, Lessee shall indemnify and hold Lessor harmless against any and all losses, costs, damages and liability (including actual attorneys' fees and costs, and court costs), direct or indirect, which Lessor may suffer as a result of Lessee's failure to surrender the Premises.

27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lessor's Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. Lessee waives the protection of any statute or rule of law which gives or purports to give Lessee any right to terminate this Lease or surrender possession of the Premises upon the transfer of Lessor's interest by foreclosure, deed in lieu of foreclosure, or otherwise.

30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor; or (iii) be bound by prepayment of more than one (1) month's rent.

30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT:) from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms thereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. In addition, Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.

32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times and upon reasonable notice (it being agreed that 24 hours is reasonable for the purposes of this paragraph 32) for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign.

33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted , any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. SIGNS. Lessee shall have the right, at its sole expense, to install building signage, and directional ground and fence signage which is consistent in type, amount and quality with that of surrounding buildings of similar type and quality, and in accordance with all requirements of the City of Fontana. All signs must comply with all Applicable Requirements.

35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.

36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including, but not limited to, architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including, but not limited to, consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.

37. GUARANTOR.

37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect.

38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. OPTIONS.

39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee or Permitted Transferee and only while the original Lessee or Permitted Transferee is in full possession of the Premises and, if requested by Lessor, with Lessee or a Permitted Assignee, as applicable, certifying that Lessee has no intention of thereafter assigning or subletting.

39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee, (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.

39.5 OPTIONS TO EXTEND. Lessee may extend the Term for one (1) additional period of five (5) years (the "Extended Term") upon all the terms and conditions of this Lease, subject to the following terms, conditions and exceptions. Lessee must exercise the Option, if at all, by giving written notice of its intention to do so no earlier than nine (9) and no later than six (6) months prior to the end of the Original Term:

(a) Lessee's option shall automatically terminate upon any transfer, assignment, sublease, conveyance, hypothecation or encumbrance of the Lease (except to a Permitted Transferee) for which Lessor's consent is required, or if the use of he Premises specified in Paragraphs 1.8 and 6 is changed without the consent of Lessor.

(b) Base Rent for the first Extended Term shall be equal to the Fair Market Rental Rate (the "FMRR") of the Premises as of the commencement of such Extended Term. As used herein, FMRR shall mean the rent that a willing lessee would pay to a willing lessor, with neither party under any financial duress, in an arm's length transaction, for property similar to the Premises, as the Premises are then improved (and taking into account that there shall be no free rent period and no payment of broker's commissions), in the market area in which the Premises are located. Not more than nine (9), nor less than six (6) months before the end of the Original Term, Lessee shall provide Lessor with its written notice that it wishes to exercise its option as provided for herein. Within thirty (30) days of Lessor's receipt of such notice, Lessor shall provide Lessee, in writing, its good faith opinion of the FMRR of the Premises as of the end of such term ("Lessor's FMRR Notice"). If Lessee objects to Lessor's determination of the FMRR of the Premises for the Extended Term, Lessee shall notify Lessor in writing, within fifteen (15) days after receipt of Lessors notice of the FMRR, that Lessee disagrees with Lessor's determination. The parties shall then attempt to agree upon the FMRR. In the event that Lessor and Lessee are unable to agree upon the FMRR of the Premises within thirty (30) days of Lessor's receipt of Lessee's notice that it disagrees with the Lessor's FMRR Notice, then the FMRR shall be determined by appraisal in the manner provided below. Until the appraisal procedures are finalized; Lessee shall continue to pay Lessor the amount of Base Rent due immediately preceding the expiration of the Lease Term. After the determination of the appraisers is final, Lessee shall promptly make payment to Lessor for any underpayment of Base Rent owing for prior months.

The FMRR of the Premises shall be determined as follows: The Premises shall be appraised by an MAI appraiser chosen by Lessor ("First Appraisal") and the appraisal report forwarded to Lessee. If the First Appraisal is deemed unacceptable by Lessee, then Lessee shall so advise Lessor in writing within ten
(10) working days after receipt of the First Appraisal and Lessee shall have the right to engage an MAI appraiser to appraise the Premises ("Second Appraisal") and the appraisal report forwarded to Lessor. In the event Lessor shall deem the Second Appraisal unacceptable, then Lessor shall advise Lessee within ten (10) working days after receipt of the Second Appraisal, and the first appraiser and second appraiser shall together choose a third MAI appraiser who shall appraise the Premises ("Third Appraisal") and forward the appraisal report to Lessor and Lessee. The cost of the second appraisal shall be borne by Lessee, and the cost of the third Appraiser, if any, shall be shared equally by the parties. All Appraisers shall have no less than five (5 ) years experience (up to and including the date of instituting the appraisal process, of appraising property like the Premises, in the market area where the Premises are located, If the Third Appraiser is greater than the highest or lower than the lowest of the First and Second Appraisals, then the FMRR for the Premises shall be the average of the First and Second Appraisals. If the Third Appraisal is not greater than the highest nor lower than the lowest of the First and Second Appraisals, then the FMRR for the Premises shall be the sum of the three appraisals, divided by three (3). The appraisal process shall commence no later than forty-five (45) days prior to the effect date of the Extended Term and shall be concluded within thirty (30) days after the start of the appraisal process.

Notwithstanding anything else herein to the contrary, in no event shall the Base Rent for any Extended Term be less than that in effect at the end of the prior Term.

40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.

41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not materially interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents is reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within thirty (30) days after request, deliver to the other Party satisfactory evidence of such authority.

45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder (i.e., there shall be no material increase in Lessee's obligations, and no material decrease in Lessee's rights), Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.

49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [X] not attached to this Lease.

50. UNAVOIDABLE DELAYS. If the performance of Lessor of any act required herein, including, without limitation, the design, planning, permitting, construction and completion of the Tenant Improvements, is prevented or delayed by reason of strikes, lockouts, labor disputes, governmental delays, acts of God, fire, floods, epidemics, freight embargoes, unavailability of materials aid supplies, development moratoriums imposed by any governmental authority, or other causes beyond

the reasonable control of Lessor, lessor shall be excused from performing that act for the period equal to the period of the prevention or delay.

51. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Lessee on behalf of itself and all successor and assigns Lessee covenants and agrees that, notwithstanding anything in this Lease to the contrary and notwithstanding any Applicable law to contrary:

(a) the liability of Lessor under this Lease (including any liability for any actual or alleged failure, breach or default by Lessor under this Lease and/or negligence by Lessor hereunder) and any recourse against Lessor shall be limited solely to Lessor's in rest in the Premises, and the undistributed rents, profits, other income derived from the Premises, and available insurance proceeds (and not any other assets of Lessor); and

(b) the obligations of Lessor under this Lease do not constitute personal obligations of the members, partners or subpartners of Lessor, or any of the managers, directors, officers or shareholders of lessor or Lessor's members, partners or subpartners; , and Lessee shall not seek recourse against any such members, partners or subpartners or any of the managers, directors, officers or shareholders of Lessor or Lessor's members, partners or subpartners or any of their personal assets for satisfaction of any liability with respect to this Lease.

52. SCE LICENSE AREA. In order to enhance Lessee's proposed use and enjoyment of the Premises, Lessor has agreed to allow Lessee to license from Lessor the SCE License Area for the parking and storage of truck trailers in connection with the operatic of Lessee's business at the Premises, and for no other purposes. Lessee shall be permitted to use the SCE License area for such purposes in the manner, at the times, and for the costs set forth in the License Agreement. Without limiting the foregoing, Lessee shall reimburse Lessor, as an operating expense, for all costs, fees, and expenses, including by way of example only, the License Fee described in Article 2 of the License Agreement. The basic License Fee shall be paid to Lessor in equal monthly installments, each such installment being one-twelfth of the amount stated in the License Agreement as the License Fee for the relevant period, and the monthly payments shall be due as additional rent as and when the Base Rent is due. Any other such costs, fees and expenses shall be due as and when invoiced by Lessor. Without limiting the foregoing, by its execution hereof, Lessee acknowledges that it is fully familiar with, and agrees to be bound by, all of the terms and conditions of the License Agreement, but Lessee shall have no direct rights thereunder. That is, Lessee shall have no right to exercise any option or other right under the License Agreement in its own name, and Lessee shall refrain from any and all direct contact with SCE with respect to its use of the SCE License Area, unless either (i) such contact is necessary to avoid damage to persons or property from an emergency situation, or (ii) Lessor has consented, in writing, to such contact, in advance of Lessee's undertaking same. Lessee agrees to indemnify, defend, and hold harmless Lessor for any loss, claim, injury, damage or liability Lessor may suffer arising out of or related to Lessor's use of the SCE License Area, its violation of any of the terms of the License Agreement, and the beach of this Paragraph 52. In addition, Lessee acknowledges the disclosure of all matters described in the License Agreement, including information about Electric and Magnetic Fields, Induced Voltage, and environmental matters, as if such disclosures had been made directly by Lessor to Lessee. Lessee also acknowledges that the License Agreement is subject to termination by SCE upon twelve (12) months written notice without cause, as well as being terminable for cause. Accordingly, Lessee agrees that no such termination shall operate to terminate, or give any right to Lessee to terminate, this Lease, it being agreed that the use of the SCE License Area is an enhancement of its rights under the Lease, and not a condition to its obligations hereunder. Except where the contrary is set forth in this paragraph, the SCE License Area shall be deemed part of the Premises, and all rights related to said Area are coextensive with Lessee's rights to the Premises. While the License Agreement and the Lease are meant to work in concert, in the event of a conflict between the terms of this paragraph and the balance of the Lease, with respect to the rights, duties and obligations of Lessee concerning the SCE License Area, this paragraph shall prevail over the balance of the Lease.

53. TEMPORARY SPACE. As an accommodation to Lessee, and an inducement to Lessee to enter into this Lease. Lessor shall arrange for the ability of Lessee to use approximately One Hundred Thousand (100,000) square feet of warehouse storage space located in the Ontario area (the "Temporary Space"). The Temporary Space shall be located by Lessor, and Lessor, provided Lessee is not, in default hereunder, shall bear all costs related to obtaining the Space for Lessee's use, provided, however, Lessor shall not be obligated to incur any out of pocket expenses for design or planning of the space, or for tenant improvements, security, or any other similar terms, it being

agreed that as between Lessor and Lessee, Lessee will take the Temporary space on an "AS-IS" basis. At Lessor's request, Lessee agrees to execute such documents or instruments as may be reasonably necessary to confirm Lessee's agreement to be bound by all of the terms and conditions of the use of the Temporary space imposed by the owner or master tenant thereof, other than the payment of rent or other occupancy costs except for property and liability insurance, (so long as Lessee is not in default under this Lease, or under the terms and conditions governing the occupancy of the Temporary space.) Lessee shall however, as a condition to its right to enter into possession of the Temporary Space, deliver to Lessor at Lessee's sole cost and expense, for the benefit of Lessor and the landlord of the Temporary Space, certificates of insurance identical to those required under this Lease, except that all property and liability insurance shall name Lessor and Iron Mountain Records Management, Inc. (or such other entity as Lessor subsequently identifies to Lessee as the owner/landlord of the Temporary Space) as additional loss payees and additional insured, as applicable. Lessor shall use due diligence and commercially reasonable efforts to have the Temporary Space available to Lessee as soon as possible after the execution hereof, and its rights to and use of the Temporary Space shall terminate at such time as the Premises is available to Lessee for its legal use of same for storage of the materials stored at the Temporary Space (the "Ending Date"). Lessee acknowledges that its failure to vacate the Temporary Space on or before the Ending Date shall constitute a breach of this Lease, and from and after the date of such Lease, Lessee shall pay Lessor 150% of the costs thereafter incurred by Lessee with respect to the Temporary Space, to compensate Lessor for its ongoing expenses and the administrative and other costs incurred by Lessor in obtaining, maintaining, and otherwise dealing with the Temporary Space. All of Lessors obligations with respect to the Temporary Space arc contingent upon the complete execution and unconditional delivery of this Lease by Lessee, and the payment to Lessor of all funds due upon such execution and delivery, and Lessee's performance under the terms hereof.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

[SIGNATURES ON NEXT PAGE]

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

Executed at: Des Moines, Iowa         Executed at:  North Andover, Massachusetts
             ------------------                     ----------------------------
on:                                   on:
   ----------------------------          ---------------------------------------

By LESSOR:                            BY LESSEE:

By:  /s/ Robert Klinkner                    By:  /s/ Mardsen Cason
   -----------------------------------        ----------------------------------
Name Printed:  Robert Klinkner              Name Printed:  Mardsen Cason
            --------------------------                   -----------------------
Title:  Assistant Director                  Title:  Executive Co-Chairman
      --------------------------------            ------------------------------

By:  /s/ John N. Urban                      By:  /s/ Laura W. Kelley
   -----------------------------------        ----------------------------------
Name Printed:  John N. Urban                Name Printed:  Laura W. Kelley
            --------------------------                   -----------------------
Title:  Director                            Title:  Vice-President Legal
      --------------------------------            ------------------------------

Address:                                    Address:  1 High Street, North
          ----------------------------                --------------------------
                                                      Andover, MA 01845
          ----------------------------                --------------------------
Telephone: (___)                                     Telephone: (978) 983-3300
                ----------------------                               -----------
Facsimile: (___)                                     Facsimile: (978) 983-3503
                ----------------------                               -----------

Federal ID No.                              Federal ID No.
            --------------------------                   -----------------------

LESSOR'S ADDRESS FOR NOTICES:
c/o Troy Koeselman
Principal Capital Management, LLC
601 Grand Avenue
Des Moines, IA 50392-1370
Phone:  (515) 362-0532

Fax: (515) 248-8090

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213) 687-8616

EXHIBIT 10.7

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1. BASIC PROVISIONS ("BASIC PROVISIONS").

1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, October _______, 2001, is made by and between PRINCIPAL LIFE INSURANCE COMPANY, an Iowa corporation ("LESSOR") and CONVERSE, INC., a Delaware corporation ("LESSEE"), ________________ (collectively the "Parties," or individually a "Party").

1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 4450 Lowell Street, City of Ontario, located in the County of San Bernardino, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "Project," if the property is located within a Project) approximately 317,070 square foot freestanding concrete and steel tilt-up industrial building located on approximately 15.17 acres of land ("PREMISES"). See also Paragraph 2.

Subject to Lessor's obligations described in this Section 1.2 and in
Section 2.2 below, Lessee is leasing the Premises in an AS-IS condition. Lessee has had the full opportunity to inspect, and approve the condition of the Premises. Lessee acknowledges that there are no other improvements of any type which are not present in the Premises as they exist as of October 3, 2001 which are to be provided by Lessor, except for the Tenant improvements, as set forth below.

Subject to the limitations set forth herein, including, without limitation, those with respect o the Lessor's maximum contribution to he cost of certain items thereof, Lessor shall construct or cause to be constructed for Lessee certain improvements ("Tenant Improvements"). Except in the event that the cost of any items subject to maximum cost contributions ("MCC'S") are exceeded, in which event the Lessee shall bear such cost, Lessor shall pay the costs of the Tenant improvements. The Tenant improvements shall consist of the following:

1. Installation of a complete ESFR system prior to the Commencement Date, in accordance with plans and specifications prepared by Lessor's consultants, which shall be subject to review and approval by Lessee, which shall not be unreasonably withheld or delayed, and in no event shall the review by Lessee or its consultants result in any delay of the construction and installation of the system. Lessee's review and approval of the plans and specifications for the ESFR system, which have been provided to Lessee, shall be approved or disapproved on or before October 2, 2001. In the event Lessee has not responded to the plans by such date, the ESFR system plans and specifications shall be deemed approved by Lessee. The parties agree that in the event that the construction of the ESFR is delayed by the review and approval of the plans for same by Lessee, such a delay shall be considered a "Lessee Delay" within the definition set forth in this section, below, and he condition that said system be installed prior to the Commencement date shall be deemed waived to the extent of such Lessee induced delay.

2. Removal of existing draft curtains, if they are not required by current fire codes, or for the ESFR system to be in full compliance with all rules and regulations.

3. Provided 2,000 AMP, 277/480 VAC, 3 phase, 4 wired electrical service to the Premises, if needed. Lessee shall advise Lessor of the need for same on or before October 12, 2001, failing which Lessee shall be deemed to have waived the right to require Lessor to provide the electrical upgrades.

4. Increase the current warehouse area lighting by 30% to achieve 30 foot candle lighting. All existing and new lighting fixtures shall be equipped with 15 foot extension whips.

5. Construct one men's and one women's restroom adjacent to the existing warehouse shipping office. Said restrooms shall be at a commercially standard build out (e.g., one toilet fixture, one sink, standard lighting, painted walls, or panel walls, as Lessor elects, and concrete or sheet vinyl flooring, as Lessor elects.

6. Provide protective guard rails for the entire length of the existing office walls adjacent to the warehouse areas, and for the walls of the shipping office.

7. Provide security bollards in the existing hardscape area to protect the glass adjacent to the Lowell Street entrance

8. On or before November 1, 2001, Lessor and Lessee shall agree on a plan to reduce the temperature inside the warehouse area through the installation of exhaust fans in the roof, or other similar means not involving the addition of HVAC units in the warehouse. Lessor's MCC for this item is Twenty Five Thousand Dollars ($25,000.00), but the parties agree to strive for a plan which will cost materially less through value engineering. In the event that the final budget for any mechanical cooling program exceeds the MCC, any such excess shall be the responsibility of Lessee, and Lessee shall deposit the amount of such excess with Lessor prior to, and as a condition of, the commencement of such work.

9. Lessor shall install new carpeting in the office areas (except for the shipping office). The carpet shall be Centerpoint Designweave glue down. Lessor shall install in the same areas a 4" Burke base.

The Tenant improvements shall be constructed by a contractor or specialty contractors selected by Lessor (each, a "CONTRACTOR"), pursuant to arm's length contract(s) entered into with Lessor.

At the, request of Lessee, Lessor and Lessee shall communicate on a weekly basis concerning the ongoing progress of the Tenant improvements, including the estimated completion date.

Subject to Lessee Delay, Lessee's failure to obtain any permits, licenses or similar governmental permission to conduct its business, and Unavoidable Delays (as described in paragraph 50 below). Lessor shall substantially complete the Tenant improvements by March 1, 2002, failing which Lessee, following the giving of 30 days written notice to cure given on or after

such date, shall have the right to an abatement of one day's Base Rent for each day after the last day in which Lessor has to cure the failure to complete until the Tenant improvements are substantially complete. As used herein, the Tenant improvements shall be deemed to be substantially complete at such time as Lessor has completed the Tenant improvements to the point where it is useable by Lessee, with all the Tenant improvements in place, but subject to "punch list" items, i.e., items to completed, added, or modified but which do not unreasonably interfere with Lessee's use and enjoyment of the Premises (see also Paragraph 3).

As used herein, "LESSEE DELAY" shall mean any delay in the commencement or completion of the Tenant improvements caused by Lessee, including, without limitation, Lessee's delay in approving the ESFR plan, or any other working drawings or specifications with respect to which Lessor requests Lessee's approval, change orders resulting in delays, or interference by Lessee, or its contractors, consultants, or fixture installers with the orderly progress of the construction of the Tenant improvements.

Lessor shall have no obligation to contribute or advance any funds, or undertake any work or improvements except as provided expressly herein, and Lessee shall bear all other costs for all work, improvements, furniture, fixtures, and equipment. (See also Paragraph 2.)

1.3 TERM: Six years and no months ("ORIGINAL TERM") commencing December 15, 2001 ("COMMENCEMENT DATE") and ending December 14, 2007 ("EXPIRATION DATE"). (See also Paragraph 3).

1.4 EARLY POSSESSION: Subject to the limitations set forth below, the Lessee shall be allowed to enter the Premises for the purposes of installing its fixtures and equipment, provided that Lessee has then provided Lessor with copies certificates of insurance, complying in all respects with the terms of this Lease, for all insurance required to be carried hereunder. Lessee acknowledges that Lessor will be constructing Lessee's Tenant improvements during the period of Early Possession, and that accordingly the ability of Lessee to freely install its fixtures and equipment or otherwise use the Premises during this period will be limited by Lessor's activities in the Premises. Lessee agrees that in all events Lessor shall have the priority over Lessee in construction or similar activities, that Lessee will follow all reasonable rules and regulations concerning its activities in and about the Premises during this period promulgated by Lessor, its Contractor, or Property Manager. Due to the ongoing construction and other activities, Lessee hereby forever releases and discharges Lessor, its contractors, agents, employees, and managers from and against any and all claims of loss, damage or injury to persons or property, including, without limitation, its product inventory, which loss, damage or injury occurs, or its alleged to have occurred, during the period of Early Possession, except to the extent caused by Lessor's gross negligence or intentional malfeasance. Lessee acknowledges that Lessor does not guarantee or warrant the safety of the Premises, or its security during such period, as construction and other activities will be ongoing.

("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)

1.5 BASE RENT: $90,365.00 per month ("BASE RENT"), payable on the first day of each month commencing March 1, 2002, but subject to the limitations set forth in. (See also Paragraph 4).

[X] if this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

Base Rent for months 1 through 31 shall be $90,365.00, for months 32 through 60 shall be $93,536.00, and the Base Rent for months 61 through 72 shall be $98,292.00. However, subject to the terms and conditions of this Lease, including without limitation paragraphs 1.4 and 13.3, Base Rent, real property taxes, insurance and other building or project expenses shall be abated for the first two months of the term, and Base Rent only shall be abated for the thirty first and thirty second months of the Term. Such Rent and expense abatements shall be considered inducements within the meaning of paragraph 13.3 of this Lease.

As Additional Rent, Lessee shall also pay no and when due, all dues, fees, or assessments of the California Commerce Center ("CCC") applicable to the Building during the Lease Term, and a Management Fee equal to One and One-half Percent (1 -1/2%) of the Base Rent, payable monthly in advance with each payment of Base Rent. In the event the CCC items are paid by Lessor and then invoiced to Lessee, Lessee shall pay same within ten (10) days of the receipt of each such invoice.

1.6 BASE RENT PAID UPON EXECUTION: $180,730.00 as Base Rent for the period March and April, 2002.

1.7 SECURITY DEPOSIT: $135,547.50 ("SECURITY DEPOSIT"). (See also
Paragraph 5)

1.8 AGREED USE: Warehousing and distribution of footwear, apparel, and related accessories. (See also Paragraph 6)

1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8)

1.10 REAL ESTATE BROKERS: (See also Paragraph 15)

(A) REPRESENTATION: The following real estate brokers (collective, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes):

[X] Grubb & Ellis represents Lessor exclusively ("LESSOR'S BROKER");

[X] CBRE/Radius Development represents Lessee exclusively ("LESSEE'S BROKER"); or

[ ] none represents both Lessor and Lessee ("DUAL AGENCY").

(B) PAYMENT TO BROKERS: Lessor shall pay to the Broker the fee agreed to in their separate written agreement for the brokerage services rendered by said Broker), as and when set forth therein.

1.11 GUARANTOR: The obligations of the Lessee under this Lease are to be guaranteed by none ("Guarantor"). (See also Paragraph 37)

1.12 ADDENDA AND EXHIBITS.

2. PREMISES.

2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less. During the term of this Lease, Lessee shall have the exclusive right to use all of the parking spaces which are on the property where the Building is located.

2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START Date"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30) days following the Start bats, warrants that the existing electrical, plumbing, pre sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, landscape irrigation system and parking lot, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Commencement Date, Lessee doss not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. Lessee shall notify Lessor of any claimed defect to the items which are Lessor's responsibility under paragraph 7.2, below, as soon as practicable after Lessee discovers same, failing which Lessee shall be responsible for any damage caused by its failure to provide such notice to Lessor and thereby provide Lessor an opportunity to repair same.

2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises and the Tenant improvements to be constructed by Lessor will, upon completion, Comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date. Said warranty doss not apply to the use to which Lessee will put the Premises or to any Alterations or Utility installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require

during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of lessee's termination notice that Lessor has elected pay the difference between the actual cost thereof and the amount equal to six (6) months' Base Rent. If Lessee elects termination, Lessee Shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety days thereafter. Such termination date shall, however, in no event be earlier than the last day that Losses could legally utilize the Premises without cam sing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of thin Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof. Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and falls to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lasses on an offset basis, Lessee shall have the right to terminate thirty (30) days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee right to Terminate this Lease.

2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use; (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor

acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises; and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

3. TERM.

3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 EARLY POSSESSION. Except as otherwise set forth herein, if Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. Except as otherwise set forth herein, all the other terms of this Lease (including, but not limited to, the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease.

3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Data, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold Possession until such conditions are satisfied.

4. RENT.

4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").

4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any

portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6. USE.

6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use.

6.2 HAZARDOUS MATERIALS.

6.2.1 DEFINITIONS.

A. "HAZARDOUS MATERIALS" means any substance, whether solid, liquid or gaseous in nature:

(i) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law, or

(ii) which is or becomes defined as a "HAZARDOUS WASTE," "HAZARDOUS SUBSTANCE," pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and or the Resource Conservation and Recovery Act (442 U.S.C. Section 6901 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 8401 et seq.) the Toxic Substances Control act, as amended (15 U.S.C.
Section 2601 et seq.), and the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), as these laws have been amended or supplemented; or

(iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous or is or becomes regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of California or any political subdivision thereof: or

(iv) the presence of which on the property causes or threatens to cause a nuisance upon the Property or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Property; or

(v) the presence of which on adjacent properties could constitute a trespass by Lessee; or

(vi) without limitation which contains gasoline, diesel fuel or other petroleum hydrocarbons; or

(vii) without limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation; or

(viii) without limitation with contains radon gas.

B. "ENVIRONMENTAL REQUIREMENTS" means all applicable present and future:

(i) statutes, regulations, rules, ordinances, codas, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items (including, but not limited to those pertaining to reporting, licensing, permitting, investigations and remediation), of all Governmental Agencies; and

(ii) all applicable, judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation, all requirements pertaining to emissions, discharges, releases, or threatened releases of Hazardous Materials or chemical substances into this air, surface water, groundwater or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials or chemical substances.

C. "ENVIRONMENTAL DAMAGES" means all claims, judgments, damages, losses, penalties, finds, liabilities (including strict liability), encumbrances, liens, costs, and expenses (including the expense of investigation and defense of any claim, whether or not such claim is ultimately defeated, or the amount of any good faith settlement or judgment arising from any such claim) of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable (including without limitation reasonable attorneys' fees and disbursements and consultants' fees) any of which are incurred at any time as a result of the existence of Hazardous Material or the violation of environmental Requirements arose prior to the present ownership or operation of the Property. Environmental Damages include, without limitation:

(i) damages for personal injury or injury to property or natural resources occurring upon or off of the Property, including, without limitation, lost profits, consequential damages, the cost of demolition and rebuilding of any improvements on real property. Interest, penalties and damages arising from claims brought by or on behalf of employees of Lessee (with respect to which Lessee waives any right to a defense against Lessor any immunity to which it may be entitled under any industrial or worker's compensation laws):

(ii) fees, costs or expenses incurred for the services of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of such Hazardous Materials or violation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration or monitoring work required by any Governmental Agency or reasonably necessary to makes full economic use of the Property or any other property in a manner consistent with its current use or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing the provisions of this Lease or collecting any sums due hereunder;

(iii) Liability to any third parson or Governmental Agency to indemnify such person or Governmental Agency for costs expended in connection with the items referenced in subparagraph (ii) above; and

(iv) diminution in the fair market value of the Property, including without limitation, any reduction in fair market rental value or life expectancy of the Property or the improvements located thereon or the restriction on the use of or adverse impact on the marketing of the Property or any portion thereof.

D. "GOVERNMENTAL AGENCY" means all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states, counties, cities and political subdivisions thereof.

E. The "LESSEE GROUP" means Lessee, Tenant's successors, assignees, guarantors, officers, directors, agents, employees, invitees, permittees, or other parties under the supervision or control of Lessee or entering the Property during the term of this Lease with the permission or knowledge of Lessee other than Lessor or its agents or employees.

6.2.2 PROHIBITIONS.

A. Other than commercially reasonable quantities of general office supplies AND SUCH OTHER CHEMICALS AS IT REASONABLY DEEMS NECESSARY FOR THE CONDUCT OF ITS BUSINESS IN THE PREMISES, and provided Lessee's use of same complies with all APPLICABLE REQUIREMENTS AND Environmental requirements and is incidental to Lessee's operation of its business. Lessee shall not use, permit or suffer any Hazardous Material to be brought upon, treated, kept, stored, disposed of, discharged, releases, produced, manufactured, generated, refined or used upon, about or beneath the property by the Lessee Group, without the prior written consent of Lessor. From time to time during the term of this Lease, Lessee may request Lessor's approval of Lessee's use of other Hazardous Materials, which approval may be withheld in Lessor's sole discretion. Lessee shall, prior to the Commencement Date, provide to Lessor all "community right to know" plans or disclosures and/or emergency response plans which Lessee is required to supply to local governmental agencies pursuant to any Environmental Requirements.

B. Lessee shall not cause or permit the commission by the Lessee Group, of a violation of any Environmental Requirements upon, about or beneath the Property.

C. Lessee shall neither create, cause to be created, allow nor permit the Lessee Group to create any lien, security interest or other charge or encumbrance of any kind with respect to the Property, including without limitation, any lien imposed pursuant to Section 107(f) of the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Section 9607(1) or any similar statute.

D. Lessee shall not install, operate or maintain any above or below grade tank, sump, pit, pond, lagoon or other storage or treatment vessel or device on the property, without Lessor's prior written consent, which consent may be withhold in Lessor's sole discretion.

6.2.3 INDEMNITY.

A. Lessee, its successors, assigns and guarantors agree to indemnify, defend, reimburse and hold harmless:

(i) Lessor; and

(ii) any other person who acquires title to all or a portion of the Premises in any manner (including purchase at a foreclosure sale) or who becomes entitled to exercise the rights and remedies of Lessor under this Lease; and

(iii) the directors, officers, shareholders, employees, partners, agents, contractors, subcontractors, experts, licensees, affiliates, lessees, mortgagees, trustees, heirs, devisees, successors, assigns and invitees of such persons.

from and against any and all Environmental Damages which exist as a result of the activities and negligence of the Lessee Group during the Lessee's occupancy of the Property or which exist as a result of the breach of any warranty or covenant, or the inaccuracy of any representation of Lessee

contained in this Lease, or by Lessee's remediation of the Property or failure to meet its remediation obligations contained in this Lease.

B. The obligations contained in this Section 6.2.3 shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings, even if such claims, suits or proceedings are groundless, false or fraudulent, and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments, penalties, consequential damages or other sums due against such indemnified persons. Lessor, at its sole expense, may employ additional counsel of its choice to associate with Lessee's council.

C. Lessor shall have the right, but not the obligation, to join and participate in, and control, if it so elects, any legal proceedings or actions initiated in connection with Lessor's activities. Lessor may also negotiate, defend, approve and appeal any action taken or issued by any applicable governmental authority with regard to contamination of the Property by a Hazardous Material.

D. The obligations of Lessee under this paragraph shall not be affected by any investigation by or on behalf of Lessor, or by any information which Lessor may have or obtain with respect thereto.

6.2.4 OBLIGATION TO REMEDIATE. In addition to the obligation of Lessee to indemnify Lessor pursuant to this Lease, Lessee shall, upon approval and demand of Lessor, at its sole cost and expense and using contractors approved by Lessor, promptly take all actions to remediate the Property which are required by any Governmental Agency, or which are reasonably necessary to mitigate Environmental Damages or to allow full economic use of the Property, which remediation is necessitated from the presence upon, about or beneath the Property, at any time during or upon termination of this Lease, of a Hazardous Material or a violation of Environmental Requirements, existing as a result of the activities or negligence of the Lessee Group. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Property, the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, containment, operation, maintenance, monitoring or restoration work, whether on or off the Property, which shall be performed in a manner approval by Lessor. Lessee shall take all actions necessary to restore the Property to the condition existing prior to the introduction of Hazardous Material upon, about or beneath the Property, notwithstanding any looser standard of remediation allowable under applicable law or governmental policies.

6.2.5 RIGHT TO INSPECT. Lessor shall have the right in its sole and absolute discretion, but not the duty, to enter and conduct an inspection of the Property, including invasive test, at any reasonable time to determine whether Lessee is complying with the terms of the Lease, including but not limited to the compliance of the Property and the activities thereon with Environmental Requirements and the existence of Environmental damages as a result of the condition of the Property or surrounding properties and activities thereon. Lessor shall have right, but not the duty, to retain any independent professional consultant (the "CONSULTANT") to enter the Property to conduct such an inspection or to review any report prepared by or for Lessee concerning such compliance. The cost of the Consultant shall be paid by Landlord unless such investigation

discloses a violation of any Environmental Requirement by the Lessee Group or the existence of a Lessor Hazardous Material on the Property or any other property caused by the activities or negligence of the Lessee Group (other than Hazardous Materials used in compliance with all Environmental Requirements and previously approved by Lessor), in which case Lessee may pay the cost of the Consultant. Lessee hereby grants to Lessor, and the agents, employees, consultants and contractors of Lessor the right to enter the Property and to perform such tests on the Property as are reasonably necessary to conduct such reviews and investigations. Lessor shall use its best efforts to minimize interference with the business of Lessee.

6.2.6 NOTIFICATION. If Lessees shall become aware of or receive notice or other communication concerning any actual, alleged, threatened violation of Environmental Requirements, or liability of Lessee for Environmental Damages in connection with the Property or past or present activities of any person thereon, including, but not limited to, notice or other communication concerning any actual or threatened investigation, inquiry, lawsuit, claim, citation, directive, summons, proceeding, compliant, notice, order, writ, or injunction, relating to same, then Lessee shall deliver to Lessor within ten (10) days of the receipt of such notice or communication by Lessee, a written description of said violation, liability, or actual or threatened event or condition, together with copies of any documents evidencing same. Receipt of such notice shall not be deemed to create any obligation on the part of Lessor to defend or otherwise respond to any such notification.

If requested by Lessor, Lessee shall disclose to Lessor the names and amounts of all Hazardous Materials other than general office supplies referred to in Section 6.2 of this Lease, which were used, generated, treated, handled, stored or disposed of on the Property or which Lessee intends to use, generate, treat, handle, store or disposes of an the Property. The foregoing in no way shall limit the necessity for Lessee obtaining Lessor's consent pursuant to
Section 6.2 of this Lease.

6.2.7 SURRENDER OF PREMISES. In the ninety (90) days prior, to the expiration or termination of the Lease Term, and for up to ninety (90) days after Lessee fully surrenders possession of the Property, Lessor may have an environmental assessment of the Property performed in accordance with Section 6.2 of this Lease. Lessee shall perform at its sole cost and expense, any cleanup or remedial work recommended by the Consultant which is necessary to remove, mitigate or remediate any Hazardous Materials and/or contaminations of the Property caused by the activities or negligence of the Lessee Group.

6.2.8 ASSIGNMENT AND SUBLETTING. In the event the Lease provides that Lessee may assign the Lease or sublet the Property subject to Lessor's consent certain other conditions, and if the proposed assignee's or sublessee's activities in or about the Property involves the use, handling, storage or disposal of any Hazardous Materials other than those used by Lessee and in quantities and processes similar to Lessee's uses in compliance with the Lease,
(i) it shall be reasonable for Lessor to withhold its consent to such assignment or sublease in light of the risk of contamination posed by such activities and/or (ii) Lessor may impose an additional condition to such assignment or sublease which requires Lessee to reasonably establish that such assignee's or sublessee's activities pose no materially greater risk of contamination to the Property than do Lessee's permitted activities in view of the (a) quantities, toxicity and other properties of the Hazardous Materials to be used by such assignee or sublessee, (b) the precautions against a release of Hazardous Materials such assignee or sublessee agrees to implement, (c) such assignee's or sublessee's financial condition as it relates to its

ability to fund a major cleanup and (d) such assignee's or sublessee's policy and historical record respecting its willingness to respond to the clean up of a sublease of Hazardous Materials. Lessor shall also have its approval rights as set forth in Section 12.

6.2.9 SURVIVAL OF HAZARDOUS MATERIALS OBLIGATION. Lessee's breach of any of its covenants or obligations under this Lease shall constitute a material default under the Lease. The obligations of Lessee under this PARAGRAPH 6.2 shall survive the expiration or earlier termination of the Lease without any limitation and shall constitute obligations that are independent and severable from Lessee's covenants and obligations to pay rent under the Lease.

6.3 LEASE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, including, without limitation, Paragraph 2.3, above, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee's shall, within ten (10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any covenants involved) of any threatened or actual claim, notice, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, and on reasonable notice (24 hours being reasonable in all events) for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority and was occasioned by Lessee's operations in the Premises, or a good faith belief that Lessee is not in compliance with all Applicable Requirements. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.

7. MAINTENANCE: REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.

7.1 LESSEE'S OBLIGATIONS.

(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating,

air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), ceilings, roofs membrane and surface, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, or on, the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the present condition of the Building, and the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the removal of graffiti or similar defacement of the exterior of the Building.

(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers, (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor,

(c) REPLACEMENT. Subject to Lessee's indemnification of Lesser as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numeral (which is one, and the denominator of which is the number of months of the useful life of such replacement no such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor's accountants), with Lessee reserving the right to prepay its obligation at any time.

7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereinafter in effect to the extent it is inconsistent with the terms of this Lease. Notwithstanding anything to the contrary herein, Lessor, at its sole cost and expense, shall be responsible for the repair of any and all structural defects, floor slab and foundation defects, and latent structural defects in the Building during the original term of the Lease. Lessor shall also be

responsible for, and keep in good order, maintenance and including restoration, replacement and renewal, the structural elements of the roof.

7.3 UTILITY INSTALLATION; TRADE FIXTURES; ALTERATIONS.

(A) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fending in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alternations and/or Utility installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during any twelve month period during the Term of this Lease as extended does not exceed $50,000 in the aggregate.

(B) CONSENT. Any Alterations or Utility installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall he deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility installation and/or upon Lessee's posting an additional Security Deposit with Lessor

(C) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Losses at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorney's fees and costs.

7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

(A) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing be the owner of all or any specified part of the Lessee Owned Alterations and Utility installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(B) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility installations the approval of which by Lessor was conditioned upon their removal at the time the approval was granted, be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility installations made without the required consent.

(C) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear and casualty damage for which lessee has no responsibility under the terms of this Lease excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Losses shall repair any damage occasioned the installation, maintenance or removal of Trade Fixtures, Losses Owned Alterations and/or utility installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. Notwithstanding anything else herein to the contrary, "ORDINARY WEAR AND TEAR" shall not include any condition which results in. or the fact of, a failure of any building system (including, without limitation, the HVAC, plumbing, electrical. load lovelorn, and similar items) to operate effectively for the purpose for which it was intended. Lessee fully understands that its surrender obligations shall be performed on or prior to the Expiration Date or earlier termination of the Lease. In the event that the Premises are left in a condition at such time which does not comply with the terms and conditions hereof, Lessor shall be entitled to treat Lessee as a holdover tenant, on a day to day basis, with Base Rent and all Rent and Expenses charged in accordance with paragraph 26 hereof. During such holdover period Lessor shall have the right, but not the obligation, to enter into the Premises, without notice to Lessee, and without terminating Lessee's holdover status, for the purpose of assessing the condition of the Premises, and undertaking the clean up and restoration of same as required to bring the Premises into compliance with the terms of this paragraph 7, Lessee shall pay and be responsible for (either from the Security Deposit, or otherwise as Lessor elects) the cost of such clean up and restoration, which Lessor shall perform, or cause to be performed, pursuant to an arms length agreement with the appropriate consultants and contractors and laborers. In the event that Lessee's Security Deposit is inadequate to pay for such costs, Lessee shall pay same to Lessor within five (5) days of the date of the invoice for same

provided to Lessee. Lessor shall also have the right, but not the obligation, to remove any personal property, inventory, machinery, or other items left in the Premises by Lessee following the Expiration Date or earlier termination of the Lease, and to store same, as Lessee's expense, or dispose of same, in accordance with Lessor's rights under law, and Lessor may charge the cost of same against any remaining Security Deposit, or invoice same to Lessee, who shall pay such costs within five (5) days of the date of such invoice.

8. INSURANCE; INDEMNITY.

8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice.

8.2 LIABILITY INSURANCE.

(A) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES Endorsement" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an 'insured contract' for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. All policies required to be maintained by Lessee shall name Lessor, its property manager, and any lender of Lessor's, as additional insureds. In addition, Lessee shall obtain and keep in force during the term of the Lease, an "excess" or "umbrella" policy, in the amount of $5,000,000.00, which shall in all other respects conform to the requirements set forth herein for insurance to be carried by the Lessee, including, without limitation, those requirements concerning the named and additional insureds, the characteristics of the insurer, and the providing of proof of coverage to Lessor.

(B) CARRIED BY LESSOR. Lessor may, but shall not be obligated to, maintain liability insurance as described in Paragraph 8.2(a), in addition, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

(A) BUILDING AND IMPROVEMENTS. The insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be

equal to ninety percent (90%) of the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the insuring Party, however, Lessee Owned Alterations and Utility installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage including the perils of flood and/or earthquake if Lessor so desires, including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an insured Loss.

(B) RENTAL VALUE. The insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.

(C) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.

8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.

(A) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(B) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(C) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.

8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or

neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.

9. DAMAGE OR DESTRUCTION.

9.1 DEFINITIONS.

(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility installations, which can reasonably be repaired in six (6) months or less from the date of damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.

9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility installations) as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request

therefor. If Lessor receives said funds or adequate assurance thereof within said ten days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease will continue in full force and

effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished. If during such last six month period Lease has already irrevocably exercised its Option to Extend, then the provisions of paragraphs 9.1 through 9.4 shall prevail without regard to the time at which the damage has occurred.

9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.

(A) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(B) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial or meaningful way, the repair or restoration within ninety (90) days after such obligation shall accrue, or, having commenced, does not thereafter diligently pursue same to completion (subject to Lessee Delay and paragraph 50 of this Lease) Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor, and of Additional Rent or other sums owed by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent nonexistent herewith.

10. REAL PROPERTY TAXES.

10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income, excise, franchise or corporate transfer attributable, or estate taxes); improvement bond; and/or license fee imposed upon or levied against

any legal or equitable interest of Lessor in the Premises, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct and indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any fax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises.

10.2

(A) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. However, Lessor, in its sole and absolute discretion, may elect to pay such taxes directly, and then invoice Lessee for same. Lessee shall reimburse Lessor for such amounts within ten (10) business days of the date of same. Unless and until Lessor advises Lessee, in writing, to the contrary, Lessor shall initially pay all such taxes directly.

(B) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of Shares remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All monies paid to Lessor under this Paragraph may be intermingled with other monies of Lessor and shall not bear interest. I the event of a Breach of Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, at the option of Lessor, be treated as an additional Security Deposit.

10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.

10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such Property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement.

10.5 RIGHT TO CONTEST. Lessee shall have the right to contest any Real Property Tax with the applicable taxing authority or authorities in accordance with all applicable tax contest procedures provided by law so long as (a) Lessee continues to pay all Rent (including all Real Property Taxes then assessed) as required under this Lease, and (b) such Real Property Tax is being diligently contested in good faith. In the event that Lessee elects to contest any assessment of Real Property Taxes, Lessee shall first notify Lessor of any such intended contest and shall consult and coordinate with, and permit participation by Lessor and Lessor's legal counsel in connection with such contest, including any tax contests being concurrently contemplated, undertaken or advocated by Lessor. Any such contest by Lessee shall be conducted solely at Lessee's cost and expense. Lessor agrees to cooperate fully with Lessee in such contest, including executing any documents of authorization necessary in connection therewith.

11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered.

12. ASSIGNMENT AND SUBLETTING.

12.1 LESSOR'S CONSENT REQUIRED.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.

(b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose, except in the normal course of business if Lessee is a publicly traded company, and except in the course of a bona-fide public offering of stock, which complies in all respects with all Applicable Requirements.

(c) Except as provided in subparagraph (f), below, the involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to

which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(e), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice. Increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.

(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Notwithstanding anything in this Paragraph 12.1 to the contrary, Lessee may assign this Lease, or sublet the Premises or any portion thereof, without Lessor's consent (a "Permitted Transfer") to any parent, subsidiary, or affiliate corporation or other business entity which controls, is controlled by or is under common control with Lessee, or to any person or entity which acquires all the assets of Lessee's business as a going concern, (collectively, a "Permitted Transferee") provided that: (i) at least thirty (30) days prior to such assignment or sublease, or as soon thereafter as is practicable, Lessee delivers to Lessor the financial statements and other financial and background information of the assignee or sublessee as is required for other transfers;
(ii) if the transfer is an assignment, the assignee assumes, in full, the obligations of lessee under this Lease (or if a sublease, the sublessee assumes, in full, the obligations of Lessee with respect to such portion as sublessee has subleased); (iii) the financial net worth of the assignees or sublessees as of the time of the proposed transfer is sufficient for such assignee or sublessee to fulfill its obligations pursuant to such assignment or sublease (and in considering same, Lessor shall have the right to consider the long term prospects for sustaining such ability to perform for the period of any extended term, if applicable); (iv) Lessee remains fully liable under this Lease; and (v) unless Lessor consents to same, the use of the Premises set forth herein remains unchanged.

12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease; (ii) release Lessee of any obligations hereunder; or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall

constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.

(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or, required modification of the Premises, if any. Lessee shall reimburse Lessor, as Additional Rent, for its actual, reasonable costs and expenses, including reasonable attorneys' fees, incurred in considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor may refuse to consent on any commercially reasonable grounds. Including, without limitation: the potential inability of the proposed assignee to fulfill the Lease terms and the financial irresponsibility or instability of the proposed assignee or sublessee, the lack of suitability of the Premises for the intended use by the proposed assignee or sublessee, the potential for unlawful or undesirable use of the Premises by the proposed assignee or sublessee, or the character or business reputation of the proposed assignee or sublessee. In any dispute which arises under this paragraph, Lessee shall pay to Lessor all of Lessor's costs and expenses reasonably incurred by Lessor in making the investigation and factual findings provided for in this paragraph.

12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such

sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or fight to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

12.4 TRANSFER PREMIUMS. Fifty percent (50%) of any sums or other economic consideration received by Lessee as a result of any assignment or subletting entered into pursuant to this Paragraph 12, however denominated under the assignment or sublease, which exceed, in the aggregate (a) the total sums which Lessee is obligated to pay Lessor under this Lease (prorated to reflect obligations allocable to any portion of the Premises subleased), plus (b)(i) reasonable real estate brokerage commissions or fees payable by Lessee in connection with such assignment or subletting, (ii) the reasonable fees of attorneys, architects and engineers, and (iii) reasonable costs of tenant improvements required to be constructed by Lessee for any such assignee or subtenant, shall be paid by Lessee to Lessor as additional rent under this Lease without affecting or reducing any other obligations of Lessee hereunder. Lessee understands, acknowledges and agrees that Lessor's right to recapture any consideration paid in connection with an approved assignment or subletting is a material inducement for Lessor's agreement to lease the Premises to Lessee upon the terms and conditions set forth herein.

12.5 LESSOR'S OPTION AS TO SUBJECT SPACE. Notwithstanding the foregoing provisions contained in this Paragraph 12 to the contrary, Lessor shall have the option, by giving written notice to Lessee within twenty (20) days after Lessor's receipt of written notice by Lessees (accompanied by all of the items set forth in this Paragraph 12 concerning the nature of the transfer and the transferee) of any proposed assignment or sublease (except to a Permitted Transferee) for a term of three (3) years or more by Lessee (a "Transfer Notice"), to recapture the space which is the subject of such proposed transfer (the "Subject Space"), provided the subject space constitutes not less than 100,000 square feet, or, if prior transfers have occurred, would result in having 100,000 square feet

in the aggregate assigned or sublet. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice. In the event of a recapture by Lessor, if this Lease shall be canceled with respect to less than the entire Premises, the rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Lessee in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute confirmation of same. If Lessor declines, or fails to elect in a timely manner to recapture the Subject Space under this Paragraph 12.5, then, provided Lessor has consented to the proposed transfer pursuant to Paragraph 12.2, Lessee shall be entitled to proceed to transfer the Subject Space to the proposed transferee, subject to the other provisions of this Paragraph 12 (including Paragraph 12.4 above).

13. DEFAULT; BREACH; REMEDIES.

13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues far a period of fifteen (15) days following written notice to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that it the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph 13.1(a) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor; (ii) the termination of a grantor's liability with respect to this Lease other than in accordance with the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the guaranty; or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within sixty (60) days following written notice of any such event to provide written alternative assurance or security, which when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after the termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of

things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease, as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.

13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terns, covenants and conditions of this Lease, including without limitation, the timely payment (i.e., prior to the time Lessee is in default, as set forth in paragraph 13.1(b)) of all rent due hereunder. Upon Breach of this Lease by Lessee (which shall be deemed to include any late payment of rent or other sums due hereunder, or the presentation in payment of any obligation hereunder of any check which is not honored on the first attempt to realize on it), any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of Rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. Notwithstanding anything else herein to the contrary, Lessee

shall not be subject to the loss of an inducement due to a default in the payment of Rent if Lessee has not been late with respect to the payment of Rent more than three times in the first thirty menthe of the Term, and all such late payments have been made within the time periods allowed by this Lease.

13.4 LATE CHARGES. Lessee hereby acknowledges that late payments by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.

13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest ("INTEREST") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 BREACH BY LESSOR.

(A) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, (except in the event of an emergency, in which event the reasonableness of the time of Lessor's response shall be determined in relationship to the nature and extent of the emergency) a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced with such thirty (30) day period and thereafter diligently pursued to completion.

(B) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's

Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.

13.7 MORTGAGEE PROTECTION. Lessee to send by certified or registered mail to any Lender whose address has been furnished to Lessee, a copy of any notice of default served by Lessee on Lessor. If Lessor fails to cure such default within the time provided for in this Lease, such Lender shall have an additional thirty (30) days to cure such default; provided, however, that if such default cannot reasonably be cured within that thirty (30) day period, then such Lender shall have such additional time to cure the default as is reasonably necessary under the circumstances (including, without limitation, the time to obtain possession of the Premises by foreclosure or similar proceedings).

14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION") this Lease shall terminate as to the part taken as of the data the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the Premises, or more than twenty-five percent (25%) of the land area portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. BROKERS' FEE.

15.1 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the Indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto.

16. ESTOPPEL CERTIFICATES.

(a) Each Party (as "RESPONDING PARTY") shall within fifteen (15) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel Certificate" form published by the American Industrial Real Estate Association, or such form as is reasonably required by any lender of Lessor, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the responding Party fail to execute or deliver the Estoppel Certificate within such fifteen (15) day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's Rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Company shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including, but not limited to, Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. DEFINITION OF LESSOR. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants of this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substance as outlined in Paragraph 6 above.

18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.

20. LIMITATION ON LIABILITY. See paragraph 51, below.

21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective.

23. NOTICES.

23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hour after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation or receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach of Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.

26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. Unless Lessor and Lessee have reached an agreement in writing to the contrary, if Lessee fails to surrender the Premises upon the expiration or earlier termination of the Lease despite Lessor's demand to do so. In addition to the rent and other obligations of Lessee as provided in this Lease, Lessee shall indemnify and hold Lessor harmless against any and all losses, costs, damages and liability (including actual attorneys' fees and costs, and court costs), direct or indirect, which Lessor may suffer as a result of Lessee's failure to surrender the Premises.

27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located.

30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "LESSOR'S LENDER") shall have no liability or obligation to perform any of the obligations of Lessor under Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. Lessee waives the protection of any statute or rule of law which gives or purports to give Lessee any right to terminate this Lease or surrender possession of the Premise upon the transfer of Lessor's interest by foreclosure, deed in lieu of foreclosure, or otherwise.

30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor; or (iii) be bound by prepaying of more than one (1) month's rent.

30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorneys to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.

32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times and upon reasonable notice (it being agreed that 24 hours is reasonable for the purposes of this paragraph 32) for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "For Sale" signs and Lessor may during the last six

(6) months of the term hereof place on the Premises any ordinary "For Lease" signs. Lessee may at any time place on or about the Premises any ordinary "For Sublease" sign.

33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit any auction.

34. SIGNS. Lessee shall have the right, at its sole expense, to install building signage which is consistent in type, amount and quality with that of other occupants in California Commerce Center, and in accordance with all requirements of California Commerce Center, and the City of Fontana. All signs must comply with all Applicable Requirements.

35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.

36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party be required to an act by or for the other Party, such consent hall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including, but not limited to, architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including, but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgement that no Default or Breach of Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.

37. GUARANTOR.

37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a

certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Tenancy Statement, or
(d) written confirmation that the guaranty is still in effect.

38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. OPTIONS.

39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee or Permitted Assignee, as applicable, certifying that lessee has no intention of thereafter assigning or subletting.

39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 EFFECT OF DEFAULT ON OPTIONS.

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until such Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.

39.5 OPTIONS TO EXTEND. Lessee may extend the Term for one (1) additional period of five (5) years (the "EXTENDED TERM") upon all the terms and conditions of this Lease, subject to the

following terms, conditions and exceptions. Lessee must exercise the Option, if at all, by giving written notice of its intention to do so no earlier than nine
(9) and no later than six (6) months prior to the end of the Original Term:

(a) Lessee's option shall automatically terminate upon any transfer, assignment, sublease, conveyance, hypothecation or encumbrance of the Lease (except to a Permitted Transferee) for which Lessor's consent is required, or if the use of the Premises specified in Paragraph 1.8 and 6 is changed without the consent of Lessor.

(b) Base Rent for the first Extended Term shall be equal to the Fair Market Rate (the "FMRR") of the Premises as of the commencement of such Extended Term. As used herein, FMRR shall mean the rent that a willing lessee would pay to a willing lessor, with neither party under any financial duress, in an arm's length transaction, for property similar to the Premises, as the Premises are then improved (and taking into account that there shall be no free rent period and no payment of broker's commissions), in the market area in which the Premises are located. Not more than nine (9), nor less than six (6) months before the end of the Original Term, Lessee shall provide Lessor with its written notice that it wishes to exercise its option as provided for herein. Within thirty (30) days of Lessor's receipt of such notice, Lessor shall provide Lessee, in writing, its good faith opinion of the FMRR of the Premises as of the end of such term ("LESSOR'S FMRR NOTICE"). If Lessee objects to Lessor's determination of the FMRR of the Premises for the Extended Term, Lessee shall notify Lessor in writing, within fifteen (15) days after receipt of Lessor's notice of the FMRR, that Lessee disagrees with Lessor's determination. The parties shall then attempt to agree upon the FMRR. In the event that Lessor and Lessee are unable to agree upon the FMRR of the Premises within thirty (30) days of Lessor's receipt of Lessee's notice that it disagrees with the Lessor's FMRR Notice, then the FMRR shall be determined by appraisal in the manner provided below. Until the appraisal procedures are finalized, Lessee shall continue to pay Lessor the amount of Base Rent due immediately preceding the expiration of the Lease Term. After the determination of the appraisers is final, Lessee shall promptly make payment to Lessor for any underpayment of Base Rent owing for prior months.

The FMRR of the Premises shall be determined as follows: The Premises shall be appraised by an MAI appraiser chosen by Lessor ("FIRST APPRAISAL") and the appraisal report forwarded to Lessee. If the First Appraisal is deemed unacceptable by Lessee, then Lessee shall so advise Lessor in writing within ten
(10) working days after receipt of the First Appraisal and Lessee shall have the right to engage an MAI appraiser to appraise the Premises ("SECOND APPRAISAL") and the appraisal report forwarded to Lessor. In the event Lessor shall deem the Second Appraisal unacceptable, then Lessor shall advise Lessee within ten (10) working days after receipt of the Second Appraisal, and the first appraiser and second appraiser shall together choose a third MAI appraiser who shall appraise the Premises (the "THIRD APPRAISAL") and forward the appraisal report to Lessor and Lessee. The cost of the second appraisal shall be borne by Lessee, and the cost of the third Appraiser, if any, shall be shared equally by the parties. All Appraisers shall have no less than five (5) years experience (up to and including the date of instituting the appraisal process, of appraising property like the Premises, in the market area where the Premises are located. If the Third Appraiser is greater than the highest or lower than the lowest of the First and Second Appraisals, then the FMRR for the Premises shall be the average of the First and Second Appraisals. If the Third Appraisal is not greater than the highest nor lower than the lowest of the First and Second

Appraisals, then the FMRR for the Premises shall be the sum of the three appraisals, divided by three (3). The appraisal process shall commence no later than forty-five (45) days prior to the effect date of the Extended Term and shall be concluded within thirty (30) days after the start of the appraisal process.

Notwithstanding anything else herein to the contrary, in no event shall the Base Rent for any Extended Term be less than that in effect at the end of the prior Term.

40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.

41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation, whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not materially interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "UNDER PROTEST" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within thirty (30) days after request, deliver to the other Party satisfactory evidence of such authority.

45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder (i.e., there shall be no material increase in Lessee's obligations, and no material decrease in Lessee's rights), Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.

49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease is is not attached to this Lease.

50. UNAVOIDABLE DELAYS. If the performance of Lessor of any act required herein, including, without limitation, the design, planning, permitting, construction and completion of the Tenant Improvements, is prevent or delayed by reason of strikes, lockouts, labor disputes, governmental delays, acts of God, fire, floods, epidemics, freight embargoes, unavailability of materials and supplies, development moratoriums imposed by any governmental authority, or other causes beyond the reasonable control of Lessor, Lessor shall be excused from performing that act for the period equal to the period of the prevention or delay.

51. LIMITATION ON LIABILITY. In consideration of the benefits accruing hereunder, Lessee on behalf of itself and all successors and assigns of Lessee covenants and agrees that, notwithstanding anything in this Lease to the contrary and notwithstanding any applicable law to the contrary:

(a) the liability of Lessor under this Lease (including any liability for any actual or alleged failure, breach or default by Lessor under this case, and/or negligence by Lessor hereunder) and any recourse against Lessor shall be limited solely to Lessor's interest in the Premises, and the undistributed rents, profits, other income derived from the Premises, and available insurance proceeds (and not any other assets of Lessor); and

(b) the obligations of Lessor under this Lease do not constitute personal obligations of the members, partners or subpartners of Lessor, or any of the managers, directors, officers or shareholders of lessor or Lessor's members, partners or subpartners, and Lessee shall not seek recourse against any such members, partners or subpartners or any of their personal assets for satisfaction of any liability with respect to this Lease.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVISE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

Executed at: DES MOINES                Executed at: North Andover, Massachusetts


on:                                        on:


By LESSOR:                             By LESSEE:


PRINCIPAL LIFE INSURANCE CO.           CONVERSE INC., A DELAWARE CORPORATION
          AN IOWA CORPORATION

By: /S/ DOUG KINTELE                   By: /S/ MARSDEN S. CASON

Name Printed: DOUG KINTELE             Name Printed: MARSDEN S. CASON

Title: ASSISTANT DIRECTOR,             Title: EXECUTIVE CO-CHAIRMAN

      COMMERCIAL REAL ESTATE

By: /S/ JOHN N. URBAN                  By: /S/ LAURA W. KELLEY

Name Printed: JOHN N. URBAN            Name Printed: LAURA W. KELLEY

Title: DIRECTOR, ASSET MANAGEMENT      Title: VP LEGAL

Address:                               Address: ONE HIGH STREET
                                                NORTH ANDOVER, MA 01845

Telephone: (___)                       Telephone: (978) 983-3300

Facsimile: (___)                       Facsimile: (978) 983-3503

Federal ID No.                         Federal ID No.

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017, (213) 687-8777, Fax No. (213) 687-8616

EXHIBIT 10.8

STOCK PURCHASE AND TRADEMARK AGREEMENT

This Agreement (the "AGREEMENT") is entered into as of February 24, 2001 by and between Cre-8-Net Ventures L.L.C., a Delaware limited liability company ("CRE-8-NET"), Footwear Acquisition, Inc., a Delaware corporation ("NEWCO"), and Itochu Corporation, a Japanese corporation ("ITOCHU").

RECITALS

WHEREAS, Converse, Inc. ("CONVERSE") is currently a debtor and debtor in possession in bankruptcy under the United States Bankruptcy Code ("BANKRUPTCY") and is seeking to sell its assets by auction in Bankruptcy pursuant to an order issued by the United States Bankruptcy Court for the District of Delaware (the "BANKRUPTCY COURT") on February 5, 2001.

WHEREAS, the parties hereto wish to form, with certain other parties, a new corporation, Footwear Acquisition, Inc., for the purposes of Newco's purchasing, directly or through a wholly-owned subsidiary, out of Bankruptcy (the "CONVERSE PURCHASE") the Converse Assets (as defined below), including all of Converse's footwear trademarks in Japan.

WHEREAS, in conjunction with the Converse Purchase, and in exchange for the consideration described herein, Newco intends on the terms set forth in this Agreement, among other things, to transfer to Itochu all right, title and interest in and to Converse's Japanese Footwear Trademarks (as defined below), to issue to Itochu shares of Newco's capital stock, to grant Itochu exclusive distribution rights in Japan (subject to the limitations contained herein), and to grant Itochu certain rights of first negotiation and first refusal with respect to designated Asian distribution rights.

WHEREAS, in conjunction with the transactions contemplated hereby, Cre-8-Net, Newco and Itochu are entering into the Cooperative Marketing Agreement in the form attached hereto as Exhibit A (the "COOPERATIVE MARKETING AGREEMENT").

NOW, THEREFORE, in consideration of the foregoing, the expenses incurred and expected to be incurred by Newco in connection with the Converse Purchase and the mutual promises set forth below, the parties agree as follows:

1. DEFINITIONS.

For purposes of this Agreement:

"Agreement" has the meaning set forth in the Preamble to this Agreement.

"Bank" has the meaning set forth in Section 2.5.

"Bankruptcy" has the meaning set forth in the Recitals to the Agreement.

"Bankruptcy Court" has the meaning set forth in the Recitals to the Agreement.

"Closing Date" has the meaning set forth in Section 2.6.

"Converse" has the meaning set forth in the Recitals to this Agreement.

"Converse Assets" shall mean Converse's trademarks, including all of Converse's footwear trademarks in Japan, and related licenses, patents, trade secrets, designs, footwear lasts, logos, license, distribution, manufacturing and other legal agreements, data processing hardware and software, certain employee contracts, certain leases, order backlog, customer lists and order history, marketing materials, vendor lists with production and pricing data past and pending, and detailed inventory data and other assets, including, without limitation, inventory and equipment; provided, however, "Converse Assets" shall not include any Converse assets which Newco and Cre-8-Net shall reasonably determine not to acquire so long as (i) such exclusion shall not prevent or impair Newco's ability to transfer the Japanese Footwear Trademarks to Itochu as contemplated by this Agreement or the grant of the rights set forth in Section 5 and (ii) Newco shall have acquired substantially all material Converse trademarks, related licenses and other intellectual property rights related to Converse's current footwear and apparel businesses.

"Converse Purchase" has the meaning set forth in the Recitals to this Agreement.

"Cooperative Marketing Agreement" has the meaning set forth in the Recitals to this Agreement.

"Cre-8-Net" has the meaning set forth in the Preamble to this Agreement.

"Election Notice" has the meaning set forth in Section 8.1.

"Financial Statements" has the meaning set forth in Section 4.2.

"Investor Rights Agreement" has the meaning set forth in Section 4.2(b).

"Itochu" has the meaning set forth in the Preamble to this Agreement.

"Japanese Footwear Trademarks" has the meaning set forth in Section 3.1.

"License Notice" has the meaning set forth in Section 5.2.

"Liens" shall mean any limitations, restrictions or encumbrances of any nature, including royalty obligations (to the extent consistent with Japanese laws) other than restrictions on use rights arising from licensing arrangements as licensor; provided, however, Liens shall not include any limitation, restrictions or encumbrances agreed to by Itochu.

"Newco" has the meaning set forth in the Preamble to this Agreement.

"Newco Change of Control" means (i) the acquisition of Newco by another entity by means of any reorganization, merger or consolidation involving Newco; or (ii) a sale of all or substantially all of the assets of Newco (including the stock of any wholly owned subsidiary holding or acquiring the Converse Assets); unless in each case, Newco's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for Newco's acquisition or sale or otherwise), hold more than fifty percent (50%) of the voting power of the surviving or acquiring entity.

"Offered Shares" has the meaning set forth in Section 8.1.

"Offered Price" has the meaning set forth in Section 8.1.

"Other Trademarks" has the meaning set forth in Section 8.2.

"Proposed Transferee" has the meaning set forth in Section 8.1.

"Price" has the meaning set forth in Section 8.1.

"Purchase Price" has the meaning set forth in Section 2.4.

"Purchase Offer" has the meaning set forth in Section 8.1.

"Renewing License" has the meaning set forth in Section 5.1.

"Restricted Investors" means any of the following entities: Mitsubishi Corporation, Mitsui & Co, Ltd., Sumitomo Corporation, Marubeni Corporation, Nissho Iwai Corporation, Tomen Corporation, Kanematsu Corporation or Nichimen Corporation or any corporate affiliate thereof.

"Qualified IPO" shall mean a firm commitment underwritten public offering by Newco of shares of its common stock pursuant to a registration statement under the Securities Act which offering shall have gross proceeds (prior to underwriters' discounts and commissions) to Newco of at least $20,000,000.

"Securities Act" means the United States Securities Act of 1933 and the rules and regulations promulgated thereunder.

"Shares" has the meaning set forth in Section 4.1.

"Stock Disposition Notice" has the meaning set forth in Section 8.1.

"Stock Right of First Refusal" has the meaning set forth in Section 8.1.

"Trademark Transfer Notice" has the meaning set forth in Section 8.2.

"Transfer" means any sale, transfer, pledge, exclusive license or other encumbrance.

"Transfer Documents" has the meaning set forth in Section 3.1.

2. CONSIDERATION; ESCROW ARRANGEMENTS

2.1 Converse Purchase. Cre-8-Net shall, and shall cause Newco to, in good faith take commercially reasonable actions necessary or appropriate, if granted the opportunity to by the Bankruptcy Court, to prepare, submit on a timely basis and negotiate an offer to seek to effect the Converse Purchase and acquire the Converse Assets so that, on and after the Closing Date, Newco may transfer the Japanese Footwear Trademarks to Itochu and effect the other transactions with Itochu as contemplated herein. Without limiting the generality of the foregoing, Cre-8-Net shall, and shall cause Newco to, in good faith use commercially reasonable efforts to procure capital investment and other financing from third parties (on commercially reasonable terms) and in amounts, in addition to the capital investment and financing provided by Itochu, as may be required to effect the Converse Purchase on commercially reasonable terms. For avoidance of doubt, subject to Section 2.7, neither Newco nor Cre-8-Net shall have any liability to Itochu if in good faith they determine after using commercially reasonable efforts not to proceed with the Converse Purchase.

2.2 Information; Approval Rights. Cre-8-Net shall keep Itochu reasonably advised, and shall cause Newco to keep Itochu reasonably advised, from time to time and as may be reasonably requested by Itochu, of the terms and conditions of any offer by Newco or Cre-8-Net that may be made in relation to the Converse Purchase and the status of any discussions or negotiations in relation thereto. Without limiting the foregoing, Newco's bid submitted to the Bankruptcy Court shall provide for, and require as a condition to closing, (i) Newco's acquisition of substantially all the Converse Assets including the Japanese Footwear Trademarks and (ii) the rights necessary for Newco to perform its obligations under Section 5 of this Agreement. The foregoing provisions of Newco's bid shall not be amended without Itochu's prior written consent.

2.3 Confidentiality; Public Disclosure. The terms and conditions of this Agreement and any non-public information exchanged among Cre-8-Net, Newco and Itochu hereunder constitute confidential information and shall not be disclosed to any third party except as provided below. No party hereto may make any public disclosure concerning this Agreement or the terms or conditions hereof without the prior written approval of each of the other parties hereto, except to the extent that such public disclosure is required by applicable laws. In such case, the party that is required to make such public disclosure shall provide a copy of its proposed public disclosure to the other parties in advance and shall limit the scope of the public disclosure to include only such information as is required, in the reasonable discretion of the party making the public disclosure, to comply with its obligations under applicable laws. If Cre-8-Net or Newco determine that any of the terms and conditions of this Agreement and any non-public information exchanged among Cre-8-Net, Newco and Itochu hereunder must be disclosed in relation to Newco's offer for the Converse Assets, Cre-8-Net and Newco shall consult with Itochu in advance of such disclosure and shall subject to applicable law limit such disclosure as may be reasonably requested by Itochu. The foregoing shall not prohibit disclosure of the terms and conditions of this Agreement to bona fide prospective Newco investors, employees, investment bankers, lenders, accountants and attorneys where such persons and entities are under appropriate contractual or professional non-disclosure obligations.

2.4 Itochu Cash Payment. In consideration of the transfer of rights to the Japanese Footwear Trademarks to Itochu set forth in Section 3.1, the Newco share issuance in Section 4, the rights of first negotiation and first refusal granted to Itochu set forth in Section 5 below, and the other rights granted to it hereunder, Itochu agrees to pay to Newco Yen 3,700,000,000 (the "PURCHASE Price"), which shall be allocated Yen 200,000,000 to the Shares and Yen 3,500,000,000 to the Japanese Footwear Trademarks and other rights granted under this Agreement.

2.5 Escrow/Other Arrangements. Itochu shall not later than March 4, 2001, deposit an amount equal to the Purchase Price into an escrow account or shall otherwise provide alternative credit arrangements or facilities that Newco may draw upon, as may be reasonably acceptable to Newco and Itochu. Any escrow account established pursuant to this Section 2.5 shall be in the name of a mutually agreed third party escrow agent, shall be opened with a branch or office of a United States bank agreed upon by Cre-8-Net and Itochu (the "BANK") pursuant to Bank's customary escrow agreement, and all funds placed therein shall be invested in money market funds or investment grade rated interest bearing instruments.

2.6 Release of Funds; Closing. Cre-8-Net shall not, and shall cause Newco not to, draw upon, use or otherwise commit such escrow account or alternative credit arrangements or facilities unless and until all the conditions precedent under Sections 7.1 and 7.3 have been satisfied in full or waived by Itochu. Subject to the foregoing, the consummation of the transactions contemplated under this Agreement shall take place concurrently with the closing of the Converse Purchase (the "CLOSING DATE").

2.7 Return of Funds. Notwithstanding the foregoing, if Newco withdraws its offer to effect the Converse Purchase or is otherwise unsuccessful in its efforts to complete the Converse Purchase, Newco shall, and Cre-8-Net shall cause Newco to, release and return immediately to Itochu the Purchase Price and any alternative credit arrangements or facilities provided by Itochu as directed by Itochu in writing, in the original currency provided by Itochu together with interest then accrued thereon (converted if applicable into the original currency) less a pro rata portion of the related escrow fees and expenses. In any event, if for any reason the Converse Purchase has not been completed by May 15, 2001, unless Itochu otherwise agrees in writing, Newco shall, and Cre-8-Net shall cause Newco to, release and return immediately to Itochu the Purchase Price the escrow account and any alternative credit arrangements or facilities provided by Itochu as directed by Itochu in writing, in the original currency provided by Itochu together with interest then accrued thereon (converted if applicable into the original currency) less a pro rata portion of the related escrow fees and expenses.

3. JAPANESE TRADEMARK AND DISTRIBUTION RIGHTS

3.1 Transfer of Japanese Footwear Trademarks; Other Transfer and Confirmation. On the Closing Date, Newco shall transfer the Japanese Footwear Trademarks and transfer and confirm the other rights granted herein and shall execute and deliver to Itochu Japanese applications for trademark transfer forms as may be properly prepared and requested by Itochu covering the Japanese Footwear Trademarks and any other documents reasonably requested and identified by Itochu to effect the transfer of the Japanese Footwear Trademarks to Itochu (collectively, the "TRANSFER DOCUMENTS"). As used herein, the "JAPANESE FOOTWEAR TRADEMARKS" means all of Converse's rights to trademarks in Japan, including without limitation footwear trademarks, and all of Converse's licensed rights, copyrights, design rights and other intellectual property rights related thereto in Japan, including without limitation all contractual or other rights as licensor in relation to footwear in Japan, which are currently owned by Converse, excluding any rights in portions of the applicable trademarks or other intellectual property rights that may be co-owned by any third party, and subject to any exclusions approved by Itochu. Itochu acknowledges that notwithstanding execution and delivery of the Transfer Documents on the Closing Date, the completion and recordation of such transfer with the Japanese trademark registration authority will occur after the Closing Date. Newco shall transfer, through delivery of the Transfer Documents, the Japanese Footwear Trademarks to Itochu free and clear of any Liens that may exist on the Closing Date; provided, however, that (i) the transfer of contractual or other rights as licensor shall be subject to obtaining any consents to such transfer as may be required under the applicable agreement and (ii) the transfer of Converse's rights to any co-owned trademark shall be subject to obtaining any consents to such transfer as may be required from the co-owner. Itochu shall, at its own expense and with the cooperation of Newco apply for the assignment of the Japanese registrations for the Japanese Footwear Trademarks, and Itochu shall otherwise bear all expenses in connection with completion and recordation of the transfer thereof. Upon execution of the Transfer Documents, Itochu shall be free to make all footwear related trademark applications with respect to the Japanese Footwear Trademarks in Japan, and Newco shall cooperate with Itochu in expanding the categories of registration of the Japanese Footwear Trademarks in Japan to include other appropriate categories of registration.

3.2 Transfer of Right, Title and Interest. Concurrently with the execution of the Transfer Documents, Newco shall execute such other documents as Itochu may properly prepare and reasonably request to effect the unconditional transfer of any and all Japanese Footwear Trademarks, free and clear of all Liens that may exist on the Closing Date, and to waive any other, right, title and interest of Newco in and to the Japanese Footwear Trademarks; provided, however, that (i) the transfer of contractual or other rights as licensor shall be subject to obtaining any consents to such transfer as may be required under the applicable agreement and (ii) the transfer of Converse's rights to any co-owned trademark shall be subject to obtaining any consents to such transfer as may be required from the co-owner. Newco shall endeavor to obtain from Converse in the transfer by the Bankruptcy Court a license by Converse of all rights, titles and interests of Converse that it may have in the Japanese Footwear Trademarks for the benefit of Newco and its successors and assigns.

3.3 Distribution Rights. On the Closing Date, Newco shall execute and deliver to Itochu such documents as may be properly prepared and reasonably requested by Itochu to effect the grant to Itochu of the exclusive rights to distribute Converse brand products in Japan, which grant shall be subject to any pre-existing rights of third parties. Newco shall not take any action to extend or renew any pre-existing rights of third parties as such rights expire or terminate and shall exercise such rights as it may have to prevent any automatic renewal of such pre-existing rights. The parties agree that sales hereunder (including Section 3.1) shall be restricted to distribution in Japan only and Itochu shall not knowingly sell to customers in Japan for purposes of export. The foregoing does not restrict any rights specifically acquired pursuant to
Section 5.

3.4 Power of Attorney; No Adverse Action; Further Documents. Effective as of the Closing Date, Newco grants to Itochu an irrevocable power of attorney, with full power of substitution, with respect to the Japanese Footwear Trademarks. Upon the Closing Date, Newco agrees to execute in favor of Itochu or its designee a specific irrevocable power of attorney, with full power of substitution, to record the assignment of the Japanese Footwear Trademarks from Converse to Newco and from Newco to Itochu. Newco agrees that it shall not, nor shall it take any action that could, Transfer any interest in the Japanese Footwear Trademarks (including the creation of any Lien) to any party other than Itochu on or after the Closing Date. Effective as of the Closing Date, Newco agrees that it will grant to Itochu an exclusive, irrevocable, royalty-free license to use the Japanese Footwear Trademarks during the period before Itochu becomes record owner, and while Newco is the record owner, of the Japanese Footwear Trademarks. Newco shall execute and deliver to Itochu such documents as Itochu may properly prepare and reasonably request to effect the foregoing.

4. NEWCO SHARE ISSUANCE TO ITOCHU; ITOCHU SHAREHOLDER RIGHTS

4.1 Share Issuance. On the Closing Date, Newco shall issue to Itochu shares of its common stock representing 5% of the then outstanding shares of Newco capital stock (the "SHARES"). The Shares shall not be registered under the Securities Act in reliance on the investment representations made by Itochu in
Section 6.2(c).

4.2 Additional Rights. For so long as (i) Itochu owns directly or indirectly at least 25% of the Shares issued under this Agreement and (ii) a Newco Change of Control or Qualified IPO has not occurred, Itochu shall be entitled to the following rights:

(a) Information Rights. Within 45 days after the end of each of Newco's fiscal quarters (other than the fourth quarter), Newco shall provide Itochu with financial statements prepared by Newco which contain an income statement, balance sheet and statement of stockholders' equity (the "FINANCIAL STATEMENTS"). Within 90 days after the end of each of Newco's fiscal years, Newco shall deliver to Itochu an audited statement of cash flows for the fiscal year and audited Financial Statements, prepared in accordance with U.S. generally accepted accounting principles and prepared by an independent public accounting firm of US national recognition. Newco shall also promptly provide to Itochu any written information provided to Newco's board of directors and any other information that Itochu shall reasonably request, as determined by Newco's board of directors, provided, however, Newco shall not be obligated pursuant to this Section 4.2(a) to provide access to any information which it reasonably considers to be a trade secret or similar confidential information (including, without limitation, information Newco considers to be subject to attorney/client privilege).

Venture Capital Financing Rights. To the extent Newco or its stockholders provide Perseus Capital (or any other entity providing equity financing to consummate the Converse Purchase) information rights, registration rights, pre-emptive rights, co-sale rights, and/or rights of first refusal with respect to their Newco holdings, Itochu shall be provided such rights under the related investor rights agreement(s) (the "INVESTOR RIGHTS AGREEMENT") except that good faith, appropriate and customary venture capital distinctions and exceptions may be made based on Itochu's status as a common stockholder and size of holdings. With respect to the Shares, Newco hereby grants Itochu the right to participate in any registered public offering by Newco (other than its Qualified Initial Public Offering) on customary terms and conditions. If the foregoing is not included in the Investor Rights Agreement, Newco and Itochu shall execute a separate registration rights agreement for the benefit of Itochu. Newco's obligation to deliver the Financial Statements and other information pursuant to
Section 4.2(a) shall terminate if and only to the extent Itochu is otherwise entitled to the same information as contemplated by Section 4.2(a).

4.3 Lock-Up Agreement. If Newco proposes to conduct a Qualified IPO, upon request of Newco's underwriters, Itochu agrees to execute for the benefit of the underwriters, a lock-up agreement which prohibits the sale, transfer, offer to sell, short sale, pledge, encumbrance or other disposition of the Shares for a period not to exceed 180 days after the date of such public offering.

4.4 New Investors. After the date of this Agreement, to the extent that Newco desires to issue shares of its capital stock to any new investor that is a Restricted Investor, Cre-8-Net and Newco shall consult with Itochu regarding the proposed terms and conditions of the issuance of Newco capital stock. Itochu shall have the right to approve any such new investor.

4.5 Investor Rights Agreement. Once Itochu's rights and obligations under Sections 4.2, 4.3 and 4.4 are incorporated into the Investor Rights Agreement, that agreement shall govern and these provisions shall be terminated.

5. ITOCHU DISTRIBUTION NEGOTIATION AND MANUFACTURING RIGHTS

The provisions of this Section 5 shall be effective on and after the Closing Date.

5.1 Right of First Negotiation. When the current existing licenses for sales of Converse apparel and footwear brands expire or terminate in The People's Republic of China, Taiwan and Korea, Newco agrees to negotiate exclusively with Itochu for a period of ninety (90) days for each country so that Itochu shall have the right to distribute Converse apparel and footwear brands in those countries on terms mutually agreeable to the parties. Newco's foregoing obligation shall be deemed to have been satisfied if Newco shall, prior to any such license expiration or termination, have notified Itochu of the upcoming expiration or termination and negotiated exclusively with Itochu for a period of ninety (90) days. If any such licenses contain provisions that allow the licenses to renew automatically (a "RENEWING LICENSE") unless either party thereto gives notice of termination or non-renewal to the other within a certain time period, Newco shall be obligated to give Itochu written notice and an opportunity to negotiate exclusively at least ninety (90) days prior to the last day on which Newco must give such notice of termination or non-renewal.

5.2 Right of First Refusal. Following the expiration of the current existing licenses for, and prior to entering into any new license for, sales of any Converse apparel and footwear brands in The People's Republic of China, Taiwan and Korea, Newco shall give written notice (the "LICENSE NOTICE") to Itochu setting forth in reasonable details the bona fide material terms and all other relevant material conditions of such proposed license. The foregoing provisions of this Section 5.2 shall not apply to a Renewing License.

(a) Exercise of Right of First Refusal. Itochu shall have the right and option (but not the obligation) to enter into the licensing arrangement described in the License Notice. If Itochu does not wish to pursue the license proposed in the License Notice, Itochu shall give written notice to Newco as promptly as practicable. Unless Itochu gives written notice declining the license proposed in the License Notice, Itochu shall have ninety (90) days following receipt of the License Notice to consummate a license with Newco on mutually agreed terms.

(b) Right to License. If Itochu and Newco do not agree to terms on the license under this Section 5.2, Newco shall have the right to consummate the licensing arrangement described in the License Notice; provided, that, the ultimate terms of the license are not materially more favorable to the licensee than those described in the License Notice and provided further that such license is consummated within ninety (90) days after, as applicable, Itochu's written notice declining the license proposed in the License Notice or the one hundredth eighty-first (181st) day after Itochu's receipt of the License Notice. If Newco is unable to consummate such license in accordance with the terms of this Section 5.2(b), Itochu's right of first refusal shall again apply.

5.3 Manufacturing of Brand. Newco agrees that Itochu may source and manufacture Converse brand footwear anywhere in Asia so long as these non-Japanese made products are sold only in Japan (or in any other countries for which Itochu acquires distribution rights pursuant to Sections 5.1 or 5.2). Newco shall ensure that, following the Closing Date, Itochu retains its current manufacturing rights with respect to Converse brand non-footwear products offered for sale in Japan, on the same terms and conditions as Itochu presently maintains pursuant to its Agreement for Assignment and Sale of Trademarks dated November 25, 1999 with Converse.

6. REPRESENTATIONS AND WARRANTIES

6.1 Representations of Cre-8-Net and Newco. Each of Cre-8-Net and Newco represent and warrant, as of the date hereof and the Closing Date, as follows:

(a) Organization. Cre-8-Net is a limited liability company and validly existing under the laws of the State of Delaware. Newco is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. Each of Cre-8-Net and Newco has all requisite power and authority to own, lease and operate its respective properties and to carry on its respective business as it is now conducted and proposed to be conducted; and each of Cre-8-Net and Newco has all requisite corporate, legal and other power and authority to enter into and perform the terms and conditions of this Agreement.

(b) Capitalization. All of the issued and outstanding shares of capital stock of Newco have been duly authorized and validly issued and are fully paid and nonassessable and have been offered, issued and sold by Newco in compliance with all applicable U.S. federal and state securities laws. Schedule 6.1(b), to be attached hereto prior to the Converse Purchase, sets forth as of the Converse Purchase closing the authorized capital stock of Newco, the number of shares thereof issued and outstanding, and a list of the stockholders of Newco indicating the shares of Newco held by each of them.

(c) Authorization and Compliance. The issuance, sale and delivery of the Shares in accordance with this Agreement by Newco, the execution, delivery and performance by Newco and Cre-8-Net of this Agreement and the execution, delivery and performance by Newco of the Cooperative Marketing Agreement have been or will be duly authorized by all necessary corporate action on the part of Cre-8-Net and Newco, as applicable, and the Shares, when so issued, sold and delivered against payment therefor in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable. The execution, delivery and performance of this Agreement by Cre-8-Net and Newco and the execution, delivery and performance by Newco of the Cooperative Marketing Agreement and the offer, sale and delivery of the Shares do not and will not conflict with, violate or result in any default under or breach of any of the provisions of, as applicable, (i) any law of the United States of America or its political subdivisions, (ii) the constitutive documents of Cre-8-Net or Newco, (iii) any decree, judgment or order, applicable to Cre-8-Net or Newco or (iv) any contract or agreement by which Cre-8-Net or Newco is bound.

(d) Enforceability. This Agreement constitutes the legal, valid and binding obligation of Cre-8-Net and Newco, enforceable in accordance with its terms, subject, as to

enforcement of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization and similar laws affecting creditors' rights generally and to general equitable principles.

(e) Status of Newco. Newco is a newly formed for the express purpose of acquiring the Converse Assets and has no assets or liabilities except those solely related to or incurred in connection with the Converse Purchase.

6.2 Representations of Itochu.

Itochu hereby represents and warrants to Cre-8-Net and Newco, as of the date hereof and the Closing Date, as follows:

(a) Organization. Itochu is a corporation duly organized and validly existing under the laws of Japan and has all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now conducted and proposed to be conducted; and Itochu has all requisite corporate, legal and other power and authority to enter into and perform the terms and conditions of this Agreement.

(b) Authorization and Compliance. The execution, delivery and performance of this Agreement by Itochu have been duly authorized by all necessary corporate action on the part of Itochu. The execution, delivery and performance of this Agreement and the Cooperative Marketing Agreement by Itochu do not and will not conflict with, violate or result in any default under or breach of any of the provisions of (i) any law of Japan or its political subdivisions, (ii) the articles of incorporation and other organizational documents of Itochu, (iii) any decree, judgment or order, applicable to Itochu or (iv) any material contract or agreement by which Itochu is bound. Itochu has satisfied itself that it has complied with all applicable laws in connection with the execution, delivery and performance of this Agreement.

(c) Investment Representations.

(i) Purchase Entirely for Own Account. The Shares are being acquired for investment for Itochu's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Itochu has no present intention of selling, granting any participation in, or otherwise distributing the same. Itochu does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Shares.

(ii) Investment Experience. Itochu is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares.

(iii) Restricted Securities. Itochu understands that the Shares are characterized as "restricted securities" under the U.S. federal securities laws inasmuch as they are being acquired from Newco in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities

Act, only in certain limited circumstances. Itochu understands that no public market presently exists for the securities of Newco, and that there are no assurances that any such market will be created.

(iv) Further Limitations on Disposition. Without in any way limiting the above, Itochu further agrees not to make any disposition of all or any portion of the Shares, unless and until the transferee has agreed in writing for the benefit of Newco to be bound by this Section 6.2(c) and Section 4.3 of this Agreement, and:

(1) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(2) Itochu shall have notified Newco of the proposed disposition, and if reasonably requested by Newco, Itochu shall have furnished Newco with an opinion of counsel, reasonably satisfactory to Newco, that such disposition will not require registration of such shares under the Securities Act.

(v) Legends. It is understood that the certificate(s) evidencing the Shares shall bear the following legends:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF THE ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RIGHT OF FIRST REFUSAL, MARKET STAND-OFF AND OTHER PROVISIONS CONTAINED IN AN AGREEMENT DATED AS OF FEBRUARY 24, 2001. A COPY OF SUCH AGREEMENT MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS.

7. CONDITIONS TO CLOSING

7.1 Conditions to Obligations of Newco and Itochu. The obligations of each of Newco and Itochu under this Agreement to cause the closing hereunder to take place shall be subject to the satisfaction, at and as of the Closing Date, of the conditions that:

(a) the execution and approval of the Converse Purchase shall have occurred in accordance with applicable Bankruptcy Court approval and in accordance with such other terms and conditions as may be agreeable to Newco, to the extent consistent with the requirements of this Agreement and Newco shall have obtained all of Converse's rights, title and interest in substantially all of the Converse Assets, including without limitation, the Japanese Footwear Trademarks;

(b) there shall not have been entered a preliminary or permanent injunction, temporary restraining order or other judicial or administrative order or decree in any jurisdiction, the effect of which prohibits the completion of the Converse Purchase or the closing of this Agreement on the Closing Date or prevents Newco from performing in all material respects its obligations under this Agreement and there shall be no legal actions or proceedings pending that will, if determined adversely, prohibit Newco from performing in all material respects its obligations under this Agreement; and

(c) the Japanese Footwear Trademarks shall not be subject to any Liens, including any attachment or provisional attachment (other than as a result of Itochu's failure to obtain the consent contemplated in Section 7.2(b)); provided, however, that (i) the transfer of contractual or other rights as licensor shall be subject to obtaining any consents to such transfer as may be required under the applicable agreement and (ii) the transfer of Converse's rights to any co-owned trademark shall be subject to obtaining any consents to such transfer as may be required from the co-owner.

7.2 Additional Conditions to Obligations of Newco. Except to the extent expressly waived in writing by Newco, the obligations of Newco under this Agreement to cause the closing hereunder to take place shall also be subject to the fulfillment at or prior to the Closing Date of each of the following conditions:

(a) The representations and warranties of Itochu in Section 6.2 shall have been true and correct when made, and shall be true and correct at the Closing Date as if made on and as of such date, and Itochu shall have performed in all material respects its obligations required by this Agreement to be performed on or prior to the Closing Date; and

(b) Itochu shall have delivered to Newco a certificate executed by an authorized Itochu representative certifying that, based upon his best knowledge, the representations specified in Section 6.2 are true and correct as of the Closing Date.

7.3 Additional Conditions to Obligations of Itochu. Except to the extent expressly waived in writing by Itochu, the obligations of Itochu under this Agreement to cause the closing to take place shall also be subject to the fulfillment at or prior to the Closing Date of each of the following conditions:

(a) Itochu shall have received properly executed Transfer Documents and all other documents required to be delivered at the Closing Date under Sections 3.1 and 3.2 hereof with respect to the Japanese Footwear Trademarks;

(b) Any consents or approvals required for the transfers contemplated under Sections 3.1, 3.2 or 3.3 hereof shall have been delivered to Itochu by Newco; provided, that, the foregoing shall not apply to any required consent of Moonstar or any Japanese governmental approval required to effect the transfer of the Japanese Footwear Trademarks and provided, further, that (i) the transfer of contractual or other rights as licensor shall be subject to obtaining any consents to such transfer as may be required under the applicable agreement and (ii) the transfer of Converse's rights to any co-owned trademark shall be subject to obtaining any consents to such transfer as may be required from the co-owner;

(c) Cre-8-Net and Newco shall have procured sufficient capital investment, financing and other funds (including release of the Purchase Price) necessary to permit Newco to acquire the Converse Assets;

(d) Newco shall have delivered such documents as Itochu may properly prepare and reasonably request to confirm Itochu's manufacturing rights for Converse non-footwear products in Japan in accordance with Section 5.3;

(e) The rights granted to Itochu under Sections 5.1 and 5.2 shall be in full force and effect;

(f) The representations and warranties of Cre-8-Net and Newco in
Section 6.1 shall have been true and correct when made, and shall be true and correct on the Closing Date as if made on and as of such date, and Newco shall have delivered certificates representing the Shares and otherwise shall have performed in all material respects its obligations required by this Agreement, to be performed on or prior to the Closing Date; and

(g) Newco shall have delivered to Itochu a certificate executed by Newco's chief executive officer certifying that, based upon his best knowledge, the conditions specified in Section 7.1 have been fulfilled as of the Closing Date.

8. OTHER AGREEMENTS

The provisions of this Section 8 shall be effective on and after the Closing Date.

8.1 Right of First Refusal on Itochu's Newco Stock.

(a) Right of First Refusal. For eighteen (18) months from the Closing Date, Itochu shall not Transfer any shares of Newco capital stock owned by it. Thereafter, before any shares of Newco capital stock owned by Itochu may be sold or otherwise Transferred, Newco or its assigns shall have a right of first refusal to purchase all such shares on the terms and conditions set forth in this Section 8.1 (the "STOCK RIGHT OF FIRST REFUSAL").

(b) Notice of Proposed Transfer. Itochu shall deliver to Newco a written notice (the "STOCK DISPOSITION NOTICE") describing the purchase offer (the "PURCHASE OFFER") stating: (i) Itochu's bona fide intention to sell or otherwise Transfer such shares (the "OFFERED SHARES"); (ii) the name of each proposed purchaser or other transferee (the "PROPOSED TRANSFEREE"); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; and (iv) the per share bona fide cash price or other consideration for which Itochu proposes to transfer the Offered Shares (the "OFFERED PRICE"), and Itochu shall offer the Offered Shares at the Offered Price to Newco or its assignee(s).

(c) Exercise of Right of First Refusal. The Stock Right of First Refusal may be exercised in whole by delivery by Newco and/or its assignees of a written notice ("ELECTION NOTICE") delivered to Itochu within ninety (90) calendar days after receiving the Stock Disposition Notice. Newco and/or its assignee(s) shall have the right and option (but not the obligation) to purchase all the Offered Shares in their entirety at the Price (defined below).

(d) Purchase Price; Payment. The per share purchase price ("PRICE") for the Offered Shares purchased by Newco or its assignees under this Section 8.1 shall be the Offered Price per share. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined through the good faith negotiations by Newco or its assignee and Itochu. Payment of the Price shall be made in cash (by check) within thirty (30) days after receipt of the Election Notice or in the manner and at the times set forth in the Election Notice.

(e) Right to Transfer. If the Offered Shares are not purchased by Newco or its assignees, then Itochu may sell or otherwise transfer the Offered Shares in their entirety to the Proposed Transferee at the Offered Price or at a higher price, provided, that, such sale or other transfer is consummated within ninety (90) days after the date of the Election Notice and, provided, further, that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of Section 4.3 and Section 6.2(c) shall continue to apply to the Offered Shares held by such Proposed Transferee. If the Offered Shares are not transferred to the Proposed Transferee within such period, a new Notice shall be given to Newco and Newco shall again be offered the Right of First Refusal before any shares of Newco capital stock can be sold by Itochu.

(f) StopTransfer. Any attempt by Itochu to Transfer any shares of Newco capital stock in violation of this Section 8.1 shall be void and Newco shall be permitted not effect such a Transfer, not treat any alleged transferee as the holder of such shares and stop transfer of such attempted Transfer.

(g) Exclusions. Notwithstanding the foregoing, Itochu shall have the right to Transfer all or part of its shares of Newco capital stock to one or more majority owned subsidiaries of Itochu which agree in writing to be bound by all of the provisions of this Agreement which otherwise constitute obligations of Itochu with respect to the Shares.

(h) Termination of Stock Right of First Refusal. The provisions of
Section 8.1 shall terminate immediately prior to the closing of a Qualified IPO or a Newco Change of Control.

8.2 Japanese Footwear Trademark Right of First Negotiation and First Refusal.

(a) Right of First Negotiation. If Itochu proposes to Transfer the Japanese Footwear Trademarks or the trademarks and related rights in any other countries for which Itochu acquires distribution rights pursuant to Section 5.1 or 5.2 (collectively, the "OTHER TRADEMARKS"), Itochu shall negotiate exclusively with Newco for a period of ninety (90) days prior to any such Transfer. Itochu's foregoing obligation shall be deemed to have been satisfied if Itochu, prior to any initiation of discussions with any third parties regarding such Transfer, notified Newco of its desire to Transfer such trademarks and related rights and shall have negotiated exclusively with Newco for a period of ninety (90) days regarding such Transfer.

(b) Right of First Refusal; Notice. Itochu shall not Transfer the Japanese Footwear Trademarks or the Other Trademarks or any interest therein without first giving written notice of the proposed Transfer to Newco setting forth in reasonable detail the proposed assignee, the marks and related rights proposed to be Transferred, and the price and other terms and conditions of the Transfer (the "TRADEMARK TRANSFER NOTICE").

(c) Exercise of Trademark Right of First Refusal. Newco or any of its majority owned subsidiaries shall have the right and option (but not the obligation) to purchase all of the marks and associated rights specified in the Trademark Transfer Notice for a price equal to the price (and on the other terms and conditions) specified in the Trademark Transfer Notice. If Newco or its majority owned subsidiary does not wish to purchase all of the marks and associated rights specified in the Trademark Transfer Notice, Newco shall give written notice to Itochu as promptly as practicable. Unless Newco gives written notice declining the purchase proposed in the Trademark Transfer Notice, Newco or its majority owned subsidiary shall have ninety (90) days following receipt of the Trademark Transfer Notice to consummate the purchase with Itochu on mutually agreed terms.

(d) Right to Transfer. If Itochu and Newco or its majority owned subsidiary do not agree to terms on the Transfer under this Section 8.2, Itochu shall have the right to consummate the arrangement described in the Trademark Transfer Notice; provided, that, the ultimate terms of the arrangement are not materially more favorable to the transferee than those described in the Trademark Transfer Notice and provided further that such transaction is consummated within ninety (90) days after, as applicable, Newco's written notice declining the Transfer proposed in the Trademark Transfer Notice or the one hundredth eighty-first (181st) day after Newco's receipt of the Trademark Transfer Notice. If Itochu is unable to consummate such Transfer in accordance with the terms of this Section 8.2(d), Itochu's right of first refusal shall again apply.

(e) Exclusions. Notwithstanding the foregoing, Itochu shall have the right to Transfer all or part of the Japanese Footwear Trademarks or the Other Trademarks to one or more majority owned subsidiaries of Itochu which agree in writing to be bound by all of the provisions of this Agreement to the extent those provisions would be obligations of Itochu in relation to the specific Transferred Japanese Footwear Trademarks or the Other Trademarks.

9. GENERAL PROVISIONS

9.1 Governing Law. This Agreement shall be governed in all respects by the internal laws of the State of California without application of principles of conflicts of law.

9.2 Survival. All representations, warranties, covenants and agreements made herein shall survive any investigation made by any party and the closing of the transactions contemplated hereby.

9.3 Successors and Assigns. Neither Itochu, Cre-8-Net nor Newco shall assign or otherwise transfer any of their rights under this Agreement other than to a successor to all or substantially all of the business of such party by way of merger, consolidation or purchase of assets, except that Newco's rights hereunder shall inure to the benefit of and shall be assignable to any majority owned subsidiary of Newco and any institutional lender which has provided or committed to provide acquisition, working capital or other financing to Newco. Except as provided in the preceding sentence and other specific provisions hereof, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

9.4 Entire Agreement; Amendment. This Agreement and its exhibits expressly described herein constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of the parties hereto.

9.5 Notices and Other Communications. Every notice or other communication required or contemplated by this Agreement by either party shall be delivered either by (i) personal delivery, (ii) postage prepaid return receipt requested registered or certified mail (airmail if available), or the equivalent of registered or certified mail under the laws of the country where mailed, (iii) internationally recognized overnight courier, such as Federal Express or UPS, or
(iv) facsimile with a confirmation copy sent simultaneously by postage prepaid, return receipt requested, registered or certified mail, in each case:

if addressed to Newco at: c/o Cre-8-Net (at the address noted below),

With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road
Palo Alto, California 94304

Attention: Catherine Kirkman and Kurt Berney

Telephone: 1 650 493-9300 Facsimile: 1 650 493-6811

if addressed to addressed to Cre-8-Net at:

Cre-8-Net Ventures
591 Redwood Highway
Suite 2180
Mill Valley, California 94941 Telephone: 1 415 309-0956 Facsimile: 1 415 383-7405

With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.

(as set forth above)

if addressed to Itochu at:

Itochu Corporation
1-3, Kyutaro-machi 4-chome, Chuo-ku, Osaka 541-8577, Japan

Attention: Kenichi Kamiyoshi Operating Officer of Import Textile And Fashion Goods Division

Telephone: 81-6-6241-2987 Facsimile: 81-6-6244-0845

With a copy to:

Yoshihiro Fukushima,
Manager of Import Textile And Fashion Goods Division,
Section No.6

Notice by registered or certified mail shall be effective on the date it is officially recorded as delivered to the intended recipient by return receipt or equivalent, and in the absence of such record of delivery, the effective date shall be presumed to have been the fifth (5th) business day after it was

deposited in the mail. All notices and other communications required or contemplated by this Agreement delivered in person or sent by courier shall be deemed to have been delivered to and received by the addressee and shall be effective on the date of personal delivery; notices delivered by facsimile with simultaneous confirmation copy by registered or certified mail shall be deemed delivered to and received by the addressee and effective on the date sent. Notice not given in writing shall be effective only if acknowledged in writing by a duly authorized representative of the party to whom it was given.

9.6 Counsel Fees. Each party shall bear its own legal fees and other expenses incident to this Agreement.

9.7 Finder's Fees.

(a) Newco and Cre-8-Net (i) represent and warrant that they have not retained any finder or broker in connection with the transactions contemplated by this Agreement and (ii) hereby agree to indemnify and to hold Itochu harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which Newco or Cre-8-Net or any of their employees or representatives, is responsible.

(b) Itochu (i) represents and warrants that it has retained no finder or broker in connection with the transactions contemplated by this Agreement and (ii) hereby agrees to indemnify and to hold Newco and the other shareholders harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which Itochu, or any of its employees or representatives, is responsible.

9.8 ARBITRATION. UNLESS OTHERWISE AGREED BY NEWCO, CRE-8-NET AND ITOCHU IN WRITING, ALL DISPUTE, CONTROVERSIES, OR DIFFERENCES WHICH MAY ARISE BETWEEN THE PARTIES OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS AGREEMENT, OR THE BREACH THEREOF, SHALL BE FINALLY SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF ARBITRATION OF THE INTERNATIONAL CHAMBER OF COMMERCE BY A PANEL OF THREE ARBITRATORS, ONE OF WHOM SHALL BE SELECTED JOINTLY BY CRE-8-NET AND NEWCO, ONE OF WHOM SHALL BE SELECTED BY ITOCHU, AND THE THIRD OF WHOM SHALL BE APPOINTED IN ACCORDANCE WITH THE RULES OF ARBITRATION. THE ARBITRATION SHALL BE CONDUCTED IN THE ENGLISH LANGUAGE AND THE PLACE OF ARBITRATION SHALL BE OSAKA, JAPAN IF THE ARBITRATION PROCEEDING IS INITIATED BY NEWCO OR CRE-8-NET AND SHALL BE IN SAN FRANCISCO, CALIFORNIA IF THE ARBITRATION PROCEEDING IS INITIATED BY ITOCHU. THIS ARBITRATION PROVISION SHALL APPLY WHETHER THE DISPUTE, CONTROVERSY OR DIFFERENCE ARISES UNDER CONTRACT, TORT, LAW, EQUITY OR OTHERWISE. NOTWITHSTANDING THE FOREGOING, EACH PARTY SHALL BE ENTITLED WITHIN ANY COUNTRY TO SEEK INJUNCTIVE RELIEF, DAMAGES, AND RELATED LEGAL OR EQUITABLE REMEDIES BY JUDICIAL ACTION AGAINST THE OTHER PARTY OR ANY THIRD PARTY BASED ON ANY INFRINGEMENT OR OTHER VIOLATION OF TRADEMARK OR OTHER INTELLECTUAL PROPERTY RIGHTS RESPECTIVELY OWNED BY SUCH PARTY.

Having read and accepted this Agreement, the parties hereby sign and deliver this Agreement as of the day and year first set forth in this Agreement.

CRE-8-NET VENTURES L.L.C.

By: /s/ William N. Simon
    -----------------------------------
Name:  William N. Simon
Title: Managing Partner

ITOCHU CORPORATION

By: /s/ Kenichi Kamiyoshi
    -----------------------------------
Name: Kenichi Kamiyoshi
Title: Operating Officer

FOOTWEAR ACQUISITION, INC.

By:  /s/ William N. Simon
     ----------------------------------
Name:  William N. Simon
Title: Director

EXHIBIT 10.9

STOCK AND NOTE PURCHASE AGREEMENT

This STOCK AND NOTE PURCHASE AGREEMENT (this "Agreement") is entered into as of April 5, 2001, by and among (i) Footwear Acquisition, Inc., a Delaware corporation (the "Company"), and (ii) the Persons listed on Schedule A hereto (each a "Purchaser" and collectively, the "Purchasers"). Certain capitalized terms used in this Agreement are defined in Exhibit A attached hereto.

RECITAL

The Company desires to raise capital to finance its (i) acquisition of certain assets of Converse, Inc. (the "Acquisition") pursuant to the terms of a certain Asset Purchase Agreement by and between the Company and Converse, Inc. dated April [ ], 2001 (the "APA") and (ii) ongoing business operations, and in furtherance thereof desires to issue and sell to the Purchasers the Securities (as defined below), and the Purchasers are willing to acquire the Securities, all on the terms and subject to the conditions set forth in this Agreement.

AGREEMENT

In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows:

1. Authorization and Sale of the Preferred Shares, Common Shares and Senior Notes.

1.1. Authorization. The Company has authorized the issuance and sale pursuant to the terms and conditions hereof of (i) 563,160 shares of its Series A Preferred Stock (the "Preferred Stock"), having the rights, restrictions, privileges and preferences set forth in the Certificate of Designations attached hereto as Exhibit B (the "Certificate of Designations"), (ii) 8,691,925 shares of its Common Stock (the "Common Stock") and (iii) Senior Notes in the amounts set forth on Schedule A (the "Senior Notes", and together with the Preferred Stock and Common Stock, the "Securities"), substantially in accordance with the form of Note set forth as Exhibit C.

1.2. Issuance and Sale. On the terms and subject to the conditions hereof, at the Closing, the Company will issue and sell to each Purchaser, and each Purchaser will purchase from the Company, the Securities specified adjacent to such Purchaser's name on Schedule A hereto for the Purchase Price (as defined in Section 2). The Company's agreement with each of the Purchasers hereunder is a separate agreement and the sale of Securities to each of the Purchasers is a separate sale.

1.3. Stockholder Rights. The Purchasers shall, upon execution thereof by each Purchaser and the Company, have the rights specified in the Investors Rights Agreement attached as Exhibit D hereto.

2. Closing.

2.1. Closing. The sale and purchase of the Securities under this Agreement shall take place at a closing (a "Closing") to be held at the offices of Arnold & Porter, 399 Park Avenue, New York, New York 10022, or at such other location or by such other means (i.e. facsimile) as the Company and the Purchasers acquiring Securities shall agree. The Closing shall be held at 10
a.m. on the Closing Date as defined in the APA (the "Closing Date").

2.2. Deliveries. At the Closing, the Company will deliver the appropriate Purchaser (i) certificates registered in the Purchasers' respective names representing the aggregate number of shares of Common Stock and Preferred Stock, and (ii) Senior Notes made in favor of the Purchaser purchasing such Note, in each case in the amounts set forth on Schedule A. Two days prior to the Closing, each Purchaser acquiring Securities at Closing will deliver to the an independent escrow agent (the "Agent") for each of the Purchasers, acting pursuant to the terms of an escrow agreement reasonably acceptable to the Purchasers, the purchase price set forth on opposite such Purchaser's name on Schedule A hereto (the "Purchase Price") for such Securities by wire transfer thereof to the account designated by the Agent. There shall be credited against such Purchaser's Purchase Price any amount previously paid by such Purchaser towards a deposit on the purchase price under the APA, as reflected on Schedule
A. Notwithstanding the foregoing, certain purchasers, as identified on Schedule A, may pay for the purchase of Securities by executing a note in favor of the Company, in form and substance agreed to by the other Purchasers and the Company prior to Closing, which such purchaser shall deliver at Closing. Such note shall be secured by a pledge of the Securities acquired thereby. The Agent shall hold the Purchase Price in a segregated account in escrow to be released in accordance with Section 2.4, below. The parties shall also deliver all documents required to be delivered at such Closing pursuant to Section 2.3 hereof.

2.3. Conditions to Closing.

(a) Conditions to Obligations of the Purchasers. The obligations of each Purchaser to purchase Securities at Closing are subject to the fulfillment on or prior to the Closing Date of the following conditions, any of which may be waived in writing by such Purchaser:

(i) Representations and Warranties Correct; Performance of Obligations. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on such Closing Date with the same force and effect as if they had been made on and as of such date, and the Company shall have performed all obligations, covenants and agreements herein required to be performed by it on or prior to the Closing.

(ii) Consents and Waivers. The Company shall have obtained any and all consents (including all governmental or regulatory consents, approvals or authorizations required in connection with the valid execution, delivery and performance of this Agreement and the Related Agreements), permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement or any Related Agreement.

(iii) Related Agreements. Each of the Related Agreements shall have been executed and delivered by the parties thereto other than such Purchaser.

(iv) Certificate of Designations. The Certificate of Designations shall have been filed with the Delaware Secretary of State and a certified copy thereof shall have been delivered to each Purchaser.

(v) Compliance Certificate. The Company shall have delivered to each Purchaser a certificate, executed by the President of the Company, dated as of the Closing Date, certifying the fulfillment of the conditions specified in subsections (a)(i) and (ii) of this Section 2.3.

(vi) Secretary's Certificate. The Company shall have delivered to each Purchaser a certificate, executed by the Secretary of the Company, dated as of the Closing Date, certifying the authenticity of attached copies of the Company's restated certificate of incorporation, Certificate of Designations, Bylaws and resolutions of the Board of the Company approving the transactions contemplated hereby.

(vii) Asset Purchase Agreement. The APA shall (i) be in full force and effect, (ii) be substantially in the form attached hereto as Exhibit E, and (iii) shall have been approved by the Bankruptcy Court (as defined in the APA) and the parties thereto shall be closing the Acquisition thereunder, it being the intent of the Purchasers and the Company that the transactions contemplated herein occur simultaneously with the consummation of the Acquisition under the APA.

(viii) Certificate of Good Standing. The Company shall have delivered a long-form certificate of good standing from the Secretary of State of the State of Delaware and from each jurisdiction in which the Company is qualified to do business.

(ix) Election of Directors. The number of directors constituting the Board shall have been fixed at seven and five of the directors shall have been elected in accordance with Sections 1.01(a)(i) through (iii) of Investors Rights Agreement.

(x) Other Purchasers. All of the Purchasers set forth on Schedule A shall have duly executed and delivered this Agreement.

(xi) Strategic Investor. The Strategic Investor shall have entered into appropriate Agreements joining it as a party to this Agreement and to the

Investors Rights Agreement in connection with its purchase of 5% of the Common Stock of the Company as of the Closing Date hereunder. The terms of the Trademark Agreement and the Cooperative Marketing Agreement between the Company and the Strategic Investor shall be in full force and effect and the Strategic Investor shall have made payments to Footwear as required therein in connection with the Acquisition. The closing under the Trademark Agreement shall occur substantially simultaneously with the Closing hereunder.

(xii) Japanese Sourcing Agreement. The Agreement dated April 4, 2001 between the Strategic Investor and Footwear relating to Japanese sourcing rights shall be in full force and effect.

(xiii) Opinion of Counsel. The Purchasers shall have received an opinion of counsel to the Company as to (i) due organization, existence and good standing (in Delaware), ( (ii) corporate power and authority to enter into this Agreement, the Investor Rights Agreement , the Note and the APA, (iii) due authorization to enter into this Agreement, the Investor Rights Agreement, the Note and the APA, (iv) enforceability as to the Company of this Agreement, the Investor Rights Agreement, the Note and the APA, (subject to customary exceptions) (v) no conflict with laws and agreements to which the Company is a party and (vi) authorized capital stock of the Company. Such opinion may expressly rely, where appropriate, upon certificates of officers of the Company and shall be subject to standard exceptions.

(xiii) Security Agreement. In connection with the Senior Notes, the Company shall have delivered and executed a security agreement (and related UCC financing statements) substantially in the form attached hereto as Exhibit H, with such modifications as may in good faith be required to implement the purpose and intent of the parties thereto, to be held in escrow on behalf of the holders of the Senior Notes pending the Trigger Date specified (and as defined) in 9(h) of the Senior Notes. On the Trigger Date, the Purchasers of the Senior Notes shall receive an opinion from counsel to the Company, in customary form and with standard exceptions, in form reasonably acceptable to the Purchasers of the Senior Notes with respect thereto. Such opinion may expressly rely, where appropriate, upon certificates of officers of the Company.

(b) Conditions to Obligations of the Company. The Company's obligation to issue and sell the Securities at the Closing is subject to the fulfillment on or prior to such Closing Date of the following conditions, any of which may be waived by the Company:

(i) Representations and Warranties. The representations and warranties made by each Purchaser in Section 4 hereof shall have been true and correct when made, and shall be true and correct on such Closing Date with the same force and effect as if they had been made on and as of such date.

(ii) Related Agreements. Each of the Related Agreements shall have been executed and delivered by the parties thereto other than the Company.

2.4. Release from Escrow

(a) Upon the closing under the APA, the parties shall direct the Agent to release (i) the purchase price for the Acquisition to the Seller (as defined in the APA) and (ii) the balance of the Purchase Price for purchase of the Securities to the Company.

(b) If the closing of the Acquisition under the APA fails to occur by June 30, 2001, the Agent shall return the Purchase Price to the Purchasers.

2.5. Default by Certain Purchasers. In the event of a default by either UOHL (as defined on Schedule A) or Perseus (as defined on Schedule A) of its obligation to purchase the Securities that such Purchaser is required to purchase hereunder, the other Purchaser shall have the right, but not the obligation, to purchase the Securities from the Company under the same terms as such securities would have been purchased by the defaulting Purchaser, provided that if the non-defaulting Purchaser elects to purchase a defaulting Purchaser's Securities, it must purchase all such Securities.

Notwithstanding the foregoing, the defaulting Purchaser shall not be absolved from its obligations hereunder and shall remain fully liable to the Company and to each of the other Purchasers for any and all liabilities arising out of or relating to such default. No third party shall have any rights under this provision or to the enforcement thereof.

3. Representations and Warranties Relating to the Company. Except as otherwise set forth in the Disclosure Schedule attached hereto (the "Company Disclosure Schedule"), the Company represents and warrants to the Purchasers, as of the Closing Date, as set forth below.

3.1. Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to carry on its business as now conducted and as it is proposed to be conducted, and is duly qualified or licensed to do business and in good standing in each jurisdiction in which the nature of its business or properties makes such qualification or licensing necessary, except where the failure to so qualify or be licensed would not have a Material Adverse Effect.

3.2. Capital Structure. As of the date hereof, the authorized capital stock of the Company consists, or as of the Closing Date will consist of, of the following shares, and all of the issued and outstanding shares as hereinafter set forth have been, or upon the Closing, will be, duly authorized and validly issued, and are, or upon the Closing will be, fully paid and nonassessable:

(a) Preferred Stock. A total of 10 million authorized shares of Preferred Stock, $0.01 par value, consisting of 900,000 shares designated as Series A Preferred Stock, none of which are issued and outstanding prior to the consummation of the transactions contemplated hereby.

(b) Common Stock. A total of 20 million authorized shares of Common Stock, par value $0.01, none of which are issued and outstanding prior to the consummation of the transactions contemplated hereby.

(c) Option Plan. The Company has reserved, or intends to reserve, 1,000,000 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to its 2001 Long Term Incentive Plan duly adopted, or to be adopted, by the Board of Directors and approved by the stockholders (the "Stock Option Plan"). Of such reserved shares of Common Stock, no shares have been issued pursuant to restricted stock purchase agreements, no options to purchase shares have been granted or are currently outstanding, and all such shares of Common Stock remain available for issuance to officers, directors, employees and consultants pursuant to the Stock Option Plan in the discretion of the Company's Board of Directors and subject only to the terms of the Stock Option Plan, which terms shall provide for 25% vesting on the first anniversary of the grant date and monthly vesting thereafter over the next 36 months.

(d) Options, Warrants, Reserved Shares, Treasury Stock. Except as set forth in the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of the Company's capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock, nor is the Company obligated in any manner to issue any shares of its capital stock or other securities. None of the Company's outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding options, warrants or rights, is subject to any preemptive rights, rights of first refusal or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company. The Company holds no shares of its capital stock in its treasury.

3.3. Power, Authorization and Validity. The Company has the corporate power, legal capacity and corporate authority to enter into and perform its obligations under this Agreement and each of the Related Agreements to which it is a party. The execution, delivery and performance by the Company of this Agreement and each of the Related Agreements to which it is a party have been duly and validly approved and authorized by all necessary corporate action on its part. No authorization, consent, or approval, governmental or otherwise, is necessary to enable the Company to enter into this Agreement or any Related Agreement to which it is a party and to perform its obligations hereunder or thereunder. This Agreement is, and each of the Related Agreements to which it is a party when executed and delivered by the Company will be, the valid and binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, or (ii) to the extent the indemnification provisions contained in the Investors Rights Agreement may be limited by applicable federal or state securities laws.

3.4. No Violation of Existing Agreements. Neither the execution and delivery of this Agreement or any Related Agreement to which it is a party nor the consummation of the transactions or performance of the Company's obligations contemplated hereby or thereby will conflict with, result in a material breach or violation of, or cause a default under any provision of the Company's Certificate of Incorporation or Bylaws, each as is currently in effect, any instrument, contract or agreement that is material to the business of the Company or any judgment, writ, decree, order, law, statute, ordinance, rule or regulation applicable to the Company.

3.5. Representations Regarding the Securities. All corporate action has been taken on the part of the Company, its officers, directors and shareholders necessary for the authorization and creation, issuance and delivery of the Securities. The Preferred Stock and Common Stock, when issued in compliance with the provisions of this Agreement and, in the case of the Preferred Stock, the Certificate of Designations, will be validly issued, fully paid and nonassessable and, assuming the accuracy of each of the Purchasers' representations in Section 4 of this Agreement, issued in compliance with all applicable federal and state securities laws. None of the Securities issued pursuant to this Agreement are subject to any preemptive rights, rights of first refusal, or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company.

3.6. No Subsidiaries. The Company does not own of record or beneficially any capital stock or equity interest or investment in any corporation, association, partnership, limited partnership, limited liability company, trust or other entity.

3.7. Absence of Certain Changes and Events. Since the date of its formation, the Company has not:

(a) suffered any Material Adverse Change;

(b) suffered any damage, destruction or loss, whether or not covered by insurance, in an amount in excess of $50,000;

(c) declared, set aside or paid any dividend or made any other distribution on or in respect of the shares of capital stock of the Company or declared or agreed to any direct or indirect redemption, retirement, purchase or other acquisition by the Company of such shares;

(d) issued any shares of capital stock of the Company or any warrants, rights or options or entered into any commitment relating to the shares of capital stock of the Company;

(e) incurred any material liabilities, contingent or otherwise, either matured or unmatured, except for those that have been incurred by the Company in the ordinary course of business and for its obligations under the APA;

(f) permitted or allowed any of its material property or assets to be subjected to any mortgage, deed of trust, pledge, lien, security interest or other encumbrance of any kind;

(g) made any capital expenditure or commitment for additions to property, plant or equipment individually in excess of $500,000, or in the aggregate, in excess of $1,000,000;

(h) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with any of its affiliates within the meaning of the rules and regulations promulgated under the Securities Act ("Affiliates"), officers, directors or shareholders;

(i) made any amendment to or terminated any agreement that, if not so amended or terminated, would have a Material Adverse Effect;

3.8. Registration Rights. Except as provided in the Investor Rights Agreement, the Company has not granted or agreed to grant to any person or entity any rights (including piggyback registration rights) to have any securities of the Company registered with the U.S. Securities and Exchange Commission ("SEC") or any other governmental authority.

3.9. Compliance With Corporate Instruments and Laws. The Company is not in violation of any provisions of its Certificate of Incorporation or Bylaws as currently in effect. The Company is in compliance in all material respects with all applicable laws, statutes, rules, and regulations of all governmental and regulatory authorities which are applicable. The Company has or will have, as of the Closing Date, all necessary permits, licenses and other authorizations required to conduct its business as conducted and or proposed to be conducted, except where the failure to obtain such permits, licenses and authorizations would not have a Material Adverse Effect.

3.10. Litigation. There is no suit, action, proceeding, claim or investigation pending or, to the Company's knowledge, currently threatened against the Company before any court or administrative agency which could have a Material Adverse Effect or which questions or challenges the validity of this Agreement or any Related Agreement and the consummation of the transactions contemplated hereby and thereby. There is no judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Company.

3.11. Corporate Documents. The Company has furnished or made available to the Purchasers or their counsel for their examination true and complete copies of the following documents: (i) copies of its Certificate of Incorporation and Bylaws, each as currently in effect and (ii) minute books containing required records setting forth proceedings, consents, actions and meetings of its shareholders, board of directors and any committees thereof. The corporate minute books, stock certificate books, stock registers and other corporate records of the Company are complete and

accurate in all material respects, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same.

3.12. Disclosure. The Company has fully provided the Purchasers with all the information that the Purchasers have requested for deciding whether to acquire the Securities and all information that the Company believes is reasonably necessary to enable the Purchasers to make such a decision. To the Company's knowledge, no representation or warranty of the Company contained in this Agreement and the exhibits attached hereto, any certificate furnished or to be furnished to Purchasers at the Closing, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.

3.13. Securities Act. Subject to the accuracy of the Purchasers' representations in Section 4 hereof, the offer, sale and issuance of the Securities in conformity with the terms of this Agreement constitute or will constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and the qualification or registration requirements of any applicable state securities laws as such laws exist on the date hereof.

3.14. Brokers. Other than as provided for in Section 7.8 below, neither the Company nor, to the Company's knowledge, any Company shareholder is obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or any Related Agreement or in connection with any transaction contemplated hereby or thereby.

3.15. Acquisition. The Company has executed and delivered the APA, and such execution and delivery has been duly and validly approved and authorized by all necessary corporate action on its part. Except for such authorizations, consents, or approvals, governmental or otherwise ("Consents") that the Company shall have obtained before the Closing Date, there are no Consents necessary for the Company to enter into the APA and to perform its obligations thereunder, except where the failure to obtain such Consents would not have a Material Adverse Effect. The APA is a valid and binding obligation of the Company, enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of creditors' rights generally, as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies. The Company has delivered to the Purchasers an executed copy of the APA, in final form.

3.16. Use of Proceeds. The Company will use the Purchase Price paid for the Securities pursuant to this Agreement to pay the purchase price for the assets purchased pursuant to the APA and for operating capital, fees and expenses.

4. Representations and Warranties of Purchasers and Restrictions on Transfer Imposed by the Securities Act and Applicable State Securities Laws.

4.1. Representations and Warranties by Each Purchaser. Each Purchaser, severally and not jointly, represents and warrants to the Company as follows:

(a) The Securities are being or will be acquired for such Purchaser's own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act or applicable state securities laws.

(b) Such Purchaser understands that (i) the Securities have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof and have not been qualified under any state securities laws on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration thereunder, and (ii) the Company's reliance on such exemptions is predicated on such Purchaser's representations set forth herein. Such Purchaser understands that the resale of the Securities may be restricted indefinitely, unless a subsequent disposition thereof is registered under the Securities Act and registered under any state securities law or is exempt from such registration.

(c) Such Purchaser is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Purchaser is able to bear the economic risk of the purchase of the Securities pursuant to the terms of this Agreement, including a complete loss of such Purchaser's investment in the Securities.

(d) Such Purchaser has the full right, power and authority to enter into and perform such Purchaser's obligations under this Agreement and each Related Agreement to which it is a party, and this Agreement and each Related Agreement to which it is a party constitute valid and binding obligations of such Purchaser enforceable in accordance with their terms.

(e) No consent, approval or authorization of or designation, declaration or filing with any Governmental Body on the part of such Purchaser is required in connection with the valid execution and delivery of this Agreement or any Related Agreement to which it is a party, except to the extent any local governmental authority requires such declaration under state "Blue-Sky" laws, which shall be filed, if necessary.

4.2. Legend. Each certificate representing the Securities may be endorsed with the following legends:

(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT. THE

SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT
(I) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT, OR (II) IN COMPLIANCE WITH RULE 144 OR (III) OTHERWISE PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE ACT.

(b) Any other legends required by applicable securities laws and/or by the Investor Rights Agreement.

The Company may instruct its transfer agent, if any, not to register the transfer of the Securities, unless the conditions specified in the foregoing legends are satisfied.

4.3. Removal of Legend and Transfer Restrictions. Any legend endorsed on a certificate pursuant to Section 4.2(a) and the stop transfer instructions with respect to such Securities shall be removed and the Company shall issue a certificate without such legend to the holder thereof (1) if such Securities are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available, (2) if such legend may be properly removed under the terms of Rule 144 promulgated under the Securities Act, or (3) if such holder provides the Company with an opinion of counsel for such holder, reasonably satisfactory to legal counsel for the Company, to the effect that a sale, transfer or assignment of such Securities may be made without registration.

4.4. Disclosure of Information; Economic Risk. The Purchaser has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management. The Purchaser has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment. The Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests, and can bear the risk of loss of its entire investment.

4.5. No Public Market. The Purchaser understands that no public market now exists for any of the Securities, and that the Company has made no assurances that a public market will ever exist for such securities.

4.6. Foreign Investors. If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), such Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to purchase the Securities or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the Securities, (ii) any foreign exchange restrictions applicable to such purchase,
(iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Securities. Such Purchaser's subscription

and payment for and continued beneficial ownership of the Securities, will not violate any applicable securities or other laws of the Purchaser's jurisdiction.

5. Miscellaneous.

5.1. Waivers and Amendments. Any term of this Agreement may be amended or waived only with the written consent of the Company and the Purchasers of the Common Stock issued. Any amendment or waiver effected in accordance with this Section 5.1 shall be binding upon the Purchasers and each transferee of the Securities, each future holder of all such securities, and the Company.

5.2. Governing Law. This Agreement shall be governed by the laws of the State of New York.

5.3. Survival. The representations and warranties made herein shall survive until eighteen months after the Closing Date.

5.4. Successors and Assigns. Except as otherwise expressly provided herein and subject to the Related Agreements and applicable law, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

5.5. Entire Agreement. This Agreement, the Related Agreements and other exhibits to this Agreement and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.

5.6. Notices, etc. All notices, requests and other communications hereunder shall be in writing and shall be deemed to have been duly given at the time of receipt if delivered by hand or by facsimile transmission or five Business Days after being mailed, registered or certified mail, return receipt requested, with postage prepaid, to the address or facsimile number (as the case may be) listed for each such party below such party's signature page hereto or, if any party shall have designated a different address or facsimile number by notice to the other parties given as provided above, then to the last address or facsimile number so designated.

5.7. Separability. In case any provision of this Agreement shall be declared invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

5.8. Expenses. The Company shall be responsible for the fees and expenses of the Company (legal, accounting, or otherwise). If the transactions contemplated hereby and in the APA are consummated, the Company shall reimburse the Purchasers, as described on Schedule G, for their actual and reasonable fees, costs and expenses (legal, accounting or otherwise) in connection with this transaction, any bid made to acquire the assets of Converse, Inc., and the negotiation and drafting of the APA, in each case as described on Exhibit G. Payment of such amount shall be conditioned upon the provision to the Company by such Purchaser of a statement setting forth in

reasonable detail such fees and expenses. Notwithstanding the foregoing, Union Overseas Holding Limited shall not be entitled to recover any such fees and expenses in excess of $750,000.

5.9. Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

5.10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. This Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manners and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.

5.11. Publicity. None of the parties to this Agreement, nor any of their affiliates, shall issue any press release or otherwise make any public announcement or disclosure with respect to this Agreement, any of the Related Agreements or any of the transactions contemplated hereby or thereby without the prior written consent of the Company, unless such disclosure is required by applicable law or regulation.

5.12. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

5.13. Confidentiality. The Purchasers agree that any information obtained by the Purchasers pursuant to the Investor Rights Agreement, or otherwise in connection with the Purchasers' performance of due diligence in connection with the transactions contemplated under this Agreement, which is proprietary to the Company or otherwise confidential, or any written information that is or was provided to a Purchaser and marked by the Company as confidential, will not be disclosed (other than to a Purchaser's employees or agents having a need to know the contents of such information, a Purchaser's attorneys or accountants or to any person who provides financing to a Purchaser; provided, however, that such person or entity holds such information on a confidential basis) without the prior consent of the Company, unless the information is

available to the public generally or a Purchaser is required to disclose such information by a governmental body or under federal securities laws. The provisions of this Section 5.13 shall be in addition to, and not in substitution for, the provisions of any separate nondisclosure agreement executed by the parties hereto with respect to the transactions contemplated hereby.

[Company Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written.

FOOTWEAR ACQUISITION, INC.

By:  /s/ William N. Simon
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Name: William N. Simon
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Title:  Executive Director
        ---------------------------

ADDRESS FOR NOTICE:

With a copy to:

[cre-8-net Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written.

CRE-8-NET VENTURES L.L.C.

BY: /s/ William N. Simon
    --------------------------------
      NAME:   William N. Simon
      TITLE:  Managing Member

ADDRESS FOR NOTICE:

541 Redwood Highway
Suite 2180
Mill Valley, California 94941
Phone: 415-383-7698
Fax: 415-383-7405
Attn: William N. Simon

With a copy to:

WILSON SONSINI GOODRICH & ROSATI, P.C.
650 Page Mill Road
Palo Alto, California 94304
Facsimile: (650) 496-408
Attn: Kurt Berney, Esq.

[UOHL Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written.

UNION OVERSEAS HOLDINGS LIMITED

BY: /s/ Edward D. Sy
   ------------------------------
      NAME:   Edward D. Sy
      TITLE:  Director

ADDRESS FOR NOTICE:

Suite 306
Third Floor
Island Place Tower
No. 510 King's Road, North Point
Hong Kong
Facsimile No. 852-2907-8118
Attn: Mr. Ed Sy

With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo
One Financial Center
Boston, Massachusetts 02111
Facsimile: (617) 542-2241
Attention: Mary Laura Greely, Esq. and
George Hofmann, Esq.

[Perseus Investors Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned Perseus Stockholder has executed this Agreement as of the day and year first above written.

PERSEUS ACQUISITION/RECAPITALIZATION
FUND, L.L.C.

By:  /s/ Curtis A. Glovier
     ------------------------------

Name: Curtis A. Glovier
      -----------------------------

Title:  Managing Director
        ---------------------------

ADDRESS FOR NOTICE:

888 Seventh Avenue, 29th Fl.
New York, NY 10106
Facsimile No.: (212) 245-1852
Attn: Ray E. Newton, III

With a copy to:

Arnold & Porter
555 Twelfth Street N.W.
Washington, D.C. 20004-1206
Facsimile: (202) 942-5999
Attention: Robert Ott, Esq.

EXHIBIT A

CERTAIN DEFINITIONS

For purposes of the Agreement to which this Exhibit A is attached, the following terms have the following meanings:

"Affiliates" has the meaning set forth in Section 3.7(h).

"Business Day" means any day other than a Saturday, Sunday or other day on which the national or state banks located in the State of New York or Washington D.C. are authorized to be closed.

"Certificate of Designation" shall have the meaning set forth in Section 1.1.

"Common Stock" means the common stock, par value $0.01 per share, of the Company.

"Company" shall have the meaning set forth in the first paragraph of this Agreement.

"Company Account" means an account of the Company designated in a written notice delivered to the Purchasers at least two Business Days prior to the date of any required payment by the Purchasers to the Company under the Agreement.

"Company Disclosure Schedule" shall have the meaning set forth in Section 3.

"Control" and derivatives thereof mean the power to control the management and policies of the Controlled Person where by ownership of voting securities, contract or otherwise.

"GAAP" means United States generally accepted accounting principles consistently applied.

"Governmental Body" means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal).

"knowledge" or "to the Company's knowledge" shall refer to the actual knowledge after reasonable inquiry of the relevant responsible officers of the Company.

"Material Adverse Change" means a change which would have a Material Adverse Effect.

"Material Adverse Effect" An event, violation or other matter will be deemed to have a "Material Adverse Effect" on the Company if such event, violation or other matter would be materially adverse in impact or amount to the Company, intellectual property rights or condition, assets, liabilities, operations or financial performance or prospects, taken as a whole.

"Purchaser" shall have the meaning set forth in the first paragraph of this Agreement.

"Person" means any individual, entity or Governmental Body.

"Related Agreements" means (a) the Investor Rights Agreement substantially in the form attached as Exhibit C to this Agreement, (b) a Sourcing Rights Letter Agreement (the "Sourcing Rights Letter Agreement") between the Company and UOHL in the form set forth as Exhibit G, (c) a management agreement between the Company and cre-8-net (as defined on Schedule
A) (the "Management Agreement") and (d) any other agreement or document entered into by any of the parties in connection with this Agreement or any of the transactions contemplated hereby.

"Securities Act" means the United States Securities Act of 1933.

"Strategic Investor" means [to be inserted prior to Closing]

EXHIBIT 10.10

AMENDMENT TO STOCK AND NOTE PURCHASE AGREEMENT

This AMENDMENT effective as of April 30, 2001 (the "Amendment"), by and among Footwear Acquisition, Inc., a Delaware corporation (the "Company") and Perseus Acquisition/ Recapitalization Fund, L.L.C. and any affiliates or co-investors set forth on the signature page hereto, Union Overseas Holdings Limited, cre-8-net Ventures L.L.C. and a Strategic Partner (each, a "Purchaser" and collectively, the "Purchasers").

W I T N E S S E T H:

WHEREAS, the Company and the Purchasers are parties to the Stock and Note Purchase Agreement dated April 5, 2001 (the "Agreement");

WHEREAS, the Company and the Purchasers contemplated the issuance of senior notes and entering into a related security agreement in connection with the transactions contemplated by the Agreement, and have determined not to issue such notes or execute such security agreement, and the Company and the Purchasers desire to amend the Agreement accordingly on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter contained and other good and valuable consideration the receipt of which is hereby acknowledged and intending to be legally bound, the parties hereto agree as follows:

1. DEFINITIONS. Capitalized terms used in this Amendment without other definition shall have the meanings set forth in the Agreement.

2. CONSTRUCTION. The Agreement is amended to provide that references in the Agreement to "this Agreement" or "the Agreement" (including indirect references such as "hereunder," "hereby," "herein" and "hereof") shall be deemed to be references to the Agreement as amended hereby.

3. AMENDMENTS.

(a) Section 1.1 (Authorization) is amended by deleting therefrom any reference to the Senior Notes, including Exhibit C (form of Note), and adding the following sentence:

"If Purchasers and the Company determine not to purchase and sell any notes hereunder, the funds deposited for the purchase any notes shall be returned to such Purchaser, plus any accumulated interest thereon"

(b) The first sentence of Section 2.2 (Deliveries) is hereby amended by deleting therefrom any reference to the Senior Notes.

(c) Section 2.3(xiii) (Opinion of Counsel) is hereby amended to deleted therefrom any reference to the Senior Notes.

(d) Section 2.3(xiii) (Security Agreement) is hereby deleted in its entirety.

(e) Schedule A is hereby deleted and replaced with Schedule A attached hereto.

(f) Exhibit H (Form of Security Agreement) is hereby deleted.

4. COUNTERPARTS. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties hereto.

5. ENTIRE AGREEMENT. This Amendment and the SPA contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

6. EFFECT OF AMENDMENT. This Amendment does not, and shall not be construed to, modify any term or condition of the Agreement other than those specific terms and conditions expressly referenced in this Amendment. Except as herein provided, the Agreement shall remain unchanged and in full force and effect. In the event of any inconsistency or discrepancy between this Amendment and the Agreement, the terms and conditions of this Amendment shall control.

[Company Amendment to Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written.

FOOTWEAR ACQUISITION, INC.

By:  /s/ William N. Simon
     ------------------------------

Name: William N. Simon
      -----------------------------

Title:  Executive Director
        ---------------------------

ADDRESS FOR NOTICE:

One Fordham Road
North Reading, MA 01864
Phone: 415-383-7698
Fax: 415-383-7405
Phone: 415-383-7698
Fax: 415-383-7405
Attn: William N. Simon

With a copy to:

[cre-8-net Amendment to Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written.

CRE-8-NET VENTURES L.L.C.

BY: /s/ William N. Simon
    ---------------------------------
      NAME: William N. Simon
      TITLE: Managing Member

ADDRESS FOR NOTICE:

One Fordham Road
North Reading, MA 01864
Phone: 415-383-7698
Fax: 415-383-7405
Attn: William N. Simon

With a copy to:

WILSON SONSINI GOODRICH & ROSATI, P.C.
650 Page Mill Road
Palo Alto, California 94304
Facsimile: (650) 496-408
Attn: Kurt Berney, Esq.

[UOHL Amendment to Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the day and year first above written.

UNION OVERSEAS HOLDINGS LIMITED

BY:_/s/ Edward D. Sy
    ------------------------------------
      NAME:  Edward D. Sy
      TITLE: Director

ADDRESS FOR NOTICE:

Suite 306
Third Floor
Island Place Tower
No. 510 King's Road, North Point
Hong Kong
Facsimile No. 852-2907-8118
Attn: Mr. Ed Sy

With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
One Financial Center
Boston, Massachusetts 02111
Facsimile: (617) 542-2241
Attention: Mary Laura Greely, Esq. and George Hofmann, Esq.

[Perseus Investors Amendment to Stock Purchase Agreement Signature page]

IN WITNESS WHEREOF, the undersigned Perseus Stockholder has executed this Agreement as of the day and year first above written.

PERSEUS ACQUISITION/RECAPITALIZATION
FUND L.L.C.

By:     /s/ Curtis A. Glovier
        -----------------------------
Name:   Curtis A. Glovier
        -----------------------------
Title:  Managing Director
        -----------------------------

PERSEUS FOOTWEAR INVESTMENT, L.L.C.

By its Managing Member

PERSEUS ACQUISITION/RECAPITALIZATION MANAGEMENT, L.L.C.

By:     /s/ Curtis A. Glovier
        -----------------------------
Name:   Curtis A. Glovier
        -----------------------------
Title:  Managing Director
        -----------------------------

PERSEUS 2000, L.L.C.

By:     /s/ Curtis A. Glovier
        -----------------------------
Name:   Curtis A. Glovier
        -----------------------------
Title:  Managing Director
        -----------------------------

ADDRESS FOR NOTICE:
888 Seventh Avenue, 29th Fl.
New York, NY 10106
Facsimile No.: (212) 245-1852
Attn: Ray E. Newton, III

With a copy to:
Arnold & Porter
555 Twelfth Street N.W.
Washington, D.C. 20004-1206
Facsimile: (202) 942-5999
Attention: Robert Ott, Esq.

EXHIBIT 10.11

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

CONVERSE INC.,

SELLER

AND

FOOTWEAR ACQUISITION, INC.,

BUYER

DATED AS OF

APRIL 6, 2001

TABLE OF CONTENTS

                                                                                        Page
                                                                                        ----
ARTICLE I.            TERMS OF PURCHASE AND SALE......................................     1

         1.01     Purchase and Sale...................................................     1
         1.02     Excluded Assets.....................................................     4
         1.03     The Closing.........................................................     4
         1.04     Payment of Purchase Price...........................................     4
         1.05     Post-Closing Adjustment.............................................     6
         1.06     Assumption of Certain Obligations...................................     8
         1.07     Retained Liabilities................................................     8
         1.08     Payment of Transfer Taxes and Other Charges.........................    10

ARTICLE II.           REPRESENTATIONS AND WARRANTIES OF SELLER........................    10

         2.01     Organization and Standing...........................................    10
         2.02     Authorization by Seller.............................................    10
         2.03     Assumed Contracts; Information......................................    11
         2.04     Intellectual Property...............................................    12
         2.05     Title to Purchased Assets; Absence of Liens and Encumbrances........    14
         2.06     Litigation..........................................................    15
         2.07     Inventory...........................................................    15
         2.08     Insurance...........................................................    15
         2.09     Compliance with Laws................................................    15
         2.10     Tax and Other Returns and Reports...................................    15
         2.11     Environmental Matters...............................................    16
         2.12     Accounts Receivable; Collection.....................................    16
         2.13     Software............................................................    16
         2.14     Customers and Suppliers.............................................    18
         2.15     Changes in Accounting Method........................................    18
         2.16     Absence of Undisclosed Liabilities..................................    18
         2.17     Subsidiary Assets...................................................    19
         2.18     Schedules...........................................................    19

ARTICLE III.          REPRESENTATIONS AND WARRANTIES OF BUYER.........................    19

         3.01     Organization and Standing...........................................    19
         3.02     Authorization by Buyer..............................................    19
         3.03     Available Funds.....................................................    20
         3.04     HSR Matters.........................................................    20
         3.05     Litigation..........................................................    20

ARTICLE IV.           COVENANTS OF SELLER.............................................    20

         4.01     Cooperation.........................................................    20
         4.02     Court Approval......................................................    21
         4.03     Conduct of Business.................................................    22
         4.04     Disclosure Supplements..............................................    23

         4.05     Closing.............................................................    24
         4.06     Confidentiality.....................................................    24
         4.07     Transitional Arrangements Agreement.................................    24
         4.08     Further Assurances..................................................    24
         4.09     Inspection..........................................................    24
         4.10     Maintain Insurance..................................................    25
         4.11     Maintenance of, and Access to, Records..............................    25
         4.12     Accounts Receivable.................................................    25
         4.13     Consents............................................................    25
         4.14     Specific Enforcement of Covenants...................................    26
         4.15     Acquisition Proposals...............................................    26

ARTICLE V.            COVENANTS OF BUYER..............................................    26

         5.01     Cooperation.........................................................    26
         5.02     Confidentiality.....................................................    27
         5.03     Employees...........................................................    27
         5.04     Shipped Inventory Matters...........................................    27

ARTICLE VI.           CONDITIONS TO BUYER'S OBLIGATIONS...............................    27

         6.01     Covenants...........................................................    27
         6.02     Representations and Warranties True.................................    27
         6.03     Delivery of Certificates............................................    27
         6.04     Instruments of Transfer.............................................    28
         6.05     Consents............................................................    28
         6.06     Approval Order......................................................    28
         6.07     HSR Waiting Period..................................................    28
         6.08     Injunction..........................................................    28
         6.09     Material Adverse Change.............................................    28
         6.10     Ancillary Agreements................................................    28

ARTICLE VII.          CONDITIONS TO SELLER'S OBLIGATIONS..............................    28

         7.01     Covenants of Buyer..................................................    28
         7.02     Representations and Warranties True.................................    29
         7.03     Delivery of Certificates............................................    29
         7.04     Instruments of Assumption...........................................    29
         7.05     Tender of Purchase Price............................................    29
         7.06     Approval Order......................................................    29
         7.07     HSR Waiting Period..................................................    29
         7.08     Injunction..........................................................    29
         7.09     Further Action......................................................    29
         7.10     Ancillary Agreements................................................    29

ARTICLE VIII.         TERMINATION PRIOR TO CLOSING....................................    29

         8.01     Termination.........................................................    29
         8.02     Effect on Obligations...............................................    30
         8.03     Return of Deposit to Buyer..........................................    30

ARTICLE IX.           INDEMNIFICATION.................................................    30

         9.01     Survival............................................................    30
         9.02     Indemnification by Seller...........................................    31
         9.03     Indemnification by Buyer............................................    31
         9.04     Limitations.........................................................    31
         9.05     Indemnification Procedure...........................................    33

ARTICLE X.            MISCELLANEOUS...................................................    34

         10.01    Entire Agreement....................................................    34
         10.02    Use of Names........................................................    34
         10.03    Successors and Assigns..............................................    34
         10.04    Counterparts........................................................    35
         10.05    Headings, Interpretation............................................    35
         10.06    Modification and Waiver.............................................    35
         10.07    Expenses, etc.......................................................    35
         10.08    Notices.............................................................    35
         10.09    Governing Law.......................................................    36
         10.10    Announcements.......................................................    36
         10.11    Compliance with Bulk Sales Laws.....................................    37
         10.12    Binding Nature of Agreement.........................................    37
         10.13    Seller's Knowledge..................................................    37

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this "Agreement") dated as of April 6, 2001 by and between Converse Inc., a Delaware corporation ("Seller"), and Footwear Acquisition, Inc., a Delaware corporation ("Buyer").

W I T N E S S E T H :

WHEREAS, Seller is willing to sell, and Buyer desires to purchase, certain intellectual property, contracts, accounts receivable, inventory and other assets of Seller;

WHEREAS, Seller has filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), case no. 01-0223 (the "Bankruptcy Case"), which is currently pending in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court");

WHEREAS, Seller has determined that it is in its best interests to sell to Buyer, and for Buyer to purchase from Seller, pursuant to Sections 363 and 365 of the Bankruptcy Code, the Purchased Assets (as defined herein) for consideration, and upon the terms and conditions, hereinafter set forth; and

WHEREAS, Seller and Buyer intend that the Closing under this Agreement will not occur until after a Notification and Report Form pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR Act") with respect to the transaction is filed, if required, with the U.S. Department of Justice and Federal Trade Commission, and any applicable waiting period under the HSR Act has expired or been earlier terminated ("HSR Clearance").

NOW, THEREFORE, in consideration of the premises and mutual promises and covenants contained herein, Buyer and Seller agree as follows:

ARTICLE I

TERMS OF PURCHASE AND SALE

1.01 Purchase and Sale. Subject to the terms and conditions set forth herein, Buyer agrees to purchase and pay for, and Seller agrees to sell, assign, transfer and convey to Buyer, on the Closing Date (as defined in Section 1.03), free and clear of all Liens (as defined in Section 4.02(b)(ii) below) subject in the case of the Intellectual Property (as defined in Section 2.04 hereof) to licenses pursuant to the agreements set forth on Schedule 2.04 to this Agreement, all of the assets set forth in this Section 1.01 existing on the Closing Date, wherever located (the "Purchased Assets"). The Purchased Assets consist of and shall include only the items set forth in this Section 1.01, subject to Buyer's rights to exclude certain specified assets prior to the Closing in accordance with Section 1.02.

(a) The following items of intellectual property, contracts, inventory and accounts receivable:

(i) all general intangibles and intangible property, including the Intellectual Property owned by Seller;

(ii) all of Seller's rights under license and sublicense agreements, pursuant to which Seller's Intellectual Property is licensed to third parties, whether domestic or international, including those listed or described on Schedule B hereto (the "Licenses");

(iii) all of Seller's rights under supplier, services or vendor agreements, purchase orders issued by Seller and other contracts entered into by Seller in connection with the design, testing, manufacture, warehousing, or transport of its products, and all contractor and outsourcing agreements otherwise entered into in connection with the products, including (x) those listed or described on Schedule C and (y) existing agreements, arrangements or understandings with E.M.I. of Taiwan, Buyer's Far East production agent ("E.M.I.") for services and information provided by E.M.I. (together, the "Vendor Agreements"); provided, however, that with respect to all current and future production orders for inventory that has not been received into Seller's distribution center as of the Closing, and for which Seller has not yet placed or opened letters of credit to the manufacturers of such inventory, Buyer agrees to open letters of credit or secure credit terms on a timely basis, as necessary to purchase such inventory, so long as such inventory conforms to the purchase orders placed by Seller with respect to such inventory and so long as Seller has provided Buyer with the terms of the letters of credit or credit terms which are summarized on Schedule C, and provided further that with respect to all production orders for inventory for which Seller has opened letters of credit for which sufficient time exists for Buyer to open substitute letter of credit or secure credit terms to replace the letters of credit opened by Seller, Buyer hereby agrees to open substitute letters of credit or obtain substituted credit terms on a timely basis so long as Seller has provided Buyer with the terms of such letters of credit or credit terms;

(iv) all of Seller's rights under existing purchase orders, including customer order backlog and customer agreements and other agreements entered into by Seller for the purchase, distribution, sale, consignment or other disposition of Seller's products, including those listed or described on Schedule D hereto (the "Customer Agreements");

(v) all of Seller's rights under any marketing agreements and commitments to trade shows, media advertising, event sponsorships, celebrity endorsements, endorsements with high school, college and other organizations, including any prepayments or deposits with respect thereto, as listed or described on Schedule E hereto (the "Marketing Agreements");

(vi) all finished goods inventory wherever located, owned by Seller, including (w) all finished products or goods that are to become finished product prior to Closing that are in transit to or from Seller's distribution and

manufacturing facilities, (x) finished goods at Seller's manufacturing facility not yet shipped that are or become finished product prior to Closing, (y) all inventory located at Seller's retail locations (including any of Seller's inventory located at retail stores owned by Seller's subsidiaries) and (z) inventory listed on Schedule F hereto (the "Inventory");

(vii) all information technology software and hardware ("Information Technology") necessary to conduct Seller's business, other than its manufacturing and retail store businesses, as carried out during the twelve (12) month period immediately prior to the date of this Agreement, including the applications described on Schedule G (the "Applications");

(viii) all of Seller's rights under any lease agreements to computer hardware that is necessary to run the Applications (the "Hardware Lease Agreements"); and

(ix) all trade receivables, royalty receivables and license fee receivables owned by Seller (the "Accounts Receivable"), unpaid interest accrued on any such accounts receivable and any security or collateral relating thereto.

For purposes of this Agreement, "Assumed Contracts" shall mean all Licenses, IP License Agreements (as defined in Section 2.04(d), below), Vendor Agreements, Customer Agreements, Applications (but only to the extent they constitute executory contracts), Hardware Lease Agreements and Marketing Agreements, but shall not include any licenses, contracts or agreements listed on Schedule 1.02 or deleted from the schedules prior to the Closing Date.

(b) The following items of personal property (together, the "Supplementary Items") as follows:

(i) Marketing materials, including brochures, newsletters, selling tools, point-of-sale materials, corporate and consumer videos and photos, trade show booths, displays and materials, in-store concept shops, fixtures and other point of sale materials, including those located at customer locations, co-op agreements with vendors and customers, written materials and paraphernalia relating to Converse's heritage and history, including artifacts, original products, models and product designs, historical photos, descriptions and documentation and such other items identified by Buyer to Seller in writing prior to Closing.

(ii) Existing and future designs of Seller's products, including prototypes, drawings, logos, specifications and artwork associated with each, and all Seller owned or controlled footwear lasts and molds.

(iii) Such furniture, fixtures and equipment including computer hardware owned by Seller, located at Seller's headquarters and identified by Buyer to Seller in writing prior to Closing.

(iv) Copies of books, records, supplier lists, customer lists and order history, vendor lists with production and pricing data past and pending, detailed inventory data, business records, other data owned by Seller and used or held for use in connection with any of the foregoing Intellectual Property, Assumed Contracts, Inventory, Applications and Supplementary Items.

1.02 Excluded Assets. Notwithstanding the foregoing, Seller is not selling and Buyer is not purchasing pursuant to this Agreement, and the term "Purchased Assets" shall not include, any assets not specifically listed in Section 1.01 (the "Excluded Assets"); provided, however, that within the fourteen-day period following the date the Approval Order (as defined below) is signed by the Bankruptcy Court Buyer may, by written notification to Seller, provide to Seller a Schedule 1.02 that specifically lists certain assets, licenses, agreements or contracts to be excluded from purchase or assignment hereunder, which Schedule 1.02 shall be deemed to the extent necessary to amend such other Schedules hereto that may have listed such assets, licenses, agreements or contracts as Purchased Assets, and such assets, licenses, agreements or contracts shall become Excluded Assets; provided, further, that in no event shall the Purchase Price (as defined below) be reduced with respect to such deletions or exclusions.

1.03 The Closing. Upon the terms and subject to the conditions contained herein, the closing of the transactions contemplated hereby (the "Closing") shall take place at 10:00 a.m. on later of (i) April 30, 2001 and (ii) the first business day after the last condition in Articles VI and VII is satisfied (other than those conditions requiring deliveries at the Closing itself) at Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York, or at another location or time mutually agreed upon by the parties (such date being hereinafter referred to as the "Closing Date").

1.04 Payment of Purchase Price. (a) The price to be paid by Buyer for the Purchased Assets at the Closing shall be $117,500,000 (the "Purchase Price") minus (i) the Deposit (together with any interest earned thereon) and (ii) $10,000,000 (the "Retention Amount"), which Retention Amount shall be held by Buyer and reduced and/or paid in accordance with Section 1.05(c). On the date of entry of the Approval Order (as defined below) by the Bankruptcy Court, as evidence of its good faith, Buyer shall deposit $4,700,000 (together with the $300,000 previously delivered to Seller, the "Deposit") in escrow with an escrow agent selected by the parties (the "Escrow Agent") pursuant to an agreement substantially in the form set forth as Exhibit A hereto (the "Deposit Escrow Agreement"). The Deposit Escrow Agreement shall provide, among other things, for the Deposit to be held in escrow until the earlier of the Closing or the termination of this Agreement and released as follows: (A) upon Closing, the Deposit and all interest earned thereon shall be released by the Escrow Agent to Seller in order to partially fund the acquisition of the Purchased Assets, (B) in the event of a termination of this Agreement by Seller pursuant to Section 8.01(c), the Deposit and all interest earned thereon shall be released by the escrow agent to Seller as liquidated damages, which liquidated damages shall be the sole and exclusive remedy of Seller as a result of such termination or (C) in the event of any other termination of this Agreement, the Deposit and all interest earned thereon shall be released by the Escrow Agent to Buyer.

(b) Of the Purchase Price, $10,000,000 (the "Accounts Receivable/Inventory Holdback Amount") shall be deposited into escrow pursuant to an agreement substantially in the form set forth as Exhibit B hereto (the "Post Closing Escrow Agreement") which Buyer, Seller and the Escrow Agent shall enter into at the Closing. The Post Closing Escrow Agreement shall provide, among other things, for the Accounts Receivable/Inventory Holdback Amount to be deposited in escrow with the Escrow Agent for the period commencing on the Closing Date and ending on the later of (i) ninety (90) days following the Closing and (ii) fifteen (15) days following the resolution of any dispute relating to the Audit (as defined below). The Accounts Receivable/Inventory Holdback Amount shall be used to satisfy (x) any Estimated Adjustment Amount pursuant to subsection 1.04(e); (y) any Downward Adjustment Amount owed to Buyer pursuant to Section 1.05 and (z) any indemnification claims arising from the breach of representations and warranties of Seller with respect to Sections 2.07 (Inventory) and 2.12 (Accounts Receivable) pursuant to and in accordance with Article IX hereof. After the later of (i) ninety (90) days following the Closing and (ii) fifteen (15) days following the resolution of any dispute relating to the Audit, if the aggregate amount of claims made by Buyer against the Accounts Receivable/Inventory Holdback Amount is less than $10,000,000 ("Holdback Claims"), then Buyer and Seller shall countersign a certificate instructing the Escrow Agent to release to Seller an amount equal to the difference between (x) $10,000,000 and (y) the Holdback Claims plus any unpaid administrative expenses of the Escrow Agent (the "Holdback Release Amount"); provided that if any amounts payable from the Accounts Receivable/Inventory Holdback Amount are the subject of an unresolved dispute, Buyer and Seller shall countersign a certificate instructing the Escrow Agent to release to Seller the Holdback Release Amount less any amounts subject to dispute (which amounts subject to dispute shall be released as disputes are resolved in accordance with the terms of the Post Closing Escrow Agreement).

(c) Of the Purchase Price, $5,000,000 (the "Escrow Amount") shall be deposited into escrow pursuant the Post Closing Escrow Agreement. The Post Closing Escrow Agreement shall provide, among other things, for the Escrow Amount to be deposited in escrow with the Escrow Agent for a period of six (6) months following the Closing. The Escrow Amount shall be used to satisfy any indemnification claims arising from the representations and warranties of Seller with respect to Sections 2.03 (Assumed Contracts), 2.04 (Intellectual Property),
2.05 (Title) and 2.13 (Software) pursuant to and in accordance with Article IX hereof. After the 180th day from the Closing Date, if the aggregate amount of indemnification claims made by Buyer against the Escrow Amount pursuant to this
Section 1.04(c) ("Indemnification Claim Amount") is less than $5,000,000, then Buyer and Seller shall countersign a certificate instructing the Escrow Agent to release to Seller an amount equal to the difference between (i) $5,000,000 and
(ii) the Indemnification Claim Amount plus any unpaid administrative expenses of the Escrow Agent (the "Escrow Release Amount"); provided that if any amounts payable from the Escrow Amount are the subject of an unresolved dispute, Buyer and Seller shall countersign a certificate instructing the Escrow Agent to release to Seller the Escrow Release Amount less any amounts subject to dispute (which amounts subject to dispute shall be released as disputes are resolved in accordance with the terms of the Post Closing Escrow Agreement).

(d) Buyer shall pay the Purchase Price to Seller at the Closing in immediately available funds wire transferred into an account maintained by Seller and which shall be

designated by Seller at least five (5) business days prior to the Closing Date, less (i) the Deposit plus any interest accumulated thereon, (ii) the Retention Amount, (iii) the Accounts Receivable/Inventory Holdback Amount and (iv) the Escrow Amount. The Accounts Receivable/Inventory Holdback Amount and the Escrow Amount shall be wired transferred to the Escrow Agent pursuant to the terms of the Post Closing Escrow Agreement.

(e) The appropriate financial officers of Seller shall close the books of Seller as of April 28, 2001 in accordance with its normal course of business consistent with past practice, and shall deliver to Buyer no later than May 20, 2001, a report setting forth the estimated value of (i) the Account Receivables as of April 28, 2001 (the "Estimated Accounts Receivable Value") and
(ii) the Inventory as of April 28, 2001 (the "Estimated Inventory Value"). The sum of the Estimated Accounts Receivable Value and the Estimated Inventory Values shall be the "Estimated Value." If the Estimated Value exceeds $80,300,000, there will be no adjustment of the purchase price until the Auditor Report is available in accordance with Section 1.05. If the difference between $80,300,000 and the Estimated Value exceeds the Retention Amount (which excess shall be referred to as the "Estimated Adjustment Amount") then an amount equal to the excess of (i) the Estimated Adjustment Amount over (ii) $1,000,000 (One Million Dollars) shall be immediately paid to Buyer (the "Estimated Payment") from the Accounts Receivable/Inventory Holdback Amount upon delivery to the Escrow Agent by Buyer of a certificate setting forth such amount. Seller shall have no right to interfere with the payment by the Escrow Agent of the Estimated Payment.

1.05 Post-Closing Adjustment. (a) Following the Closing, Buyer shall cause Arthur Andersen L.L.P. or such other "big five" accounting firm selected by Buyer and approved by Seller (which approval shall not be unreasonably withheld) (the "Auditor") to prepare a valuation of Accounts Receivable and Inventory (the "Auditor Report"). The Auditor Report shall be prepared in accordance with the principles set forth on Exhibit C, and shall set forth the value of Accounts Receivable as of the Closing Date (the "Accounts Receivable Value") and the value of the Inventory as of the Closing Date (the "Inventory Value"), in each case in accordance with GAAP applied in accordance with Exhibit C. In addition, the Audit Report shall set forth the value of all deposits and prepayments made by Seller in respect of Assumed Contracts, which deposits and prepayments will inure to the benefit of Buyer and are identified on Schedule 1.05(a) (the "Deposit/Prepayment Value"). For purposes of this Agreement and the Auditor Report, the aggregate Deposit/Prepayment Value shall not exceed $500,000. The Audit Report shall state the sum of the Accounts Receivable Value plus the Inventory Value plus the Deposit/Prepayment Value (the "Audited Value"). The Auditor shall deliver the Auditor Report to Buyer and Seller within thirty (30) business days of the Closing Date (the "Audit Report Date"). Buyer and Seller shall share equally the cost of the Auditor Report.

(b) If Seller disputes the Auditor Report, Seller shall so notify Buyer in writing (a "Notice of Dispute") within ten (10) days after the date of Seller's receipt of the Auditor Report, specifying its calculation of the Accounts Receivable Value and the Inventory Value and any other points of disagreement. Upon receipt of a Notice of Dispute, Buyer shall promptly consult with Seller with respect to such alternate calculation and points of disagreement in an effort to resolve such dispute (in connection with such effort to resolve disputes, and in connection with the Auditor's preparation of the Auditor Report, Buyer shall

grant to Seller, its agents and the Auditors reasonable access to the books and records of Buyer pertaining to the Inventory and Accounts Receivable). If any such dispute cannot be resolved by Seller and Buyer within five (5) days after Buyer receives a Notice of Dispute from Seller, Seller and Buyer shall immediately appoint the Boston, Massachusetts office of Ernst & Young LLP to act as an arbitrator (the "Accounting Arbitrator") to determine the appropriate calculation of each of the Accounts Receivable Value, the Inventory Value, the Deposit/Prepayment Value, the Audited Value and all other remaining points of disagreement with respect to the Auditor Report (the "Review"). Seller and Buyer understand and agree that, in resolving any dispute with respect to the Auditor Report, the Accounting Arbitrator shall apply GAAP and the standards set forth on Exhibit C. All determinations made by the Accounting Arbitrator shall be final, conclusive and binding. The Accounting Arbitrator shall be directed to hold a hearing within ten (10) days of appointment (which hearing shall be held in Boston, Massachusetts) and to make a determination within five (5) days after such hearing, unless otherwise mutually agreed by the parties. The fees and expenses of the Accounting Arbitrator shall be borne equally by Seller and by Buyer. Each of the parties shall bear its own attorneys' and accounting fees and expenses incurred in connection with the Review.

(c) Within five (5) business days of the later of (x) the Audit Report Date and (y) in the case of any dispute of pursuant to Section 1.05(b), the resolution of such dispute:

(i) If the Audited Value exceeds $80,300,000 (the amount of such excess being the "Additional Purchase Price"), then (A) Buyer shall pay Seller by wire transfer of immediately available funds an amount equal to the Additional Purchase Price and (B) Buyer shall pay to Seller the Retention Amount by wire transfer of immediately available funds. Under no circumstances shall the Additional Purchase Price exceed $25,000,000.

(ii) If the Audited Value is less than $80,300,000, then Buyer shall be entitled to the difference between $80,300,000 and the Audited Value (the "Downward Adjustment Amount"); provided, however, that under no circumstances shall the Downward Adjustment Amount exceed $25,000,000. If the Downward Adjustment Amount exceeds the sum of the Retained Amount plus the Estimated Payment (such excess being herein referred to as the "Required Additional Payment"), then (A) first, the Retention Amount shall be credited to and retained by Buyer and (B) the Escrow Agent shall pay to Buyer from the existing Accounts Receivable/Inventory Holdback Amount by wire transfer of immediately available funds the Required Additional Payment; provided further that if the Downward Adjustment Amount exceeds $20,000,000, Seller shall pay to Buyer by wire transfer of immediately available funds such excess amount up to an amount not to exceed $5,000,000.

(iii) If a Downward Adjustment Amount has been determined and no Estimated Payment was made pursuant to Section 1.04(e), then (A) first, the Retention Amount shall be reduced and credited to Buyer by an amount equal to the Downward Adjustment Amount, and (B) to the extent the Downward Adjustment Amount exceeds the Retention Amount (the "Excess Amount"), the

Escrow Agent shall pay to Buyer from the Accounts Receivable/Inventory Holdback Amount by wire transfer of immediately available funds the Excess Amount; provided further that if the Downward Adjustment Amount exceeds $20,000,000, Seller shall pay to Buyer by wire transfer of immediately available funds such excess amount up to an amount not to exceed $5,000,000. Any Retention Amount remaining after the reduction thereto pursuant to subclause (A) above shall be paid by Buyer to Seller by wire transfer of immediately available funds.

(iv) If the Downward Adjustment Amount is less than the sum of Retention Amount and Estimated Payment (such shortfall being herein referred to as the "Required Refund"), then (A) if the Required Refund is less than or equal to the Estimated Payment then Buyer shall pay to the Escrow Agent for deposit into the Accounts Receivable/Inventory Holdback Amount by wire transfer of immediately available funds an amount equal to the Required Refund or (B) if the Required Refund is greater than the Estimated Payment then Buyer shall (x) pay to the Escrow Agent for deposit into the Accounts Receivable/Inventory Holdback Amount by wire transfer of immediately available funds an amount equal to the Estimated Payment and (y) pay to Seller from the Retention Amount an amount equal to the excess of the Required Refund over the Estimated Payment by wire transfer of immediately available funds.

Notwithstanding anything to the contrary contained herein, Buyer agrees that under no circumstance shall Escrow Agent release any of the Escrow Amount to Buyer to satisfy any amounts owed to Buyer in respect of the Downward Adjustment Amount except as otherwise permitted pursuant to Section 9.04(b). Any payment by Seller, the Escrow Agent or Buyer required by this subsection (c) shall bear interest at the rate equal to the interest being earned on the Accounts Receivable/Inventory Holdback Amount pursuant to the Post Closing Escrow Agreement from the Closing Date until the date of payment. The Additional Purchase Price or the Downward Adjustment Amount, as the case may be (excluding payments attributable to interest), will be treated by the parties as an increase or decrease, as the case may be, in the Purchase Price.

(d) The allocation for tax purposes of the Purchase Price will be agreed upon by the parties prior to the Closing.

1.06 Assumption of Certain Obligations. Upon the sale, transfer, assignment, conveyance, and delivery of the Purchased Assets to Buyer at the Closing, Buyer shall assume and thereafter pay, perform, and discharge all obligations to be performed or arising after the Closing under all of the Assumed Contracts (the "Assumed Obligations"). Other than the Assumed Obligations, Buyer shall not assume or be liable for any other obligations or liabilities of Buyer (including any cure amounts payable to other parties to the Assumed Contracts).

1.07 Retained Liabilities. (a) Seller shall retain and pay, discharge and perform any and all obligations and liabilities not expressly assumed by Purchaser in Section 1.06 above,

including the following obligations and liabilities (all such obligations and liabilities, the "Retained Liabilities"):

(i) liabilities for unpaid Taxes (as defined in Section 2.10);

(ii) all obligations or liabilities of Seller that relate to any of the Excluded Assets;

(iii) all obligations or liabilities for any borrowed money incurred by Seller whether pre-petition or post-petition;

(iv) all obligations and liabilities resulting from, caused by or arising out of, directly or indirectly, the conduct of Seller's business or ownership or lease of any of its properties or assets or any properties or assets previously used by Seller at any time prior to the Closing Date, including such of the foregoing as constitute, may constitute or are alleged to constitute a tort, breach of contract, or violation or requirement of any law or governmental regulation;

(v) any and all liabilities of Seller under any employee benefit plans, whether formal or informal, whether or not set forth in writing, and whether covering one person or more than one person, sponsored or maintained by Seller. For the purposes hereof, the term "employee benefit plan" includes all plans, funds, pension funds, programs, policies, arrangements, practices, customs and understandings providing benefits of economic value to any employee, former employee, or present or former beneficiary, dependent or assignee of any such employee or former employee other than regular salary, wages or commissions paid substantially concurrently with the performance of the services for which paid. The term "employee benefit plan" includes all employee welfare benefit plans within the meaning of Article 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all employee pension benefit plans within the meaning of Article 3(2) of ERISA. Seller shall retain liability for all employee pension benefits;

(vi) any alleged or actual liability for the investigation, cleanup or removal of any Hazardous Material (as defined in Section 2.11), or for death or injury to person or property, as a result of the generation, transportation, disposal, storage, release, emission or discharge of any Hazardous Material onsite or offsite and in, on, under, from or onto any real property subject to any lease or otherwise, past or present, that occurred or existed on or before the Closing Date;

(vii) any alleged or actual liability and penalties for violations of or noncompliance with environmental laws and that occurred or existed on or before the Closing Date; and

(viii) liability for all compensation, salary, wages, bonuses, commissions, incentive payments or any other benefit, perquisite, cost, expense,

liability or obligation attributable to services provided prior to the Closing but payable on or after the Closing to the employees, contractors, athletes or celebrities solicited and hired by Buyer pursuant to Section 5.03, if any. Buyer shall have no liability for compensation, salary, wages, bonuses, commissions, incentive payments or any other benefit, perquisite, cost, expense, liability or obligation relating to the employment or termination of employment by Seller before or after the Closing of any of Seller's employee's, contractors, athletes or celebrities.

(b) At the Closing, Seller shall deliver to Buyer (i) duly executed instruments of assignment and assumption including an assignment and assumption agreement (the "Assignment and Assumption Agreement"), in form and substance reasonably satisfactory to Buyer and its counsel, and sufficient for the assignment of the Purchased Assets and the assumption by Buyer of the Assumed Obligations and (ii) take all acts reasonably necessary to give Buyer possession of, or control over, the Purchased Assets; provided, however, that in the case of Inventory located at retail stores, Seller agrees to take all action necessary to have such Inventory delivered to Seller's Charlotte, North Carolina distribution center within 45 days following the Closing, provided further that Buyer agrees to pay the freight charges incurred in connection with such delivery.

1.08 Payment of Transfer Taxes and Other Charges. At or after the Closing, Seller shall pay all transfer taxes, sales taxes (including retail sales taxes), stamp taxes, withholding taxes, and other similar taxes which are due in connection with the transactions contemplated hereby.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Buyer as follows:

2.01 Organization and Standing. Seller is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all corporate power and authority to carry on its business as it is currently conducted, subject to Bankruptcy Court approval. Seller is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions where the conduct of its business renders such qualification necessary, except where failure to be so qualified would not have Material Adverse Effect. For purposes of this Agreement, a Material Adverse Effect means a material adverse effect on the value or condition of the Purchased Assets, taken as a whole.

2.02 Authorization by Seller.

(a) The execution, delivery and performance by Seller of this Agreement and the consummation by Seller of the transactions contemplated hereby have been or will by the Closing Date be, as the case may be, duly authorized by all requisite corporate action of Seller. This Agreement has been duly and validly executed and delivered by Seller and, upon entry of

the Approval Order, will be the legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as enforceability may be limited by equitable principles (regardless of whether enforcement is brought in a proceeding in equity or at law).

(b) Except as set forth on Schedule 2.02(b), neither the execution and delivery of this Agreement or any other agreements and documents to be executed or delivered pursuant hereto, nor the consummation of the transactions contemplated hereby, will (i) violate, or conflict with, any provision of Seller's Certificate of Incorporation or By-Laws, (ii) violate, or conflict with, or result in a breach of any provisions of, or constitute a default under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets being sold hereunder by Seller under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, agreement, lease or other instrument to which Seller is a party or by which it or any of its properties is bound, or (iii) violate, or conflict with, any order, writ, injunction, arbitral award, judgment or decree of any court, governmental body or arbitrator applicable to Seller, except, in the case of clause (ii), for any such violations, conflicts, breaches, defaults, terminations, accelerations or other matters which, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

2.03 Assumed Contracts; Information.

(a) Except as set forth on Schedule 2.03(a):

(i) Each of the Assumed Contracts was duly executed and delivered by Seller and each constitutes the valid and legally binding obligations of the parties thereto and is enforceable by Seller in accordance with its terms.

(ii) Except with regard to compliance under Assumed Contracts that is excused pursuant to Section 365(b)(2) of the Bankruptcy Code, Seller is in compliance in all material respects with the terms and conditions of the Assumed Contracts and all laws, rules and regulations applicable thereto.

(iii) Except with regard to defaults under Assumed Contracts that (A) can be cured pursuant to Section 365(b)(1) of the Bankruptcy Code or (B) can be excused pursuant to Section 365(b)(2) of the Bankruptcy Code, to Seller's knowledge, no event of default (or term of like intent) has occurred under any Assumed Contract

(iv) To Seller's knowledge, Seller has not received or sent notice that an event has occurred which, with the lapse of time or the giving of notice, or both, would constitute an event of default (or term of like intent) under the terms of any Assumed Contract.

(v) To Seller's knowledge, Seller has not received notice from any person that any Assumed Contract has been, or is to be, terminated, or that any

Assumed Contract has been, or is to be, terminated prior to its stated term, nor to Seller's knowledge, does there exist any basis for a termination of any Assumed Contract.

(vi) No consent of any party is required to sell, assign and transfer to Buyer any Assumed Contract that provides for the provision of goods or services or the payment of money having a value in excess of $100,000 per annum.

(vii) Seller has provided Buyer with full and complete copies of all Assumed Contracts and any written amendments, modifications or waivers with respect thereto. To Seller's knowledge, there exists no oral amendments, modifications or waivers with respect to any of the Assumed Contracts, except for such oral amendments, modifications or waivers which, individually or in the aggregate, would not result in a change in the provision of goods or services or the payment of money having a value in excess of $100,000 per annum.

(b) Schedule B sets forth (i) a complete list of Licenses to which Seller is a party and all other licenses to which Seller was a party since March 30, 2000, (ii) amendments to any License, (iii) the names, addresses, phone and fax numbers (and e-mail addresses, if known to Seller) of each licensee under a License, (iv) key contact persons at each licensee of a License and (v) names of Seller personnel who have been dealing with each licensee of a License.

(c) Schedule 2.03(c) sets forth (i) all outstanding purchase orders with each of Seller's vendors of finished goods, (ii) all other material agreements with vendors and (iii) copies of all outstanding letters of credit issued by Seller to such vendors.

(d) Schedule 2.03(d) sets forth, with respect to all of Seller's 100 highest revenue generating customers ("Material Customers"), (i) credit terms,
(ii) margin allowances and discounts and (iii) return information.

(e) Schedule 2.03(e) sets forth the terms and conditions of Seller's employment of or contractual arrangements with, Seller's internal and external U.S. and overseas sales personnel, including commissions and bonuses.

(f) With respect to any Assumed Contracts listed or described on Schedule 2.03(a) as exceptions to the representations set forth in 2.03(a)(vi), Seller shall obtain appropriate consents to the sale, assignment and transfer contemplated herein together with an estoppel agreed to by the consenting parties to each such Assumed Contract acknowledging the transfer to Buyer of such Assumed Contract. Notwithstanding the foregoing, Seller shall only be required to use commercially reasonable efforts to obtain any consent required under (i) the agreements listed on Schedule 2.03(f)(i), which would require Buyer to establish itself as a "qualified" vendor, and (ii) the license agreement listed in Schedule 2.03(f)(ii).

2.04 Intellectual Property. Except as set forth on Schedule 2.04:

(a) Seller owns all right, title and interest in and to the Owned Intellectual Property. Seller has all rights necessary to use the Licensed Intellectual Property in the manner

presently used in its business. None of the Intellectual Property infringes or violates the intellectual property rights of any third parties or, to Seller's knowledge, is being infringed upon by third parties. Consummation of the transactions contemplated hereby shall not impair any rights or impose any obligations with respect to Intellectual Property, except for any notices, recordings or filings that are required to be given or made by applicable law as a result of the transfer of the Intellectual Property to Buyer. On the Closing Date, Seller will transfer the Intellectual Property to Buyer, free and clear of Liens. None of the Intellectual Property is subject to any outstanding order, decree, judgment, stipulation, injunction, written restriction or agreement restricting the scope of use thereof by Seller anywhere in the world.

(b) There is no pending or, to Seller's knowledge, threatened (or unasserted but considered probable of assertion) claim against Seller, nor has Seller received any written notice of any claim (i) asserting that any of the Intellectual Property as used in Seller's business infringes or violates the intellectual property rights of any third parties, (ii) asserting that any of the Intellectual Property is being infringed upon or diluted by others, (iii) asserting that any third parties have any rights to use any of the Intellectual Property except for Licensed Intellectual Property licensed to Seller on a nonexclusive basis, except for such claims which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(c) During the prior twelve months, Seller has not given notice to any third parties asserting material infringement by such third parties of any of the Intellectual Property, and to Seller's knowledge, there is no basis for any such claim against a third party.

(d) All of the Licensed Intellectual Property is licensed pursuant to valid written agreements (the "IP License Agreements").

(e) Seller has not adversely used any confidential information, trade secrets or known patentable inventions of any person relating to the conduct of its business, and Seller, to its knowledge, does not have any product which, if commercially developed and sold, would adversely use any such confidential information, trade secrets or other inventions except as would not have a Material Adverse Effect.

(f) There is no pending or, to Seller's knowledge, threatened claim that Seller is in breach of any IP License Agreement and, to Seller's knowledge, no basis for any such claim exists, except as would not have a Material Adverse Effect.

(g) There is no pending or, to Seller's knowledge, threatened claim against Seller of any Licensed Intellectual Property asserting that any of the Licensed Intellectual Property infringes or conflicts with the rights of third parties, and to Seller's knowledge, no basis for any such claim exists.

(h) Seller has performed all of the obligations required to be performed by it, and is not in default under any agreement relating to any Intellectual Property, except where such failure to perform would not have a Material Adverse Effect.

(i) Schedule 2.04(i) hereto identifies each trade name, fictitious business name, or other similar name under which Seller has conducted any part of its business during the five (5) years preceding the date hereof, and the trademark status reports set forth in Schedule A-5 contain true and correct information regarding the Trademarks set forth therein.

(j) For purposes of this Agreement:

(i) "Copyrights" shall mean all registered and unregistered copyrights and applications for copyright registration in every country of the world, including those identified in Schedule A-1;

(ii) "Intellectual Property" shall mean the Owned Intellectual Property and the Licensed Intellectual Property;

(iii) "Know-How" shall mean technical information, trade secrets, inventions, processes, specifications, manuals, reports, documents, drawings, procedures, processes, devices, software and source code, software documentation, research and development data, marketing information, customer lists, database rights, industrial design rights, other tangible embodiments of information and all other intellectual property or proprietary rights other than Patents, Trademarks and Copyrights, in every country of the world, owned by Seller and its subsidiaries, including those identified in Schedule A-2;

(iv) "Licensed Intellectual Property" shall mean all intellectual property owned by third parties and licensed to Seller and its subsidiaries, including those identified in Schedule A-3;

(v) "Owned Intellectual Property" shall mean all Patents, Trademarks, Copyrights and Know-How owned by Seller and its subsidiaries, including those listed on Schedules A-1, A-2, A-3, A-4 and A-5;

(vi) "Patents" shall mean all utility and design patents and patent applications (including any divisions, continuations, continuations-in-part, reexaminations, extensions, renewals or reissues thereof), design, design registrations, utility models and any similar rights and applications therefor, in every country of the world, owned by Seller and its subsidiaries, including those identified in Schedule A-4; and

(vii) "Trademarks" shall mean all registered and unregistered trademarks, service marks, trade dress, trade names, Internet domain names, fictitious business names or other similar names, and any other identification of source or origin, and applications for registration of any of the foregoing, together with associated goodwill, in every country of the world, owned by Seller and its subsidiaries, including those trademarks identified in the trademark status report attached hereto as Schedule A-5.

2.05 Title to Purchased Assets; Absence of Liens and Encumbrances. Seller owns all right, title and interest in and to, and has good and marketable title to, all Purchased Assets transferred pursuant to this Agreement. Seller will transfer all right, title and interest in the Purchased Assets, including any Purchased Assets located outside of the United States, to Buyer at the Closing Date free and clear of Liens. Without limiting the foregoing, on the Closing Date the Purchased Assets will not be in any manner encumbered by any Liens arising out of unpaid state, federal, local and foreign income, sales, or ad valorem taxes which are due and payable.

2.06 Litigation. Except as set forth on Schedule 2.06, there is no litigation pending or, to Seller's knowledge, threatened (a) against Seller, its business, subsidiaries or any of its Intellectual Property or other assets which, if adversely determined, would affect the Purchased Assets, or (b) which seeks to enjoin or obtain damages in respect of the consummation of the transaction contemplated hereby.

2.07 Inventory. Seller has or will have on the Closing Date good and marketable title to the Inventory free and clear of any Lien or other right of any third party and Seller will transfer the Inventory to Buyer at the Closing, free and clear of Liens. The Inventory is recorded on the books and records of Seller at the lower of actual FIFO cost or market, net of any reserves (taking into account obsolete, defective or unmerchantable goods, odd sizes, excess quantities, unsaleable returns, other unsaleable merchandise), as determined in accordance with GAAP.

2.08 Insurance. Seller has maintained and currently maintains sufficient insurance coverage to protect its business and the full replacement value of the Purchased Assets, as well as business interruption insurance with respect to Seller's manufacturing facilities located in the United States and Mexico, in each case with reputable insurance companies in amounts consistent with other companies in its industry.

2.09 Compliance with Laws. Except as set forth on Schedule 2.09, Seller is not aware of any violation of any applicable statute, ordinance, code, restriction, regulation, or other governmental requirements, which violation, individually or in the, aggregate, would have a Material Adverse Effect.

2.10 Tax and Other Returns and Reports. Except as listed in Schedule 2.10, all material federal, state, local and foreign tax returns, reports, statements and other similar filings required to be filed by Seller in connection with its operation of the business as it pertains to the Purchased Assets (the "Tax Returns") with respect to any federal, state, local or foreign taxes, assessments, interests, penalties, deficiencies, fees and other governmental charges or impositions, as well as all transfer taxes, sales taxes (including retail sales taxes), duties and customs fees, stamp taxes, withholding taxes, and other similar taxes (all such tax liabilities relating to the manufacture, importation, delivery, shipment and use of the Purchased Assets, including Inventory in transit, for all periods ended prior to the Closing Date referred to herein as the "Taxes") have been filed with the appropriate governmental agencies in all jurisdictions in which such Tax Returns are required to be filed. Except as listed in Schedule 2.10, all Taxes, including those which are called for by the Tax Returns, or heretofore or hereafter claimed to be due by any taxing authority from Seller, have been properly accrued or paid. Seller shall be solely responsible for Taxes accrued during periods ended on or prior to the Closing Date and

Seller shall have the sole right to contest any such claim or deficiency in any administrative or judicial forum of its choosing, or pursue or forego any appeal of any administrative judicial decision, or to terminate or settle an administrative proceeding.

2.11 Environmental Matters. Except as set forth on Schedule 2.11(a), neither Seller nor, to Seller's knowledge, any other person has (x) discharged or disposed of any Hazardous Materials at Seller's Charlotte, North Carolina distribution facility or North Reading, Massachusetts headquarters in a manner which at the time of such act was is in violation of any law, rule or regulation affecting the use, discharge, or disposal of any Hazardous Material. Additionally, none of such real property is being used, or to Seller's knowledge, after due inquiry has ever previously been used, for the discharge or disposal of any Hazardous Materials in a manner which at the time of such act was in violation of any law, rule or regulation affecting the use, discharge, or disposal of any Hazardous Material or, (y) received any notice from any governmental authority indicating that the real property has been or may be placed on any federal or state "Superfund" or "Superlien" list. The term "Hazardous Material" means any substance that is defined as a "hazardous waste" or "hazardous substance" under any applicable federal, state, or local statute, regulation, or ordinance and shall include any (A) "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Article 6901 et seq.), as amended from time to time, and regulations promulgated thereunder; and (B) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Article 9601 et seq.) ("CERCLA"), as amended from time to time and regulations promulgated thereunder.

2.12 Accounts Receivable; Collection. Schedule H sets forth a listing showing aging by customer of the Accounts Receivable that are outstanding as of the date hereof. The Accounts Receivable are not subject to any written or, to Seller's knowledge, oral agreement or understanding providing for any credit, chargeback, counterclaim, setoff, discount, returns or co-operative marketing payments in respect thereof, except for any such credits, chargebacks, counterclaims, setoffs, discounts, returns or co-operative marketing payments that have been estimated and reserved for based on historical experience (either generally or specifically) on the books and records of Seller. Seller has not accelerated or delayed collection of Accounts Receivable in advance of or beyond their regular due dates or the dates when the same would otherwise have been collected other than in the ordinary course of business. Accounts Receivable with extended payment terms providing for payments over more than 90 days are carried at no greater than present value.

2.13 Software.

(a) Seller's rights in and to (i) the Applications that are required to process Inventory and Accounts Receivable (the "Accounts Receivable/Inventory Software") and (ii) all other Applications not requiring the consent of third parties for the assignment thereof will be granted to Buyer, either by transfer of title, assignment of rights or grant of license at the Closing. Schedule 2.13(a) sets forth a list of the Applications ("Licensed Software") requiring the consent of the owners and/or licensors ("Licensors") thereof ("Licensors' Consent"). Subject to receipt of Licensors' Consent, Seller's rights in and to Licensed Software will be granted to Buyer, either by transfer of title, assignment of rights or grant of license at the Closing. Seller

shall use commercially reasonable efforts to obtain Licensors' Consent prior to Closing.

Upon receipt of Licensors' Consent, if applicable, Seller shall, at the request of Buyer, provide programming code, source code and documentation in Seller's possession and execute and deliver such other instruments of sale, transfer, conveyance, assignment or license as Buyer may reasonably request in order to effectively vest in Buyer the rights contemplated hereby.

(b) The activities and operations of Seller with regard to the Applications prior to the Closing, are not, and have not been, in violation of any agreement, or in violation of any rights held by any Person except for pre-petition amounts owed under license agreements between Seller and Licensors relating to the Applications.

(c) Seller holds either:

(i) sole and exclusive ownership of all rights in and to the Applications; or

(ii) valid rights and licenses to utilize the Applications in its operations and activities as carried out during the twelve-month period prior to the date of this Agreement.

The Accounts Receivable/Inventory Software constitutes substantially all the computer software necessary for Buyer to conduct the operations and activities necessary to manage and dispose of Inventory and Accounts Receivable. All Licensed Software is transferable to Buyer with Licensors' Consent. The Applications and computer hardware leased pursuant to the Hardware Lease Agreements constitute all of the computer software and hardware necessary to conduct the operations and activities of Seller (other than its manufacturing and retail store operations) during the prior twelve months. The Information Technology, whether transferred to Buyer hereunder, or in the form of services provided by Seller pursuant to Section 4.01, constitutes or will constitute on the Closing Date, all of the computer software and hardware necessary to conduct the operations and activities of Seller (other than its manufacturing and retail store operations) during the prior twelve months.

(d) In the case of each Application indicated in Schedule 2.13(d) as being owned by Seller (hereafter "Owned Software"), Seller has good and marketable right, title and interest in and to all forms, versions and releases of the Owned Software, including all copyright rights and all applicable patent and trade secret rights, free and clear of any Liens other than rights of authors which may not be legally waived except for the language and database licensed by third parties which is used to operate the Owned Software. No item of Owned Software is a derivative work (as defined in U.S. Copyright Law) of any other work that is not owned in its entirety by, or properly licensed such that no one may claim any rights in such derivative work other than, Seller. Except as indicated in Schedule 2.13(d), Seller is in actual possession of the complete source code and object code, and is in possession of all documentation necessary for the effective use, distribution and support of each such item of Owned Software.

(e) Except as indicated in Schedule 2.13(e), Seller:

(i) maintains master machine readable reproducible copies, source code listings, technical documentation and user documentation for the most current releases and versions thereof; and

(ii) maintains the machine readable copies such that they substantially conform to the corresponding source code listings, programming and user manuals, and published specifications (if any).

(f) All Applications which are not Owned Software (herein referred to as "Third Party Software") are subject to restrictions on assignment, transfer, relocation, use, copying, distribution, preparation of derivative works, display, performance, sale, offer for sale, manufacture or disclosure (such activities collectively and individually referred to herein as "Use") as are contained in the corresponding license agreements identified in Schedule 2.13(f).

(g) Subject to Licensors' Consent, if applicable, the continued or further Use of any Application by Buyer after the Closing, which Use is consistent with the Use of such item by Seller prior to the Closing, will not give rise to any obligation to pay any royalty, fee, penalty, damages or compensation to any Person.

(h) All contracts, agreements, commitments or obligations of Seller for the maintenance, support, upgrade, correction of defects or deficiencies, or for continuing or for renewing rights to, any Third Party Software, and any payment obligations or options therefor, are identified in Schedule 2.13(h).

2.14 Customers and Suppliers. Since January 1, 2001 and except as disclosed in Schedule 2.14(i), there has been no written complaint or, to Seller's knowledge, oral complaint from any Material Customer and no notice of breach or of termination under any contract with a Material Customer. Seller has not been advised in writing or, to Seller's knowledge, orally by any Material Customer or supplier of finished goods ("Finished Goods Supplier") that such Material Customer or Finished Goods Supplier was or is intending to terminate its relationship or would not continue to purchase or sell supplies or services for future periods on account of any dissatisfaction with Seller's performance. All order backlog is described on Schedule D hereto, and such backlog has been accurately accounted for in the records of Seller in accordance with Seller's historical practices; and, to Seller's knowledge, the order backlog represents good orders consistent with Seller's and industry practice. Seller has not been advised in writing or, to Seller's knowledge, orally that any customer intends to cancel or change the material terms of any orders included in such order backlog. Notwithstanding any of the foregoing, with respect to the Material Customers identified on Schedule 2.14(ii) as potentially requiring Buyer to establish itself as a "qualified" vendor ("Requalification Customers"), Seller makes no representation to Buyer in respect of any Requalification Customer that following the date hereof gives notice of termination or its intention to terminate its relationship with Seller or its intention not to continue to purchase supplies or services for future periods because of the failure of Buyer to so "qualify".

2.15 Changes in Accounting Method. Since December 1, 2000, Seller has not made any material change in any method of accounting or accounting practice related to the Inventory or the Accounts Receivable.

2.16 Absence of Undisclosed Liabilities. Except for the Assumed Obligations, to Seller's knowledge there are no material liabilities with respect to the Purchased Assets other than those disclosed or provided in this Agreement and in the Schedules hereto; Seller is not aware of any facts or circumstances that could be expected to result in such liabilities.

2.17 Subsidiary Assets. To Seller's knowledge, there are no assets owned by any of its subsidiaries that are necessary for Buyer, following the Closing, to carry on the business conducted by Seller prior to the Closing (other than Seller's manufacturing and retail store operations). Schedule 2.17 sets forth all material accounts receivable and inventories (other than those related to Seller's manufacturing and retail stores) that are owned by Seller's subsidiaries, if any (the "Subsidiary A/R and Inventory"). Buyer and Seller acknowledge and agree that the Subsidiary A/R and Inventory is not a part of the Purchased Assets.

2.18 Schedules. All of the information contained on the Schedules to this Agreement with respect to the Purchased Assets and Assumed Contracts is complete, accurate and correct in all material respects.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to Seller as follows:

3.01 Organization and Standing. Buyer is a corporation validly existing and in good standing under the laws of Delaware, and has all requisite corporate power to enter into this Agreement, to perform its obligations hereunder, and to carry out the transactions contemplated hereby. Buyer has the requisite corporate power to carry on its business as it is now being conducted.

3.02 Authorization by Buyer. (a) the execution, delivery, and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by all requisite corporate action of Buyer. This Agreement has been duly and validly executed and delivered by Buyer and constitutes the legal, valid, and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, receivership or similar laws affecting or referring to the enforcement of creditors' rights generally or by equitable principles (regardless of whether enforcement is brought in a proceeding in equity or at law).

(b) Neither the execution and delivery of this Agreement and all other agreements and documents to be executed or delivered hereunder, nor the performance and fulfillment by Buyer of all its representations, warranties, covenants and obligations hereunder, will (i) violate, or conflict with, any provision of Buyer's Articles of Incorporation or By-Laws, (ii) violate, or conflict with, or result in a breach of any provisions of, or constitute a default under, or result in a breach of any provisions of, or constitute a default under, or result in the termination of, or accelerate the performance required by, or result in the creation of any lien,

security interest, charge or encumbrance upon any of the properties or assets of Buyer under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, agreement, lease or other instrument to which Buyers is a party or by which its is bound, or (iii) violate, or conflict with, any order, writ, injunction, arbitral award, judgment or decree of any court, governmental body or arbitrator applicable to Buyer.

3.03 Available Funds. Upon satisfaction of all conditions to Buyer's obligation to purchase the Purchased Assets, Buyer will have the funds necessary to pay the Purchase Price.

3.04 HSR Matters. Buyer shall notify Seller within three days hereof as to whether the transactions contemplated by this Agreement require the parties hereto to file a Notification and Report Form pursuant to the HSR Act. In the event that Buyer notifies Seller that no such filing is necessary, Buyer hereby represents and warrants that as of the Closing Buyer (i) is its own "ultimate parent entity," as such term is defined under the Premerger Notification Rules (the "Rules") to the HSR Act and (ii) (x) had annual net sales of less than $10,000,000 and (y) has less than $10,000,000 in total assets, each as determined in accordance with Section 801.11 of the Rules to the HSR Act.

3.05 Litigation. There is no litigation pending (a) against Buyer in connection with the conduct of its business which, if adversely determined, would materially and adversely affect the business or financial condition of Buyer or (b) which seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated by this Agreement.

ARTICLE IV.

COVENANTS OF SELLER

Seller hereby covenants and agrees with Buyer as follows:

4.01 Cooperation. Subject to the terms and conditions herein provided, Seller agrees to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, and to cooperate with Buyer in connection with the foregoing, including using its reasonable best efforts (i) to obtain all necessary waivers, consents and approvals from other parties to any Assumed Contract and any other material agreements, leases and contracts included in the Purchased Assets; (ii) to obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal, state or foreign law or regulations, including the Approval Order; (iii) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby (including, at Buyer's request, to defend any lawsuit brought against Buyer that threatens to enjoin, restrain or adversely affect the ability of the parties to consummate the transactions contemplated hereby); (iv) to effect all necessary registrations, filings and submissions of information requested by governmental authorities; (v) to fulfill all conditions to this Agreement; and
(vi) to provide Buyer promptly with all information and assistance with respect to the foregoing and the Purchased Assets as Buyer may reasonably request, in writing or otherwise. Without limiting the foregoing, on the Closing Date

or as promptly as reasonably practicable thereafter, Seller will execute and deliver to Buyer all applications for transfer of trademark registrations and other documents reasonably requested by Buyer to effectuate the unconditional transfer of the Intellectual Property upon the Closing Date, free and clear of all Liens subject, in the case of the Intellectual Property, to licenses granted pursuant to the agreements set forth on Schedule 2.04 to this Agreement that may exist on the Closing Date, and will waive any other right, title and interest of Seller in and to the Intellectual Property. Effective upon the Closing Date, Seller will and does hereby grant to Buyer an exclusive, irrevocable, worldwide, fully-paid, royalty-free right and license to exercise all rights in and to the Intellectual Property to permit Buyer's full enjoyment of its ownership rights during the period before Buyer becomes the record owner, and while Seller is the record owner, of the applicable Intellectual Property, which license shall be for the benefit of Buyer, its licensees, successors and assigns. Upon the Closing Date, Seller shall execute and deliver to Buyer such documents as Buyer may reasonably request to effect the foregoing. Effective as of the Closing Date, Seller grants to Buyer an irrevocable power of attorney, with full power of substitution, with respect to the Intellectual Property. Upon the Closing Date, Seller agrees to execute in favor of Buyer or its designee a specific irrevocable power of attorney with full power of substitution, in form and substance satisfactory to Buyer, to record the assignment of the Intellectual Property from Seller to Buyer. In furtherance of the foregoing, to the extent that Seller is unable to transfer right, title and interest in and to any Assumed Contract to Buyer on the Closing Date, Seller agrees, to the extent permitted by law, to provide Buyer with the benefits of any such Assumed Contract, provided, however, that Buyer agrees to perform the Assumed Obligations, if any, in respect thereof and provided further that the provision to Buyer of such benefits shall not relieve Seller of (i) its obligations to obtain any required consents hereunder nor (ii) such consequences as may be provided for hereunder for failure to obtain such consents.

4.02 Court Approval. (a) Prior to Closing, the sale of the Purchased Assets to Buyer pursuant to this Agreement and the other transactions contemplated by this Agreement shall have been approved by the Bankruptcy Court pursuant to sections 105, 363, 365 and 1146(c) of the Bankruptcy Code, pursuant to an order in substantially the form attached hereto as Exhibit D (with no modifications or changes except those approved by Buyer and Seller, the "Approval Order"), and the Approval Order shall have become a Final Order. Buyer and Seller agree to use reasonable efforts to cause the Bankruptcy Court to enter the Approval Order. Promptly following entry of the Approval Order, Seller shall serve such entered Approval Order to all parties to the Assumed Contracts.

(b) For purposes of this Agreement, (i) a Final Order means an order or a judgment entered by the Bankruptcy Court (x) that has not been reversed, stayed, modified or amended, (y) as to which no appeal or petition for review or motion for rehearing or reargument has been taken or has been made, and (z) as to which the time for filing a notice of appeal, a petition for review or a motion for reargument or rehearing has expired, (ii) "Liens" means all title defects or objections, mortgages, deeds of trust, liens, claims, charges, pledges, security interests, obligations, interests or other encumbrances of any nature whatsoever, whether domestic or foreign; provided, however, that any claims, credits, obligations, charges or similar rights of customers of Seller that offset or reduce any Accounts Receivable relating to such customers shall not constitute "Liens" on such Accounts Receivable.

(c) Seller shall cooperate reasonably with Buyer and its representatives in connection with the Approval Order and the bankruptcy proceedings in connection therewith. Seller further covenants and agrees that if the Approval Order is entered the terms of any plan submitted by Seller to the Bankruptcy Court for confirmation shall not conflict with, supersede, abrogate, nullify, modify or restrict the terms of this Agreement and the rights of Buyer hereunder, or in any way prevent or interfere with the consummation or performance of the transactions contemplated by this Agreement including any transaction that is contemplated by or approved pursuant to the Approval Order.

(d) If the Approval Order or any other orders of the Bankruptcy Court relating to this Agreement shall be appealed by any Person (or a petition for certiorari or motion for rehearing or reargument shall be filed with respect thereto), Seller agrees to take all steps as may be reasonable and appropriate to defend against such appeal, petition or motion, and Buyer agrees to cooperate in such efforts, and each party hereto agrees to use its reasonable efforts to obtain an expedited resolution of such appeal; provided, however, that nothing herein shall preclude the parties hereto from consummating the transactions contemplated herein if the Approval Order shall have been entered and has not been stayed and Buyer, in its sole discretion, waives in writing the requirement that the Approval Order be a Final Order.

4.03 Conduct of Business.

(a) Between the date hereof and the Closing Date, Seller will use its commercially reasonable efforts to preserve, protect, and maintain the Purchased Assets, and to operate its business in the same manner it currently operates. Seller will not harm the Purchased Assets and will not take any action that will materially adversely affect the Assumed Contracts. Seller shall (i) maintain the Inventory in all material respects in the manner in which it has been maintained during the fifteen-month period immediately prior to the date hereof and (ii) comply in all material respects with all provisions of any Assumed Contract. Without limiting the foregoing, Seller shall conduct its business diligently and in the ordinary and normal course and consistent with past practice (including using its commercially reasonable efforts to preserve beneficial relationships with distributors, agents, lessors, suppliers and customers).

(b) Seller shall not engage in any transaction relating to the purchase or sale of goods, inventories, capital expenditures, marketing programs or other operating or production items or accounts receivable, from the date hereof until the Closing other than: (i) transactions in the ordinary course of business or (ii) transactions not objected to by Buyer. For the purposes of this
Section 4.03, (A) any transaction involving the sale of excess, close-out or obsolete goods in excess of $25,000, (B) any transaction involving the sale of goods at or below cost (other than transactions involving the sale of excess, close-out or obsolete goods of less than $25,000 in the aggregate) or (C) any commitment or expenditure exceeding $25,000 (excluding payroll expenditures) shall be deemed to be outside the ordinary course of business. Buyer shall communicate to Seller the names of one or more representatives of Buyer who shall be "Designated Representatives" and as such shall be authorized to object to transactions outside the ordinary course of business. Seller shall notify the Designated Representatives of each transaction outside the ordinary course of business, and Buyer shall notify Seller of any objection to such transaction as soon as reasonably practicable, but in no event more than two (2) business

days following receipt of notice of such proposed transaction. If Seller has not received notice of an objection to any such transaction within such two (2) business day period, Seller may assume Buyer does not object to such transaction.

(c) Without limiting the generality of the foregoing and except as approved by Buyer or otherwise expressly provided in this Agreement, during the period from the date hereof through the Closing Date, Seller shall not:

(i) sell, transfer, license or otherwise dispose of, or agree to sell, transfer, license or otherwise dispose of, any Purchased Assets, except in the ordinary and normal course of business consistent with industry practice, including, without limitation, fulfilling customer orders prior to normal shipment periods inconsistent with industry practices (which industry practices shall include seasonality requirements);

(ii) modify, waive or accelerate or delay collection of accounts receivable in advance of or beyond their regular due dates or the dates when the same would otherwise have been collected other than with respect to accounts receivable not exceeding $5,000 and otherwise in the ordinary course of business;

(iii) enter into any new agreements that would be included in Assumed Contracts, or amend or alter in any material way any existing Assumed Contracts;

(iv) take any action the taking of which, or omit to take any action the omission of which, would cause any of the representations and warranties contained in Article II to fail to be true and correct in all material respects as of the Closing as though made at and as of the Closing; or

(v) agree to do any of the foregoing.

4.04 Disclosure Supplements.

(a) From time to time prior to the Closing, Seller shall promptly supplement or amend the disclosures contained in the Schedules or Exhibits with respect to any matter: (i) which may arise hereafter and which, if existing or occurring at or prior to the date hereof, would have been required to be set forth or described therein; or (ii) which makes it necessary to correct any information in the Schedules or Exhibits or in any representation and warranty of Sellers which has been rendered inaccurate thereby. No supplement or amendment to the Schedules or Exhibits or any delivery of Schedules after the date hereof, unless expressly consented in writing by Buyer, shall be deemed to cure any breach of any representation or warranty made in this Agreement, or modify, affect or diminish Buyer's right to terminate this Agreement pursuant to
Section 8.01(c).

(b) During the period from the date hereof to the Closing, Seller shall promptly: (i) furnish or make available to Buyer copies of all financial or other reports relating to the Purchased Assets as soon as they become available, all certified by a duly authorized officer of Seller that such financial statements were generated in the ordinary course of business

consistent with past accounting or past applicable operational reporting practices; and (ii) notify Buyer of the occurrence of any event having a Material Adverse Effect.

4.05 Closing. Seller shall use its reasonable best efforts to cause the conditions set forth in Article VI to be satisfied by the Closing Date, including undertaking such measures as may be appropriate, including written notice letters, required to obtain the necessary consents.

4.06 Confidentiality. If the Closing does not occur, Seller will maintain in confidence all information relating to Buyer furnished to it by Buyer, or any agents of Buyer, including information concerning the businesses, financial condition or stockholders of Buyer, and will not disclose such information to others, or use such information for any purpose unless and until such information is or becomes in the public domain by reason other than disclosure by Seller, except as such information may be required to be disclosed by Seller under applicable law or which has previously been made public. If this Agreement is terminated, Seller shall return all confidential information received from Buyer and all copies and summaries thereof.

4.07 Transitional Arrangements Agreement. At the Closing, Seller and Buyer shall execute and deliver a Transitional Arrangements Agreement, in substantially the form of Exhibit E hereto.

4.08 Further Assurances. At any time or from time to time after the Closing Date, Seller shall execute and deliver any further instruments or documents, and take all such further action as Buyer may request, including procuring assurance and cooperation from Seller's officers and employees, in order to transfer to and vest in Buyer all of Seller's right, title and interest in and to the Purchased Assets, including using its best efforts, at Buyer's expense, to assist and cooperate with Buyer in Buyer's preparation and filing of documents relating to the transfer of the Intellectual Property. In the event that Seller fails to promptly execute and deliver any such instruments or documents reasonably requested by Buyer, Seller hereby irrevocably appoints Buyer as its power-of-attorney, effective only upon the Closing, with full right of substitution for the purpose of executing such documents. This power of attorney shall be for the benefit of Buyer, its licensees, successors and assigns.

4.09 Inspection. For all periods prior to the Closing, Seller agrees to grant Buyer full and complete access to all of its properties at any time and to its customers, vendors and suppliers during normal business hours and upon reasonable notice from Buyer and to cooperate with any request of Buyer to permit Buyer to inspect or review any location owned or leased by Seller, including the making available of such personnel of Seller as Buyer may reasonably request. At Buyer's discretion, Buyer may arrange for its employees, officers, accountants and attorneys to visit and inspect any such location and to review any all documentation pertaining to the Purchased Assets. Without limiting the foregoing, Seller agrees to make available to Buyer or its auditors or attorneys, and to provide full and complete access to, for inspection and copying, documentation relating to any of the following:

(a) All financial records for the last five years including accounts receivable, accounts payable, capital spending, income statements, balance sheets, accounting work papers,

tax files, all agreements for the past three years with any financial institution with whom Seller has had dealings;

(b) Employee records for the past three years of full and part-time employees and contract employee, including salary information and employment contracts and all agreements with outside organizations providing labor or employment services to Seller; provided, however, that employee records shall in no event include employee medical records or any other information reasonably determined by Seller to be of a confidential nature;

(c) All records, including order and payment histories, of the customers and vendors of Seller's subsidiaries and the names and contact numbers of all managers and other employees of such subsidiaries;

(d) All Assumed Contracts, including purchase orders;

(e) Records of all transfers of Inventory and goods in connection with the closing of Seller's manufacturing facilities and retail locations;

(f) all documentation pertaining to any investigation, institution, settlement or agreement to settle any litigation, action or proceeding before any governmental entity in connection with the businesses of Seller, including under the Foreign Corrupt Practices Act, for five years prior to the Closing; and

(g) reasonable access to employees for the purposes of conducting interviews; provided, however, that Buyer shall give Seller reasonable advance notice thereof to Buyer.

4.10 Maintain Insurance. Seller shall maintain insurance coverage sufficient to protect its business and the Purchased Assets.

4.11 Maintenance of, and Access to, Records. After the Closing Date, Seller shall provide Buyer with access (with an opportunity to make copies), during normal business hours, and upon reasonable notice, to any records relating to the Purchased Assets and Assumed Obligations. Seller shall preserve and maintain any books and records relating to the Purchased Assets that are not otherwise provided to Buyer for at least two years after the Closing Date.

4.12 Accounts Receivable. In the event that Seller receives any payment relating to any Account Receivable outstanding on or after the Closing Date, such payment shall be the property of Buyer. Seller will promptly endorse and deliver to Buyer any cash, checks or other documents received by it on account of any such Accounts Receivable. Seller shall advise Buyer (promptly following its becoming aware thereof) of any counterclaims or set-offs that may arise subsequent to the Closing Date with respect to any Account Receivable.

4.13 Consents. Following the Closing, Seller shall use its best efforts to obtain all necessary consents of third parties to those contracts that but for obtaining such consent would have been Assumed Contracts transferred to Buyer on the Closing Date. Immediately after obtaining any required consents, Seller agrees to take all necessary action to assign such

contracts to Buyer, including the execution and delivery to Buyer of instruments of assignment in form and substance reasonably satisfactory to Buyer and its counsel.

4.14 Specific Enforcement of Covenants. Seller acknowledges that irreparable damage would occur in the event that any of the covenants and agreements of Seller set forth in Article IV of this Agreement were not timely performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Buyer shall be entitled to an injunction or injunctions to prevent or cure any breach of such covenants and agreements of Seller and to enforce specifically the terms and provisions thereof, this being in addition to any other remedy to which it may be entitled at law or in equity or under the terms of this Agreement.

4.15 Acquisition Proposals. Between the date hereof and the Closing, Seller shall not, directly or indirectly, (a) take any action to solicit, initiate submission of or knowingly encourage any Acquisition Proposal or (b) participate in any substantive discussions or negotiations regarding an Acquisition Proposal with anyone, except in the case of each of the foregoing for Acquisition Proposals by or on behalf of Buyer or its affiliates. During such period, Seller shall promptly notify Buyer upon receipt of any indication of interest or any offer with respect to an Acquisition Proposal. For purposes hereof, an "Acquisition Proposal" shall include any proposal for any acquisition or purchase by anyone of all or a portion of the Purchased Assets or any equity interest in Seller or any of its subsidiaries, of any merger or business combination with, or any acquisition of, Seller or any of its subsidiaries. If, after the entry of the Approval Order, Seller enters into a written agreement to accept any Acquisition Proposal, Seller shall, in addition to returning Buyer's Deposit (together with any interest), promptly reimburse Buyer for all of Buyer's expenses incurred in connection with preparing its Bid, its investigation of Seller and its negotiation and preparation of this Agreement, including the fees and expenses of Buyer's attorneys, accountants and advisors, such reimbursement being in addition to any other remedy to which Buyer may be entitled at law or in equity or under the terms of this Agreement. Notwithstanding anything herein to the contrary, until the Bankruptcy Court enters the Approval Order Seller may (and may authorize and/or permit any of its officers, directors, employees, attorneys, agents or representatives to) furnish information with respect to Seller to any person or persons making an unsolicited proposal or inquiry and shall notify Buyer in writing of any such proposal or inquiry.

ARTICLE V.

COVENANTS OF BUYER

Buyer hereby covenants and agrees with Seller as follows:

5.01 Cooperation. Subject to the terms and conditions herein provided, Buyer agrees to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, and to cooperate with Seller in connection with the foregoing, including using its reasonable best efforts (i) to obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal, state or foreign law or regulations required to be obtained by Buyer; (ii) to lift or rescind

any injunction or restraining order or other order adversely affecting the ability of Buyer to consummate the transactions contemplated hereby; (iii) to effect all necessary registrations, filings and submissions of information requested of Buyer by governmental authorities; (iv) to fulfill all conditions to this Agreement capable of being fulfilled by Buyer; and (v) to provide Seller promptly with all information and assistance with respect to the foregoing, including obtaining the Approval Order, as Seller may reasonably request, in writing or otherwise.

5.02 Confidentiality. Buyer agrees that if the Closing does not occur, it will maintain in confidence all information relating to Seller furnished to it by Seller, or any agents of Seller, including information concerning Seller's business, the Purchased Assets, the liabilities of Seller related to the business and the financial condition of Seller, and will not disclose such information to others, or use such information for any purpose unless and until such information is in or enters the public domain by reason other than disclosure by Buyer, except as such information may be required to be disclosed by Buyer under applicable law. If this Agreement is terminated, Buyer shall return all confidential information received from Seller and all copies and summaries thereof.

5.03 Employees. Buyer may consider making an offer of employment to certain current or former employees of Seller, upon such terms, and with compensation and benefits as Buyer may determine in its sole discretion.

5.04 Shipped Inventory Matters. Set forth on Schedule 5.04 is a form of letter sent to the Finished Goods Suppliers listed thereon requesting that such Finished Goods Suppliers ship inventory to Seller without letters of credit to secure the purchase of such inventory. Buyer hereby acknowledges such letters and agrees to purchase such inventory from such Finished Goods Suppliers following the Closing so long as such inventory conforms to the purchase orders placed by Seller in respect thereof.

ARTICLE VI.

CONDITIONS TO BUYER'S OBLIGATIONS

The obligations of Buyer to purchase the Purchased Assets shall be subject to the satisfaction on or prior to Closing of all of the following conditions:

6.01 Covenants. Seller shall have complied in all material respects with all of its agreements and covenants contained herein to be performed at or prior to Closing.

6.02 Representations and Warranties True. All representations and warranties of Seller in this Agreement or in any Exhibit or Schedule delivered pursuant to this Agreement shall be true, complete and correct on the Closing Date, except for such failures to be true, complete and correct as would not, individually or in the aggregate, have a Material Adverse Effect.

6.03 Delivery of Certificates. Buyer shall have received a certificate or certificates, dated as of the Closing Date, executed by a duly authorized executive of Seller certifying, without personal liability on the part of the officer executing the same, in such detail as Buyer

may reasonably request that the conditions specified in Sections 6.01 and 6.02 hereof have been fulfilled.

6.04 Instruments of Transfer. Buyer shall have received a bill of sale and such other duly executed instruments of transfer, conveyance, and assignment, duly executed by an authorized officer of Seller, in form and substance reasonably satisfactory to Buyer and its counsel, as is necessary or desirable to effect the transfers, conveyances, and assignments to Buyer of the Purchased Assets as contemplated by this Agreement.

6.05 Consents. Except for consents identified on Schedules 2.03(f)(i) and 2.03(f)(ii), all requisite third party consents and estoppels shall have been obtained and shall be in full force and effect except where the failure to have obtained such consents or estoppels would not have a Material Adverse Effect. For the purposes of this Section 6.05, the failure to obtain any consent or estoppel related to Assumed Contracts which, individually or in the aggregate, account for payments to Seller in excess of $500,000 per year, shall be deemed to have a Material Adverse Effect.

6.06 Approval Order. The Approval Order shall have been entered by the Bankruptcy Court.

6.07 HSR Waiting Period. The waiting period under the HSR Act shall have expired or terminated, if applicable.

6.08 Injunction. No court or governmental body of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, statute, ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and (i) restrains, enjoins or otherwise prohibits the consummation of the transaction contemplated hereby or (ii) would materially adversely affect the value of the Purchased Assets, and no governmental body shall have instituted any proceeding therefor.

6.09 Material Adverse Change. Since February 1, 2001 there shall have occurred no change, or discovery of a condition or occurrence of any event which would reasonably be expected to result in a Material Adverse Effect.

6.10 Ancillary Agreements. Seller shall have executed and delivered the Post Closing Escrow Agreement and the Transitional Arrangements Agreement.

ARTICLE VII.

CONDITIONS TO SELLER'S OBLIGATIONS

The obligations of Seller to sell the Purchased Assets shall be subject to the satisfaction on or prior to Closing of all of the following conditions:

7.01 Covenants of Buyer. Buyer shall have complied in all material respects with all of its agreements and covenants contained herein to be performed at or prior to Closing.

7.02 Representations and Warranties True. All representations and warranties of Buyer in this Agreement shall be true and correct on the Closing Date.

7.03 Delivery of Certificates. Seller shall have received a certificate or certificates, dated as of the Closing Date, executed by a duly authorized executive of Buyer certifying, without personal liability on the part of the officer executing the same, in such detail as Seller may reasonably request that the conditions specified in Sections 7.01 and 7.02 hereof have been fulfilled.

7.04 Instruments of Assumption. Seller shall have received duly executed instruments of assumption of the Assumed Obligations, duly executed by an authorized officer of Buyer, in form and substance reasonably satisfactory to Seller and its counsel, as is necessary or desirable to effect the assumption by Buyer of the Assumed Contracts as contemplated by this Agreement.

7.05 Tender of Purchase Price. Buyer shall have tendered the Purchase Price.

7.06 Approval Order. The Approval Order shall have been entered by the Bankruptcy Court and shall have become a Final Order.

7.07 HSR Waiting Period. The waiting period under the HSR Act shall have expired or terminated, if applicable.

7.08 Injunction. No court or governmental body of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, statute, ordinance, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits the consummation of the transaction contemplated hereby, and no governmental body shall have instituted any proceeding therefor.

7.09 Further Action. All actions, consents, approvals (temporary or permanent), authorizations, exemptions and waivers from third parties that shall be required in order to enable Seller to consummate the transactions contemplated hereby shall have been duly obtained, (except for such actions, consents, approvals, authorizations, exemptions and waivers of non-governmental third parties, the absence of which would not prohibit consummation of such transactions or render such consummation illegal).

7.10 Ancillary Agreements. Buyer shall have executed and delivered the Post Closing Escrow Agreement and the Transitional Arrangements Agreement.

ARTICLE VIII.

TERMINATION PRIOR TO CLOSING

8.01 Termination. This Agreement may be terminated:

(a) By the mutual written consent of Buyer and Seller;

(b) By either Buyer or Seller in writing, if the Closing does not occur by April 30, 2001 provided that neither Buyer nor Seller may terminate this Agreement pursuant to this clause (b) if the Closing shall not have been consummated within such time period by reason of the failure of such party to perform in all material respects any of its covenants or agreements contained in this Agreement;

(c) By either Seller or Buyer in writing, without liability to the terminating party (provided the terminating party is not otherwise in material default or in breach of this Agreement) if there has been a material misrepresentation or material breach of this Agreement by the other party which is not cured within fifteen (15) days after such party has been notified in writing of such breach and the intent to terminate this Agreement pursuant to this clause 8.01(c); or

(d) By Buyer by not later than April 20, 2001 if the Bankruptcy Court does not enter the Approval Order by April 13, 2001.

8.02 Effect on Obligations. Termination of this Agreement pursuant to this Article shall terminate all obligations of the parties hereunder, except for Seller's obligations under Section 4.06 and Buyer's obligations under
Section 5.02 hereof, except that (a) in the event of a termination under Section 8.01(c) by Seller, the Deposit shall be paid to Seller as liquidated damages, which liquidated damages shall be the sole and exclusive remedy of Seller as a result of such termination, or (b) in the event of a termination under Section 8.01(c) by Buyer, Buyer shall retain all its rights in law and in equity; provided, however, that Buyer hereby agrees that Seller shall have no liability to Buyer in excess of $5,000,000 as a result of any termination of this Agreement. Buyer acknowledges that the agreements contained in this Section 8.02 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, Seller would not enter into this Agreement.

8.03 Return of Deposit to Buyer. Upon the termination by either party of this Agreement pursuant to Section 8.01(a) or (b) or upon the termination by Buyer of this Agreement pursuant to Section 8.01(c), the Escrow Agent shall pay the Deposit (together with any earned interest) to Buyer.

ARTICLE IX.

INDEMNIFICATION

9.01 Survival.

The representations and warranties of Seller with respect to Sections
2.07 (Inventory) and 2.12 (Accounts Receivable) will survive the Closing and shall expire 90 days after the Closing Date. The representations and warranties of Seller with respect to Sections 2.03 (Assumed Contracts), 2.04 (Intellectual Property), 2.05 (Title) and 2.13 (Software) shall survive for 6 months after Closing. The representations and warranties of Buyer with respect to Section
3.04 (HSR Matters) shall survive for 6 months after Closing. No other representations or warranties of Buyer or Seller shall survive Closing. Following the Closing, the right to indemnification

based on representations, warranties, covenants and obligations in this Agreement as set forth in this Article IX shall be the sole remedy of the parties hereto and will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification based on such representations, warranties, covenants and obligations.

9.02 Indemnification by Seller

From and after the Closing, Seller hereby agrees to indemnify, defend and hold Buyer and its officers, directors, agents and employees (the "Buyer Indemnified Parties"), harmless from, against and in respect of any and all losses, claims, suits, actions, proceedings, awards, judgments, settlements, fines, penalties, liabilities, obligations, damages, deficiencies, costs or expenses (including reasonable expenses of investigation and attorneys' fees) net of any insurance proceeds and tax benefits if, as and when received, in either case to which such Buyer Indemnified Party is entitled by virtue of any of the foregoing (collectively "Claims") arising out of or resulting from:

(i) any breach of a covenant or misrepresentation by Seller of a representation or warranty which expressly survives Closing pursuant to Section 9.1 hereof;

(ii) any liability for Taxes incurred on or before the Closing Date;

(iii) the Excluded Assets; and

(iv) the Retained Liabilities.

9.03 Indemnification by Buyer

From and after the Closing, Buyer hereby agrees to indemnify, defend and hold harmless Seller and its officers, directors, agents and employees (the "Seller Indemnified Parties") from, against and in respect of any and all Claims arising out of or resulting from (i) any breach of any warranty or misrepresentation by Buyer or the breach or nonperformance of any covenant, agreement or obligation to be performed on the part of Buyer under this Agreement, or in any closing certificate contemplated hereby or in any Schedule hereto, (ii) any Assumed Obligations and (iii) except for the Retained Liabilities and the Excluded Assets, the use of the Purchased Assets after the Closing Date.

9.04 Limitations

(a) Notwithstanding anything contained in this Agreement to the contrary, neither party shall be liable for any amounts for which an Indemnified Party (as defined below) is otherwise entitled to indemnification in connection with the breach or inaccuracy of any

representation or warranty or any breach of any covenant contained herein until the aggregate amount for which such Indemnified Party is entitled to indemnification with respect to all such Claims for indemnification in the aggregate exceeds One Million Dollars ($1,000,000) (the "Threshold"), at which time such party shall be liable for any such excess. In determining the foregoing Threshold and in otherwise determining the amount to which the Indemnified Party is entitled to assert a claim for indemnification pursuant to this Article IX, only actual losses shall be considered. The Threshold shall not apply (i) with respect to Buyer's claims hereunder, as to any Claims related to (A) the Excluded Assets, (B) the Retained Liabilities or (C) any breach or inaccuracy of any representation or warranty relating to Sections 2.07 (Inventory) and 2.12 (Accounts Receivable) and (ii) with respect to Seller's claims hereunder, as to any Claims related to the payment of all amounts due to Seller pursuant to Sections 1.05 (Payment of Purchase Price) and 1.05 (Post-Closing Adjustment). The Threshold shall not apply as to any Claims arising from fraud committed by the Indemnifying Party against the Indemnified Party with respect to the transactions contemplated under this Agreement. The parties hereto waive as against each other any claim to consequential, special, exemplary or punitive damages except to the extent consequential, special, exemplary or punitive damages are awarded to a third person against an Indemnified Party in circumstances in which such Indemnified Party is entitled to indemnification hereunder such consequential, special, exemplary or punitive damages so awarded shall be payable to such Indemnified Party hereunder.

(b) Notwithstanding anything to the contrary contained in this Article IX, the amount for which Buyer shall be entitled to, and Seller liable for, indemnification hereunder shall not exceed the following: (i) the aggregate amount recoverable from Seller for indemnification claims arising from the representations and warranties of Seller with respect to Sections 2.07 (Inventory) and 2.12 (Accounts Receivable) shall not exceed the excess of $25,000,000 over the Downward Adjustment Amount and (ii) the aggregate amount recoverable from Seller for indemnification claims arising from the breach of any covenant by Seller or the representations and warranties of Seller with respect to Sections 2.03 (Assumed Contracts), 2.04 (Intellectual Property), 2.05 (Title) and 2.13 (Software) shall not exceed $5,000,000. Indemnification claims arising from the representations and warranties of Seller with respect to Sections 2.07 (Inventory) and 2.12 (Accounts Receivable) shall be satisfied first from the Accounts Receivable/Inventory Holdback Amount and, to the extent the Accounts Receivable/Inventory Holdback Amount is insufficient to cover any such claims (subject to the maximum allowable amounts set forth in the preceding sentence), Seller agrees to satisfy any such claims. Indemnification claims arising from the representations and warranties of Seller with respect to Sections 2.03 (Assumed Contracts) and 2.04 (Intellectual Property), 2.05 (Title) and 2.13 (Software) shall be satisfied solely from the Escrow Amount. Seller and Buyer agree that under no circumstances shall the Escrow Agent release any of the Escrow Amount to Buyer to satisfy any amounts owed to Buyer in respect of any indemnification claims arising from the representations and warranties of Seller with respect to Sections 2.07 (Inventory) and 2.12 (Accounts Receivable). Notwithstanding the foregoing, if Seller has not paid any amounts due to Buyer on account of an undisputed Downward Adjustment Amount pursuant to Section 1.05 hereof, Seller agrees to use any funds remaining in the Escrow Amount immediately prior to its release to Seller, towards the satisfaction of each unpaid Downward Adjustment.

(c) The obligation of Seller to indemnify Buyer in connection with the representations and warranties of Seller contained in Sections 2.07
(Inventory) and 2.12 (Accounts Receivable) shall terminate on the later of (i) ninety (90) days following the Closing or (ii) fifteen (15) days following the resolution of any dispute relating to the Audit. The obligation of Seller to indemnify Buyer in connection with the representations and warranties of Seller contained in Sections 2.03 (Assumed Contracts), 2.04 (Intellectual Property),
2.05 (Title) and 2.13 (Software) shall terminate 6 months after the Closing Date. Notwithstanding the foregoing, the respective indemnification obligations of the parties hereunder shall not expire with respect to any Claim brought within such specified time periods until the indemnification obligation, if any, with respect to such Claim shall have been finally determined and paid.

9.05 Indemnification Procedure

In any case under this Agreement where Seller has indemnified a Buyer Indemnified Party or Buyer has indemnified a Seller Indemnified Party (the indemnifying party hereinafter the "Indemnifying Party" and the party entitled to indemnification hereinafter the "Indemnified Party") against any Claim, indemnification shall be conditioned on compliance with the procedure and shall be subject to the limitations outlined below:

(a) Provided that prompt notice is given of a Claim for which indemnification might be claimed under this Article IX, unless the failure to provide such notice does not actually and materially prejudice the interests of the Indemnifying Party, the Indemnifying Party promptly will defend, contest, or otherwise protect against any such Claim at its own cost and expense. Such notice shall describe the Claim in reasonable detail and shall indicate the amount (estimated, if necessary) of the loss that has been or may be suffered by an Indemnified Party.

(b) An Indemnified Party may, but will not be obligated to, participate at its own expense in a defense thereof by counsel of its own choosing, but the Indemnifying Party shall be entitled to control the defense unless such Indemnified Party has relieved the Indemnifying Party from liability with respect to the particular matter, provided that the Indemnifying Party may only settle or compromise the matter subject to indemnification without the consent of the Indemnified Party if such settlement includes a complete release of all Indemnified Parties as to the matters in dispute and provided further that such Indemnified Party will not unreasonably withhold consent to any settlement or compromise that requires its consent.

(c) In the event the Indemnifying Party fails to timely defend, contest, or otherwise protect against any such Claim, an Indemnified Party may, but will not be obligated to, defend, contest, or otherwise protect against the same, and make any reasonable compromise or settlement thereof and recover (subject to the limitations set forth in Section 9.04) the entire costs thereof from the Indemnifying Party, including reasonable attorneys' fees, disbursements and all amounts paid as a result of such Claim or the compromise or settlement thereof; provided, however, that (i) an Indemnified Party may only settle or compromise the matter subject to indemnification without the consent of the Indemnifying Party if such settlement includes a complete release of the Indemnifying Party as to the matters in dispute and provided further that the Indemnifying Party will not unreasonably withhold consent to any settlement or compromise that requires its consent and (ii) if the Indemnifying Party subsequently undertakes the defense of

such matter, an Indemnified Party shall be entitled to recover from the Indemnifying Party only those costs incurred in the defense prior to such time the Indemnifying Party undertakes the defense of such matter together with the reasonable costs of providing assistance.

(d) The Indemnified Parties shall cooperate and provide such assistance as the Indemnifying Party may reasonably request in connection with the defense of the matter subject to indemnification and in connection with recovering from any third parties amounts that the Indemnifying Party may pay or be required to pay by way of indemnification hereunder. The Indemnified Parties shall take commercially reasonable steps to protect its position with respect to any matter that may be the subject of indemnification hereunder in the same manner as it would any similar matter where no indemnification is available.

ARTICLE X.

MISCELLANEOUS

10.01 Entire Agreement. This Agreement (including the attached Schedules) constitutes the sole understanding of the parties with respect to the subject matter hereof. Matters disclosed by Seller to Buyer pursuant to any Article of this Agreement shall be deemed to be disclosed with respect to all Articles of this Agreement. No amendment, modification, or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto.

10.02 Use of Names. Effective upon the Closing, Seller shall have no right to use the "Converse" name and any of the Trademarks and other Intellectual Property acquired by Buyer and Seller shall take all necessary and appropriate steps to avoid the use of such names or variants thereof; provided, however, that (a) Seller shall have the right to use the name "Converse" in connection with the Bankruptcy Case and (b) Buyer grants Seller the limited right, for a period not to exceed 120 days after the Closing, to use the name "Converse" or variants thereof in connection with the orderly sale of its remaining assets, so long as such use does not interfere with the operation of Buyer's business and its use of the Purchased Assets. At any time following the Closing when Seller has any rights to use the name "Converse" pursuant to the proviso contained in the foregoing sentence, Seller agrees to take necessary steps to avoid any confusion over the ownership of the "Converse" name. Subject to the foregoing, at the Closing, Seller shall take all actions necessary to (i) change its name in accordance with this paragraph, and (ii) execute such documents as are necessary to permit Buyer to utilize the "Converse" name in its corporate name.

10.03 Successors and Assigns. This Agreement may not be assigned by either Buyer or Seller without the prior written consent of the other party hereto, and any such assignment contrary to the terms hereof shall be null and void and of no force or effect. If this Agreement is assigned with such consent, the terms and conditions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective assigns. Notwithstanding the provisions of this Section 10.03, Buyer may assign its rights and obligations under this Agreement to any subsidiary of Buyer, without the prior written consent of Seller provided that Buyer shall remain obligated to pay the Purchase Price.

10.04 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes by deemed to be an original and all of which shall constitute the same instrument.

10.05 Headings, Interpretation. The headings of the Articles and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. For purposes of this Agreement, the words "include", "includes" or "including" shall be deemed to incorporate and be followed by the phrase "without limitation."

10.06 Modification and Waiver. At any time prior to the Closing Date, the parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall only be valid if set forth in an instrument in writing signed on behalf of such party.

10.07 Expenses, etc. Except as specifically provided herein, each of Seller and Buyer shall pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated hereby, including, without limiting the generality of the foregoing, fees and expenses of its own consultants, accountants, and counsel. Each party shall bear the expenses of any finder, broker, agent or other intermediary who may have acted for or on behalf of Buyer or Seller in connection with the negotiation or consummation of the transactions contemplated by this Agreement.

10.08 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be delivered by hand, transmitted via facsimile or sent via nationally recognized overnight courier (receipt confirmed) addressed

IF TO SELLER TO:

Converse Inc.
One Fordham Road
North Reading, MA 01864
Attention: Glenn N. Rupp and Jack Green, Esq. Facsimile: 978-664-7529/7579

with a copy to:

Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Myron Trepper, Esq.

Michael J. Kelly, Esq.

Facsimile: 212-728-8111

IF TO BUYER TO:

c/o Cre-8-net Ventures
591 Redwood Highway
Suite 2180
Mill Valley, CA 94941
Attention: Mr. Marsden S. Cason, President Facsimile: 415-383-7698

with a copy to:

Arnold & Porter
555 Twelfth Street N.W.
Washington, D.C. 20004-1206
Attention: Robert Ott, Esq.
Facsimile: (202) 942-5999

and

Stutman, Treister & Glatt
3699 Wilshire Boulevard
Suite 900
Los Angeles, CA 90010-2739
Attention: Robert A Greenfield
Ronald L. Fein
Facsimile: (213) 251-5288

Any notice which is delivered in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party (or its agent for notices hereunder) or at such time as delivery is refused by the addressee upon presentation.

10.09 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York without reference to its conflicts of laws principles.

10.10 Announcements. From the date hereof until the Closing Date, Seller and Buyer shall afford each other the opportunity to review in advance any public announcements, including those to either party's employees, of the transaction contemplated by this Agreement. For all periods prior to Closing, no public announcement shall be made without such prior review and the consent of the other party to the form of the public announcement, such consent not to be unreasonably withheld. However, prior review and consent of the other party shall not be required with respect to any legally required communication either to a party's employees or otherwise.

10.11 Compliance with Bulk Sales Laws. Buyer and Seller hereby waive compliance by Buyer and Seller with the bulk sales law and any other similar laws in any applicable jurisdiction in respect of the transactions contemplated by this Agreement.

10.12 Binding Nature of Agreement. This Agreement shall not be binding on Seller unless and until the Approval Order is entered.

10.13 Seller's Knowledge. As used in this Agreement, the term "Seller's knowledge" refers to the actual knowledge of Glenn Rupp, Herbert Rothstein, Alistair Thorburn, Jack Green, James Lawlor, Robert Sharp, Steven Dodge, Laura Kelley and James Faulkner.

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

CONVERSE INC.

By:  /s/Glenn N. Rupp
     --------------------------------------------
     Title:  Chairman and Chief Executive Officer

FOOTWEAR ACQUISITION, INC.

By:  /s/Marsden S. Cason
     --------------------------------------------
     Title: President

EXHIBIT 10.12

LOAN AND SECURITY AGREEMENT

This Loan and Security Agreement dated as of April 30, 2001 is entered into by and between CONGRESS FINANCIAL CORPORATION, a Delaware corporation ("Lender"), and FOOTWEAR ACQUISITION, INC., a Delaware corporation ("Borrower").

WITNESSETH:

WHEREAS, Borrower has requested that Lender enter into certain financing arrangements with Borrower pursuant to which Lender may make loans and provide other financial accommodations to Borrower;

WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; and

WHEREAS, prior to the execution and delivery hereof, the Bankruptcy Court in the pending Chapter 11 Case of Seller has entered the Converse Sale Order (as each capitalized term is hereinafter defined) approving the sale by Seller of certain of its assets to Borrower.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1. DEFINITIONS

For purposes of this Agreement, the following terms shall have the respective meanings given to them below:

1.1 "Accounts" shall mean all present and future rights of Borrower to payment for goods sold or leased or for services rendered, whether or not evidenced by instruments or chattel paper, and whether or not earned by performance.

1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage.

1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis for such Person and its Subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of all assets of such Person and its Subsidiaries, calculating the book value of inventory for this purpose on a first-in-first-out basis, after deducting from such book values all appropriate reserves in accordance with GAAP (including all reserves for doubtful receivables, obsolescence, depreciation and amortization) and (b) the aggregate amount of the Indebtedness and other liabilities of such Person and its Subsidiaries (including tax and other proper accruals).

1.4 "Affiliate" shall mean, with respect to a specified Person, any other Person (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified person; (b) which beneficially owns or holds five (5%) percent or more of any class of the Voting Stock or other equity interest of such specified person; or
(c) of which five (5%) percent or more of the Voting Stock or other equity interest is beneficially owned or held by such specified person or a Subsidiary of such specified person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with") when used with respect to any specified person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of Voting Stock, by agreement or otherwise.

1.5 "Bankruptcy Code" shall mean the United States Bankruptcy Code, being Title 11 of the United States Code as enacted in 1978, as the same may have heretofore been or may hereafter be amended, recodified, modified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.

1.6 "Bankruptcy Court" shall mean the United States Bankruptcy Court for the District of Delaware.

1.7 "Blocked Accounts" shall have the meaning set forth in Section 6.3 hereof.

1.8 "Borrowing Base" shall mean, at any time, the amount equal to:

(a) Eighty (80%) percent of the Net Amount of Eligible Accounts, plus

(b) the lesser of (i) the lesser of: (A) sixty (60%) percent of the Value of Eligible Inventory and (B) eighty-five (85%) percent of the Net Recovery Percentage multiplied by the Value of Eligible Inventory (the "Inventory Advance Rate"), and (ii) $25,000,000, plus

(c) the License Income Availability less

(d) any Reserves.

For purposes only of applying the sublimit on Loans based on Eligible Inventory set forth in clause (b)(ii) above, Lender may treat the then undrawn amounts of outstanding Letter of Credit Accommodations for the purpose of purchasing Eligible Inventory as Loans to the extent Lender is in effect basing the issuance of the Letter of Credit Accommodations on the Value of the Eligible

Inventory being purchased with such Letter of Credit Accommodations. In determining the actual amounts of such Letter of Credit Accommodations to be so treated for purposes of the sublimit, the outstanding Loans and Reserves shall be attributed first to any components of the lending formulas set forth above that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit.

1.9 "Business Day" shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the State of North Carolina, and a day on which the Reference Bank and Lender are open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market.

1.10 "Capital Leases" shall mean, as applied to any Person, any lease of (or any agreement conveying the right to use) any property (whether real, personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be reflected as a liability on the balance sheet of such Person.

1.11 "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of such Person's capital stock, partnership interests or limited liability company interests at any time outstanding, and any and all rights, warrants or options exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is exchangeable for or convertible into such capital stock).

1.12 "Cash Equivalents" shall mean, at any time, (a) any evidence of Indebtedness with a maturity date of one hundred eighty (180) days or less issued or directly and fully guaranteed or insured by the United States of America of any agency or instrumentality thereof; provided, that, the full faith and credit of the United States of America is pledged in support thereof; (b) certificates of deposit or bankers' acceptances with a maturity of one hundred eighty (180) days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $250,000,000; (c) commercial paper (including variable rate demand notes) with a maturity of one hundred eighty (180) days or less issued by a corporation (except an Affiliate of Borrower) organized under the laws of any State of the United States of America or the District of Columbia and rated at least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d) repurchase obligations with a term of not more than thirty (30) days for underlying securities of the types described in clause (a) above entered into with any financial institution having combined capital and surplus and undivided profits of not less than $250,000,000; (e) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States of America or issued by any governmental agency thereof and backed by the full faith and credit to the United States of America, in each case maturing within one hundred eighty (180) days or less from the date of acquisition; provided, that, the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985; and (f) investments in money market funds and mutual funds which

invest substantially all of their assets in securities of the types described in clauses (a) through (e) above.

1.13 "Change of Control" shall mean (a) the transfer (in one transaction or a series of transactions) of all or substantially all of the assets of Borrower to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of Borrower or the adoption of a plan by the stockholders of Borrower relating to the dissolution or liquidation of Borrower; (c) the acquisition by any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Permitted Holders, of beneficial ownership, directly or indirectly, of fifty (50%) percent or more of the voting power of the total outstanding Voting Stock of Borrower or the Board of Directors of Borrower; (d) during any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors who have been appointed by any Permitted Holder, or whose nomination for election by the stockholders of Borrower, as the case may be, was approved by a vote of at least sixty-six and two-thirds (66 2/3%) percent of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Borrower then still in office; or (e) the failure of the Permitted Holders to own more than fifty (50%) percent of the voting power of the total outstanding Voting Stock of Borrower.

1.14 "Chapter 11 Case" shall mean the Chapter 11 Case of Seller under the Bankruptcy Code known as In re Converse Inc., in the Bankruptcy Court, designated Case No. 01-0223 (SLR).

1.15 "Code" shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.

1.16 "Collateral" shall have the meaning set forth in Section 5 hereof.

1.17 "Collateral Access Agreement" shall mean an agreement in writing, in form and substance satisfactory to Lender, from any lessor of premises to Borrower, or any other person to whom any Collateral (including Inventory, Equipment, bills of lading or other documents of title) is consigned or who has custody, control or possession of any such Collateral or is otherwise the owner or operator of any premises on which any of such Collateral is located, pursuant to which such lessor, consignee or other person, inter alia, acknowledges the first priority security interest of Lender in such Collateral, agrees to waive any and all claims such lessor, consignee or other person may, at any time, have against such Collateral, whether for processing, storage or otherwise, and agrees to permit Lender access to, and the right to remain on, the premises of such lessor, consignee or other person so as to exercise Lender's rights and remedies and otherwise deal with such Collateral and in the case of any person who at any time has custody, control or possession of any bills of lading or other documents of title, agrees to hold such bills of lading or other documents as bailee for Lender and to follow all instructions of Lender with respect thereto.

1.18 "Consolidated Pre-Tax Net Income" means, with respect to any Person for any period, the aggregate of the net income (loss) of such Person and its Subsidiaries, on a consolidated basis, for such period (excluding to the extent included therein any extraordinary and/or unusual or

non-recurring gains) after deducting all charges which should be deducted before arriving at the net income (loss) for such period and, without duplication, before deducting the Provision for Taxes for such period, all as determined in accordance with GAAP; provided, that, (a) the net income of any Person that is not a wholly-owned Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid or payable to such Person or a wholly-owned Subsidiary of such Person; (b) except to the extent included pursuant to the foregoing clause, the net income of any Person accrued prior to the date it becomes a wholly-owned Subsidiary of such Person or is merged into or consolidated with such Person or any of its wholly-owned Subsidiaries or that Person's assets are acquired by such Person or by its wholly-owned Subsidiaries shall be excluded; and (c) the net income (if positive) of any wholly-owned Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such wholly-owned Subsidiary to such Person or to any other wholly-owned Subsidiary of such Person is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such wholly-owned Subsidiary shall be excluded. For the purposes of this definition, net income excludes any gain together with any related Provision for Taxes for such gain realized upon the sale or other disposition of any assets that are not sold in the ordinary course of business (including, without limitation, dispositions pursuant to sale and leaseback transactions) or of any Capital Stock of such Person or a Subsidiary of such Person and any net income realized or loss incurred as a result of changes in accounting principles or the application thereof to such Person.

1.19 "Converse Sale Order" means the Order entered by the Bankruptcy Court on April 13, 2001 pursuant to which, inter alia, the Bankruptcy Court approved the sale and transfer of the Purchased Assets by Seller to Borrower on and subject to the terms and conditions set forth in the Purchase Agreements.

1.20 "Dilution" shall mean, at any time, the fraction, expressed as a percentage, the numerator of which is the aggregate amount of non-cash reductions in Accounts for the immediately preceding one hundred and twenty
(120) day period and the denominator of which is the aggregate dollar amount of the sales of Borrowers for the immediately preceding one hundred and twenty
(120) day period.

1.21 "Eligible Accounts" shall mean Accounts created by Borrower which are and continue to be acceptable to Lender based on the criteria set forth below. In general, Accounts shall be Eligible Accounts if:

(a) such Accounts arise from the actual and bona fide sale and delivery of goods by Borrower in the ordinary course of its business which transactions are completed in accordance with the terms and provisions contained in any documents related thereto;

(b) such Accounts are not related to the payment of any license fees by any licensee to Borrower under any License Agreement;

(c) such Accounts are not unpaid more than the sixty (60) days past the original due date thereof, but less than one hundred twenty (120) days after the original invoice for them;

(d) such Accounts comply with the terms and conditions contained in Section 7.2(c) of this Agreement;

(e) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor may be conditional or contingent;

(f) the chief executive office of the account debtor with respect to such Accounts is located in the United States of America or Canada (provided, that, at any time promptly upon Lender's request, Borrower shall execute and deliver, or cause to be executed and delivered, such other agreements, documents and instruments as may be required by Lender to perfect the security interests of Lender in those Accounts of an account debtor with its chief executive office or principal place of business in Canada in accordance with the applicable laws of the Province of Canada in which such chief executive office or principal place of business is located and take or cause to be taken such other and further actions as Lender may request to enable Lender as secured party with respect thereto to collect such Accounts under the applicable Federal or Provincial laws of Canada) or, at Lender's option, if the chief executive office and principal place of business of the account debtor with respect to such Accounts is located other than in the United States of America or Canada, then if either: (i) the account debtor has delivered to Borrower an irrevocable letter of credit issued or confirmed by a bank reasonably satisfactory to Lender and payable only in the United States of America and in U.S. dollars, sufficient to cover such Account, in form and substance reasonably satisfactory to Lender and if required by Lender, the original of such letter of credit has been delivered to Lender or Lender's agent and the issuer has acknowledged in writing to Lender the assignment of the proceeds of such letter of credit to Lender, or
(ii) such Account is subject to credit insurance payable to Lender issued by an insurer and on terms and in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable in all respects to Lender (subject to such lending formula with respect thereto as Lender may determine);

(g) such Accounts do not consist of progress billings (such that the obligation of the account debtors with respect to such Accounts is conditioned upon Borrower's satisfactory completion of any further performance under the agreement giving rise thereto), bill and hold invoices or retainage invoices, except as to bill and hold invoices, if Lender shall have received an agreement in writing from the account debtor, in form and substance satisfactory to Lender, confirming the unconditional obligation of the account debtor to take the goods related thereto and pay such invoice;

(h) the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may give rise to any right of setoff or recoupment against such Accounts (but the portion of the Accounts of such account debtor in excess of the amount at any time and from time to time owed by Borrower to such account debtor or claimed owed by such account debtor may be deemed Eligible Accounts);

(i) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay payment thereunder;

(j) such Accounts are subject to the first priority, valid and perfected security interest of Lender and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any liens except those permitted in this Agreement;

(k) neither the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee, agent or other Affiliate of Borrower;

(l) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, upon Lender's request, the Federal Assignment of Claims Act of 1940, as amended, or any similar State or local law, if applicable, has been complied with in a manner satisfactory to Lender;

(m) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse change in any such account debtor's financial condition;

(n) such Accounts are not evidenced by or arising under any instrument or chattel paper;

(o) such Accounts of a single account debtor or its affiliates do not constitute more than ten (10%) percent of all otherwise Eligible Accounts, except that the Accounts of the Account Debtors set forth on Schedule 1.21(o) or their respective Affiliates may constitute up to twenty (20%) percent of all otherwise Eligible Accounts (but the portion of the Accounts not in excess of such percentages, as applicable, may be deemed Eligible Accounts);

(p) such Accounts are not owed by an account debtor who has Accounts unpaid more than sixty (60) days past the original due date thereof, but less than one hundred twenty (120) days after the date of the original invoice for them and which Accounts constitute more than fifty (50%) percent of the total Accounts of such account debtor;

(q) the account debtor is not located in a state requiring the filing of a Notice of Business Activities Report or similar report in order to permit Borrower to seek judicial enforcement in such State of payment of such Account, unless Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent report for the then current year or such failure to file and inability to seek judicial enforcement is capable of being remedied without any material delay or material cost;

(r) such Accounts are owed by account debtors whose total indebtedness to Borrower does not exceed the credit limit with respect to such account debtors as determined by Borrower from time to time and as is reasonably acceptable to Lender (but the portion of the Accounts not in excess of such credit limit may be deemed Eligible Accounts); and

(s) such Accounts are owed by account debtors deemed creditworthy at all times by Borrower consistent with its current practice and who are reasonably acceptable to Lender.

General criteria for Eligible Accounts may be established and revised from time to time by Lender in good faith based on an event, condition or other circumstance arising after the date hereof, or existing on the date hereof to the extent Lender has no written notice thereof from Borrower, which adversely affects or could reasonably be expected to adversely affect the Accounts in the good faith determination of Lender. Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral.

1.22 "Eligible Inventory" shall mean Inventory consisting of finished goods held for resale in the ordinary course of the business of Borrower which are acceptable to Lender based on the criteria set forth below. In general, Eligible Inventory shall not include (a) work-in process; (b) raw materials; (c) packaging and shipping materials; (d) supplies used or consumed in Borrower's business; (e) from and after the date which is forty-five (45) days after the date hereof, any Inventory located at any retail store owned or leased by Seller; (f) Inventory (other than Inventory subject to Section 1.22(e) above) at premises other than those owned by Borrower, except any Inventory which would otherwise be deemed Eligible Inventory at locations in the United States of America which are not owned and operated by Borrower shall nevertheless be considered Eligible Inventory: (i) as to locations which are leased by Borrower if Lender shall have received a Collateral Access Agreement from the owner and lessor of such location, duly authorized, executed and delivered by such owner and lessor, except that notwithstanding that Lender shall not have received such an agreement for a particular leased location, Lender will consider Inventory at such leased location which would otherwise be Eligible Inventory to be Eligible Inventory and Lender may, at its option, at any time establish such Reserves as Lender may determine in good faith in accordance with the terms of this Agreement in respect of amounts at any time payable by Borrower to the owner or lessor of such location, without limiting any other rights and remedies of Lender under this Agreement or under the other Financing Agreements with respect to the establishment of Reserves or otherwise, provided, that, (A) the Reserves established pursuant to this Section shall not exceed at any time the aggregate of amounts payable to such owners and lessors for the next two (2) months from any such time and including amounts if any, then outstanding and unpaid owed by Borrower to such owners and lessors, provided, that, such limitation on the amount of the Reserves pursuant to this Section shall only apply so long as: (1) no Default or Event of Default shall exist or have occurred and be continuing,
(2) neither Borrower nor Lender shall have received notice of any default or event of default by the lessee under the lease with respect to such location and
(3) Lender shall have received evidence, in form and substance satisfactory to Lender, that Borrower has not granted to the owner and lessor a security interest or lien upon any assets of Borrower and (B) in the event that the amount of the Reserves established by Lender pursuant to the foregoing as to any specific location exceeds the Value of the Inventory at such location to the extent included in the Borrowing Base, the Inventory of such location shall not be Eligible Inventory and Lender shall not establish any Reserve with respect to amounts owing to the owner and lessor of such premises, so long as no Default or Event of Default shall exist or have occurred and be continuing and (ii) as to premises operated by third parties (including sales agents, consignees, warehouses and processors), if Lender shall have received a Collateral Access Agreement duly authorized, executed and delivered by the owner and operator of such premises, except that notwithstanding that Lender shall not have received such an agreement as to a particular third party location, Lender may consider Inventory at such location which would otherwise be Eligible Inventory to be Eligible Inventory and in such event, Lender may at any time establish such Reserves as Lender may determine in good faith in accordance with the terms of this Agreement in respect of amounts at any time payable by Borrower

to such third party, without limiting any other rights or remedies of Lender under this Agreement or under the other Financing Agreements with respect to the establishment of Reserves or otherwise, and in addition, if required by Lender, as to premises of third parties where assets of Borrower are located: (A) the owner and operator executes appropriate UCC-1 financing statements in favor of Borrower, which are duly assigned to Lender and (B) any secured lender to the owner and operator is properly notified of the first priority lien on such Inventory of Lender.

1.23 "Environmental Laws" shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between Borrower and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials. The term "Environmental Laws" includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials.

1.24 "Equipment" shall mean all of Borrower's now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located.

1.25 "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, together with all rules, regulations and interpretations thereunder or related thereto.

1.26 "ERISA Affiliate" shall mean any person required to be aggregated with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.

1.27 "ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412 of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the

occurrence of a "prohibited transaction" with respect to which Borrower or any of its Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of the Code) or with respect to which Borrower or any of its Subsidiaries could otherwise be liable; (f) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or a cessation of operations which is treated as such a withdrawal or notification that a Multiemployer Plan is in reorganization; (g) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the Pension Benefit Guaranty Corporation to terminate a Plan or Multiemployer Plan; (h) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; (i) the imposition of any liability under Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums due but not delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate; and (j) any other event or condition with respect to a Plan or Multiemployer Plan or any Plan subject to Title IV of ERISA maintained, or contributed to, by any ERISA Affiliate that could reasonably be expected to result in liability of Borrower.

1.28 "Escrow Refund" shall mean the amount of any escrow monies paid by Borrower under the Purchase Agreements which is returned to, and received by, Borrower from Seller in accordance with the terms of the Purchase Agreements.

1.29 "Eurodollar Rate" shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrower and approved by Lender) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to Borrower in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by Borrower.

1.30 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof.

1.31 "Event of Default" shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof.

1.32 "Excess Availability" shall mean the amount, as determined by Lender, calculated at any time, equal to: (a) the lesser of: (i) the Borrowing Base and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of Borrower which are more than sixty (60) days past due as of such time.

1.33 "Exchange Act" shall mean the Securities Exchange Act of 1934, together with all rules, regulations and interpretations thereunder or related thereto.

1.34 "Financing Agreements" shall mean, collectively, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower or any Obligor in connection with this Agreement.

1.35 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Section 9.18, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered to Lender prior to the date hereof.

1.36 "Governmental Authority" shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

1.37 "Hazardous Materials" shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law).

1.38 "Indebtedness" shall mean, with respect to any Person, any liability, whether or not contingent, (a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures or similar instruments; (b) representing the balance deferred and unpaid of the purchase price of any property or services (except any such balance that constitutes an account payable to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such Person in the ordinary course of business of such Person in connection with obtaining goods, materials or services that is not overdue by more than ninety (90) days, unless the trade payable is being contested in good faith); (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any contractual obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness described in this definition of another Person, including, without limitation, any such indebtedness, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or repurchase obligations under

any Capital Stock or other equity securities issued by such Person; (f) all reimbursement obligations and other liabilities of such Person with respect to surety bonds (whether bid, performance or otherwise), letters of credit, banker's acceptances or similar documents or instruments issued for such Person's account; and (g) all indebtedness of such Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this definition which is secured by any consensual lien, security interest, collateral assignment, conditional sale, mortgage, deed of trust, or other encumbrance on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed by or are a personal liability of such Person, all as of such time.

1.39 "Information Certificate" shall mean the Information Certificate of Borrower constituting Exhibit A hereto containing material information with respect to Borrower, its business and assets provided by or on behalf of Borrower to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein.

1.40 "Intellectual Property" shall mean Borrower's now owned and hereafter arising or acquired: patents, patent rights, patent applications, copyrights, works which are the subject matter of copyrights, copyright registrations, trademarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing; all extensions, renewals, reissues, divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions, trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill; customer and other lists in whatever form maintained; and trade secret rights, copyright rights, rights in works of authorship, and contract rights relating to computer software programs, in whatever form created or maintained.

1.41 "Interest Period" shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as Borrower may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, Borrower may not elect an Interest Period which will end after the last day of the then-current term of this Agreement.

1.42 "Interest Rate" shall mean,

(a) Subject to clauses (b), (c), (d) and (e) of this definition below:

(i) as to Prime Rate Loans, a rate equal to three-quarters (3/4%) percent per annum ("Prime Rate Margin") plus the Prime Rate, and

(ii) as to Eurodollar Rate Loans, a rate equal to two and three-quarters (2 3/4%) percent per annum (the "Eurodollar Rate Margin") plus the Adjusted Eurodollar Rate (in each case, based on the Eurodollar Rate applicable for the Interest Period selected by Borrower as in effect three (3) Business Days after the date of receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrower).

(b) (i) Subject to clauses (c) and (d) of this definition below, the Eurodollar Rate Margin and Prime Rate Margin shall each be reduced by one-quarter (1/4%) percent per annum effective as of the first day of the month after each of the following conditions is satisfied: (i) the Consolidated Pre-Tax Net Income of Borrower and its Subsidiaries for the immediately preceding fiscal year (commencing with the fiscal year ending December 31, 2002) calculated based on the audited financial statements of Borrower and its Subsidiaries for such fiscal year delivered to Lender, together with the unqualified opinion of the independent certified accountants, in accordance with
Section 9.6 hereof, shall equal or exceed $2,000,000, and (ii) no Event of Default shall exist or have occurred and be continuing.

(ii) The Eurodollar Rate Margin and Prime Rate Margin shall be not be reduced in accordance with Section 1.42(b)(i) above more than two (2) times during the term of this Agreement.

(c) In the event that the Eurodollar Rate Margin and Prime Rate Margin is reduced as provided in clause (b) above, if, in the immediately following fiscal year thereafter, the Consolidated Pre-Tax Net Income of Borrower and its Subsidiaries is less than $2,000,000, effective as of the first day of the month after the receipt by Lender of the audited financial statements of Borrower and its Subsidiaries for such fiscal year, the Eurodollar Rate Margin and Prime Rate Margin shall increase to the applicable Eurodollar Rate Margin and Prime Rate Margin as set forth in Section 1.42(a) above.

(d) Notwithstanding anything to the contrary contained in clauses (a), (b), and (c) of this definition, the Eurodollar Rate Margin and Prime Rate Margin otherwise used to calculate the Interest Rate for Prime Rate Loans and for Eurodollar Rate Loans shall be at the applicable Eurodollar Rate Margin and Prime Rate Margin as set forth in Section 1.42(a) above, (without regard to clauses (b) and (c) of this definition) plus two (2%) percent per annum, at Lender's option, (i) for the period (A) from and after the effective date of termination or non-renewal hereof until Lender has received full and final payment of all outstanding and unpaid Obligations or as to contingent Obligations, cash collateral in the amount and on the terms required under
Section 12.1 hereof (notwithstanding entry of a judgment against Borrower) and (B) from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing, and (ii) on Loans (excluding Loans made under Section 2.2(b) hereof) to Borrower at any time outstanding in excess of the Borrowing Base or the Maximum Credit (whether or not such excess(es), arise or are made with or without Lender's knowledge or consent and whether made before or after an Event of Default).

1.43 "Inventory" shall mean all of Borrower's now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located.

1.44 "LaSalle Standby LC" shall mean that certain Irrevocable Standby Letter of Credit dated on or about the date hereof, issued by First Union National Bank for the account of Borrower and payable to LaSalle Bank, N.A., as beneficiary in the face amount of $1,843,423.96.

1.45 "Letter of Credit Accommodations" shall mean, collectively, the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued or opened by Lender for the account of Borrower or any Obligor or (b) with respect to which Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by Borrower of its obligations to such issuer: sometimes being referred to herein individually as "Letter of Credit Accommodation".

1.46 "License Agreements" shall mean, collectively, Licensor Agreements and Licensee Agreements.

1.47 "Licensee Agreements" shall mean each of the present and future license agreements between any Person, as licensor, and Borrower, as licensee, pursuant to which Borrower licenses Intellectual Property from such Person. As of the date hereof, each of the Licensee Agreements are set forth on Schedule 8.11(c).

1.48 "License Income Availability" shall mean $8,000,000. The License Income Availability shall reduce on a monthly basis as follows: (a) commencing June 1, 2001 and on the first (lst) day of each month thereafter through January 1, 2002, by an amount equal to $408,333.34 per month; and (b) commencing February 1, 2002 and on the first (15th) day of each month thereafter, by an amount equal to $295,833.33 per month.

1.49 "Licensor Agreements" shall mean each of the present and future license agreements between Borrower, as licensor, and any Person pursuant to which Borrower licenses Intellectual Property to such Person. As of the date hereof, each of the Licensor Agreements are set forth on Schedule 8.11(b).

1.50 "Loans" shall mean the loans now or hereafter made by Lender to or for the benefit of Borrower on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof.

1.51 "Material Adverse Effect" shall mean a material adverse effect on
(a) the financial condition, business, performance or operations of Borrower; or
(b) the legality, validity or enforceability of this Agreement or any of the other Financing Agreements; (c) the legality, validity, enforceability, perfection or priority of the security interests and liens of Lender upon the Collateral or any other property which is security for the Obligations; (d) the Collateral of Borrower (taken as a whole) or the value of the Collateral; (e) the ability of Borrower to repay the Obligations or of Borrower to perform its obligations under this Agreement or any of the other Financing Agreements; or
(f) the ability of Lender to enforce the Obligations or realize upon the Collateral or otherwise with respect to the rights and remedies of Lender under this Agreement or any of the other Financing Agreements.

1.52 "Material Contract" shall mean (a) any contract or other agreement (other than the Financing Agreements), written or oral, of Borrower involving monetary liability of or to any Person in, an amount in excess of $1,000,000 in any fiscal year and (b) any other contract or other agreement (other than the Financing Agreements), whether written or oral, to which Borrower is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would have a material adverse effect on the business, assets, condition (financial or otherwise) or

results of operations or prospects of Borrower or the validity or enforceability of this Agreement, any of the other Financing Agreements, or any of the rights and remedies of Lender hereunder or thereunder.

1.53 "Maximum Credit" shall mean the amount of $50,000,000.

1.54 "Multiemployer Plan" shall mean a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding six (6) years contributed to by Borrower or any ERISA Affiliate.

1.55 "Net Amount of Eligible Accounts" shall mean the gross amount of Eligible Accounts less (a) sales, excise or similar taxes included in the amount thereof and (b) returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto.

1.56 "Net Recovery Percentage" shall mean the fraction, expressed as a percentage, (a) the numerator of which is the amount equal to the recovery on the aggregate amount of the Inventory at such time on an orderly liquidation basis as set forth in the most recent acceptable appraisal of Inventory received by Lender in accordance with Section 7.3, net of operating expenses, liquidation expenses and commissions, and (b) the denominator of which is the original cost of the aggregate amount of the Inventory subject to appraisal.

1.57 "Obligations" shall mean (a) any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to Borrower under the United States Bankruptcy Code or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender and (b) for purposes only of Section 5.1 hereof, any and all obligations, liabilities and indebtedness of any kind, nature and description owing by Borrower to any Lender or any Affiliate of Lender arising under or in connection with a swap agreement between Borrower and Lender or any Affiliate of Lender; provided, that, (i) in no event shall the amount of such obligations, liabilities and indebtedness secured by the Collateral pursuant hereto or any of the other Financing Agreements in the aggregate outstanding at any time exceed the amount of the Reserve established with respect thereto as in effect at such time, and (ii) Lender shall have entered into an agreement, in form and substance satisfactory to Lender, with any Affiliate of Lender that is a counterparty to such swap agreement, as acknowledged and agreed to by Borrower, providing for the delivery to Lender by such counterparty of information with respect to the amount of such indebtedness, obligations and liabilities and providing for the other rights of such Affiliate pursuant hereto.

1.58 "Obligor" shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrower.

1.59 "Original Investors" shall mean, collectively, Perseus Investors and Union Overseas Holdings Limited.

1.60 "Payment Account" shall have the meaning set forth in Section 6.3 hereof.

1.61 "Permitted Holders" shall mean the persons listed on Schedule 1.61 hereto and their respective successors and assigns.

1.62 Perseus Investors" shall mean Perseus Acquisition/Recapitalization Fund, L.L.C. and any of its affiliates (as defined within the codes and regulations promulgated under the Securities Act of 1933, as amended) or co-investors that become stockholders of Borrower, and their respective successors and assigns.

1.63 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof.

1.64 "Post Closing Balance Sheet" shall have the meaning set forth in
Section 9.6(6) hereof.

1.65 "Prime Rate" shall mean the rate from time to time publicly announced by Reference Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank.

1.66 "Prime Rate Loans" shall mean any Loans or portion thereof on which interest is payable based on the Prime Rate in accordance with the terms thereof.

1.67 "Pro Forma Closing Balance Sheet" shall have the meaning set forth in Section 4.1(b) hereof.

1.68 "Provision for Taxes" shall mean an amount equal to all taxes imposed on or measured by net income, whether Federal, State, Provincial, county or local, and whether foreign or domestic, that are paid or payable by any Person in respect of any period in accordance with GAAP.

1.69 "Purchase Agreements" shall mean, individually and collectively, the Asset Purchase Agreement, dated as of April 6, 2001, by and between Seller and Borrower, together with bills of sale, quitclaim deeds, assignment and assumption agreements and such other instruments of transfer as are referred to therein and all side letters with respect thereto, and all agreements, documents and instruments executed and/or delivered in connection therewith, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced;

provided, that, the term "Purchase Agreements" as used herein shall not include any of the "Financing Agreements" as such term is defined herein.

1.70 "Purchased Assets" means all of the "Assets" purchased and acquired by Borrower from Seller pursuant to, and as such quoted term is defined in, the Purchase Agreements.

1.71 "Real Property" shall mean all now owned and hereafter acquired real property of Borrower, including leasehold interests, together with all buildings, structures, and other improvements located thereon and all licenses, easements and appurtenances relating thereto, wherever located.

1.72 "Receivables" shall mean: (a) all Accounts; (b) all amounts at any time payable to Borrower in respect of the sale or other disposition by Borrower of any Account or other obligation for the payment of money; (c) all interest, fees, late charges, penalties, collection fees and other amounts due or to become due or otherwise payable in connection with any Account; (d) all letters of credit, indemnities, guarantees, security or other deposits and proceeds thereof issued payable to Borrower or otherwise in favor of or delivered to Borrower in connection with any Account; or (e) all other contract rights (including all rights and remedies of Borrower under or pursuant to the Purchase Agreements), chattel paper, instruments, notes, general intangibles and other forms of obligations owing to Borrower, whether from the sale and lease of goods or other property, licensing of any property (including Intellectual Property or other general intangibles), rendition of services or from loans or advances by Borrower or to or for the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries of Borrower) or otherwise associated with any Accounts, Inventory or general intangibles of Borrower (including, without limitation, choses in action, causes of action, tax refunds, tax refund claims, any funds which may become payable to Borrower in connection with the termination of any Plan or other employee benefit plan and any other amounts payable to Borrower from any Plan or other employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, casualty or any similar types of insurance and any proceeds thereof and proceeds of insurance covering the lives of employees on which Borrower is beneficiary).

1.73 "Records" shall mean all of Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person).

1.74 "Reference Bank" shall mean First Union National Bank, or, if First Union National Bank no longer publicly announces a rate as its prime rate, such other bank as Lender may from time to time designate.

1.75 "Renewal Date" shall the meaning set forth in Section 12.1 hereof.

1.76 "Reserves" shall mean as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Loans and Letter of Credit Accommodations which would otherwise be available to Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined by Lender in good faith, adversely affect, or would have a reasonable likelihood of adversely affecting, either (i) the Collateral or its value, (ii) the assets or business of Borrower or any Obligor or (iii) the security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) to reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in respect of the obligations, liabilities or indebtedness of Borrower of any kind, nature or description owing by Borrower to Lender or any Affiliate of Lender arising under or in connection with any swap agreement of Borrower with Lender or any Affiliate of Lender, or (e) in respect of any state of facts which Lender determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default, or (f) for the payment of all freight and/or shipping charges with respect to the delivery of Inventory from any retail store owned or leased by Seller to any location owned and controlled by Borrowers; or (g) (i) if, on a rolling twelve (12) month basis, (A) from the date hereof up to and including January 1, 2002, the license fee income is less than $11,000,000, and (B) from and after February 1, 2002, the license fee income is less than $9,500,000; or (ii) if the license fee income for any consecutive three-month period is more than ten (10%) percent less than the license fee income for the same consecutive three-month period in the immediately preceding year; or (h) to reflect any material variance in any test counts of Borrower's Inventory. To the extent Lender may revise the lending formulas used to determine the Borrowing Base or establish new criteria or revise existing criteria for Eligible Accounts or Eligible Inventory so as to address any circumstances, condition, event or contingency in a manner satisfactory to Lender, Lender shall not establish a Reserve for the same purpose. The amount of any Reserve established by Lender shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Lender in good faith.

1.77 "Seller" shall mean Converse Inc., as debtor and debtor-in-possession in the Chapter 11 Case, and its successors and assigns.

1.78 "Spring 2002 Appraisal" shall mean the written report of an appraisal of the Borrower's Inventory conducted during the month of March, 2002, conducted by an appraiser reasonably acceptable to Lender and on which Lender is expressly permitted to rely, in form, scope and methodology reasonably satisfactory to Lender, setting forth the Net Recovery Percentage of each type of category of inventory and such other values as Lender may specify.

1.79 "Subsidiary" or "subsidiary" shall mean, with respect to any Person, any corporation, limited liability company, limited liability partnership or other limited or general partnership, trust, association or other business entity of which an aggregate of at least a majority of the outstanding Capital Stock or other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency), managers, trustees or other controlling persons, or an equivalent controlling interest therein, of such

Person is, at the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of such Person.

1.80 "Value" shall mean, as determined by Lender in good faith, with respect to Inventory, the lower of (a) cost computed on a first-in first-out basis in accordance with GAAP or (b) market value.

1.81 "Voting Stock" shall mean with respect to any Person, (a) one (1) or more classes of Capital Stock of such Person having general voting powers to elect at least a majority of the board of directors, managers or trustees of such Person, even if at the time any other class or classes of Capital Stock have, or might have, voting power by reason of the happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable without restriction at the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition.

SECTION 2. CREDIT FACILITIES

2.1 Loans.

(a) Subject to and upon the terms and conditions contained herein, Lender agrees to make Loans to Borrower from time to time in amounts requested by Borrower up to the amount equal to the lesser of: (i) the Borrowing Base or (ii) the Maximum Credit.

(b) Lender may, in its discretion, from time to time, upon not less than five (5) days prior notice to Borrower, (i) (A) reduce the lending formula with respect to Eligible Accounts to the extent that, at any time, Dilution is or may reasonably be anticipated to be greater than ten (10%) percent and any such decrease shall be in an amount equal to one (1%) percentage point for each percentage point that Dilution exceeds ten (10%) percent; or (B) if the lending formula with respect to Eligible Accounts has decreased under
Section 2.1(b)(i)(A) above and, thereafter, if Dilution improves, Lender will increase the lending formula with respect to Eligible Accounts up to eighty (80%) percent, to the extent of the difference between the Dilution corresponding to the then-current lending formula with respect to Eligible Accounts and the then-current Dilution and any such increase shall be in an amount equal to one (1%) percent for each percentage point of such difference; provided that if, after May 1, 2002, Dilution is less than five (5%) percent, Lender will increase the lending formula with respect to Eligible Accounts to eighty-five (85%) percent; except that if Dilution is less than ten (10%) percent but greater than five (5%) percent, the lending formula with respect to Eligible Accounts will be eighty (80%) percent; or (ii) reduce the lending formula(s) with respect to Eligible Inventory to the extent that Lender determines that: (A) the number of days of the turnover of the Inventory for any period has increased in any material respect, or (B) the Net Recovery Percentage of the Eligible Inventory, or any category thereof, has decreased, or (C) the quality or mix of the Inventory has deteriorated in any material respect. To the extent Lender shall have established a Reserve which is sufficient to address any event, condition or matter in a manner satisfactory to Lender in good faith, Lender shall not exercise its rights under Section 2.1(b) to reduce the lending formulas to address such event, condition or matter. The amount of any reduction in the lending formula by Lender pursuant to Section 2.1(b) or the establishment of any Reserve shall have a reasonable relationship to the matter which is the basis for such a reduction or such Reserve, as the case may be. The amount of any decrease in the lending formulas shall have a

reasonable relationship to the event, condition or circumstance which is the basis for such decrease as determined by Lender in good faith. In determining whether to reduce the lending formula(s), Lender may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts, Eligible Inventory or in establishing Reserves.

(c) Lender will increase the Inventory Advance Rate (as defined in Section 1.9(b)) based upon the Spring 2002 Appraisal and the Net Recovery Percentage of the Borrower's Inventory as set forth therein. Any increase in the Inventory Advance Rate shall be effective on the first (1st) day of the month immediately following the month that Lender receives the Spring 2002 Appraisal.

(d) Except in Lender's discretion, the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit. In the event that the outstanding amount of any component of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations, exceed the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(e) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrower shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded.

2.2 Letter of Credit Accommodations.

(a) Subject to and upon the terms and conditions contained herein, at the request of Borrower, Lender agrees to provide or arrange for Letter of Credit Accommodations for the account of Borrower containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Loans to Borrower pursuant to this Section 2.

(b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrower shall pay to Lender a letter of credit fee at a rate equal to two (2%) percent per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, except that Borrower shall pay to Lender such letter of credit fee, at Lender's option, without notice, at a rate equal to four (4%) percent per annum on such daily outstanding balance for: (i) the period from and after the date of termination or non-renewal hereof until Lender has received full and final payment of all Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Lender. Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee shall survive the termination or non-renewal of this Agreement.

(c) Borrower shall give Lender two (2) Business Days' prior written notice of Borrower's request for the issuance of a Letter of Credit Accommodation. Such notice shall be

irrevocable and shall specify the original face amount of the Letter of Credit Accommodation requested, the effective date (which date shall be a Business Day) of issuance of such requested Letter of Credit Accommodation, whether such Letter of Credit Accommodations may be drawn in a single or in partial draws, the date on which such requested Letter of Credit Accommodation is to expire (which date shall be a Business Day), the purpose for which such Letter of Credit Accommodation is to be issued, and the beneficiary of the requested Letter of Credit Accommodation. Borrower shall attach to such notice the proposed form of the Letter of Credit Accommodation.

(d) In addition to being subject to the satisfaction of the applicable conditions precedent contained in Section 4 hereof and the other terms and conditions contained herein, no Letter of Credit Accommodations shall be available unless each of the following conditions precedent have been satisfied in a manner satisfactory to Lender: (i) Borrower shall have delivered to the proposed issuer of such Letter of Credit Accommodation at such times and in such manner as such proposed issuer may require, an application in form and substance satisfactory to such proposed issuer and Lender for the issuance of the Letter of Credit Accommodation and such other documents as may be required pursuant to the terms thereof, and the form and terms of the proposed Letter of Credit Accommodation shall be satisfactory to Lender and such proposed issuer,
(ii) as of the date of issuance, no order of any court, arbitrator or other Governmental Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit Accommodation, and no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money center banks generally shall prohibit, or request that the proposed issuer of such Letter of Credit Accommodation refrain from, the issuance of letters of credit generally or the issuance of such Letters of Credit Accommodation; and (iii) the Excess Availability, prior to giving effect to any Reserves with respect to such Letter of Credit Accommodations, on the date of the proposed issuance of any Letter of Credit Accommodations, shall be equal to or greater than: (A) with respect to the LaSalle Standby LC, an amount equal to forty-seven (47%) percent multiplied by the Value of such Eligible Inventory, plus freight, taxes, duty and other amounts which Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrower's locations for Eligible Inventory within the United States of America; (B) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory and the documents of title with respect thereto are consigned to the issuer, the sum of
(1) the percentage equal to one hundred (100%) percent minus the then-applicable percentage with respect to Eligible Inventory set forth in the definition of the term Borrowing Base multiplied by the Value of such Eligible Inventory, plus (2) freight, taxes, duty and other amounts which Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrower's locations for Eligible Inventory within the United States of America; and (C) if the proposed Letter of Credit Accommodation is for any other purpose or the documents of title are not consigned to the issuer in connection with a Letter of Credit Accommodation for the purpose of purchasing Inventory, an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Lender with respect thereto. Effective on the issuance of each Letter of Credit Accommodation, a Reserve shall be established in the applicable amount set forth in Sections 2.2(d)(iii)(A),(B) or (C).

(e) Except in Lender's discretion, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Lender in connection therewith shall not at any time exceed $20,000,000. At any time an Event of Default exists or has occurred and is continuing, upon Lender's request, Borrower will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Lender for the Letter of Credit Accommodations.

(f) Borrower shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation. Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrower hereby releases and holds Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, except for the gross negligence or willful misconduct of Lender as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination or non-renewal of this Agreement.

(g) In connection with Inventory purchased pursuant to Letter of Credit Accommodations, Borrower shall, at Lender's request, instruct all suppliers, carriers, forwarders, customs brokers, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which Lender holds a security interest to deliver them to Lender and/or subject to Lender's order, and if they shall come into Borrower's possession, to deliver them, upon Lender's request, to Lender in their original form. Borrower shall also, at Lender's request, designate Lender as the consignee on all bills of lading and other negotiable and non-negotiable documents.

(h) Borrower hereby irrevocably authorizes and directs any issuer of a Letter of Credit Accommodation to name Borrower as the account party therein and to deliver to Lender all instruments, documents and other writings and property received by issuer pursuant to the Letter of Credit Accommodations and to accept and rely upon Lender's instructions and agreements with respect to all matters arising in connection with the Letter of Credit Accommodations or the applications therefor. Nothing contained herein shall be deemed or construed to grant Borrower any right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Lender unless Lender has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrower shall be bound by any interpretation made in good faith by Lender, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any

instructions of Borrower. Lender shall have the sole and exclusive right and authority to, and Borrower shall not: (i) at any time an Event of Default exists or has occurred and is continuing, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (ii) at all times, (A) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Lender may take such actions either in its own name or in Borrower's name.

(i) Any rights, remedies, duties or obligations granted or undertaken by Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrower to Lender. Any duties or obligations undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrower to Lender and to apply in all respects to Borrower.

2.3 Reserves. All Loans otherwise available to Borrower hereunder shall be subject to Lender's continuing right to establish and revise Reserves.

SECTION 3. INTEREST AND FEES

3.1 Interest.

(a) Borrower shall pay to Lender interest on the outstanding principal amount of the Loans at the Interest Rate. All interest accruing hereunder on and after the date of any Event of Default or termination or non-renewal hereof shall be payable on demand.

(b) Borrower may from time to time request Eurodollar Rate Loans or may request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from Borrower shall specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to be continued (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Lender of such a request from Borrower, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, (i) no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default shall exist or have occurred and be continuing, (ii) no party hereto shall have sent any notice of termination or non-renewal of this Agreement, (iii) Borrower shall have complied with such customary procedures as are established by Lender and specified by Lender to Borrower from time to time for requests by Borrower for Eurodollar Rate Loans, (iv) no more than five (5) Eurodollar Rate Loans may be in effect at any one time, (v) the minimum amount of any Eurodollar

Rate Loan must be in an amount not less than $2,000,000 or an integral multiple of $500,000 in excess thereof and (vi) Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Lender through the Reference Bank and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrower. Any request by Borrower for Eurodollar Rate Loans or to convert Prune Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Lender and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans.

(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Lender has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof: Any Eurodollar Rate Loans shall, at Lender's option, upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that this Agreement shall terminate or not be renewed. Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.

(d) Interest shall be payable by Borrower to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto.

3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the amount of $500,000, which shall be fully earned and payable as of the date hereof.

3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee in an amount equal to $5,000 in respect of Lender's services for each month (or part thereof) while this Agreement remains in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the date hereof and on the first day of each month hereafter.

3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line fee at a rate equal to one-half (1/2%) percent per annum calculated upon the amount by which the Maximum Credit exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) while this Agreement is

in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears.

3.5 Changes in Laws and Increased Costs of Loans.

(a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Lender, Reference Bank or any participant with Lender to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans by an amount deemed by Lender in good faith to be material, or (C) reduce the amounts received or receivable by Lender in respect thereof, by an amount deemed by Lender in good faith to be material or (ii) the cost to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender in good faith to be material. Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof: A certificate of Lender setting forth the basis for the determination of such amount necessary to compensate Lender as aforesaid shall be delivered to Borrower and shall be conclusive, absent manifest error.

(b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of Collateral, Borrower shall pay to Lender upon demand by Lender (or Lender may, at its option, charge any loan account of Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof.

SECTION 4. CONDITIONS PRECEDENT

4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations. Each of the following is a condition precedent to Lender making the initial Loans and providing the initial Letter of Credit Accommodations hereunder:

(a) Lender shall have received, in form and substance satisfactory to Lender, evidence that the Purchase Agreements have been duly executed and delivered by and to the appropriate parties thereto and the transactions contemplated under the terms of the Purchase

Agreements have been consummated prior to or contemporaneously with the execution of this Agreement;

(b) Lender shall have received, in form and substance reasonably satisfactory to Lender, a pro forma balance sheet of Borrower reflecting the initial transactions contemplated hereunder (the "Pro Forma Closing Balance Sheet"), including, but not limited to, (i) the consummation of the acquisition of the Purchased Assets by Borrower from Seller and the other transactions contemplated by the Purchase Agreements, including the payment of all costs, fees and expenses required to be paid at the closing of the acquisition of the Purchase Assets, (ii) all cash equity capital contributions to Borrower, (iii) the receipt by Borrower of the proceeds of the sale by Borrower of the Seller's footwear license for the territory of Japan, and (iv) the Loans and Letter of Credit Accommodations provided by Lender to Borrower on the date hereof and the use of the proceeds of the initial Loans as provided herein, accompanied by a certificate, dated of even date herewith, of the chief financial officer, or such other officer reasonably acceptable to Lender, of Borrower stating that such Pro Forma Closing Balance Sheet represents the reasonable, good faith opinion of such officer as to the subject matter thereof as of the date of such certificate;

(c) Lender shall have received, in form and substance satisfactory to Lender, evidence that Borrower has received net cash proceeds from a cash equity capital contribution to Borrower of not less than $58,000,000 from Perseus Investors and Union Overseas Holdings Limited and such proceeds have been applied to the purchase price for the Purchased Assets payable pursuant to the Purchase Agreements;

(d) The transfer by Borrower to Itochu Corporation of all right, title and interest in the Japanese Footwear Trademarks (as defined in the Stock Purchase and Trademark Agreement, entered into as of February 24, 2001, among Borrower, cre-8-net Ventures L.L.C. and Itochu Corporation (the "Stock Purchase Agreement")), and the other assets and rights conveyed by Borrower to Itochu Corporation pursuant to the Stock Purchase Agreement, shall have been closed prior to the making of any Loans and the grant of the security interests by Borrower pursuant to Section 5, and Lender shall have received, in form and substance satisfactory to Lender, evidence that Borrower has received not less than $29,000,000 in cash or other immediately available funds as proceeds from the sale by Borrower of the Seller's footwear license for the territory of Japan, and such proceeds have been applied to the purchase price for the Purchased Assets payable pursuant to the Purchase Agreements;

(e) no court of competent jurisdiction shall have issued any injunction, restraining order or other order with respect to the Converse Sale Order which otherwise prohibits the consummation of the transactions described in the Purchase Agreements or the Financing Agreements, or modifies such transactions, and no governmental or other action or proceeding shall have been commenced, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Purchase Agreements or the Financing Agreements.

(f) Lender shall have received a certified copy of the Converse Sale Order as duly entered by the Bankruptcy Court in the Chapter 11 Case and the time within which any Person may contest or appeal from the Converse Sale Order shall have expired, without such contest or appeal

having been taken (or if any contest or appeal shall have been taken from such Order, the contest for appeal shall have been finally disposed of, and the same shall not be subject to any further appeal or contest) and the Converse Sale Order shall, inter alia, (i) contain a finding that Borrower is a good faith purchaser for value of the assets of Seller under the Purchase Agreements within the meaning of Section 363(m) of the Bankruptcy Code and (ii) authorize Seller to sell the Purchased Assets to Borrower, free and clear of any security interests, liens, claims or encumbrances and to execute, deliver and perform the terms and provisions of all of the Purchase Agreements;

(g) Lender shall have received, in form and substance reasonably satisfactory to Lender, all releases, terminations and such other documents as Lender may reasonably request to evidence and effectuate the termination by the existing lenders to Borrower of their respective financing arrangements with Borrower and the termination and release by it or them, as the case may be, of any interest in and to any assets and properties of Borrower and each Obligor, duly authorized, executed and delivered by it or each of them, including, but not limited to, (i) UCC termination statements for all UCC financing statements previously filed by it or any of them or their predecessors, as secured party and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor in favor of such existing lender or lenders, in form acceptable for recording with the appropriate Governmental Authority;

(h) all requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be reasonably satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including records of requisite corporate action and proceedings which Lender may have reasonably requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or Governmental Authority;

(i) no material adverse change shall have occurred in the assets, business or prospects of Borrower (including the Purchased Assets) since the date of Lender's latest field examination and no change or event shall have occurred which would impair, in any material respect, the ability of Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral;

(j) Lender shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of Loans available to Borrower (including, without limitation, current perpetual inventory records and/or roll-forwards of Accounts and Inventory through the close of business on April 27, 2001 and test counts of the Inventory in a manner satisfactory to Lender, together with such supporting documentation as may be necessary or appropriate, and other documents and information that will enable Lender to accurately identify and verify the Collateral), the results of which each case shall be satisfactory to Lender, not more than three (3) Business Days prior to the date hereof;

(k) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to perfect its security interests in and liens upon the Collateral

or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, Collateral Access Agreements by owners and lessors of leased premises of Borrower and by warehouses at which Collateral is located to the extent required hereunder;

(l) Lender shall have received a final written report of an appraisal of the inventory, conducted by an appraiser reasonably acceptable to Lender and on which Lender is expressly permitted to rely, in form, scope and methodology reasonably satisfactory to Lender setting forth the orderly liquidation value of each type of category of inventory and such other values as Lender may specify;

(m) the Excess Availability as determined by Lender in good faith, as of the date hereof, shall be not less than $14,000,000 after giving effect to the initial Loans made or to be made and Letter of Credit Accommodations issued or to be issued in connection with the initial transactions hereunder and the payment of all costs, fees and expenses required to be paid by Borrower in connection with the Purchase Agreements and all transactions thereunder;

(n) Lender shall have received, in form and substance reasonably satisfactory to Lender, all agreements with the depository banks and Borrower with respect to the Blocked Accounts as Lender may require pursuant to
Section 6.3 hereof, duly authorized, executed and delivered by such depository banks and Borrower;

(o) Lender shall have received evidence, in form and substance reasonably satisfactory to Lender, that Lender has a valid perfected first priority security interest in all of the Collateral;

(p) Lender shall have received and reviewed UCC search results for all jurisdictions in which assets of Borrower are located, which search results shall be in form and substance satisfactory to Lender;

(q) Lender shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as loss payee;

(r) Lender shall have received, in form and substance reasonably satisfactory to Lender, such opinion letters of counsel to Borrower with respect to the Purchase Agreements, the Financing Agreements and such other matters as Lender may request; and

(s) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender.

4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations. Each of the following is an additional condition precedent to Lender making Loans and/or providing Letter of Credit Accommodations to Borrower, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations:

(a) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date);

(b) no law, regulation, order, judgment or decree of any Governmental Authority shall exist, and no action, suit, investigation, litigation or proceeding shall be pending or threatened in any court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans or providing the Letter of Credit Accommodations, or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or
(ii) has or could reasonably be expected to have a Material Adverse Effect; and

(c) no Event of Default and no act, condition or event which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto.

SECTION 5. GRANT OF SECURITY INTEREST

To secure payment and performance of all Obligations, Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property of Borrower, whether now owned or hereafter acquired or existing, and wherever located (together with all other collateral security for the Obligations at any time granted to or held or acquired by Lender, collectively, the "Collateral"):

5.1 Receivables;

5.2 all other present and future general intangibles (including Intellectual Property and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or commodity accounts), letters of credit, bankers' acceptances and guaranties;

5.3 all present and future monies, securities and other investment property, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other Collateral, including (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights

and remedies of an unpaid vendor, lien or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors;

5.4 Inventory;

5.5 Equipment;

5.6 Real Property;

5.7 Records; and

5.8 all products and proceeds of the foregoing, in any form, including insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing.

Notwithstanding anything to the contrary set forth above, nothing contained herein shall be construed to constitute a present assignment by Borrower to Lender of title to any Intellectual Property.

SECTION 6. COLLECTION AND ADMINISTRATION

6.1 Borrower's Loan Account. Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time.

6.2 Statements. Lender shall render to Borrower each month a statement setting forth the balance in the Borrower's loan account(s) maintained by Lender for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrower.

6.3 Collection of Accounts.

(a) Borrower shall establish and maintain, at its expense, blocked accounts or lockboxes and related blocked accounts (in either case, "Blocked Accounts"), as Lender may reasonably specify, with such banks as are reasonably acceptable to Lender into which Borrower shall promptly deposit and direct its account debtors to directly remit all payments on Receivables

and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance reasonably satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ("Payment Account"). Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether in respect of the Receivables, as proceeds of Inventory or other Collateral or otherwise shall be treated as payments to Lender in respect of the Obligations and therefore shall constitute the property of Lender to the extent of the then-outstanding Obligations.

(b) For purposes of calculating the amount of the Loans available to Borrower, such payments will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Lender of immediately available funds in the Payment Account, provided such payments and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and within sufficient time to credit Borrower's loan account on such day, and if not, then on the next Business Day. For the purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations one (1) Business Day following the date of receipt of immediately available funds by Lender in the Payment Account, provided such payments or other funds and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and within sufficient time to credit Borrower's loan account on such day, and if not, then on the next Business Day.

(c) Borrower and its stockholders, directors, employees, agents, Subsidiaries or other Affiliates shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender. In no event shall the same be commingled with Borrower's own funds. Borrower agrees to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The obligation of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement.

6.4 Payments. All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Lender may designate from time to time. Lender shall apply payments received or collected from Borrower or for the account of Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows: first, to pay any fees, indemnities or expense reimbursements then due to Lender from Borrower; second, to pay interest due in respect of any Loans; third, to pay principal due in respect of the Loans; fourth, to pay or prepay any other Obligations whether or not then due, in such order and manner as Lender

determines. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by Borrower, or unless an Event of Default shall exist or have occurred and be continuing, Lender shall not apply any payments which it receives to any Eurodollar Rate Loans, except (a) on the expiration date of the Interest Period applicable to any such Eurodollar Rate Loans, or (b) in the event that there are no outstanding Prime Rate Loans. At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrower. Borrower shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement.

6.5 Authorization to Make Loans. Lender is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of Borrower or other authorized person named in written notice from Borrower to Lender from time to time or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan. Requests received after 11:00 a.m. New York time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrower when deposited to the credit of Borrower or otherwise disbursed or established in accordance with the instructions of Borrower or in accordance with the terms and conditions of this Agreement.

6.6 Use of Proceeds. Borrower shall use the initial proceeds of the Loans provided by Lender to Borrower hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrower to Lender on or about the date hereof for purposes of paying a portion of the purchase price for the Purchased Assets under the Purchase Agreements and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement, the other Financing Agreements and the Purchase Agreements. All other Loans made or Letter of Credit Accommodations provided by Lender to Borrower pursuant to the provisions hereof shall be used by Borrower only for general operating, working capital and other proper corporate purposes of Borrower not otherwise prohibited by the terms hereof:
None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which

might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended.

SECTION 7. COLLATERAL REPORTING AND COVENANTS

7.1 Collateral Reporting.

(a) Borrower shall provide Lender with the following documents in a form satisfactory to Lender:

(i) on a weekly basis, or more frequently as required by Lender at any time that Excess Availability of Borrower is less than $7,500,000 or an Event of Default exists, a schedule of sales made, credits issued and cash received;

(ii) as soon as possible after the end of each month (but in any event within ten (10) days after the end thereof), or more frequently as Lender may reasonably request, (A) perpetual inventory reports by location and category, (B) agings of accounts receivable (together with a reconciliation to the previous month's aging and general ledger); (C) agings of account payable (and including information indicting the status of payments to owners and lessors of the leased premises of Borrower), (D) with respect to each Licensor Agreement, (1) a report of all license fee income received by Borrower for such month and for the same month in the immediately preceding year, and (2) a report of all license fee income received by Borrower during the twelve (12) month period ending such month, and during the twelve (12) month period ending the same month in the immediately preceding year;

(iii) upon Lender's request, (A) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (B) copies of shipping and delivery documents, and (C) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrower;

(iv) such other reports as to the Collateral as Lender shall reasonably request from time to time; and

(b) If any of Borrower's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing.

7.2 Accounts Covenants.

(a) Borrower shall notify Lender promptly of (i) any material delay in Borrower's performance of any of its obligations to any account debtor; or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise thereof, to the extent that any such dispute, settlement, adjustment or compromise involves more than $100,000 as to any one account debtor or $500,000 as to all account debtors in the aggregate, (ii) all material adverse information then known to Borrower

relating to the financial condition of any account debtor and (iii) any event or circumstance which, to Borrower's knowledge would cause Lender to consider any then-existing Accounts as no longer constituting Eligible Accounts. No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor without Lender's consent, except in the ordinary course of Borrower's business in accordance with practices and policies previously disclosed in writing to Lender. So long as no Event of Default exists or has occurred and is continuing, Borrower may settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, Lender shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances.

(b) Without limiting the obligation of Borrower to deliver any other information to Lender, Borrower shall promptly report to Lender any return of Inventory by any one account debtor if the Inventory so returned in such case has a value in excess of $300,000. At any time that Inventory is returned, reclaimed or repossessed, the Account (or portion thereof) which arose from the sale of such returned, reclaimed or repossessed Inventory shall not be deemed an Eligible Account. In the event any account debtor returns Inventory when an Event of Default exists or has occurred and is continuing, Borrower shall, upon Lender's request, (i) hold the returned Inventory in trust for Lender, (ii) segregate all returned Inventory from all of its other property, (iii) dispose of the returned Inventory solely according to Lender's instructions, and (iv) not issue any credits, discounts or allowances with respect thereto without Lender's prior written consent.

(c) With respect to each Account: (i) the amounts shown on any invoice delivered to Lender or schedule thereof delivered to Lender shall be true and, in all material respects, complete, (ii) no payments shall be made thereon except payments immediately delivered to Lender pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of Borrower's business in accordance with practices and policies previously disclosed to Lender, (iv) there shall be no setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Lender in accordance with the terms of this Agreement, (v) none of the transactions giving rise thereto will violate any applicable foreign, Federal, State or local laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms.

(d) Lender shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise.

(e) Borrower shall deliver or cause to be delivered to Lender, with appropriate endorsement and assignment, with full recourse to Borrower, all chattel paper and instruments which Borrower now owns or may at any time acquire immediately upon Borrower's receipt thereof, except as Lender may otherwise agree.

(f) Lender may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors and other obligors in respect thereof that the Receivables have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all accounts debtors and other obligors to make payment of Receivables directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Receivables or such other obligations, but without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at Lender's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Lender and are payable directly and only to Lender and Borrower shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require.

7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower shall at all times maintain inventory records reasonably satisfactory to Lender, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrower's cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrower shall conduct a physical count of the Inventory either through periodic cycle counts or otherwise at least once each year, but at any time or times as Lender may request on or after an Event of Default, and promptly following such physical inventory (whether pursuant to periodic cycle counts or otherwise) shall supply Lender with a report in the form and with such specificity as may be reasonably satisfactory to Lender concerning such physical count; (c) Borrower shall not remove any Inventory from the locations set forth or permitted herein, including pursuant to Section 9.2 hereof, without the prior written consent of Lender, which consent shall not be unreasonably withheld, except for sales of Inventory in the ordinary course of Borrower's business and except to move Inventory directly from one location set forth or permitted herein to another such location and except for Inventory shipped from the manufacturer thereof to Borrower which is in transit to the locations set forth or permitted herein; (d) upon Lender's request, Borrower shall, at its expense, no more than twice in any twelve (12) month period, but at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written appraisals as to the Inventory in form, scope and methodology acceptable to Lender and by an appraiser reasonably acceptable to Lender, addressed to Lender and upon which Lender is expressly permitted to rely; (e) Borrower shall produce, use, store and maintain the Inventory with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including the requirements of the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders related thereto); (f) Borrower assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (g) Borrower shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrower to repurchase such Inventory; (h) Borrower shall keep the Inventory in good and marketable condition, ordinary wear and tear excepted; and (i) Borrower shall not, without prior written notice to Lender, acquire or accept any Inventory on consignment or approval.

7.4 Power of Attorney. Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an Event of Default exists or has occurred and is continuing
(i) exercise and enforce all of Borrower's or Lender's rights and remedies to collect any Receivable or other Collateral, (ii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor or other obligor in respect of any Receivables or other Collateral, (iii) clear Inventory the purchase of which was financed with Letter of Credit Accommodations through U.S. Customs in Borrower's name, Lender's name or the name of Lender's designee, and to sign and deliver to customs officials powers of attorney in Borrower's name for such purpose, and to complete in Borrower's or Lender's name, any order, sale or transaction, obtain the necessary documents in connection therewith and collect the proceeds thereof, and (iv) do all acts and things which are necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement and the other Financing Agreements; and (b) at any time to (i) take control in any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise received in or for deposit in the Blocked Accounts or otherwise received by Lender, (ii) have access to any lockbox or postal box into which remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral are sent or received, (iii) endorse Borrower's name upon any items of payment in respect of Receivables or constituting Collateral or otherwise received by Lender and deposit the same in Lender's account for application to the Obligations, (iv) endorse Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Receivable or any goods pertaining thereto or any other Collateral, including any warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents, (v) sign Borrower's name on any verification of Receivables and notices thereof to account debtors or other obligors in respect thereof, and (vi) execute in Borrower's name and file any UCC financing statements or amendments thereto. Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or willful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction.

7.5 Right to Cure. Lender may, at its option, (a) upon notice to Borrower, cure any default by Borrower under any Material Contract with a third party which has, or reasonably would be expected to have, a Material Adverse Effect upon the Collateral, its value or the ability of Lender to collect, sell or otherwise dispose of the Collateral or the rights and remedies of Lender therein or the ability of Borrower to perform its obligations under the other Financing Agreements, (b) pay or bond on appeal any judgment entered against Borrower, (c) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (d) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge Borrower's account therefor, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly.

7.6 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrower, (a) Lender or its designee shall have complete access to all of Borrower's premises during normal business hours and after notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrower's books and records, including the Records, and (b) Borrower shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) Lender or its designee may use during normal business hours such of Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts and realization of other Collateral.

SECTION 8. REPRESENTATIONS AND WARRANTIES

Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing condition of the making of Loans and providing Letter of Credit Accommodations by Lender to Borrower:

8.1 Corporate Existence, Power and Authority, Subsidiaries. Borrower is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder
(a) are all within Borrower's corporate powers, (b) have been duly authorized,
(c) are not in contravention of law or the terms of Borrower's certificate of incorporation, by-laws, or other organizational documentation, or (except with respect to the assignability of rights thereunder, as set forth on Schedule 8.16) any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound and (d) will not result in the creation or imposition of, or require or give rise to any obligation to grant, any lien, security interest, charge or other encumbrance upon any property of Borrower. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms. As of the date hereof, Borrower does not have any Subsidiaries except as set forth on the Information Certificate.

8.2 Financial Statements, No Material Adverse Change. All audited consolidated financial statements and audited consolidating financial statements of Borrower and its Subsidiaries delivered by Borrower to Lender fairly present, in accordance with GAAP, the financial condition and the results of operations of Borrower and its Subsidiaries as of the end of and for the applicable fiscal year. All interim financial statements (which shall not include the Audit Report or Post Closing Balance Sheet as referred to in Section 9.6(e)) relating to Borrower which have been delivered by Borrower to Lender fairly present, in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes), the financial condition and the results of operation of Borrower as at the dates and for the periods set forth therein. As of the date hereof, except as disclosed in any interim financial statements furnished by Borrower to Lender prior to the

date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of Borrower, since the date of the most recent audited financial statements furnished by Borrower to Lender prior to the date of this Agreement.

8.3 Chief Executive Office; Collateral Locations. As of the date hereof, the chief executive office of Borrower and Borrower's Records concerning Accounts are located only at the address set forth on the signature page hereto and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificate, subject to the right of Borrower to establish new locations in accordance with
Section 9.2 below. As of the date hereof, the Information Certificate correctly identifies any of such locations which are not owned by Borrower and sets forth the owners and/or operators thereof and to the best of Borrower's knowledge, the holders of any mortgages on such locations.

8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security interests in and upon the Collateral subject only to the liens indicated on Schedule 8.4 hereto, the licenses granted pursuant to the Licensor Agreements, and the other liens permitted under Section 9.8 hereof: Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender, the Licenses granted pursuant to the Licensor Agreements, and such others as are specifically listed on Schedule 8.4 hereto or permitted under
Section 9.8 hereof.

8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it. All information in such tax returns, reports and declarations is complete and accurate in all material respects. Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed.

8.6 Litigation. Except as set forth on the Information Certificate, as of the date hereof there is no present investigation by any Governmental Authority pending, or to the best of Borrower's knowledge threatened, against or affecting Borrower, its assets or business, and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against Borrower or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against Borrower would result in any material adverse change in the assets, business or prospects of Borrower or would impair the ability of Borrower to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral.

8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not in default in any material respect under, or in violation in any material respect of any of the terms of, any Material Contract or other commitment to which it is a party or by which it or any of its assets are

bound and Borrower is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local Governmental Authority, except where the failure to so comply does not and could not be reasonably expected to have a Material Adverse Effect.

8.8 Environmental Compliance.

(a) Except as set forth on Schedule 8.8 hereto, Borrower and any Subsidiary have not generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates any applicable Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of Borrower and any Subsidiary complies in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder, except where the failure to so comply does not and could not be reasonably expected to have a Material Adverse Effect.

(b) Except as set forth on Schedule 8.8 hereto, there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any Governmental Authority or any other person nor is any pending or to the best of Borrower's knowledge threatened, with respect to any non-compliance with or violation of the requirements of any Environmental Law by Borrower and any Subsidiary, which could reasonably be expected to have a Material Adverse Effect if adversely determined, or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which adversely affects in any material respect Borrower or its business, operations or assets or any properties at which Borrower has transported, stored or disposed of any Hazardous Materials.

(c) Borrower and its Subsidiaries have no material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials.

(d) Borrower and its Subsidiaries have all licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the operations of Borrower under any Environmental Law and all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect, except for such licenses, permits, certificates, approvals or authorizations the failure of which to obtain or file does not and could not reasonably be expected to have a Material Adverse Effect.

8.9 Employee Benefits.

(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law, except where the failure to so comply does not and could not be reasonably expected to have a Material Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service and to the best of Borrower's knowledge, nothing has occurred

which would cause the loss of such qualification. Borrower and its ERISA Affiliates have made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(b) There are no pending or to the best of Borrower's knowledge, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan.

(c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) the current value of each Plan's assets (determined in accordance with the assumptions used for funding such Plan pursuant to Section 412 of the Code) are not less than such Plan's liabilities under Section 4001(a)(16) of ERISA; (iii) Borrower and its ERISA Affiliates have not incurred and do not reasonably expect to incur, any liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) Borrower and its ERISA Affiliates have not incurred and do not reasonably expect to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) Borrower and its ERISA Affiliates have not engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

8.10 Bank Accounts. All of the deposit accounts, investment accounts or other accounts in the name of or used by Borrower maintained at any bank or other financial institution are set forth on Schedule 8.10 hereto, subject to the right of Borrower to establish new accounts in accordance with Section 9.13 below.

8.11 Intellectual Property. Borrower owns or licenses or otherwise has the right to use all Intellectual Property materially necessary for the operation of its business as presently conducted or proposed to be conducted. As of the date hereof, Borrower does not have any Intellectual Property registered, or subject to pending applications, in the United States Patent and Trademark Office or any similar office or agency in the United States, any State thereof, any political subdivision thereof or in any other country, other than those described in Schedule 8.11 (a) hereto and has not granted any licenses with respect thereto other than as set forth in Schedule 8.11(b) hereto. To Borrower's knowledge, after reasonable investigation, no event has occurred which permits or would permit after notice or passage of time or both, the revocation, suspension or termination of such rights. Except as otherwise disclosed by Borrower to Lender after the date hereof, to the best of Borrower's knowledge, no slogan or other advertising device, product, process, method, substance or other Intellectual Property or goods bearing or using any Intellectual Property presently contemplated to be sold by or employed by Borrower infringes any patent, trademark, servicemark, trade name, copyright, license or other Intellectual Property owned by any other Person presently and no claim or litigation is pending or threatened against or affecting Borrower contesting its right to sell or use any such Intellectual Property. Schedule
8.11 (c) sets forth all of the agreements or other arrangements of Borrower pursuant to which Borrower has a license or other right to use any trademarks, logos, designs, representations or other Intellectual Property owned by another person as in effect on the date hereof and the dates of the expiration of such agreements or other arrangements of Borrower as

in effect on the date hereof: No trademark, servicemark or other Intellectual Property at any time used by Borrower which is owned by another person, or owned by Borrower subject to any security interest, lien, collateral assignment, pledge or other encumbrance in favor of any person other than Lender, is affixed to any Eligible Inventory.

8.12 Capitalization.

(a) As of the date hereof, the issued and outstanding shares of Capital Stock of Borrower are directly and beneficially owned and held by the persons indicated in the Information Certificate, and in each case all of such shares have been duly authorized and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind, except for shares of Capital Stock of Borrower issued to Cre-8-net Ventures L.L.C. on the date hereof, limitations under applicable securities laws and shareholder agreements among the parties and as disclosed in writing to Lender.

(b) Borrower is solvent and will continue to be solvent after the creation of the Obligations, the security interests of Lender and the other transaction contemplated hereunder, is able to pay its debts as they mature and has (and has reason to believe it will continue to have) sufficient capital (and not unreasonably small capital) to carry on its business and all businesses in which it is about to engage. The assets and properties of Borrower at a fair valuation and at their present salable value are, and will be, greater than the Indebtedness of Borrower, and including subordinated and contingent liabilities computed at the amount which, to the best of Borrower's knowledge, represents an amount which can reasonably be expected to become an actual or matured liability.

8.13 Labor Disputes.

(a) Set forth on Schedule 8.13 hereto is a list (including dates of termination) of all collective bargaining or similar agreements between or applicable to Borrower and any union, labor organization or other bargaining agent in respect of the employees of Borrower on the date hereof.

(b) As of the date hereof, there is (i) no significant unfair labor practice complaint pending against Borrower or, to the best of Borrower's knowledge, threatened against it, before the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is pending on the date hereof against Borrower or, to best of Borrower's knowledge, threatened against it, and (ii) no significant strike, labor dispute, slowdown or stoppage is pending against Borrower or, to the best of Borrower's knowledge, threatened against Borrower.

8.14 Corporate Name, Prior Transactions. As of the date hereof, Borrower has not, during the past five years, been known by or used by any other corporate or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or acquired any of its property or assets out of the ordinary course of business, except as set forth herein or in the Information Certificate.

8.15 Restrictions on Subsidiaries. Except for restrictions contained in this Agreement or any other agreement with respect to Indebtedness of Borrower permitted hereunder as in effect on the date hereof, there are no contractual or consensual restrictions on Borrower or any of its Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash or other assets (1) between Borrower and any of its Subsidiaries or (ii) between any Subsidiaries of Borrower or (b) the ability of Borrower or any of its Subsidiaries to incur Indebtedness or grant security interests to Lender in the Collateral.

8.16 Material Contracts. Schedule 8.16 hereto sets forth all Material Contracts to which Borrower is a party or is bound as of the date hereof:
Borrower has delivered true, correct and complete copies of such Material Contracts to Leader on or before the date hereof. Borrower is not in breach of or in default under, in any material respect, any Material Contract and has not received any notice of the intention of any other party thereto to terminate any Material Contract.

8.17 Payable Practices. Borrower has not made any material change in the historical accounts payable practices from those in effect immediately prior to the date hereof.

8.18 Accuracy and Completeness of Information. All information furnished by or on behalf of Borrower in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including all information on the Information Certificate, is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading in any material respect. No event or circumstance has occurred which has had or could reasonably be expected to have a Material Adverse Effect which has not been fully and accurately disclosed to Lender in writing.

8.19 Acquisition of Purchased Assets.

(a) The Purchase Agreements and the transactions contemplated thereunder have been duly executed, delivered and performed in accordance with their terms. As of the date hereof, Borrower acquired and has good and marketable title to the Purchased Assets, free and clear of all claims, liens, pledges and encumbrances of any kind, except as permitted hereunder or as set forth in any schedule hereto.

(b) All actions and proceedings required by the Purchase Agreements, the Converse Sale Order, applicable law or regulation (including, but not limited to, compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been taken and the transactions required thereunder have been duly and validly taken and consummated.

(c) No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions described in the Purchase Agreements or the Converse Sale Order and no governmental or other action or proceeding has been commenced, seeking any injunction, restraining order or other order which seeks to void, stay, enjoin or otherwise modify the Converse Sale Order or the transactions described in the Purchase Agreements.

(d) The Converse Sale Order (i) has been duly entered, (ii) is valid, subsisting and continuing, (iii) has not been revoked, remanded, vacated, appealed (except as indicated in Attachment 8.19 hereto), modified, reversed on appeal or revoked, remanded, vacated, reversed or modified by any Bankruptcy or District Court Judge, (iv) (except as indicated in Attachment 8.19 hereto) is final and non-appealable and not subject to any pending appeal and (v) includes a finding that Borrower is a good faith purchaser for value of the assets of Seller under the Purchase Agreements within the meaning of Section 363(m) of the Bankruptcy Code.

(e) Borrower has delivered, or caused to be delivered, to Lender, true, correct and complete copies of the Converse Sale Order and the Purchase Agreements. Set forth in Schedule 8.19 hereto is a correct and complete list of the Purchase Agreements and all other agreements, documents and instruments existing as of the date hereof between or among Borrower, any of its affiliates, Seller and any Affiliate of Seller.

8.20 Survival of Warranties Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrower shall now or hereafter give, or cause to be given, to Lender.

SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS

9.1 Maintenance of Existence. Borrower shall at all times preserve, renew and keep in full, force and effect its corporate existence arid rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, trade names, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. Borrower shall give Lender twenty (20) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of Borrower as soon as it is available.

9.2 New Collateral Locations. Borrower may open any new location within the continental United States provided Borrower (a) gives Lender thirty
(30) days' prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem reasonably necessary or desirable to protect its interests in the Collateral at such location, including Uniform Commercial Code financing statements; provided, however, that Borrower shall only be required to deliver a Collateral Access Agreement to the extent required under Section 1.22(f) hereof.

9.3 Compliance with Laws, Regulations Etc.

(a) Borrower shall at all times comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and orders applicable to it and duly observe all requirements of any foreign, Federal, State or local Governmental Authority, including ERISA, the Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and all statutes, rules, regulations, orders, permits and stipulations relating to environmental pollution and employee health and safety, including all of the Environmental Laws, except where the failure to so comply does not, individually or in the aggregate, and could not reasonably be expected to, result in a Material Adverse Effect.

(b) Borrower shall establish and maintain, at its expense, a system to assure and monitor its continued compliance in all material respects with all Environmental Laws as required pursuant to Section 9.3(a) hereof in all of its operations, which system shall include annual reviews of such compliance by employees or agents of Borrower who are familiar with the requirements of the Environmental Laws. Borrower shall take prompt and appropriate action to respond to any non-compliance with any of the Environmental Laws and shall regularly report to Lender on such response.

(c) Borrower shall indemnify and hold harmless Lender, its directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any and all losses, claims, damages, liabilities, costs, and expenses (including attorneys' fees and legal expenses) directly or indirectly arising out of or attributable to the use, generation, manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the costs of any required or necessary repair, cleanup or other remedial work with respect to any property of Borrower and the preparation and implementation of any closure, remedial or other required plans. All representations, warranties, covenants and indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement.

9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower or such Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books. Borrower shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and Borrower agrees to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrower such amount shall be added and deemed part of the Loans, provided, that, nothing contained herein shall be construed to require Borrower to pay any income or franchise taxes attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement.

9.5 Insurance. Borrower shall at all times maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established

reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Lender as to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to Lender as Lender shall reasonably require as proof of such insurance, and, if Borrower fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrower. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Borrower in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrower shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrower shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance reasonably satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Borrower or any of its Affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations.

9.6 Financial Statements and Other Information.

(a) Borrower shall keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Borrower and its Subsidiaries (if any) in accordance with GAAP. Borrower shall promptly furnish to Lender all such financial and other information as Lender shall reasonably request relating to the Collateral and the assets, business and operations of Borrower, and to notify the auditors and accountants of Borrower that Lender is authorized to obtain such information directly from them. Without limiting the foregoing, Borrower shall furnish or cause to be furnished to Lender, the following: (i) within thirty (30) days after the end of each fiscal month, monthly unaudited consolidated financial statements, and unaudited consolidating financial statements (including in each case balance sheets, statements of income and loss, statements of cash flow, and statements of shareholders' equity), all in reasonable detail, fairly presenting in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and through such fiscal month, certified to be correct by the chief financial officer, or other officer reasonably acceptable to Lender, of Borrower, and accompanied by a compliance certificate substantially in the form of Exhibit B hereto, along with a schedule in form reasonably satisfactory to Lender of the calculations used in determining, as of the end of such month, whether Borrower was in compliance with the covenant set forth in Section 9.18 of this Agreement for such month and (ii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements and audited consolidating financial statements of Borrower and its Subsidiaries (including in each unaudited case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrower and its Subsidiaries as of the end of and for such fiscal year, together with the unqualified opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrower and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP,

and present fairly the results of operations and financial condition of Borrower and its Subsidiaries as of the end of and for the fiscal year then ended.

(b) Borrower shall promptly notify Lender in writing of the details of (i) any loss, damage, investigation, action, suit, proceeding or claim which has or could result in a Material Adverse Effect, (ii) any Material Contract of Borrower being terminated or amended or any new Material Contract entered into (in which event Borrower shall provide Lender with a copy of such Material Contract), (iii) any order, judgment or decree in excess of $1,000,000 shall have been entered against Borrower or any of its properties or assets,
(iv) any notification from a Governmental Authority of violation of laws or regulations received by Borrower, (v) any ERISA Event, and (vi) the occurrence of any Event of Default or act, condition or event which, with notice or the passage of time or giving of notice or both, would constitute an Event of Default.

(c) Borrower shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports which Borrower sends to its stockholders generally and copies of all reports and registration statements which Borrower files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc.

(d) Borrower shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrower, as Lender may, from time to time, reasonably request. Lender is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrower to any court or other Government Authority or to any participant or assignee or prospective participant or assignee. Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrower's expense, copies of the financial statements of Borrower and any reports or management letters prepared by such accountants or auditors on behalf of Borrower and to disclose to Lender such information as they may have regarding the business of Borrower. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise, disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrower to Lender in writing.

(e) Borrower shall deliver, or cause to be delivered, to Lender, within one hundred and twenty (120) days from the date hereof, an opening balance sheet of Borrower after giving effect to the transactions contemplated by this Agreement and the Purchase Agreements, together with the unqualified opinion (except as to the absence of footnotes) of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrower and reasonably acceptable to Lender, to the effect that such opening balance sheet has been prepared in accordance with GAAP and presents fairly the financial condition of Borrower as of such date ("Post Closing Balance Sheet"). In addition, Borrower shall deliver to Lender, within three (3) Business Days following Borrower's receipt thereof, a copy of the Auditor Report (as defined in Section 1.05 of the Asset Purchase Agreement referred to