Document:

AMENDMENT TO CREDIT AGREEMENT

 

EXHIBIT 4.1

          AMENDMENT NO. 2 (this “Amendment”), dated as of May 27, 2004, to the
CREDIT AGREEMENT, dated as of May 20, 2003 (as previously amended, the “Credit
Agreement”), among JAFRA COSMETICS INTERNATIONAL, INC., a Delaware corporation
(“JCI”), DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V., a sociedad anónima de
capital variable organized under the laws of Mexico (“DCJ” and, with JCI, the
“Borrowers”), JAFRA WORLDWIDE HOLDINGS (LUX) S.à.R.L., a société à
responsabilité limitée organized under the laws of Luxembourg (“Parent”), the
Lenders (as defined in the Credit Agreement), the Issuing Bank (as defined in
the Credit Agreement) and CREDIT SUISSE FIRST BOSTON, as administrative agent
(in such capacity, the “Administrative Agent”) and collateral agent (in such
capacity, the “Collateral Agent”) for the Lenders.

W I T N E S S E T H:

          WHEREAS, pursuant to the Credit Agreement, the Lenders and the Issuing
Bank have agreed to make, and have made, certain loans and other extensions of
credit to the Borrowers;

          WHEREAS, the Borrowers have requested that certain provision of the Credit
Agreement be amended as set forth herein; and

          WHEREAS, the Lenders are willing to agree to such amendments on the terms
set forth herein;

          NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, the undersigned hereby agree as follows:

          I. Defined Terms. Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.

          II. Amendments to Section 1.01. Section 1.01 of the Credit Agreement is
hereby amended by:

          (i) adding the following definitions in their appropriate alphabetical
order:

     “‘Acquisition’ shall mean the acquisition of all of the Capital
Stock of the Ultimate Parent by Vorwerk & Co. eins GmbH, a company
organized under the laws of the Federal Republic of Germany.”

     “‘Vorwerk Group’ shall mean Vorwerk & Co. eins GmbH, a company
organized under the laws of the Federal Republic of Germany, and any
Affiliates thereof.”

          (ii) deleting “and” at the end of clause (A) of clause (a) of the
definition of “Change of Control” and substituting in lieu thereof a comma.

          (iii) adding the following to the end of clause (B) of clause (a) of the
definition of “Change of Control”:

          “and (C) shall not be a Permitted Investor”

 

 

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          (iv) adding the following to the end of clause (c) of the definition of
“Change of Control”:

          “(other than as a result of the Acquisition)”

          (v) deleting clause (a) of the definition of “Permitted Investor” and
substituting in lieu thereof the following:

          “(a) the Vorwerk Group”

          III. Amendments to Section 6.06. Section 6.06 of the Credit Agreement is
hereby amended by (i) deleting the reference to “and” at the end of clause (d);
(ii) deleting the period at the end of clause (e) and substituting in lieu
thereof “; and”; and (iii) adding the following clause (f):

     “(f) on or after the consummation of the Acquisition, either
Borrower and any other Subsidiary may make cash payments to holders of
options in exchange for the cancellation of such options in connection
with the Acquisition in an aggregate amount not to exceed $21,000,000.”

          IV. Amendment to Section 6.10. Section 6.10 of the Credit Agreement is
hereby amended by adding the following to the end thereof:

     “Notwithstanding the foregoing, the Borrowers may repurchase the New
Notes upon the occurrence of a Change of Control (as defined in the New
Note Documents) as a result of the Acquisition in accordance with the
Change of Control repurchase requirements of the New Note Documents. The
Borrowers hereby agree that (i) no more than $10,000,000 of proceeds of
Revolving Loans, Swingline Loans or cash on hand from time to time at the
Borrowers and their respective Subsidiaries (other than cash invested in
or loaned to the Borrowers by a Permitted Investor) may be used to make
such repurchases and (ii) if the aggregate amount expended by the
Borrowers to make such repurchases would exceed $25,000,000, then, prior
thereto, the Borrowers shall either (a) terminate the Commitments, repay
all outstanding Loans, together with accrued and unpaid interest thereon,
pay all accrued and unpaid Fees, expenses and other Obligations then due
or outstanding under this Agreement and the other Loan Documents and
return for cancellation all outstanding Letters of Credit (or enter into
other arrangements satisfactory to the Issuing Bank and the
Administrative Agent with respect thereto) or (b) have issued to the
Administrative Agent, for its benefit and for the benefit of the other
Secured Parties, an irrevocable, multiple draw, standby letter of credit,
in form and substance and from a bank satisfactory to the Administrative
Agent, in an aggregate face amount equal to $88,000,000 less the sum of
(i) the total amount of Term Loans repaid or prepaid on or after May 19,
2004, and on or prior to the date such letter of credit is issued, and
(ii) the total amount by which the Revolving Credit Commitments are
permanently reduced by the Borrowers in accordance with the terms of this
Agreement on or after May 19, 2004, and on or prior to the date such
letter of credit is issued.”

          V. Effective Date. This Amendment shall become effective on the date (the
“Effective Date”) on which Parent, the Borrowers, the Administrative Agent and
the Required Lenders shall have duly executed and delivered to the
Administrative Agent this Amendment and the consummation of the Acquisition has
occurred.

 

 

 3

          VI. Termination. This Amendment, and the amendments to the Credit
Agreement contained herein, shall terminate and be of no further force and
effect, with the immediate result that an Event of Default shall be deemed to
exist, on the date that is 90 days after the Effective Date.

          VII. Future Amendments. The Borrowers hereby agree that, notwithstanding
anything to the contrary contained in the Credit Agreement, any future
amendment, waiver or other modification of the Credit Agreement will require
the consent of each of the Lenders.

          VIII. Representations and Warranties. The Borrowers hereby represent and
warrant that (a) each of the representations and warranties in Article III of
the Credit Agreement shall be, after giving effect to this Amendment, true and
correct in all material respects as if made on and as of the Effective Date
(unless such representations and warranties are stated to relate to a specific
earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date) and (b) after
giving effect to this Amendment, no Default or Event of Default shall have
occurred and be continuing.

          IX. No Other Amendments; Confirmation. Except as expressly amended
hereby, the provisions of the Credit Agreement are and shall remain in full
force and effect.

          X. Governing Law. This Amendment and the rights and obligations of the
parties hereto shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.

          XI. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. This Amendment may be delivered by facsimile transmission of the
relevant signature pages hereof.

 

 

 4

          IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
above written.

	 	 	 	 	 
	 	 	JAFRA WORLDWIDE HOLDINGS (LUX) S.à.R.L.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Michael DiGregorio
	

	 	 	 	
 
	

	 	Name:
	 	Michael DiGregorio
	

	 	Title:
	 	Chief Financial Officer
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gary Eshleman
	

	 	 	 	
 
	

	 	Name:
	 	Gary Eshleman
	

	 	Title:
	 	Treasurer
	 
	 	 	 	 
	 	 	JAFRA COSMETICS INTERNATIONAL, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Michael DiGregorio
	

	 	 	 	
 
	

	 	Name:
	 	Michael DiGregorio
	

	 	Title:
	 	Chief Financial Officer
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gary Eshleman
	

	 	 	 	
 
	

	 	Name:
	 	Gary Eshleman
	

	 	Title:
	 	Treasurer
	 
	 	 	 	 
	 	 	DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Michael DiGregorio
	

	 	 	 	
 
	

	 	Name:
	 	Michael DiGregorio
	

	 	Title:
	 	Chief Financial Officer
	 
	 	 	 	 
	

	 	By:
	 	/s/ Gary Eshleman
	

	 	 	 	
 
	

	 	Name:
	 	Gary Eshleman
	

	 	Title:
	 	Treasurer

 

 

 5

	 	 	 	 	 	 	 
	 	 	CREDIT SUISSE FIRST BOSTON, acting through
its Cayman Islands branch, individually and
as Administrative Agent, Collateral Agent,
Swingline Lender and Lead Arranger
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Karl Studer
	 	/s/ Daniel Ludwig
	 	 	 	 	
 
	

	 	Name:
	 	Karl Studer
	 	Daniel Ludwig
	

	 	Title:
	 	Director
	 	AVP

 

 

 6

	 	 	 	 	 
	 	 	Signature page to AMENDMENT NO. 2, dated as
of May 27, 2004, to the CREDIT AGREEMENT,
dated as of May 20, 2003 (as previously
amended, the “Credit Agreement”), among
JAFRA COSMETICS INTERNATIONAL, INC., a
Delaware corporation (“JCI”), DISTRIBUIDORA
COMERCIAL JAFRA, S.A. DE C.V., a sociedad
anónima de capital variable organized under
the laws of Mexico (“DCJ” and, with JCI,
the “Borrowers”), JAFRA WORLDWIDE HOLDINGS
(LUX) S.à.R.L., a société à responsabilité
limitée organized under the laws of
Luxembourg (“Parent”), the Lenders (as
defined in the Credit Agreement), the
Issuing Bank (as defined in the Credit
Agreement) and CREDIT SUISSE FIRST BOSTON,
as administrative agent (in such capacity,
the “Administrative Agent”) and collateral
agent (in such capacity, the “Collateral
Agent”) for the Lenders.
	 
	 	 	 	 
	

	 	 	 	/s/ Steven K. Sloan
	 	 	
 
	 	 	City National Bank
	 
	 	 	 	 
	

	 	By
	 	Steven K. Sloan
	

	 	 	 	
 
	

	 	Title:
	 	Senior Vice President

 

 

 6

	 	 	 	 	 
	 	 	Signature page to AMENDMENT NO. 2, dated as
of May 27, 2004, to the CREDIT AGREEMENT,
dated as of May 20, 2003 (as previously
amended, the “Credit Agreement”), among
JAFRA COSMETICS INTERNATIONAL, INC., a
Delaware corporation (“JCI”), DISTRIBUIDORA
COMERCIAL JAFRA, S.A. DE C.V., a sociedad
anónima de capital variable organized under
the laws of Mexico (“DCJ” and, with JCI,
the “Borrowers”), JAFRA WORLDWIDE HOLDINGS
(LUX) S.à.R.L., a société à responsabilité
limitée organized under the laws of
Luxembourg (“Parent”), the Lenders (as
defined in the Credit Agreement), the
Issuing Bank (as defined in the Credit
Agreement) and CREDIT SUISSE FIRST BOSTON,
as administrative agent (in such capacity,
the “Administrative Agent”) and collateral
agent (in such capacity, the “Collateral
Agent”) for the Lenders.
	 
	 	 	 	 
	

	 	 	 	Merrill Lynch Capital Corp.
	 	 	
 
	 	 	[NAME OF LENDER]
	 
	 	 	 	 
	

	 	By
	 	/s/ Chantal Simon
	

	 	 	 	
 
	

	 	Title:
	 	Vice President

 

 

 6

	 	 	 	 	 
	 	 	Signature page to AMENDMENT NO. 2, dated as
of May 27, 2004, to the CREDIT AGREEMENT,
dated as of May 20, 2003 (as previously
amended, the “Credit Agreement”), among
JAFRA COSMETICS INTERNATIONAL, INC., a
Delaware corporation (“JCI”), DISTRIBUIDORA
COMERCIAL JAFRA, S.A. DE C.V., a sociedad
anónima de capital variable organized under
the laws of Mexico (“DCJ” and, with JCI,
the “Borrowers”), JAFRA WORLDWIDE HOLDINGS
(LUX) S.à.R.L., a société à responsabilité
limitée organized under the laws of
Luxembourg (“Parent”), the Lenders (as
defined in the Credit Agreement), the
Issuing Bank (as defined in the Credit
Agreement) and CREDIT SUISSE FIRST BOSTON,
as administrative agent (in such capacity,
the “Administrative Agent”) and collateral
agent (in such capacity, the “Collateral
Agent”) for the Lenders.
	 
	 	 	 	 
	

	 	 	 	The Bank of New York
	 	 	
 
	 	 	[NAME OF LENDER]
	 
	 	 	 	 
	

	 	By
	 	/s/ Mehrasa Raygani
	

	 	 	 	
 
	

	 	Title:
	 	Mehrasa Raygani
	

	 	 	 	Vice President

 

 

 6

	 	 	 	 	 
	 	 	Signature page to AMENDMENT NO. 2, dated as of May 27, 2004, to
    the CREDIT AGREEMENT, dated as of May 20, 2003 (as previously
    amended, the “Credit Agreement”), among JAFRA
    COSMETICS INTERNATIONAL, INC., a Delaware corporation
    (“JCI”), DISTRIBUIDORA COMERCIAL JAFRA, S.A. DE C.V.,
    a sociedad anónima de capital variable organized under the
    laws of Mexico (“DCJ” and, with JCI, the
    “Borrowers”), JAFRA WORLDWIDE HOLDINGS (LUX)
    S.à.R.L., a société a responsabilité
    limitée organized under the laws of Luxembourg
    (“Parent”), the Lenders (as defined in the
    Credit Agreement), the Issuing Bank (as defined in the Credit
    Agreement) and CREDIT SUISSE FIRST BOSTON, as administrative
    agent (in such capacity, the “Administrative
    Agent”) and collateral agent (in such capacity, the
    “Collateral Agent”) for the Lenders.

	 
	 	 	 	 
	

	 	 	 	HSBC BANK USA
	 	 	
 
	 	 	[NAME OF LENDER]
	 
	 	 	 	 
	

	 	By
	 	/s/ Steve Prostor
	

	 	 	 	
 
	

	 	Title:
	 	Steve Prostor
	

	 	 	 	Vice President<PAGE>
                                                                    Exhibit 10.2

                                 2004 INCENTIVE

                                COMPENSATION PLAN

Version           3.0
Effective Date    January 1, 2004

                                  CONFIDENTIAL

<PAGE>

<TABLE>
<S>    <C>                                                                                           <C>
1      ADMINISTRATIVE RULES..................................................................         3

       1.1         PURPOSE...................................................................         3
       1.2         DEFINITIONS...............................................................         3
       1.3         ADMINISTRATION............................................................         3
       1.4         ELIGIBLE PARTICIPANTS.....................................................         3
       1.5         AWARDS....................................................................         4
       1.6         PAYMENT OF AWARDS.........................................................         4
       1.7         AMENDMENT OR TERMINATION..................................................         5
       1.8         OTHER CONDITIONS..........................................................         5
       1.9         EFFECTIVE DATE............................................................         5

2      OPERATING RULES.......................................................................         5

       2.1         PLAN PRINCIPLES...........................................................         5
       2.2         PLAN STRUCTURE............................................................         6
       2.3         INCENTIVE FACTORS.........................................................         7
             2.3.1       Company Performance (as measured by EBITDA).........................         7
             2.3.2       Individual Performance Evaluation and Objectives....................         8
             2.3.3       End of the Award Year...............................................         9
       2.4         ASSIGNING INCENTIVE FACTORS TO GROUPS.....................................         9
       2.5         ALLOCATING INCENTIVE FACTORS AND WEIGHTS TO GROUPS........................         9
       2.6         INCENTIVE POTENTIAL.......................................................        10
       2.7         AWARD CALCULATION METHOD..................................................        10
             2.7.1       The Performance Potential Factor (PPF)..............................        10
             2.7.2       Incentive Potential Factor (IPF)....................................        11
             2.7.3       The Final Incentive Award (FIA).....................................        11
</TABLE>

Version 2.0                       Page 2 of 2                    January 1, 2003

<PAGE>

1        ADMINISTRATIVE RULES

         1.1      PURPOSE

The purpose of the Incentive Compensation Plan (the "Plan") is to enhance and
reinforce the goals and strategic objectives of VALOR Telecommunications (the
"Company") for company and individual performance. This will be accomplished by
providing eligible employees with financial awards for attainment of growth and
stable financial and operating conditions. The accomplishment of these goals
will be measured through the attainment of the following elements as defined in
Part II:

     -   Company performance (as measured by EBITDA)

     -   Individual performance evaluation and objectives.

The Plan sets forth the guidelines and formulas for the computation of incentive
compensation awards for participating employees.

         1.2      DEFINITIONS

Definitions of terms as used throughout the Plan document are as follows:

     -   "Award Year" means the twelve-month period coinciding with the
         Company's annual accounting period.

     -   "Committee" means a committee established by management of the Company
         to administer the Plan.

     -   "Participant" means an employee designated by management and approved
         by the Committee to participate in the Plan.

         1.3      ADMINISTRATION

The Incentive Compensation Administration Committee of the Company shall
administer the Plan. This Committee shall be chaired by the President and Chief
Operating Officer and shall be comprised of not less than three additional
members that are appointed by the President and Chief Operating Officer and/or
Chief Executive Officer.

The Committee shall have full power and authority to select Participants from
among those eligible, to determine the size and timing of individual awards, and
to adopt and revise such rules and procedures as it shall deem necessary for the
administration of the Plan. The decision of the Committee with respect to the
individuals selected for awards, and the interpretation of the Plan shall be
final and conclusive. All incentive compensation awards computed under the Plan
are subject to final approval and modification of this Committee. The Plan may
be modified or withdrawn at any time without prior notification at the
discretion of the Committee.

         1.4      ELIGIBLE PARTICIPANTS

Participation in the Plan shall be limited to regular salaried employees of the
Company, including officers as recommended by management and approved by the
Committee. In

Version 2.0                       Page 3 of 3                    January 1, 2003

<PAGE>

selecting Participants, the Committee shall consider an individual's job,
individual performance objectives, and potential impact on the Company's
business results and performance. Participants will be members of the
participant groups as defined in Part II of the Plan. Participants should not be
eligible to participate in any other incentive or bonus plan. The selection of
Participants and their respective incentive awards, shall be determined annually
by the Committee and communicated to Participants as soon as possible. In actual
practice, decisions on participation will be made at or near the beginning of
the Award Year. The Committee has the right to change or modify the participant
list with or without notice.

Eligible employees are full-time employees who are selected to participate in
the Plan (as defined above), and are employed by the Company during the entire
Award Year for which the incentive is being paid. If an employee becomes
eligible during the A ward Year and would otherwise be eligible to participate
in the incentive compensation plan, at the discretion of the department Senior
Vice-President and the President and Chief Operating Officer the individual may
be allowed to participate. This Participant would receive pro-rated incentive
award based on the full months that he or she is eligible and the End of the
Year. Employees who become eligible during the fourth quarter of the Award Year
will not be eligible to participate until the following Award Year.

         1.5      AWARDS

Individual Participant awards are determined based on quantitative and
qualitative performance measurements as described by the Incentive Factors in
Part II. All award payments are subject to the Committee and investor approval.
Awards will be made in the form of cash.

         1.6      PAYMENT OF AWARDS

NORMAL PAYMENT. Incentive awards shall be earned as of the payment of incentive
award date. Payment of awards shall be made in cash within sixty (60) days
following the end of the Award Year. Participants must be full-time employees on
the Company's payroll at the time the award is paid to receive the payment.

The Company may choose to make semi-annual payments to eligible participants if
the Company is meeting or exceeding financial objectives and the outlook for the
remaining half of the year is favorable. If semi-annual payments are made, they
will occur between July 1 and September 1. Final incentive awards will be
adjusted by any semi-annual payment.

PAYMENT UNDER CONDITIONS OF TERMINATION. If termination of employment occurs
during an Award Year because of death, total disability, or approved leave of
absence, such Participant terminating employment shall be deemed to have earned
a proportionate share of what would have otherwise been the Award Year's actual
incentive. The amount paid will be prorated to the number of full months worked,
and based on the End of the Year calculations.

If termination of employment occurs for any reason other than death, total
disability, or approved leave of absence, no incentive shall be deemed earned
for the Award Year in which such termination occurs.

Version 2.0                       Page 4 of 4                    January 1, 2003

<PAGE>

PARTICIPANT TRANSFER. If a Participant is transferred to another
unit/department, etc. within or affiliated with the Company during the Award
Year, and is determined to be eligible for payments under one or both of the
units' plans, partial awards will be made under each unit's plan, using the
respective job and salary and prorated as describe in Section 1.4.

         1.7      AMENDMENT OR TERMINATION

The Committee may, at any time, terminate, modify, or amend the Plan. No awards
may be made under the Plan at any time, if the overall financial condition of
the Company is not sound or without investor approval.

         1.8      OTHER CONDITIONS

RIGHT OF ASSIGNMENT. No right or interest of any Participant in the Plan shall
be assignable or transferable, or subject to any lien, directly, by operation of
law, or otherwise including levy, garnishment, attachment, pledge, and
bankruptcy. In the event of the Participant's death, payment shall be made to
the Participant's designated beneficiary or in the absence of such designation,
to the Participant's estate.

RIGHT OF EMPLOYMENT. The receipt of an award under the Plan shall not give any
employee the right to continue employment with the Company, and the right to
dismiss any employee is specifically reserved by the Company. The receipt of an
award in any year shall not give an employee the right to receive an award in
any subsequent year.

WITHHOLDING OF TAXES. The Company shall have the right and obligation to deduct
from all payments under the Plan any federal or state taxes required by law to
be withheld with respect to such payments.

WITHHOLDING OF 401(K). Savings Plan (401 (k)) deductions shall be made from all
payments under the Plan, if a Participant is enrolled in 401 (k) plan.

         1.9      EFFECTIVE DATE

The effective date of the Plan shall be January I of the Award Year of adoption
by the Incentive Compensation Administration Committee.

2        OPERATING RULES

         2.1      PLAN PRINCIPLES

The purpose of the Plan as defined in Part I is to provide Participants with
annual incentive awards for their contributions to the Company's growth and
achievement of strategic goals. The Plan will be operated on the following
principles:

     -   SETTING OF GOALS

         The Company will set the Participant's incentive factors on an annual
         basis and revise them during the Award Year as needed.

Version 2.0                       Page 5 of 5                    January 1, 2003

<PAGE>

     -   MEASUREMENT OF PERFORMANCE

         The Company, through its managers, will review performance of
         Participants at midyear, and measure performance according to the Plan
         specifications at the end of the Award Year. The measurement maybe
         either quantitative or qualitative.

     -   PAYMENT OF AWARDS

         The Company will award the Participants, according to the measured
         results, within 60 days of the end of the Award Year. The Company may
         choose to make semi-annual awards if the Company is meeting or
         exceeding financial objectives and the outlook for remainder of the
         year is favorable. End of the Year Awards will be adjusted by any
         midyear payments.

         2.2      PLAN STRUCTURE

The Plan is based on several incentive factors that have been determined as
important to the Company's success in achieving its strategic objectives. Plan
Participants are divided into groups with similar job responsibilities and/or
job functions. The Committee will make a determination as to which group a
Participant will be assigned, using the criteria below as a guideline:

                               PARTICIPANT GROUPS

GROUP A        Participants in this group are responsible for the long-range
               planning and growth of the Company. They are usually responsible
               for multiple business functions and will most often have
               Vice-President(s) in their reporting structure. Common titles in
               this category will be Senior Vice-president.

GROUP B        Participants in this group are responsible for assisting in
               developing and implementing long-range plans for the Company.
               They will usually be responsible for a specific business function
               and have Directors and/or Managers in their reporting structure.
               Common titles in this group will be Vice-President.

GROUP C        Participants in this group are responsible for the implementation
               of both short- and long range plans as well as overseeing the
               day-to-day operations for the Company in a specific business
               region (Division). Common titles in this group will be Division
               Vice-President.

GROUP D        Participants in this group are responsible for intermediate (3 to
               5 year) business goals. They will usually be responsible for
               multiple disciplines within a business function and will usually
               have Managers and/or professionals in their reporting structure.
               Common titles in this group will be Directors.

GROUP E        Participants in this group are responsible for short to
               intermediate range (1 to 3 years) business goals. They will
               usually be responsible for one or a few disciplines within a
               business function and may have administrative staff, supervisors,
               and/or professionals in their reporting structure. Common titles
               in this group will be Managers.

GROUP F        Participants in this group are responsible for intermediate to
               short-term (daily to 3 months to 1 year) business goals. They
               will usually be responsible for one discipline or sub-discipline
               within a business function. This responsibility may be defined
               through the supervision of at least 3 subordinate (exempt or
               nonexempt) employees, and individual contributor manager who
               supervise less than 3 employees. Common titles in this group will
               be Supervisor and Manger.

Version 2.0                       Page 6 of 6                    January 1, 2003

<PAGE>

The groups are assigned incentive factors for which they have responsibility,
control, or influence. Factor weights will be assigned to the incentive factors
for the groups. The total factor weight allocated to each should equal 100
percent. Factor weights are allocated only to the incentive factors that have
been assigned to the groups and not all factors may have weights.

         2.3      INCENTIVE FACTORS

Incentive factors are elements through which the organization achieves strategic
goals and will be used by the Plan to measure the success of Participants to
help the Company reach its goals. The Committee has selected several incentive
factors for measurement in the Plan. These factors are as follows:

     -   Company performance (as measured by EBITDA)

     -   Individual performance evaluation and objectives.

Senior management, department management, and eligible Participants will
establish goals for each of these incentive factors.

                  2.3.1    COMPANY PERFORMANCE (AS MEASURED BY EBITDA)

Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) is a
measure of financial performance that is used to measure the Company's
performance. At the beginning of each year, EBITDA goals will be set. At the end
of the year, actual EBITDA achievement will be compared to the EBITDA goal and
the percentage of achievement will be determined. The Executive Management team
reserves the right to consider extraordinary expenses and revenues into
consideration for End of Year Award.

                  2.3.1.1  EBITDA EVALUATION SCORE TABLE

The score table defines the achievement level expected by the Company. The
incentive level represents the percent of the incentive that the Participant
will receive depending on the level of EBITDA attained by the Company. Higher
levels of achievement will yield higher incentive levels and consequently
increase incentive award.

                  TABLE 2.3.1.1.1 EBITDA EVALUATION SCORE TABLE

<TABLE>
<CAPTION>
 LEVEL OF EBITDA
   ACHIEVEMENT                          INCENTIVE LEVEL
-----------------                      -----------------
<S>                                    <C>
     >103.00%                               150.00%
101.00% - 102.99%                      125.00% - 149.00%
100.00% - 100.99%                      100.00% - 124.00%
 99.00% - 99.99%                        80.00% - 99.00%
 98.00% - 98.99%                        75.00% - 79.00%
 97.00% - 97.99%                        50.00% - 74.00%
     <97.00%                                 0.00%
</TABLE>

                  2.3.1.2  EBITDA END OF AWARD YEAR

At the end of the Award Year, senior management will compare actual EBITDA
results with EBITDA goals and determine incentive level based on attainment. The
Company reserves the

Version 2.0                       Page 7 of 7                    January 1, 2003

<PAGE>

right to adjust the incentive level, either increasing or decreasing, based on
unusual or extenuating circumstances.

                  2.3.2    INDIVIDUAL PERFORMANCE EVALUATION AND OBJECTIVES

Participants, who will be assessed using the performance evaluation incentive
factor, will be evaluated using the performance evaluation that is approved by
management. The performance evaluation will be conducted according to the
guidelines in the performance evaluation process.

As a component of the performance evaluation, participants will be assigned
individual performance objectives at the beginning of the evaluation cycle.
Managers will be responsible for creating performance objectives.

Managers will ensure each objective is described in enough detail so the
Participant can understand clearly what is to be accomplished. Managers will
assign at least four (4) objectives to a Participant. Objectives should be
substantial and challenging in nature.

     -   The manager will specify the "deliverables" that will be obtained by
         the Participant at the completion of the task. Deliverables may be
         reports, prototypes, certifications, etc.

     -   Each objective is allocated a weight. The weight determines the
         relative importance of the task in relation to the other tasks assigned
         for the same period. The total weight assigned to all the objectives
         must equal 100 percent.

          TABLE 2.3.2.1.1 INDIVIDUAL PARTICIPANT PERFORMANCE OBJECTIVES

<TABLE>
<S>                <C>               <C>                      <C>
Name               Jane Doe          Employee Number          10101
Department         Operations        Job Title                Manager
Manager            John Doe
</TABLE>

<TABLE>
<CAPTION>
            OBJECTIVE                                  MEASUREMENT OF ACHIEVEMENT                     WEIGHTING
---------------------------------------------------------------------------------------------------------------
<S>                                     <C>                                                           <C>
Establish a departmental policy and     Published and distributed policy and practice manual by
practices manual.                       July 1.                                                         40.00%
-------------------------------------------------------------------------------------------------------------
Establish departmental callback         Documented callback procedures, training of all
procedures.                             department members, and reduction by 20% in the number
                                        of complaints for failure to call back by April 1.              20.00%
-------------------------------------------------------------------------------------------------------------
Recommended new customer tracking       Documented recommendation must include samples and
software.                               description of software evaluated                               40.00%
-------------------------------------------------------------------------------------------------------------
Totals                                                                                                 100.00%
-------------------------------------------------------------------------------------------------------------
</TABLE>

                   2.3.2.2 PERFORMANCE EVALUATION SCORE TABLE

The score table defines the achievement level that can be attained by the
Participant. The incentive level represents the percent of the incentive that
the Participant will receive depending

Version 2.0                       Page 8 of 8                    January 1, 2003

<PAGE>

on their achievement level. Higher levels of achievement will yield higher
incentive levels and consequently increase incentive award.

               TABLE 2.3.2.2.1 PERFORMANCE EVALUATION SCORE TABLE

<TABLE>
<CAPTION>
       ACHIEVEMENT LEVEL                       INCENTIVE LEVEL
-------------------------------                ---------------
<S>                                            <C>
Exceptional                                        200.00%
Exceeds Expectations                               150.00%
Fully Satisfactory (3.55- 2.90)                    100.00%
Fully Satisfactory (2.89- 2.76)                     50.00%
Needs Improvement                                    0.00%
Unsatisfactory                                       0.00%
</TABLE>

                  2.3.3    END OF THE AWARD YEAR

During the annual performance evaluation, managers will meet with the
Participant to review performance and accomplishment of objectives. The
performance evaluation rating will be used to measure the achievement level for
this incentive factor.

         2.4      ASSIGNING INCENTIVE FACTORS TO GROUPS

Incentive factors are assigned to the groups that have responsibility, control,
and influence over them. Plan participants should constantly review these
factors and their goals, monitoring their progress and adjusting their priority
to meet their goals. Incentive factor goals serve as constant reminders as to
which areas Participants should focus their efforts.

               TABLE 2.3.2.2.1 PERFORMANCE EVALUATION SCORE TABLE

<TABLE>
<CAPTION>
               INCENTIVE FACTORS                                            PARTICIPANT GROUPS
-----------------------------------------------       -------------------------------------------------------------
                                                      A           B           C           D           E           F
                                                      -------------------------------------------------------------
<S>                                                   <C>         <C>         <C>         <C>         <C>         <C>
Individual Performance Evaluation and Objectives      X           X           X           X           X           X
Company Performance (as measured by EBITDA)           X           X           X           X           X           X
</TABLE>

         2.5      ALLOCATING INCENTIVE FACTORS AND WEIGHTS TO GROUPS

The incentive factors assigned to each participant group were examined carefully
to determine which factors should be allocated to the group level. Participant
groups were allocated the incentive factors they have the most control over.
These will be the focal point of the groups' efforts.

Next, a weight is distributed among the factors assigned to each group based on
the importance each factor plays in relation to reaching the set goals. The
factor weight is the percentage of the factor allocated to a specific group. The
total factor weight for each group should equal 100 percent.

Version 2.0                       Page 9 of 9                    January 1, 2003

<PAGE>

        TABLE 2.5.1.1.1 INCENTIVE FACTORS ALLOCATED TO PARTICIPANT GROUPS

<TABLE>
<CAPTION>
                 INCENTIVE FACTORS                                           PARTICIPANT GROUPS
------------------------------------------------    ----------------------------------------------------------------------
                                                      A              B             C          D          E           F
                                                    ----------------------------------------------------------------------
<S>                                                 <C>           <C>           <C>        <C>         <C>        <C>
Individual Performance Evaluation and Objectives     30.00%        30.00%        30.00%     30.00%      40.00%     40.00%
Company Performance (as measured by EBITDA)          70.00%        70.00%        70.00%     70.00%      60.00%     60.00%
                                                    ------        ------        ------     ------      ------     ------
Total                                               100.00%       100.00%       100.00%    100.00%     100.00%    100.00%
                                                    ======        ======        ======     ======      ======     ======
</TABLE>

         2.6      INCENTIVE POTENTIAL

Incentive potential is defined as the percentage of the annual salary designated
to each participant group. This equals to the annual salary multiplied by the
assigned percentage. The assigned percentage increases with the responsibility
level of the group.

        TABLE 2.6.1.1.1 INCENTIVE PERCENTAGE POTENTIAL ASSIGNED TO GROUPS

<TABLE>
<CAPTION>
PARTICIPANT GROUP                               PERCENTAGE
<S>                                             <C>
       A                                          50.00%
       B                                          40.00%
       C                                          30.00%
       D                                          25.00%
       E                                          15.00%
       F                                          10.00%
</TABLE>

Information for individual plan Participants is confidential and will be
disclosed to each plan Participant in a private manner. Group directors and
managers will only have access to the incentive compensation source data
pertaining to their department or work group.

         2.7      AWARD CALCULATION METHOD

All award calculations will be performed by the Human Resources Department based
on EBITDA results as communicated by the Committee and Performance Evaluation
Ratings as communicated by department management. The formulas for calculations
are outlined in this section.

                  2.7.1    THE PERFORMANCE POTENTIAL FACTOR (PPF)

The Participant's performance in each incentive factor allocated is measured in
or according to the Plan guidelines. A score is assigned for each factor based
on the actual results achieved for that Award Year. The Participant's score in
each factor category is multiplied by the factor weight allocated to it and
divided by 100. Adding all factor category scores times their weights yields the
Performance Potential Factor (PPF).

The Performance Potential Factor is a cumulative index that represents the
overall Participant performance in achieving the assigned goals. The Performance
Potential Index reflects how well Participants have achieved their goals in
their respective incentive factors

Version 2.0                      Page 10 of 10                   January 1, 2003

<PAGE>

The performance index is derived using the following formula:

           PPF      =          S1* x F1**      +     S2* x F2**
                               ----------            ----------
                                   100                  100
           (Performance
           Potential
           Factor)

                  2.7.2    INCENTIVE POTENTIAL FACTOR (IPF)

Each Participant in the Plan is designated an Incentive Potential Factor. The
value of this factor is determined by a percentage of the Participant's annual
income as defined in section 2.6.

        IPF       =          Annual Salary    X    Incentive Potential Factor(v)

(Incentive Potential Percentage)

                  2.7.3    THE FINAL INCENTIVE AWARD (FIA)

The Final Incentive Award is calculated as follows:

<TABLE>
<S>                              <C>                                       <C>
         FIA              =                  PPF                    X                 IPF
(Final Incentive Award           (Performance Potential Factor)            (Incentive Potential Factor)
</TABLE>

The Final Incentive Award will be adjusted by any mid-year payments.

The Company reserves the right to make adjustments to incentive awards paid.

---------------------

* S1, S2, S3, S4 are the Participant's score for each incentive factor as
defined in the Plan.

** F1, F1, F3, F4 are the weights allocated to each incentive factor. These
allocations are designated in Table 2.5.1.1.1 and the sum is 100.00%.

(v) Incentive Potential Percentage is defined in Table 2.6.1.1.1

Version 2.0                      Page 11 of 11                   January 1, 2003

<PAGE>

                        2004 INCENTIVE COMPENSATION PLAN

                                 MID-YEAR AWARD

PURPOSE

The purpose of the Semi-Annual Award is to recognize the contributions of
eligible Participants and provide financial A wards for these contributions. The
payment of a Semi-Annual Award is at the discretion of the Committee and is not
guaranteed.

ADMINISTRATION

The determination to pay the Semi-Annual Award will be made by the Incentive
Compensation Administration Committee. The determination will be based upon the
Company meeting or exceeding financial objectives and the outlook for the
remaining half of the year.

ELIGIBLE PARTICIPANT

To be eligible for the Semi-Annual Award, Participants must have been eligible
to participate in the Plan on or before January 31 of the Award Year.

PAYMENT OF AWARD

The Semi-Annual Award shall be earned as of the payment date. Payment will be
made in the form of cash between July 1 and September 1. Participants must be
full-time employees on the Company's payroll at the time the Award is paid to
receive payment. All Awards are subject to Committee and Investor Approval.

AMENDMENT OR TERMINATION

The Committee may at any time, terminate, modify, or amend the Semi-Annual
Award.

OTHER CONDITIONS

Other conditions apply as defined in the Incentive Compensation Plan.

SEMI-ANNUAL AWARD CALCULATION

The Committee determines the Semi-Annual Award calculation and the Committee may
change the calculation at anytime.

If the Company is achieving its Company Performance Target (as measured by
EBITDA) on July 1 of the Award Year, and the financial outlook for the remaining
Award year is positive, eligible Participants would receive 100.00% of 50.00% of
the Company Performance Target. The Committee may choose to pay partial Awards
using the level of EBITDA Achievement as defined in the Incentive Compensation
Plan.

<PAGE>

No more than 100.00% of 50.00% of the Company Performance Target will be
awarded. This will equate to 35% of the annual Award for Directors and Above and
30% of the annual Award for all others. End of the Year Awards will be adjusted
by any Semi-Annual Award.

<PAGE>

                    2004 INCENTIVE COMPENSATION PARTICIPANTS

<TABLE>
<CAPTION>
                                                                                INCENTIVE     INCENTIVE
 LAST NAME       FIRST NAME                JOB TITLE                 SALARY     TARGET %       TARGET $
------------    -----------    ---------------------------------   ---------    ---------     ----------
<S>             <C>            <C>                                 <C>          <C>           <C>
Alexander       Kathleen       Director - Data Support Svcs        $ 101,764      25.00%      $   25,441
Allen           Jerry          SVP - Revenues & Billing            $ 196,648      50.00%      $   98,324
Allison         Kenneth        Manager - Engin & Constr (Fld)      $  88,160      15.00%      $   13,224
Ammons          Danny          VP - Division                       $  96,408      30.00%      $   28,922
Ayres           Cynthia        Director - Legal & Sr Attorney      $  88,230      25.00%      $   22,057
Bacher          Brian          Supervisor - Quality Assurance      $  54,000      10.00%      $    5,400
Ballew          Vance          Manager - IS                        $  80,000      15.00%      $   12,000
Bechtel         David          Manager - Area                      $  62,232      15.00%      $    9,335
Bek             Michael        Manager - MarCom                    $  70,259      15.00%      $   10,539
Bell            Alton          Supervisor - Engineering            $  56,599      10.00%      $    5,660
Bellando        William        VP - Engineering & Data Networks    $ 111,919      40.00%      $   44,768
Berry           Mikel          Supervisor - Area                   $  51,069      10.00%      $    5,107
Beurer          Sharon         Director - End User Billing         $  90,131      25.00%      $   22,533
Beurer          Leonard        VP - Industry Relations             $ 125,400      40.00%      $   50,160
Blekher         Roman          Manager - IS Projects               $  80,000      15.00%      $   12,000
Boklund         Laura          PLM - Long Distance                 $  62,851      15.00%      $    9,428
Borrego         Gail           Supervisor - Call Center (CS)       $  42,764      10.00%      $    4,276
Bourgeois       Christina      Manager - HR (Division)             $  46,207      10.00%      $    4,621
Brady           Delton         VP - Division                       $ 135,960      30.00%      $   40,788
Brennan         Terrence       Supervisor - OSP Constr Cordin      $  58,841      10.00%      $    5,884
Brister         Timothy        Manager - Legal Services            $  37,600      10.00%      $    3,760
Britton         Brenda         Manager - Customer Service          $  66,145      15.00%      $    9,922
Brown Jr        Rickey         Supervisor - ISP Constr Cordin      $  55,511      10.00%      $    5,551
Bruce           Eddie          Supervisor - Engineering            $  71,050      10.00%      $    7,105
Brunson         Danny          Manager - Telephone Services        $  88,185      15.00%      $   13,228
Bryson          Ed             VP - Division                       $ 135,000      30.00%      $   40,500
Burdick         Tisha          Manager - Financial Systems(IS)     $  81,354      15.00%      $   12,203
Burnett         Julie          VP - Marketing                      $ 166,155      40.00%      $   66,462
Callan          Connie         Manager - Income & Franchise        $  75,000      10.00%      $    7,500
Camacho         Jose           VP - Texas                          $ 152,000      40.00%      $   60,800
Castro          Jimmy          Manager - Area                      $  64,127      15.00%      $    9,619
Chelette        Kevin          Manager - Applications Eng          $  89,161      15.00%      $   13,374
Clift           Suz-Anne       Supervisor - Call Center (CS)       $  43,004      10.00%      $    4,300
Colley          Alan           Manager - Telephone Svc Suppr       $  78,117      15.00%      $   11,718
Corella         Marie          Supervisor - Call Center (CS)       $  38,506      10.00%      $    3,851
Cruz            Cynthia        VP - Corporate Communications       $ 161,500      40.00%      $   64,600
Culp            Laura          Manager - Financial Reporting       $  67,810      15.00%      $   10,171
Daniel          David          Director - Labor Relations          $  99,400      25.00%      $   24,850
Danner          Lee            Supervisor - Call Center (CS)       $  38,506      10.00%      $    3,851
Davis           Michael        VP - CIO                            $ 140,000      40.00%      $   56,000
Dober           Donald         Manager - Cash                      $  77,535      15.00%      $   11,630
Dumas           Randal         Controller                          $ 140,000      40.00%      $   56,000
Dnnlap          Stephanie      Director - Accounting               $  90,000      25.00%      $   22,500
Dykes           Sylvia         Director - Human Resources          $  70,000      25.00%      $   17,500
Easley          Penny          Supervisor - Call Center (CS)       $  39,494      10.00%      $    3,949
Eldridge        Tammanicia     Manager - Carrier Operations        $  72,693      15.00%      $   10,904
Epp             John           Supervisor - Engineering            $  56,599      10.00%      $    5,660
Ermis           Kevin          Manager - Network & Switching       $  78,373      15.00%      $   11,756
Estill          Mike           Manager - Area                      $  66,495      15.00%      $    9,974
Faulkner        Melissa        Manager - Wholesale Services        $  73,960      15.00%      $   11,094
Flores          Richard        Manager - Methods &Procedures       $  55,070      15.00%      $    8,261
Foster          John           Manager - System Support            $  89,781      15.00%      $   13,467
Fowler          Timmy          Manager - Area                      $  65,000      15.00%      $    9,750
Fowler          George         Sr Director - Network Support       $ 135,188      25.00%      $   33,797
</TABLE>

    VALOR Confidential                 02/11/2004                     Page 1

<PAGE>

                    2004 INCENTIVE COMPENSATION PARTICIPANTS

<TABLE>
<CAPTION>
                                                                                INCENTIVE     INCENTIVE
 LAST NAME       FIRST NAME                JOB TITLE                 SALARY     TARGET %       TARGET $
------------    -----------    ---------------------------------   ---------    ---------     ----------
<S>             <C>            <C>                                 <C>          <C>           <C>
Fuentes         Chris          Director - Operations Support       $  84,631      25.00%      $   21,158
Fulford         Loyd           Supervisor - Engineering            $  57,647      10.00%      $    5,765
Garcia          Bill           Director - Regltry & C Counsel      $ 129,162      25.00%      $   32,290
Garcia          Nickie         Manager - Fed/State Reg Affair      $  51,604      10.00%      $    5,160
Garner Jr       Gerald         Supervisor - Call Center (CS)       $  39,988      10.00%      $    3,999
Garza           Jimmy          Supervisor - ISP Constr Cordin      $  57,123      10.00%      $    5,712
Gaff            Cynthia        Supervisor - Call Center (CS)       $  38,500      10.00%      $    3,850
Graham          Lonnie         Supervisor - OSP Constr Cordin      $  57,123      10.00%      $    5,712
Gray            Robert         VP - Oklahoma                       $ 113,000      40.00%      $   45,200
Greer           Clifford       Manager - Area                      $  62,664      15.00%      $    9,400
Greer           Jerry          Manager - Network Services          $  60,000      15.00%      $    9,000
Guzman          Ervin          Manager - Call Center (CS)          $  65,993      15.00%      $    9,899
Haddick         Carl           Manager - Technical Support         $  70,000      15.00%      $   10,500
Haggerty        Byron          Manager - Accounting                $  78,098      15.00%      $   11,715
Hall            Curtis         Manager - Engin & Constr (Fld)      $  75,525      15.00%      $   11,329
Hanners         John           Manager - Network Services          $  58,365      15.00%      $    8,755
Hardiman        Diana          Supervisor - Call Center (CS)       $  38,506      10.00%      $    3,851
Harris          Patricia       Manager - Call Center Ops           $  46,000      15.00%      $    6,900
Harvey          Robert         Manager - Data Sales                $  94,050      15.00%      $   14,108
Haws            Milton         Director - Revenue Assurance        $ 105,000      25.00%      $   26,250
Hay             Phillip        Manager - HR (Division)             $  62,873      10.00%      $    6,287
Henderson       William        Supervisor - Osp Eng & Constr       $  57,748      10.00%      $    5,775
Hernandez       Hector         Supervisor - Strategic Plannin      $  89,250      10.00%      $    8,925
Herod           Sheldon        Manager - Business Planning         $  56,350      10.00%      $    5,635
Higgins         William        Manager - NCC                       $  77,432      15.00%      $   11,615
Hitchens        Donna          PLM - CPE                           $  89,804      15.00%      $   13,471
Housand         Sonja          Manager - Call Center (CS)          $  70,741      15.00%      $   10,612
Hubbart         Michael        Manager - Area                      $  55,000      15.00%      $    8,250
James           Lydia          Supervisor - Call Center (CS)       $  39,988      10.00%      $    3,999
Johnson, Jr.    Charles        Manager - Area                      $  50,000      15.00%      $    7,500
Jones           Janet          Supervisor - Call Center Ops        $  42,642      10.00%      $    4,264
Kasdorf         William        SVP - ales and Marketing            $ 258,750      50.00%      $  129,375
Kroll           Beverly        Supervisor - Call Center (CS)       $  39,494      10.00%      $    3,949
Kunz            Charles        Director - Telephone Operation      $  94,000      20.00%      $   18,800
Kwait           Marshall       Manager - Sales Initiative          $  82,000      10.00%      $    8,200
Lawrence        Melissa        Supervisor - Call Center (CS)       $  38,506      10.00%      $    3,851
Le Coney        Alan           Manager - Area                      $  61,364      15.00%      $    9,205
Locke           Robert         Supervisor - CO Engineering         $  80,238      10.00%      $    8,024
Longbrake       Terry          Supervisor - Engineering            $  60,139      10.00%      $    6,014
Longoria        Joel           Manager - Area                      $  51,626      15.00%      $    7,744
Lopez           Roman          Supervisor - Call Center (CS)       $  39,494      10.00%      $    3,949
Lowery          Bill           Manager - Area                      $  83,600      15.00%      $   12,540
Marchesani      Gregory        Manager - Network Services          $  66,740      15.00%      $   10,011
Marquez         Maria          Supervisor - Billing                $  54,765      10.00%      $    5,476
Marquez         Diana          Supervisor - Purchasing             $  53,830      10.00%      $    5,383
Martinez Jr     Gilbert        Manager - Area                      $  69,636      15.00%      $   10,445
Mauldin         James          Supervisor - Cash                   $  62,124      10.00%      $    6,212
May             Michael        Manager - Telephone Services        $  62,291      15.00%      $    9,344
Mcdonald        Shryl          Manager - Call Center Ops           $  61,084      15.00%      $    9,163
Mcdonald        Christina      Supervisor - Call Center (CS)       $  43,500      10.00%      $    4,350
Mcdowell        Alvin          Manager - Engin & Constr (Fld)      $  64,897      15.00%      $    9,735
Mcgivney        David          Director - Tax                      $ 120,000      25.00%      $   30,000
Mckay           Jd             Supervisor - ISP Constr Cordin      $  52,025      10.00%      $    5,202
Mckinney        Marjorie       Supervisor - Call Center (CS)       $  42,136      10.00%      $    4,214
</TABLE>

    VALOR Confidential                 02/11/2004                     Page 2

<PAGE>

                    2004 INCENTIVE COMPENSATION PARTICIPANTS

<TABLE>
<CAPTION>
                                                                                INCENTIVE     INCENTIVE
 LAST NAME       FIRST NAME                JOB TITLE                 SALARY     TARGET %       TARGET $
------------    -----------    ---------------------------------   ---------    ---------     ----------
<S>             <C>            <C>                                 <C>          <C>           <C>
Mcminn          Erika          Manager - Communications            $  49,619      10.00%      $    4,962
Miller          Edward         Supervisor - Engineering            $  60,876      10.00%      $    6,088
Mispagel        Scott          Manager - Data Planning             $  75,448      15.00%      $   11,317
Monrial         Nancy          Supervisor - Billing                $  45,452      10.00%      $    4,545
Moore           Diane          Supervisor - Call Center Ops        $  43,498      10.00%      $    4,350
Morris          Aaron          Manager - Area                      $  59,487      15.00%      $    8,923
Morris          Milton         Supervisor - OSP Constr Cordin      $  54,729      10.00%      $    5,473
Moses           Robin          Manager - Payroll                   $  69,768      15.00%      $   10,465
Moyers          William        Manager - Area                      $  55,973      15.00%      $    8,396
Muldrew         Aundrae        Supervisor - Call Center (CS)       $  43,498      10.00%      $    4,350
Muro Jr         Ben            VP - Human Resources                $ 217,550      40.00%      $   87,020
Nash            Cindy          SVP - Information Tech & CIO        $ 150,000      50.00%      $   75,000
Neal            Charles        Manager - Logistics                 $  56,862      15.00%      $    8,529
Neal            Sandra         Supervisor - Call Center Ops        $  41,215      10.00%      $    4,121
Nunes           Carl           PLM - Network Services              $  84,188      15.00%      $   12,628
O'Corr          Charles        Manager - NCC                       $  79,278      15.00%      $   11,892
Ojile Jr        William        SVP - General Counsel               $ 250,000      50.00%      $  125,000
Packheiser      Cecelia        Manager - Credit                    $  61,490      15.00%      $    9,223
Parker          Terry          Supervisor - Rates and Tariffs      $  64,132      10.00%      $    6,413
Parks           Robert         Manager - Area                      $  65,002      15.00%      $    9,750
Parsons         Danny          Director - Administrative Svcs      $  81,510      25.00%      $   20,378
Payne           Chris          Manager - Corp Communications       $  70,000      15.00%      $   10,500
Perkins         Don            Director - New Ventures             $ 125,400      25.00%      $   31,350
Petersen        Lynne          VP - Sales                          $ 158,445      40.00%      $   63,378
Pettit          Steven         Manager - New Product Development   $ 102,743      15.00%      $   15,411
Phillips        Elmer          Manager - Area                      $  69,471      15.00%      $   10,421
Place           Lois           Director - Call Center              $  74,000      25.00%      $   18,500
Primato         Lara           Supervisor - CLEC Support Svcs      $  44,449      10.00%      $    4,445
Quimby          Amy            Manager - HR (Division)             $  45,710      10.00%      $    4,571
Raney           Wendy          Director - Purchasing               $  79,170      25.00%      $   19,793
Raney           William        SVP - Operations & Engineering      $ 257,000      50.00%      $  128,500
Rasher          Peter          Supervisor - ISP Constr Cordin      $  54,950      10.00%      $    5,495
Rayburn         Martin         Supervisor - Call Center Ops        $  39,494      10.00%      $    3,949
Rice            Robert         Director - Regltry & C Counsel      $ 100,900      25.00%      $   25,225
Rivera          Antonia        Manager - Call Center (CS)          $  70,000      15.00%      $   10,500
Robertson       Paula          Supervisor - Sale/Use/Prop Tax      $  66,899      10.00%      $    6,690
Robino          Paul           Manager - Telephone Services        $  65,000      15.00%      $    9,750
Romine          Kerry          Manager - Area                      $  53,897      15.00%      $    8,085
Root            Kathy          Manager - Billing/Tables            $  70,859      15.00%      $   10,629
Ross            Glenn          Director - Financial Reporting      $  91,000      25.00%      $   22,750
Ross            Sharla         Supervisor - Call Center (CS)       $  38,506      10.00%      $    3,851
Roy             John           Manager - Engin & Constr (Fld)      $  85,419      15.00%      $   12,813
Russell         Jeff           Manager - Area                      $  65,007      15.00%      $    9,751
Sanders         R.             Supervisor - Call Center Ops        $  53,169      10.00%      $    5,317
Santillan       Holly          Supervisor - Call Center (CS)       $  38,506      10.00%      $    3,851
Schmidt         Nicholas       Director - Wholesale Support        $  87,500      25.00%      $   21,875
Seefloth        Charles        VP - Network Policy                 $ 145,000      40.00%      $   58,000
Skelton         Brian          Manager - Business Planning         $  77,569      10.00%      $    7,757
Smith           Richard        Director - Field Ops Support        $ 101,764      25.00%      $   25,441
Smith           Kevin          Director - IT Applications          $  90,000      25.00%      $   22,500
Smith           Kevin          Manager - Area                      $  59,514      15.00%      $    8,927
Smith           Lisa           Supervisor - CABS                   $  46,255      10.00%      $    4,626
Sobotka         Regenia        Supervisor - Accounts Payable       $  51,600      10.00%      $    5,160
South           Leslie         Manager - Data Center Ops           $  80,000      15.00%      $   12,000
</TABLE>

    VALOR Confidential                 02/11/2004                     Page 3

<PAGE>

                    2004 INCENTIVE COMPENSATION PARTICIPANTS

<TABLE>
<CAPTION>
                                                                                INCENTIVE     INCENTIVE
 LAST NAME       FIRST NAME                JOB TITLE                 SALARY     TARGET %       TARGET $
------------    -----------    ---------------------------------   ---------    ---------     ----------
<S>             <C>            <C>                                 <C>          <C>           <C>
Stacy           William        Director - Marketing                $  78,284      20.00%      $   15,657
Stenger         Connie         Manager - Billing/Tables            $  77,539      15.00%      $   11,631
Stockton        Thomas         Supervisor - Engineering            $  57,647      10.00%      $    5,765
stout           Tracy          Supervisor - Call Center Ops        $  40,919      10.00%      $    4,092
Stublefield     Lisa           Manager - Regulatory Reporting      $  92,378      15.00%      $   13,857
Summers         0.             Manager - Telephone Services        $  65,000      15.00%      $    9,750
Sutton          Kerry          Manager - Roaming                   $  42,864      15.00%      $    6,430
Swinney         Clifford       Manager - Support Svc (Div)         $  56,678      10.00%      $    5,668
Taylor          Delmer         Manager - Traffic Engineering       $  94,154      15.00%      $   14,123
Terreri         Keith          VP - Business Development           $ 148,262      40.00%      $   59,305
Trujillo        Carlos         Supervisor - OSP Constr Cordin      $  55,000      10.00%      $    5,500
Ulm             Rhonda         Director - Human Resources          $  70,000      25.00%      $   17,500
Upton           Kimberly       Supervisor - Billing                $  60,000      10.00%      $    6,000
Urueta          Martha         Supervisor - Access Design          $  69,307      10.00%      $    6,931
Valdez          Chris          VP - Division                       $  90,000      30.00%      $   27,000
Van De Kop      Andrew         VP - Customer Service               $ 137,122      40.00%      $   54,849
Varner          ROY            Supervisor - Engineering            $  60,000      10.00%      $    6,000
Vess            William        Sr Director - Network Planning      $ 109,912      25.00%      $   27,478
Vidakovic       Robert         Manager - Access Billing            $  75,722      15.00%      $   11,358
Wakefield       James          Manager - Network Services          $  67,000      15.00%      $   10,050
Walker          Valencia       Supervisor - Call Center Ops        $  44,015      10.00%      $    4,402
Wallach         Christopher    PLM - Data & BroadBand              $  90,979      15.00%      $   13,647
Walters         Larry          Manager - Operations Support        $  84,527      15.00%      $   12,679
Walton          Cathy          Supervisor - Call Center (CS)       $  40,000      10.00%      $    4,000
Warren          Ricky          Manager - Cash/MPS                  $  85,490      15.00%      $   12,823
Warren          Tia            Supervisor - Call Center (CS)       $  43,498      10.00%      $    4,350
Watson          Larry          Manager - Area                      $  54,000      15.00%      $    8,100
White           Patricia       Director - Carrier Operations       $ 116,309      25.00%      $   29,077
Williams        Shelia         Supervisor - ICSC                   $  59,902      10.00%      $    5,990
Winn            Jay            Director - Product Line Mgmt        $ 115,000      25.00%      $   28,750
Yancey          Donnie         Supervisor - Engineering            $  55,891      10.00%      $    5,589
</TABLE>

Data is current as of February 11, 2004

    VALOR Confidential                 02/11/2004                     Page 4

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