Document:

Exhibit 10.1
   
 

 

 

AMENDED AND RESTATED CREDIT AGREEMENT

by and among

COMFORT SYSTEMS USA, INC.,

as Borrower

and

WACHOVIA BANK, N.A.,

as Lead Arranger and Administrative Agent

BANK OF TEXAS, N.A.,

as Co-Agent

CAPITAL ONE, N.A.,

as Co-Agent

and

CERTAIN FINANCIAL INSTITUTIONS

as Lenders

 

$100,000,000

February 20, 2007

 

   
 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE I DEFINITIONS AND REFERENCES

  	
   

  	
  1

  
	
  Section 1.1

  	
   

  	
  Defined Terms

  	
   

  	
  1

  
	
  Section 1.2

  	
   

  	
  Exhibits and Schedules; Additional Definitions

  	
   

  	
  17

  
	
  Section 1.3

  	
   

  	
  Amendment of Defined Instruments

  	
   

  	
  17

  
	
  Section 1.4

  	
   

  	
  References and Titles

  	
   

  	
  18

  
	
  Section 1.5

  	
   

  	
  Calculations and Determinations

  	
   

  	
  18

  
	
  Section 1.6

  	
   

  	
  Joint Preparation; Construction of Indemnities and
  Releases

  	
   

  	
  18

  
	
   

  	
   

  	
   

  
	
  ARTICLE II THE LOANS AND LETTERS OF CREDIT

  	
   

  	
  19

  
	
  Section 2.1

  	
   

  	
  Commitments to Lend; Notes

  	
   

  	
  19

  
	
  Section 2.2

  	
   

  	
  Requests for Revolving Loans

  	
   

  	
  19

  
	
  Section 2.3

  	
   

  	
  Continuations and Conversions of Existing Loans

  	
   

  	
  20

  
	
  Section 2.4

  	
   

  	
  Use of Proceeds

  	
   

  	
  21

  
	
  Section 2.5

  	
   

  	
  Interest Rates and Fees; Payment Dates

  	
   

  	
  21

  
	
  Section 2.6

  	
   

  	
  Optional Prepayments and Voluntary Reduction of
  Commitment.

  	
   

  	
  22

  
	
  Section 2.7

  	
   

  	
  Mandatory Prepayments

  	
   

  	
  23

  
	
  Section 2.8

  	
   

  	
  Intentionally Left Blank

  	
   

  	
  23

  
	
  Section 2.9

  	
   

  	
  Letters of Credit

  	
   

  	
  23

  
	
  Section 2.10

  	
   

  	
  Requesting Letters of Credit

  	
   

  	
  23

  
	
  Section 2.11

  	
   

  	
  Reimbursement and Participations

  	
   

  	
  24

  
	
  Section 2.12

  	
   

  	
  Letter of Credit Fees

  	
   

  	
  25

  
	
  Section 2.13

  	
   

  	
  No Duty to Inquire

  	
   

  	
  26

  
	
  Section 2.14

  	
   

  	
  LC Collateral

  	
   

  	
  26

  
	
  Section 2.15

  	
   

  	
  Existing Letters of Credit

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE III PAYMENTS TO LENDERS

  	
   

  	
  29

  
	
  Section 3.1

  	
   

  	
  General Procedures

  	
   

  	
  29

  
	
  Section 3.2

  	
   

  	
  Capital Reimbursement

  	
   

  	
  29

  
	
  Section 3.3

  	
   

  	
  Increased Cost of Eurodollar Loans or Letters of
  Credit

  	
   

  	
  30

  
	
  Section 3.4

  	
   

  	
  Illegality

  	
   

  	
  31

  
	
  Section 3.5

  	
   

  	
  Funding Losses

  	
   

  	
  31

  
	
  Section 3.6

  	
   

  	
  Reimbursable Taxes

  	
   

  	
  32

  
	
  Section 3.7

  	
   

  	
  Alternative Rate of Interest

  	
   

  	
  33

  
	
  Section 3.8

  	
   

  	
  Change of Applicable Lending Office; Replacement of
  Lenders

  	
   

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV CONDITIONS PRECEDENT TO LENDING

  	
   

  	
  35

  
	
  Section 4.1

  	
   

  	
  Documents to be Delivered

  	
   

  	
  35

  
	
  Section 4.2

  	
   

  	
  Additional Conditions Precedent

  	
   

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE V REPRESENTATIONS AND WARRANTIES

  	
   

  	
  37

  
	
  Section 5.1

  	
   

  	
  No Default

  	
   

  	
  37

  
	
  Section 5.2

  	
   

  	
  Organization and Good Standing

  	
   

  	
  37

  

 

 i
 

 

	
  Section 5.3

  	
   

  	
  Authorization

  	
   

  	
  37

  
	
  Section 5.4

  	
   

  	
  No Conflicts or Consents

  	
   

  	
  37

  
	
  Section 5.5

  	
   

  	
  Enforceable Obligations

  	
   

  	
  38

  
	
  Section 5.6

  	
   

  	
  Initial Financial Statements

  	
   

  	
  38

  
	
  Section 5.7

  	
   

  	
  Other Obligations and Restrictions

  	
   

  	
  38

  
	
  Section 5.8

  	
   

  	
  Full Disclosure

  	
   

  	
  38

  
	
  Section 5.9

  	
   

  	
  Litigation

  	
   

  	
  38

  
	
  Section 5.10

  	
   

  	
  Labor Disputes and Acts of God

  	
   

  	
  39

  
	
  Section 5.11

  	
   

  	
  ERISA Plans and Liabilities

  	
   

  	
  39

  
	
  Section 5.12

  	
   

  	
  Environmental and Other Laws

  	
   

  	
  39

  
	
  Section 5.13

  	
   

  	
  Names and Places of Business

  	
   

  	
  40

  
	
  Section 5.14

  	
   

  	
  Subsidiaries

  	
   

  	
  40

  
	
  Section 5.15

  	
   

  	
  Government Regulation

  	
   

  	
  40

  
	
  Section 5.16

  	
   

  	
  Insider

  	
   

  	
  40

  
	
  Section 5.17

  	
   

  	
  Solvency

  	
   

  	
  40

  
	
  Section 5.18

  	
   

  	
  Tax Shelter Regulations

  	
   

  	
  41

  
	
  Section 5.19

  	
   

  	
  Title to Properties; Licenses

  	
   

  	
  41

  
	
  Section 5.20

  	
   

  	
  Regulation U

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI AFFIRMATIVE COVENANTS OF BORROWER.

  	
   

  	
  42

  
	
  Section 6.1

  	
   

  	
  Payment and Performance

  	
   

  	
  42

  
	
  Section 6.2

  	
   

  	
  Books, Financial Statements and Reports

  	
   

  	
  42

  
	
  Section 6.3

  	
   

  	
  Other Information and Inspections

  	
   

  	
  43

  
	
  Section 6.4

  	
   

  	
  Notice of Material Events and Change of Address

  	
   

  	
  43

  
	
  Section 6.5

  	
   

  	
  Maintenance of Properties

  	
   

  	
  44

  
	
  Section 6.6

  	
   

  	
  Maintenance of Existence and Qualifications

  	
   

  	
  44

  
	
  Section 6.7

  	
   

  	
  Payment of Taxes

  	
   

  	
  44

  
	
  Section 6.8

  	
   

  	
  Insurance.

  	
   

  	
  44

  
	
  Section 6.9

  	
   

  	
  Performance on Borrower’s Behalf

  	
   

  	
  45

  
	
  Section 6.10

  	
   

  	
  Interest

  	
   

  	
  45

  
	
  Section 6.11

  	
   

  	
  Compliance with Law

  	
   

  	
  46

  
	
  Section 6.12

  	
   

  	
  Environmental Matters; Environmental Reviews.

  	
   

  	
  46

  
	
  Section 6.13

  	
   

  	
  Intentionally Left Blank.

  	
   

  	
  46

  
	
  Section 6.14

  	
   

  	
  Bank Accounts; Offset

  	
   

  	
  46

  
	
  Section 6.15

  	
   

  	
  Guaranties of Borrower’s Subsidiaries

  	
   

  	
  47

  
	
  Section 6.16

  	
   

  	
  Agreement to Deliver Security Documents

  	
   

  	
  47

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII NEGATIVE COVENANTS OF BORROWER

  	
   

  	
  48

  
	
  Section 7.1

  	
   

  	
  Indebtedness

  	
   

  	
  48

  
	
  Section 7.2

  	
   

  	
  Limitation on Liens

  	
   

  	
  48

  
	
  Section 7.3

  	
   

  	
  Hedging Contracts

  	
   

  	
  48

  
	
  Section 7.4

  	
   

  	
  Limitation on Mergers, Issuances of Securities

  	
   

  	
  49

  
	
  Section 7.5

  	
   

  	
  Limitation on Sales of Property

  	
   

  	
  49

  
	
  Section 7.6

  	
   

  	
  Limitation on Distributions and Subordinated Debt

  	
   

  	
  49

  
	
  Section 7.7

  	
   

  	
  Limitation on Investments, Acquisitions, Capital Expenditures,
  and Lines of Business

  	
   

  	
  50

  
	
  Section 7.8

  	
   

  	
  Intentionally Omitted

  	
   

  	
  50

  

 

 ii
 

 

	
  Section 7.9

  	
   

  	
  Transactions with Affiliates

  	
   

  	
  50

  
	
  Section 7.10

  	
   

  	
  Prohibited Contracts

  	
   

  	
  50

  
	
  Section 7.11

  	
   

  	
  Financial Covenants

  	
   

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES

  	
   

  	
  52

  
	
  Section 8.1

  	
   

  	
  Events of Default

  	
   

  	
  52

  
	
  Section 8.2

  	
   

  	
  Remedies

  	
   

  	
  54

  
	
  Section 8.3

  	
   

  	
  Application of Proceeds after Acceleration

  	
   

  	
  54

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX AGENT

  	
   

  	
  56

  
	
  Section 9.1

  	
   

  	
  Appointment and Authority

  	
   

  	
  56

  
	
  Section 9.2

  	
   

  	
  Exculpation, Agent’s Reliance, Etc

  	
   

  	
  56

  
	
  Section 9.3

  	
   

  	
  Credit Decisions

  	
   

  	
  57

  
	
  Section 9.4

  	
   

  	
  Indemnification

  	
   

  	
  57

  
	
  Section 9.5

  	
   

  	
  Rights as Lender

  	
   

  	
  57

  
	
  Section 9.6

  	
   

  	
  Sharing of Set-Offs and Other Payments

  	
   

  	
  57

  
	
  Section 9.7

  	
   

  	
  Investments

  	
   

  	
  58

  
	
  Section 9.8

  	
   

  	
  Benefit of Article IX

  	
   

  	
  58

  
	
  Section 9.9

  	
   

  	
  Resignation

  	
   

  	
  58

  
	
  Section 9.10

  	
   

  	
  Notice of Default

  	
   

  	
  59

  
	
  Section 9.11

  	
   

  	
  Co-Agents

  	
   

  	
  59

  
	
   

  	
   

  	
   

  
	
  ARTICLE X MISCELLANEOUS

  	
   

  	
  60

  
	
  Section 10.1

  	
   

  	
  Waivers and Amendments; Acknowledgments.

  	
   

  	
  60

  
	
  Section 10.2

  	
   

  	
  Survival of Agreements; Cumulative Nature

  	
   

  	
  61

  
	
  Section 10.3

  	
   

  	
  Notices

  	
   

  	
  62

  
	
  Section 10.4

  	
   

  	
  Payment of Expenses; Indemnity.

  	
   

  	
  62

  
	
  Section 10.5

  	
   

  	
  Joint and Several Liability; Parties in Interest;
  Assignments

  	
   

  	
  64

  
	
  Section 10.6

  	
   

  	
  Confidentiality

  	
   

  	
  66

  
	
  Section 10.7

  	
   

  	
  Governing Law; Submission to Process

  	
   

  	
  66

  
	
  Section 10.8

  	
   

  	
  Limitation on Interest

  	
   

  	
  67

  
	
  Section 10.9

  	
   

  	
  Termination; Limited Survival

  	
   

  	
  68

  
	
  Section 10.10

  	
   

  	
  Severability

  	
   

  	
  68

  
	
  Section 10.11

  	
   

  	
  Counterparts; Fax

  	
   

  	
  68

  
	
  Section 10.12

  	
   

  	
  Intentionally Omitted

  	
   

  	
  68

  
	
  Section 10.13

  	
   

  	
  Waiver of Jury Trial, Punitive Damages, etc

  	
   

  	
  68

  
	
  Section 10.14

  	
   

  	
  Intentionally Left Blank

  	
   

  	
  69

  
	
  Section 10.15

  	
   

  	
  Renewal and Extension

  	
   

  	
  69

  

 

 iii
 

Schedules and
Exhibits:

	
  Pricing Schedule

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 2.1

  	
   

  	
  Revolving Note

  
	
  Exhibit 2.2(b)

  	
   

  	
  Borrowing Notice

  
	
  Exhibit 2.3(c)

  	
   

  	
  Continuation/Conversion Notice

  
	
  Exhibit 2.8

  	
   

  	
  Intentionally Left Blank

  
	
  Exhibit 2.10

  	
   

  	
  Letter of Credit Application and Agreement

  
	
  Exhibit 4.1(g)(i)

  	
   

  	
  Opinion of Bracewell & Giuliani LLP, Counsel for
  Restricted Persons

  
	
  Exhibit 4.1(g)(ii)

  	
   

  	
  Opinion of Trent McKenna, In-House Counsel for
  Restricted Persons

  
	
  Exhibit 6.2(b)

  	
   

  	
  Certificate Accompanying Financial Statements

  
	
  Exhibit 10.5

  	
   

  	
  Assignment and Acceptance Agreement

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Pricing Schedule

  
	
  Schedule 1.1(a)

  	
   

  	
  Existing Liens

  
	
  Schedule 1.1(b)

  	
   

  	
  Existing Letters of Credit

  
	
  Schedule 3.1

  	
   

  	
  Lenders Schedule

  
	
  Schedule 4.1

  	
   

  	
  Security Documents

  
	
  Schedule 5

  	
   

  	
  Disclosure Schedule

  
	
   

  	
   

  	
  Section 5.6

  	
  Material Adverse Effect

  
	
   

  	
   

  	
  Section 5.7

  	
  Material Restrictions

  
	
   

  	
   

  	
  Section 5.9

  	
  Litigation

  
	
   

  	
   

  	
  Section 5.10

  	
  Labor Disputes and Acts of God

  
	
   

  	
   

  	
  Section 5.11

  	
  ERISA Disclosures

  
	
   

  	
   

  	
  Section 5.12

  	
  Environmental and Other Laws

  
	
   

  	
   

  	
  Section 5.13

  	
  Names and Places of Business

  
	
   

  	
   

  	
  Section 5.14

  	
  Subsidiaries

  
	
  Schedule 7.1

  	
   

  	
  Existing Indebtedness

  

 

 iv

AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDED AND RESTATED CREDIT AGREEMENT is made as
of February 20, 2007, by and among COMFORT SYSTEMS USA, INC., a Delaware
corporation, WACHOVIA BANK, N.A., a national banking association, as
administrative agent, and the Lenders referred to below.

W I T N E S S E
T H:

In consideration of the mutual covenants and
agreements contained herein in consideration of the loans which may hereafter
be made by Lenders and the Letters of Credit which may be made available by LC
Issuer to Borrower, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:

ARTICLE I

DEFINITIONS AND REFERENCES

Section
1.1             Defined Terms.  As used in this Agreement, each of the
following terms has the meaning given to such term in this Section 1.1 or in
the sections and subsections referred to below:

“Account Debtor” means the Person which is obligated on any
Receivable.

“Acquisition” means the direct or indirect purchase or
acquisition, whether in one or more related transactions, of all or
substantially all of the capital stock of any Person or group of Persons or all
or substantially all of the assets, liabilities, and business of any Person or
group of Persons.

“Adjusted Base Rate” means, on any day, the Base Rate for such
day plus the Base Rate Margin for such day, provided that the Adjusted Base
Rate charged by any Person shall never exceed the Highest Lawful Rate.

“Adjusted Eurodollar Rate” means, for any Eurodollar Loan for
any day during any Interest Period therefor, the rate per annum equal to the
sum of (a) the Eurodollar Margin for such day plus (b) the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Agent
to be equal to the quotient obtained by dividing (i) the Eurodollar Rate for
such Eurodollar Loan for such Interest Period by (ii) 1 minus the Reserve
Requirement for such Eurodollar Loan for such Interest Period, provided that no
Adjusted Eurodollar Rate charged by any Person shall ever exceed the Highest
Lawful Rate.  The Adjusted Eurodollar
Rate for any Eurodollar Loan shall change whenever the Eurodollar Margin or the
Reserve Requirement changes.

“Affiliate” means, as to any Person, each other Person that
directly or indirectly (through one or more intermediaries or otherwise)
controls, is controlled by, or is under common control with, such Person.  A Person shall be deemed to be “controlled by”
any other Person if such other Person possesses, directly or indirectly, power
to vote 20% or more of the securities or other equity interests (on a fully
diluted basis) having ordinary voting power for the election of 

directors, the managing general partner or partners or
the managing member or members; or to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.

“Agent” means Wachovia Bank, N.A., as administrative agent
hereunder, and its successors in such capacity.

“Aggregate Commitment” means the aggregate of all Lenders’
Revolving Loan Commitments, as such may be reduced, amortized or adjusted from
time to time in accordance with this Agreement.

“Agreement” means this Credit Agreement.

“ALC Sale” means the sale by United Environmental Services, L.P.
and Comfort Systems USA (Twin Cities), Inc. of substantially all their assets
to Automated Logic of Texas, LLC and Automated Logic of Minnesota, LLC,
respectively, for aggregate cash consideration not in excess of $25,000,000.

“Applicable Lending Office” means, with respect to each Lender,
such Lender’s Domestic Lending Office in the case of Base Rate Loans and such
Lender’s Eurodollar Lending Office in the case of Eurodollar Loans.

“Assignment and Acceptance” means the agreement contemplated by
Section 10.5.

“Assignment of Prior Credit Documents” means the Assignment of
Notes, Liens and Security Agreements dated as of the Closing Date by the Prior
Agent and each of the lenders party to the Prior Credit Agreement in favor of
the Agent and the other Lender Parties.

“Base Rate” means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one percent
(.5%) and (b) the Prime Rate for such day. 
Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such change in
the Prime Rate or Federal Funds Rate.  As
used in this definition, “Prime Rate” means the per annum rate of interest
established from time to time by Citibank, N.A. as its Prime Rate, which rate
may not be the lowest rate of interest charged by Citibank, N.A. to its
customers.

“Base Rate Loan” means a Loan that bears interest at the
Adjusted Base Rate.

“Base Rate Margin” means on any date, with respect to each Base
Rate Loan, the rate per annum set forth as such on the Pricing Schedule.

“Basis Point” or “bps” means one one-hundredth of one
percent (0.01%).

“Bonded Receivables” means any Receivable resulting from goods
or services provided to an Account Debtor under a job which is covered by a
surety bond provided by Borrower or its agent, that is secured by assets of any
Restricted Person.

“Borrower” means Comfort Systems USA, Inc., a Delaware
corporation.

 2
 

 

“Borrowing” means a borrowing of new Loans of a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.2 or a Continuation or Conversion of existing Loans into a single
Type (and, in the case of Eurodollar Loans, with the same Interest Period)
pursuant to Section 2.3.

“Borrowing Notice” means a written or telephonic request, or a
written confirmation, made by Borrower which meets the requirements of Section
2.2.

“Business Day” means a day, other than a Saturday or Sunday, on
which commercial banks are open for business with the public in Houston, Harris
County, Texas.  Any Business Day in any
way relating to Eurodollar Loans (such as the day on which an Interest Period
begins or ends) must also be a day on which, in the judgment of Agent,
significant transactions in dollars are carried out in the interbank
eurocurrency market.

“Capital Asset” means any asset which would be classified as a
fixed or capital asset on a Consolidated balance sheet of any Person prepared
in accordance with GAAP.

“Capital Expenditures” means, without duplication, any
expenditures for any purchase or other acquisition of any Capital Asset,
excluding (i) the cost of assets acquired with Capitalized Lease Obligations,
other purchase money financing, or the proceeds of Loans under this Agreement,
(ii) expenditures of insurance proceeds to rebuild or replace any asset after a
casualty loss, and (iii) leasehold improvement expenditures for which such
Person is reimbursed promptly by the lessor.

“Capital Lease” means a lease with respect to which the lessee
is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

“Capital Lease Obligation” means, with respect to any Person and
a Capital Lease, the amount of the obligation of such Person as the lessee
under such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.

“Cash Equivalents” means Investments in:

(a)           marketable
obligations, maturing within twelve months after acquisition thereof, issued or
unconditionally guaranteed by the United States of America or an
instrumentality or agency thereof and entitled to the full faith and credit of
the United States of America;

(b)           demand deposits, and
time deposits (including certificates of deposit) maturing within twelve months
from the date of deposit thereof, with any office of any Lender or with a
domestic office of any national or state bank or trust company which is
organized under the Laws of the United States of America or any state therein, which
has capital, surplus and undivided profits of at least $500,000,000, and whose
long term certificates of deposit are rated at least Aa3 by Moody’s or AA- by S
& P;

(c)           repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in subsection (a) above entered into with any commercial
bank meeting the specifications of subsection (b) above;

 3
 

 

(d)           open market
commercial paper, maturing within 270 days after acquisition thereof, which are
rated at least P-1 by Moody’s or A-1 by S & P; and

(e)           money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in subsections (a) through (d) above.

“Change of Control” means the occurrence of any of the following
events: (a) any Person or two or more Persons acting as a group shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and including
holding proxies to vote for the election of directors other than proxies held
by Borrower’s management or their designees to be voted in favor of Persons
nominated by Borrower’s Board of Directors) of 35% or more of the outstanding
voting securities of Borrower, measured by voting power (including both common
stock and any preferred stock or other equity securities entitling the holders
thereof to vote with the holders of common stock in elections for directors of
Borrower) or (b) a majority of the directors of Borrower shall consist of
Persons not nominated by Borrower’s Board of Directors (not including as Board
nominees any directors which the Board is obligated to nominate pursuant to
shareholders agreements, voting trust arrangements or similar arrangements).

“Closing Date” means the date on which all of the conditions
precedent set forth in Section 4.1 and Section 4.2 shall have been satisfied or
waived.

“Collateral” means all property of any Restricted Person of any
kind which, under the terms of any Security Document, is subject to or is
purported to be subject to a Lien in favor of Lenders (or in favor of Agent for
the benefit of Lenders).

“Commitment Fee” shall have the meaning set forth in Section
2.5(c).

“Commitment Fee Rate” means, on any date, the rate per annum
designated as such and set forth on the Pricing Schedule.

“Commitment Period” means the period from and including the
Closing Date until the Maturity Date (or, if earlier, the day on which the
obligations of Lenders to make Loans hereunder or the obligations of LC Issuer
to issue Letters of Credit have been terminated or the Notes become due and
payable in full).

“Consolidated” refers to the consolidation of any Person, in
accordance with GAAP, with its properly consolidated subsidiaries.  References herein to a Person’s Consolidated
financial statements, financial position, financial condition, liabilities,
etc. refer to the consolidated financial statements, financial position,
financial condition, liabilities, etc. of such Person and its properly
consolidated subsidiaries.

“Consolidated Capital Expenditures” means, for any Person for
any period, the Capital Expenditures of such Person calculated on a
Consolidated basis for such period.

“Consolidated EBITDA” means, for any Person for any period, the
sum of (a) such Person’s Consolidated Net Income during such period, plus (b)
all interest expense which was deducted in determining such Person’s
Consolidated Net Income; plus (c) all income taxes which 

 4
 

were deducted in determining such Person’s
Consolidated Net Income; plus (d) all depreciation and amortization which were
deducted in determining such Person’s Consolidated Net Income; plus (e) other
non-cash charges, including non-cash amortization of debt incurrence costs and
net mark-to-market losses.

“Consolidated Interest Expense” means, for any Person, for any
period without duplication, all interest paid or accrued during such period on
Indebtedness (including capital lease obligations) excluding amortization of
debt incurrence expenses, original issue discount, and mark-to-market interest
expense.

“Consolidated Net Income” means, for any Person, for any period,
such Person’s Consolidated net income for such period after eliminating
earnings or losses attributable to outstanding minority interests and excluding
the net income of any Person other than a Subsidiary in which such Person has
an ownership interest plus any
Goodwill Impairment Charges.

“Consolidated Total Indebtedness” means, for any Person, as of
any date, the sum of the following (without duplication):  (a) all Indebtedness which is classified as “long-term
indebtedness” on a Consolidated balance sheet of such Person and its
Consolidated Subsidiaries prepared as of such date in accordance with GAAP and
any current maturities and other principal amount in respect of such
Indebtedness due within one year but which was classified as “long-term
indebtedness” at the creation thereof, (b) Indebtedness for borrowed money of
such Person and its Consolidated Subsidiaries outstanding under a revolving
credit or similar agreement providing for borrowings (and renewals and
extensions thereof) over a period of more than one year, notwithstanding the
fact that any such borrowing is made within one year of the expiration of such
agreement, and (c) all Indebtedness in respect of Capital Leases of such Person
and its Consolidated Subsidiaries, minus (d) LC Exclusions.

“Continuation” shall refer to the continuation pursuant to
Section 2.3 hereof of a Eurodollar Loan as a Eurodollar Loan from one Interest
Period to the next Interest Period.

“Continuation/Conversion Notice” means a written or telephonic
request, or a written confirmation, made by Borrower which meets the
requirements of Section 2.3.

“Conversion” shall refer to a conversion pursuant to Section 2.3
or Article III of one Type of Loan into another Type of Loan.

“Default” means any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.

“Default Rate” means, at the time in question (a) with respect
to any Base Rate Loan any other Obligation except as described in the
immediately following clause (b), the rate per annum equal to four percent (4%)
above the Adjusted Base Rate then in effect for such Loan or other Obligation
and (b) with respect to any Eurodollar Loan, the rate per annum equal to four
percent (4%) above the Adjusted Eurodollar Rate then in effect for such Loan or
other Obligation, provided in each case that no Default Rate charged by any
Person shall ever exceed the Highest Lawful Rate.

 5
 

 

“Disclosure Schedule” means Schedule 5 hereto.

“Distribution” means (a) any dividend or other distribution made
by a Restricted Person on or in respect of any stock, partnership interest, or
other equity interest in such Restricted Person or any other Restricted Person
(including any option or warrant to buy such an equity interest), or (b) any
payment made by a Restricted Person to purchase, redeem, acquire or retire any
stock, partnership interest, or other equity interest in such Restricted Person
or any other Restricted Person (including any such option or warrant).

“Domestic Lending Office” means, with respect to any Lender, the
office of such Lender specified as its “Domestic Lending Office” below its name
on Schedule 3.1 hereto, or such other office as such Lender may from time to
time specify to Borrower and Agent; with respect to LC Issuer, the office,
branch, or agency through which it issues Letters of Credit; and, with respect
to Agent, the office, branch, or agency through which it administers this
Agreement.

“Eligible Transferee” means a Person which either (a) is a
Lender or an Affiliate of a Lender, or (b) is consented to as an Eligible
Transferee by Agent and, so long as no Default or Event of Default is
continuing, by Borrower, which consents in each case will not be unreasonably
withheld (provided that no Person organized outside the United States may be an
Eligible Transferee if Borrower would be required to pay withholding taxes on
interest or principal owed to such Person).

“Environmental Laws” means any and all Laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.

“Equity” means shares of capital stock or a partnership,
profits, capital, member or other equity interest, or options, warrants or any
other rights to substitute for or otherwise acquire the capital stock or a
partnership, profits, capital, member or other equity interest of any Person.

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statutes or statute,
together with all rules and regulations promulgated with respect thereto.

“ERISA Affiliate” means each Restricted Person and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control that, together with such Restricted
Person, are treated as a single employer under Section 414 of the Internal
Revenue Code.

“ERISA Plan” means any employee pension benefit plan subject to
Title IV of ERISA maintained by any ERISA Affiliate with respect to which any
Restricted Person has a fixed or contingent liability.

“Eurodollar Lending Office” means, with respect to any Lender,
the office of such Lender specified as its “Eurodollar Lending Office” below
its name on Schedule 3.1 hereto (or, 

 6
 

if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to Borrower and Agent.

“Eurodollar Loan” means a Loan that bears interest at the
Adjusted Eurodollar Rate.

“Eurodollar Margin” means, on any date, with respect to each
Eurodollar Loan, the rate per annum set forth on the Pricing Schedule.

“Eurodollar Rate” means, for any Eurodollar Loan within a
Borrowing and with respect to the related Interest Period therefor, (a) the
interest rate per annum (carried out to the fifth decimal place) equal to the
rate determined by the Agent to be the offered rate that appears on the page of
the Telerate Screen that displays an average British Bankers Association
Interest Settlement Rate (such page currently being page number 3750) for
deposits in U.S. dollars (for delivery on the first day of such Interest
Period) with a term equivalent to such Interest Period, determined as of
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period, or (b) in the event the rate referenced in the
preceding subsection (a) does not appear on such page or service or such page
or service shall cease to be available, the rate per annum (carried out to the
fifth decimal place) equal to the rate determined by the Agent to be the
offered rate on such other page or other service that displays an average
British Bankers Association Interest Settlement Rate for deposits in U.S.
dollars (for delivery on the first day of such Interest Period) with a term
equivalent to such Interest Period, determined as of approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period,
or (c) in the event the rates referenced in the preceding subsections (a) and
(b) are not available, the rate per annum determined by the Agent as the rate
of interest at which deposits in U.S. dollars (for delivery on the first day of
such Interest Period) in same day funds in the approximate amount of the
applicable Eurodollar Loan and with a term equivalent to such Interest Period
would be offered by its London branch to major banks in the offshore U.S.
dollar market at their request at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period.

“Event of Default” has the meaning given to such term in Section
8.1.

“Existing Letters of Credit” means the letters of credit listed
on Schedule 1.1(b).

“Federal Funds Rate” means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of
one percent) equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day, provided that (a) if the
day for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day, and
(b) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate quoted to Agent on such day on such
transactions as determined by Agent.

“Fiscal Quarter” means a three-month period ending on March 31,
June 30, September 30 or December 31 of any year.

 7
 

 

“Fiscal Year” means a twelve-month period ending on December 31
of any year.

“GAAP” means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of
Restricted Persons and their Consolidated Subsidiaries, are applied for all
periods after the date hereof in a manner consistent with the manner in which
such principles and practices were applied to the Initial Financial
Statements.  If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder with respect to any
Restricted Person or with respect to any Restricted Person and its Consolidated
Subsidiaries may be prepared in accordance with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to each Lender, and
Required Lenders and Agent agree to such change insofar as it affects the
accounting of such Restricted Person and its Consolidated Subsidiaries.

“Goodwill Impairment Charges” means accounting charges resulting
from the write-up or write-down of acquired goodwill and other intangible assets
in accordance with FAS 142.

“Guarantors” means, collectively, (a) each Subsidiary of the
Borrower existing on the Closing Date, other than an Immaterial Subsidiary and
(b) any Subsidiary of Borrower which executes and delivers a Guaranty to Agent
after the date hereof, pursuant to Section 6.15.

“Guaranty” means (a) that certain Amended and Restated
Subsidiary Guaranty dated as of the date hereof, executed by each Guarantor
existing on the Closing Date, in favor of the Agent for the ratable benefit of
the Lenders, and (b) any Guaranty or joinder to a Guaranty executed by a
Guarantor after the Closing Date, in favor of the Agent for the ratable benefit
of the Lenders, in each case as such Guaranties may be amended, supplemented,
or modified and in effect from time to time.

“Hazardous Materials” means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.

“Hedging Contract” means (a) any agreement providing for
options, swaps, floors, caps, collars, forward sales or forward purchases
involving interest rates, commodities or commodity prices, equities,
currencies, bonds, or indexes based on any of the foregoing, (b) any option,
futures or forward contract traded on an exchange, and (c) any other derivative
agreement or other similar agreement or arrangement.

“Highest Lawful Rate” means, with respect to each Lender Party
to whom Obligations are owed, the maximum nonusurious rate of interest that
such Lender Party is permitted under applicable Law to contract for, take,
charge, or receive with respect to such Obligations.  All determinations herein of the Highest
Lawful Rate, or of any interest rate determined by reference to the Highest
Lawful Rate, shall be made separately for each Lender Party as appropriate to 

 8
 

assure that the Loan Documents are not construed to
obligate any Person to pay interest to any Lender Party at a rate in excess of
the Highest Lawful Rate applicable to such Lender Party.

“Immaterial Subsidiary” means one or more Subsidiaries with
aggregate gross assets of less than $500,000.

“Indebtedness” of any Person means obligations in any of the
following categories:

(a)           debt for borrowed
money;

(b)           an obligation to pay
the deferred purchase price of property or services;

(c)           obligations
evidenced by a bond, debenture, note or similar instrument;

(d)           Off-Balance Sheet
Liabilities;

(e)           obligations arising
under Hedging Contracts (on a net basis to the extent netting is provided for
in the applicable Hedging Contract);

(f)            Capital Lease
Obligations;

(g)           obligations arising
under conditional sales or other title retention agreements;

(h)           obligations owing
under direct or indirect guaranties of Indebtedness of any other Person or otherwise
constituting obligations to purchase or acquire or to otherwise protect or
insure a creditor against loss in respect of Indebtedness of any other Person
(such as obligations under working capital maintenance agreements, agreements
to keep-well, or agreements to purchase Indebtedness, assets, goods, securities
or services), but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection;

(i)            obligations to
purchase or redeem securities or other property, if such obligations arise out
of or in connection with the sale or issuance of the same or similar securities
or property (for example, repurchase agreements, mandatorily redeemable
preferred stock and sale/leaseback agreements);

(j)            obligations with respect
to letters of credit or applications or reimbursement agreements therefore; or

(k)           obligations with
respect to banker’s acceptances.

provided, however, that the “Indebtedness” of any
Person shall not include obligations that were incurred by such Person to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business.

“Initial Financial Statements” means (a) the audited annual
Consolidated financial statements of Borrower dated as of December 31, 2005,
and (b) the unaudited quarterly Consolidated financial statements of Borrower
dated as of September 30, 2006.

 9
 

 

“Intercreditor Agreement” means (i) that certain Intercreditor
Agreement dated as of October 23, 2003 among Federal Insurance Company, an
Indiana corporation, Arch Insurance Company, a Missouri corporation, and Bank
of Texas, N.A., as amended by the First Amendment to Intercreditor Agreement
dated as of March 1, 2005, as amended by the Second Amendment to Intercreditor
Agreement dated as of June 30, 2005, as assigned to the Prior Agent pursuant to
the Assignment of Notes and Liens dated June 30, 2005 among Bank of Texas,
N.A., the Prior Agent and the Borrower, as amended by the Third Amendment to
Intercreditor Agreement dated as of September 29, 2006, as amended by the
Fourth Amendment to Intercreditor Agreement dated as of February 20, 2007, and
as assigned to the Agent pursuant to the Assignment of Prior Credit Documents
(as defined in Schedule 4.1), and (ii) any other agreement to which
Borrower, the Agent, and any surety are parties that establishes the priorities
of the parties with respect to Bonded Receivables.

“Interest Payment Date” means (a) with respect to each Base Rate
Loan, the first Business Day of each Fiscal Quarter; and (b) with respect to
each Eurodollar Loan, the last day of the Interest Period that is applicable
thereto and, if such Interest Period is greater than three months in length,
then the first Business Day of each Fiscal Quarter shall also be an Interest
Payment Date for each such Eurodollar Loan.

“Interest Period” means, with respect to each Eurodollar Loan,
the period specified in the Borrowing Notice or Continuation/Conversion Notice
applicable to such Eurodollar Loan, beginning on and including the date
specified in such Borrowing Notice or Continuation/Conversion Notice (which
must be a Business Day), and ending one, two, three, and six months thereafter,
as Borrower may elect in such notice; provided that:  (a) any Interest Period which would otherwise
end on a day which is not a Business Day shall be extended to the next
succeeding Business Day unless such Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Business Day; (b) any Interest Period which begins on the last Business Day in
a calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on the
last Business Day in a calendar month; and (c) notwithstanding the foregoing,
any Interest Period which would otherwise end after the last day of the
Commitment Period shall end on the last day of the Commitment Period (or, if
the last day of the Commitment Period is not a Business Day, on the next preceding
Business Day).

“Internal Revenue Code” means the United States Internal Revenue
Code of 1986, as amended from time to time and any successor statute or
statutes, together with all rules and regulations promulgated with respect
thereto.

“Investment” means any investment, made directly or indirectly,
in any Person, whether by purchase, acquisition of equity interests,
indebtedness or other obligations or securities or by extension of credit,
loan, advance, capital contribution or otherwise and whether made in cash, by
the transfer of property, or by any other means.

“Law” means any statute, law, regulation, ordinance, rule,
treaty, judgment, order, decree, permit, concession, franchise, license,
agreement or other governmental restriction of the United States or any state
or political subdivision thereof or of any foreign country or any department,
province or other political subdivision thereof.  Any reference to a Law includes any 

 10
 

amendment or modification to such Law, and all
regulations, rulings, and other Laws promulgated under such Law.

“LC Application” means any application for a Letter of Credit
hereafter made by Borrower to LC Issuer.

“LC Collateral” has the meaning given to such term in Section
2.14(b).

“LC Conditions” means the conditions for issuance of a Letter of
Credit set forth in Sections 2.9 and 2.10.

“LC Exclusions” means the sum of (a) LC Obligations for Letters
of Credit issued in the ordinary course of Borrower’s business for insurance,
state qualification and routine licensing purposes and (b) LC Obligations, up
to $2,000,000, for Letters of Credit issued for purposes other than those set
forth in subsection (a) above.

“LC Issuer” means Wachovia Bank, N.A. in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity, and
any issuer of an Existing Letter of Credit. 
Agent may, with the consent of Borrower and the Lender in question,
appoint any Lender hereunder as an LC Issuer in place of or in addition to
Wachovia Bank, N.A.

“LC Obligations” means, at the time in question, the sum of all
Matured LC Obligations plus the maximum amounts which LC Issuer might then or
thereafter be called upon to advance under all Letters of Credit then
outstanding.

“Lead Arranger” means Wachovia Bank, N.A., a national banking
association.

“Lender Hedging Obligations” means Indebtedness to a Lender or
an Affiliate of a Lender arising out of any Hedging Contract permitted under
Section 7.3.

“Lender Parties” means Agent, LC Issuer, all Lenders, and any
Affiliate of a Lender that holds Lender Hedging Obligations.

“Lenders” means each signatory hereto (other than Borrower and
any Restricted Person that is a party hereto), and the successors of each such
party as Lender hereunder pursuant to Section 10.5.

“Lenders Schedule” means Schedule 3.1 hereto.

“Letter of Credit” means any letter of credit issued by LC
Issuer hereunder at the application of Borrower, and shall include the Existing
Letters of Credit, in each case as extended or otherwise modified by the LC
Issuer Bank from time to time.

“Liabilities” means, as to any Person, all liabilities that
would appear as such on a balance sheet of such Person under GAAP.

“Lien” means, with respect to any property or assets, any right
or interest therein of a creditor to secure Liabilities owed to it or any other
arrangement with such creditor which 

 11
 

provides for the payment of such Liabilities out of
such property or assets or which allows such creditor to have such Liabilities
satisfied out of such property or assets prior to the general creditors of any
owner thereof, including any lien, mortgage, security interest, pledge, rights
of a vendor under any title retention or conditional sale agreement or lease
substantially equivalent thereto, tax lien, mechanic’s or materialman’s lien,
or any other charge or encumbrance for security purposes, whether arising by
Law or agreement or otherwise, but excluding any right of offset which arises
without agreement in the ordinary course of business.

“Loan Documents” means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the LC Applications, any and all Hedging
Contracts and Intercreditor Agreements to which Borrower and any Lender are a
party, and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive
of term sheets and commitment letters).

“Loans” means the Revolving Loans as otherwise described in
Section 2.1.

“Margin Stock” means margin stock, as such term is defined in
Regulation U promulgated by the Board of Governors of the Federal Reserve
System.

“Material Adverse Change” means a material and adverse change,
from the state of affairs presented in the Initial Financial Statements or as
represented or warranted in any Loan Document, to (a) Borrower’s Consolidated
financial condition, (b) Borrower’s Consolidated business, assets, operations
or properties, considered as a whole, (c) Borrower’s ability to timely pay the
Obligations, or (d) the enforceability of the material terms of any Loan Documents.

“Matured LC Obligations” means all amounts paid by LC Issuer on
drafts or demands for payment drawn or made under or purported to be made under
any Letter of Credit and all other amounts due and owing to LC Issuer under any
LC Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).

“Maturity Date” means five (5) years from the date hereof.

“Maximum Drawing Amount” means at the time in question the sum
of the maximum amounts which LC Issuer might then or thereafter be called upon
to advance under all Letters of Credit which are then outstanding.

“Moody’s” means Moody’s Investors Service, Inc., or its
successor.

“Net Casualty Proceeds” means (a) cash insurance proceeds (other
than proceeds of business interruption insurance) received by Borrower or any
of its Subsidiaries in connection with a loss, damage, destruction, or casualty
of any or all of the assets of Borrower or any of its Subsidiaries (the “Casualty
Assets”), minus (b) the amount of such cash
insurance proceeds reinvested by the Borrower or any of its Subsidiaries, so
long as such reinvestment is (i) consummated or irrevocably committed to be
consummated within 365 days after the receipt of such proceeds and (ii) to
restore, repair, or replace the Casualty Assets, or purchase other assets with
substantially the same utility and in the same line of business as the Casualty
Assets

 12

“Net Leverage Ratio” means the ratio, determined as of the end
of each of Borrower’s Fiscal Quarters for the then most-recently ended four
consecutive Fiscal Quarters, of (a) its Consolidated Total Indebtedness on such
day minus cash and Cash Equivalents to (b) its Consolidated EBITDA for such
period.

“Note(s)” means the Revolving Notes.

“Obligations” means all indebtedness, liabilities and
obligations, whether matured or unmatured, liquidated or unliquidated, primary
or secondary, direct or indirect, absolute, fixed or contingent, from time to
time owing by any Restricted Person to any Lender Party under or pursuant to
any of the Loan Documents, including all LC Obligations and any Lender Hedging
Obligations.  “Obligation” means any part
of the Obligations.

“Off-Balance Sheet Liability” of a Person means (a) any
repurchase obligation or liability of such Person with respect to accounts or
notes receivable sold by such Person, (b) Synthetic Lease Obligations, or (c)
any obligation arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the balance sheets of such Person (but, for the
avoidance of doubt, excluding any operating leases other than a Synthetic Lease).

“Percentage Share” means, with respect to any Lender (a) when
used in Section 2.1, 2.2 or 2.5, in any Borrowing Notice or when no Loans are
outstanding hereunder, the percentage set forth opposite such Lender’s name on
Schedule 3.1 hereto or in the most recent Assignment and Acceptance, if any,
executed by such Lender, as such amount may be adjusted, if at all, from time
to time in accordance with this Agreement, and (b) when used otherwise, the
percentage obtained by dividing (i) the sum of the unpaid principal balance of
such Lender’s Loans at the time in question plus the Matured LC Obligations
which such Lender has funded pursuant to Section 2.11(c) plus the portion of
the Maximum Drawing Amount which such Lender might be obligated to fund under Section
2.11(c), by (ii) the sum of the aggregate unpaid principal balance of all Loans
at such time plus the aggregate amount of LC Obligations outstanding at such
time.

“Permitted Acquisition” means an Acquisition that is permitted
by Section 7.7(c).

“Permitted Investments” means:

(a)           Cash Equivalents;

(b)           existing Investments
described in the Disclosure Schedule;

(c)           extensions of credit
by Restricted Persons to their customers for buying goods and services in the
ordinary course of business or to another Restricted Person in the ordinary
course of business;

(d)           extensions of credit
among Restricted Persons which are subordinated to the Obligations upon terms
and conditions reasonably satisfactory to the Agent;

(e)           Investments by
Restricted Persons in the Equity of Subsidiaries of the Borrower;

 13
 

(f)            Investments by
Restricted Persons in the Equity of another Person made in connection with a
Permitted Acquisition;

(g)           repurchases by
Restricted Persons of their Equity that are permitted pursuant to Section 7.6;
and

(h)           any Investment made
as a result of the receipt of non-cash consideration from a sale, transfer,
lease, exchange, alienation, or disposition of assets that is permitted
pursuant to Section 7.5.

“Permitted Liens” means:

(a)           statutory Liens for
taxes, assessments or other governmental charges or levies which are not yet
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP;

(b)           landlords’,
operators’, carriers’, warehousemen’s, repairmen’s, mechanics’, materialmen’s,
worker’s, suppliers or other like Liens, in each case only to the extent
arising in the ordinary course of business and only to the extent securing
obligations (i) which are not delinquent or which are being contested in good
faith by appropriate proceedings; and (ii) for which adequate reserves have
been maintained in accordance with GAAP;

(c)           zoning restrictions,
easements, licenses, and minor defects and irregularities in title to any real
property, so long as such defects and irregularities do not materially impair
the value of such property or the use of such property for the purposes for
which such property is held;

(d)           pledges or deposits
of cash or securities to secure (i) the performance of bids, trade contracts,
leases, statutory obligations and other obligations of a like nature (excluding
appeal bonds) incurred in the ordinary course of business; or (ii) obligations
under worker’s compensation, unemployment insurance, social security, or public
Laws or similar legislation (excluding Liens arising under ERISA).

(e)           Liens under the
Security Documents;

(f)            with respect only
to property subject to any particular Security Document, Liens burdening such
property which are expressly allowed by such Security Document;

(g)           any Lien in favor of
a surety that is subject to the provisions of an Intercreditor Agreement;

(h)           deposits securing,
or in lieu of, surety, appeal or customs bonds in proceedings to which Borrower
or any of its Subsidiaries is a party;

(i)            any attachment or
judgment Lien not constituting an Event of Default under Section 8.1;

 14
 

(j)            Liens existing on
the date hereof and renewals and extensions thereof, which Liens are set forth
on Schedule 1.1(a);

(k)           Liens securing
Indebtedness permitted by Section 7.1(c), provided that such Liens attach only
to the assets financed by such Indebtedness and any proceeds thereof;

(l)            common law security
interests of a surety in the actual proceeds of a project subject to the
underlying surety bond provided by such surety; and

(m)          inchoate Liens
arising under ERISA to secure contingent Liabilities of Borrower or any of its
Subsidiaries.

“Person” means an individual, corporation, general partnership,
limited partnership, limited liability company, association, joint stock
company, trust or trustee thereof, estate or executor thereof, Tribunal, or any
other legally recognizable entity.

“Pricing Schedule” means the Schedule attached hereto identified
as such.

“Prior Agent” means Capital One, N.A., a national banking
association formerly known as Hibernia National Bank, in its capacity as agent
under the Prior Credit Documents.

“Prior Credit Agreement” means that certain Credit Agreement
dated as of June 30, 2005, as amended from time to time heretofore, among
Borrower, the Prior Agent, as agent and a lender thereunder, and the other
financial institutions party thereto, as lenders.

“Prior Credit Documents” means the Prior Credit Agreement,
together with the promissory notes made by Borrower thereunder and any and all
other documents and instruments executed in connection therewith.

“Prior Indebtedness” means all Indebtedness outstanding under
the Prior Credit Documents on the date hereof.

“Receivables” means all present and future rights of Borrower or
any Subsidiary of Borrower to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising and whether or not earned by
performance.

“Regulation D” means Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect.

“Required Lenders” means Lenders having aggregate Percentage
Shares equal or exceed sixty-six and two-thirds percent (662⁄3%).

“Reserve Requirement” means, at any time, the maximum rate at
which reserves (including any marginal, special, supplemental, or emergency
reserves) are required to be maintained under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any successor)
by member banks of the Federal Reserve System against “Eurocurrency liabilities”
(as such term is used in Regulation D). 
Without limiting the effect of 

 15
 

the foregoing, the Reserve Requirement shall reflect
any other reserves required to be maintained by such member banks with respect
to (a) any category of liabilities which includes deposits by reference to
which the Adjusted Eurodollar Rate is to be determined, or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.

“Restricted Person” means any of Borrower, each Subsidiary of
Borrower, and each Guarantor.

“Revolving Facility Usage” means, at the time in question,
without duplication, the aggregate principal amount of outstanding Revolving
Loans and LC Obligations at such time.

“Revolving Lenders” means those Lenders having a Revolving Loan
Commitment.

“Revolving Loan(s)” means, at any time, the aggregate amount of
loans made to Borrower pursuant to Article II hereof.

“Revolving Loan Commitment” means as to any Lender, the
commitment of such Lender to make its Percentage Share of Revolving Loans or
incur its Percentage Share of LC Obligations as set forth on Schedule 3.1
hereto or in the most recent Assignment and Acceptance, if any, executed by such
Lender, as such amount may be adjusted, if at all, from time to time in
accordance with this Agreement.

“Revolving Notes” has the meaning ascribed to it in Section 2.1.

“S & P” means Standard & Poor’s Ratings Services (a
division of The McGraw Hill Companies), or its successor.

“Secured Obligations” means all Obligations.

“Security Documents” means the instruments listed on Schedule
4.1 and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Restricted Person to Agent in connection with this Agreement
or any transaction contemplated hereby to secure the payment of any part of the
Obligations or the performance of any Restricted Person’s other duties and
obligations under the Loan Documents.

“Solvent” means, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including subordinated and
contingent liabilities, of such Person; (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts and liabilities,
including subordinated and contingent liabilities as they become absolute and
matured; (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person’s ability to pay as such debts
and liabilities mature; and (d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for which
such Person’s property would constitute an unreasonably small capital.  The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the 

 16
 

facts and circumstances existing at the time,
represents the amount that can be reasonably be expected to become an actual or
matured liability.

“Subordinated Debt” means unsecured Indebtedness that is
subordinated to the Obligations in a manner and form reasonably satisfactory to
Agent, as to the right and time of payment and as to any and all other rights
and remedies thereunder.

“Subsidiary” means, with respect to any Person, any corporation,
association, partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled by or owned fifty
percent or more by such Person.

“Synthetic Lease Obligations” means an arrangement treated as an
operating lease for financial accounting purposes and a financing lease for tax
purposes.

“Termination Event” means (a) the occurrence with respect to any
ERISA Plan of (i) a reportable event described in Section 4043(c)(5) or (6) of
ERISA or (ii) any other reportable event described in Section 4043(c) of ERISA
other than a reportable event not subject to the provision for 30-day notice to
the Pension Benefit Guaranty Corporation pursuant to a waiver by such
corporation under Section 4043(a) or 4043(b)(4) of ERISA, or (b) the withdrawal
of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a “substantial
employer” as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a
notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan
amendment as a termination under Section 4041(c) of ERISA, or (d) the
institution of proceedings to terminate any ERISA Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (e) any other event or
condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any ERISA Plan.

“Tribunal” means any government, any arbitration panel, any
court or any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted or existing.

“Type” means, with respect to any Loans, the characterization of
such Loans as either Base Rate Loans or Eurodollar Loans.

Section
1.2             Exhibits and Schedules;
Additional Definitions.  All Exhibits
and Schedules attached to this Agreement are a part hereof for all
purposes.  Reference is hereby made to Schedule
4.1 for the meaning of certain terms defined therein and used but not
defined herein, which definitions are incorporated herein by reference.

Section
1.3             Amendment of Defined
Instruments.  Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.

 17
 

Section
1.4             References and Titles.  All references in this Agreement to Exhibits,
Schedules, articles, sections, subsections and other subdivisions refer to the
Exhibits, Schedules, articles, sections, subsections and other subdivisions of
this Agreement unless expressly provided otherwise.  Exhibits and Schedules to any Loan Document
shall be deemed incorporated by reference in such Loan Document.  References to any document, instrument, or
agreement (a) shall include all exhibits, schedules, and other attachments
thereto, and (b) shall include all documents, instruments, or agreements issued
or executed in replacement thereof. 
Titles appearing at the beginning of any subdivisions are for
convenience only and do not constitute any part of such subdivisions and shall
be disregarded in construing the language contained in such subdivisions.  The words “this Agreement”, “this instrument”,
“herein”, “hereof”, “hereby”, “hereunder” and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless
expressly so limited.  The phrases “this
section” and “this subsection” and similar phrases refer only to the sections
or subsections hereof in which such phrases occur.  The word “or” is not exclusive, and the word “including”
(in its various forms) means “including without limitation”.  Pronouns in masculine, feminine and neuter
genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires. 
Accounting terms have the meanings assigned to them by GAAP, as applied
the accounting entity to which they refer. 
References to “days” shall mean calendar days, unless the term “Business
Day” is used.  Unless otherwise
specified, references herein to any particular Person also refer to its
successors and permitted assigns.

Section
1.5             Calculations and
Determinations.  All calculations
under the Loan Documents of interest chargeable with respect to Eurodollar
Loans and of fees shall be made on the basis of actual days elapsed (including
the first day but excluding the last) and a year of 360 days.  All other calculations of interest made under
the Loan Documents shall be made on the basis of actual days elapsed (including
the first day but excluding the last) and a year of 365 or 366 days, as
appropriate.  Each determination by a
Lender Party of amounts to be paid under Article III or any other matters which
are to be determined hereunder by a Lender Party (such as any Eurodollar Rate,
Adjusted Eurodollar Rate, Business Day, Interest Period, or Reserve
Requirement) shall, in the absence of manifest error, be conclusive and
binding.  Unless otherwise expressly
provided herein or unless Required Lenders otherwise consent all financial
statements and reports furnished to any Lender Party hereunder shall be
prepared and all financial computations and determinations pursuant hereto
shall be made in accordance with GAAP.

Section
1.6             Joint Preparation;
Construction of Indemnities and Releases. 
This Agreement and the other Loan Documents have been reviewed and
negotiated by sophisticated parties with access to legal counsel and no rule of
construction shall apply hereto or thereto which would require or allow any
Loan Document to be construed against any party because of its role in drafting
such Loan Document.  All indemnification
and release provisions of this Agreement shall be construed broadly (and not
narrowly) in favor of the Persons receiving indemnification or being released.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]

 18

ARTICLE II

THE LOANS AND LETTERS OF CREDIT

Section
2.1             Commitments to Lend;
Notes.  Subject to the terms and
conditions hereof, each Revolving Lender agrees, severally and not jointly, to
make Revolving Loans to Borrower upon the request of Borrower from time to time
during the Commitment Period, provided that (a) subject to Sections 3.3, 3.4
and 3.6, Revolving Loans of the same Type made on the same day shall be made by
Revolving Lenders in accordance with their respective Percentage Shares and as
part of the same Borrowing; and (b) after giving effect to such Revolving
Loans, the Revolving Facility Usage does not exceed the Aggregate Commitment
then in effect.  The amount of all
Revolving Loans in any Borrowing must be greater than or equal to $100,000, or
must equal the remaining availability under the Aggregate Commitment.  The obligation of Borrower to repay to each
Revolving Lender the aggregate amount of all Revolving Loans made by such
Revolving Lender, together with interest accruing in connection therewith,
shall be evidenced by one or more promissory notes made by Borrower payable to
the order of such Revolving Lender in the principal amount of the Revolving
Loan Commitment of the applicable Revolving Lender, substantially in the form
of Exhibit 2.1 (each a “Revolving Note” and, collectively, the “Revolving
Notes”).  The amount of principal owing
on any Revolving Note at any given time shall be the aggregate amount of all
Revolving Loans theretofore made by such Revolving Lender minus all payments of
principal theretofore received by such Revolving Lender on such Revolving
Note.  Interest on each Revolving Note
shall accrue and be due and payable as provided herein.  Each Revolving Note shall be due and payable
as provided herein, and shall be due and payable in full on the Maturity
Date.  Subject to the terms and
conditions hereof, Borrower may borrow, repay, and reborrow hereunder.

Section
2.2             Requests for Revolving
Loans.  Borrower must give to Agent
written or electronic notice (or telephonic notice promptly confirmed in
writing) of any requested Borrowing of new Revolving Loans to be advanced by
Revolving Lenders.  Each such notice
constitutes a “Borrowing Notice” hereunder and must:

(a)           specify (i) the
aggregate amount of any such Borrowing of new Base Rate Loans and the date on
which such Base Rate Loans are to be advanced, or (ii) the aggregate amount of
any such Borrowing of new Eurodollar Loans, the date on which such Eurodollar
Loans are to be advanced (which shall be the first day of the Interest Period
which is to apply thereto), and the length of the applicable Interest Period;
and

(b)           be received by Agent
not later than 11:00 a.m., Houston, Texas, time, on (i) the day on which any
such Base Rate Loans are to be made, or (ii) the third Business Day preceding
the day on which any such Eurodollar Loans are to be made.

Each such written request or confirmation must be made
in the form and substance of the “Borrowing Notice” attached hereto as Exhibit
2.2(b), duly completed.  Each such
telephonic request shall be deemed a representation, warranty, acknowledgment
and agreement by Borrower as to the matters which are required to be set out in
such written confirmation.  Upon receipt
of any such Borrowing Notice, Agent shall give each Lender prompt notice of the
terms thereof.  If all conditions
precedent to such new Revolving Loans have been met, each Revolving Lender will
on the date requested promptly remit to Agent at Agent’s office in Houston,
Texas 

 19
 

the amount of such Revolving Lender’s new Revolving
Loan in immediately available funds, and upon receipt of such funds, unless to
its actual knowledge any conditions precedent to such Revolving Loans have been
neither met nor waived as provided herein, Agent shall promptly make such
Revolving Loans available to Borrower. 
Unless Agent shall have received prompt notice from a Revolving Lender
that such Revolving Lender will not make available to Agent such Revolving
Lender’s new Revolving Loan, Agent may in its discretion assume that such
Revolving Lender has made such Revolving Loan available to Agent in accordance
with this section and Agent may if it chooses, in reliance upon such
assumption, make such Revolving Loan available to Borrower.  If and to the extent such Revolving Lender
shall not so make its new Revolving Loan available to Agent, such Revolving
Lender and Borrower severally agree to pay or repay to Agent within three days
after demand the amount of such Revolving Loan together with interest thereon,
for each day from the date such amount was made available to Borrower until the
date such amount is paid or repaid to Agent, with interest at (i) the Federal
Funds Rate, if such Revolving Lender is making such payment and (ii) the
interest rate applicable at the time to the other new Revolving Loans made on
such date, if Borrower is making such repayment.  If neither such Revolving Lender nor Borrower
pays or repays to Agent such amount within such three-day period, Agent shall
in addition to such amount be entitled to recover from such Revolving Lender
and from Borrower, on demand, interest thereon at the Default Rate, calculated
from the date such amount was made available to Borrower.  The failure of any Revolving Lender to make
any new Revolving Loan to be made by it hereunder shall not relieve any other
Revolving Lender of its obligation hereunder, if any, to make its new Revolving
Loan, but no Revolving Lender shall be responsible for the failure of any other
Revolving Lender to make any new Revolving Loan to be made by such other
Revolving Lender.

Section
2.3             Continuations and
Conversions of Existing Loans. 
Borrower may make the following elections with respect to Loans already
outstanding: to convert Base Rate Loans to Eurodollar Loans, to convert
Eurodollar Loans to Base Rate Loans on the last day of the Interest Period
applicable thereto, and to continue Eurodollar Loans beyond the expiration of
such Interest Period by designating a new Interest Period to take effect at the
time of such expiration.  In making such
elections, Borrower may combine existing Loans made pursuant to separate
Borrowings into one new Borrowing or divide existing Loans made pursuant to one
Borrowing into separate new Borrowings, provided that Borrower may have no more
than five Borrowings of Eurodollar Loans outstanding at any time.  To make any such election, Borrower must give
to Agent written notice (or telephonic notice promptly confirmed in writing) of
any such Conversion or Continuation of existing Loans, with a separate notice
given for each new Borrowing.  Each such
notice constitutes a “Continuation/Conversion Notice” hereunder and must:

(a)           specify the existing
Loans which are to be Continued or Converted;

(b)           specify (i) the
aggregate amount of any Borrowing of Base Rate Loans into which such existing
Loans are to be converted and the date on which such Continuation or Conversion
is to occur, or (ii) the aggregate amount of any Borrowing of Eurodollar Loans
into which such existing Loans are to be continued or converted, the date on
which such Continuation or Conversion is to occur (which shall be the first day
of the Interest Period which is to apply to such Eurodollar Loans), and the
length of the applicable Interest Period; and

 20
 

(c)           be received by Agent
not later than 11:00 a.m., Houston, Texas time, on (i) the day on which any
such conversion to Base Rate Loans is to occur, or (ii) the third Business Day
preceding the day on which any such Continuation or Conversion to Eurodollar
Loans is to occur.

Each such written request or confirmation must be made
in the form and substance of the “Continuation/Conversion Notice” attached
hereto as Exhibit 2.3(c), duly completed.  Each such telephonic request shall be deemed
a representation, warranty, acknowledgment and agreement by Borrower as to the
matters which are required to be set out in such written confirmation.  Upon receipt of any such
Continuation/Conversion Notice, Agent shall give each Lender prompt notice of
the terms thereof.  Each
Continuation/Conversion Notice shall be irrevocable and binding on Borrower.  During the continuance of any Default,
Borrower may not make any election to convert existing Loans into Eurodollar
Loans or continue existing Loans as Eurodollar Loans.  If (due to the existence of a Default or for
any other reason) Borrower fails to timely and properly give any
Continuation/Conversion Notice with respect to a Borrowing of existing
Eurodollar Loans at least three days prior to the end of the Interest Period
applicable thereto, such Eurodollar Loans shall automatically be converted into
Base Rate Loans at the end of such Interest Period.  No new funds shall be repaid by Borrower or
advanced by any Lender in connection with any Continuation or Conversion of
existing Loans pursuant to this section, and no such Continuation or Conversion
shall be deemed to be a new advance of funds for any purpose; such
Continuations and Conversions merely constitute a change in the interest rate
applicable to already outstanding Loans.

Section
2.4             Use of Proceeds.  Borrower shall use the Loans to (i) refinance
Prior Indebtedness under the Prior Credit Documents; (ii) refinance Matured LC
Obligations; and (iii) provide working capital for its operations and for other
general business purposes.  Borrower
shall use all Letters of Credit for its general corporate purposes.  In no event shall the funds from any Loan or
any Letter of Credit be used directly or indirectly by any Person for personal,
family, household or agricultural purposes or for the purpose, whether immediate,
incidental or ultimate, of purchasing, acquiring or carrying any Margin Stock
or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such Margin Stock. 
Borrower represents and warrants that Borrower is not engaged
principally, or as one of Borrower’s important activities, in the business of
extending credit to others for the purpose of purchasing or carrying such
Margin Stock.

Section
2.5             Interest Rates and
Fees; Payment Dates.  (a)  Interest.  Subject to subsection (b) below, (i) each
Base Rate Loan shall bear interest on each day it is outstanding at the
Adjusted Base Rate in effect on such day, and (ii) each Eurodollar Loan shall
bear interest on each day during the related Interest Period at the related
Adjusted Eurodollar Rate in effect on such day, and (iii) if an Event of
Default has occurred and is continuing, all Loans shall bear interest on each
day outstanding at the applicable Default Rate. 
Past due payments of principal and interest shall bear interest at the
rates and in the manner set forth in the Notes. 
Notwithstanding the forgoing, Borrower may request from time to time
that Borrower and the Lender enter into a Hedging Contract providing for
interest rate protection (1) for a term expiring no earlier than one year after
the Closing Date; and (2) with other terms and conditions reasonably
satisfactory to Agent.

 21
 

(b)           Default Rate.  If an Event of Default shall have occurred
and be continuing under Section 8.1(a), (b), (k)(i), (k)(ii), and (k)(iii) all
outstanding Loans shall bear interest at the applicable Default Rate.  In addition, if an Event of Default shall
have occurred and be continuing (other than under Section 8.1(a), (b), (k)(i),
(k)(ii) or (k)(iii)), Required Lenders may, by notice to Borrower, elect to
have the outstanding Loans bear interest at the applicable Default Rate,
whereupon such Loans shall bear interest at the applicable Default Rate until
the earlier of (i) the first date thereafter upon which there shall be no Event
of Default continuing and (ii) the date upon which Required Lenders shall have
rescinded such notice.

(c)           Commitment Fees.  In consideration of each Revolving Loan
Commitment of each Revolving Lender to make Revolving Loans, Borrower will pay
to Agent for the account of each Revolving Lender a fee (the “Commitment Fee”)
determined on a daily basis by multiplying the applicable Commitment Fee Rate
by the Percentage Share of such Revolving Lender of the unused portion of the
Revolving Loan Commitment on each day during the Commitment Period, determined
for each such day by deducting from the amount of the Revolving Loan Commitment
at the end of such day the Revolving Facility Usage.  This Commitment Fee shall be due and payable
in arrears on the first day of each Fiscal Quarter and at the end of the Commitment
Period.

(d)           Upfront Fees.  In consideration of the Lenders’ commitment
to make Loans, Borrower will pay to Agent for the ratable account of the
Lenders an upfront fee in the aggregate amount of $150,000, due and payable on
the date hereof.

(e)           Additional Fees.  In addition to all other amounts due to Agent
under the Loan Documents, Borrower will pay fees to the Lead Arranger as
described in a letter agreement of even date herewith between Lead Arranger and
Borrower.

(f)            Payment Dates.  On each Interest Payment Date relating to
Base Rate Loans, Borrower shall pay to the Lenders all unpaid interest which
has accrued on the Base Rate Loans to but not including such Interest Payment
Date.  On each Interest Payment Date
relating to a Eurodollar Loan, Borrower shall pay to Lenders all unpaid
interest which has accrued on such Eurodollar Loan to but not including such
Interest Payment Date.

Section
2.6             Optional Prepayments
and Voluntary Reduction of Commitment.. 
Borrower may, without penalty, (a) upon notice to Agent to be received
no later than 11:00 a.m., Houston, Texas time, with respect to any Base Rate
Loan and (b) upon three Business Days’ notice to each Lender with respect to
any Eurodollar Loan, from time to time and without premium or penalty prepay
the Loans, in whole or in part, provided (i) that the aggregate amounts of all
partial prepayments of principal on the Notes equals $100,000 or any higher
integral multiple of $100,000; and (ii) that if Borrower prepays any Eurodollar
Loan on any day other than the last day of the Interest Period applicable
thereto, it shall pay to Lenders any amounts due under Section 3.5. Each
prepayment of principal of any Eurodollar Loan under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid.  Any principal or interest
prepaid pursuant to this section shall be in addition to, and not in lieu of,
all payments otherwise required to be paid under the Loan Documents at the time
of such prepayment.

 22
 

Section
2.7             Mandatory Prepayments.  (a)  If
at any time the Revolving Facility Usage exceeds the Revolving Loan Commitment
(whether due to a reduction in the Revolving Loan Commitment in accordance with
this Agreement, or otherwise), Borrower shall immediately upon demand prepay
the principal of the Loans (and after the Loans are repaid in full, provide LC
Collateral in accordance with Section 2.14(b)) in an amount at least equal to
such excess.

(b)           Intentionally Left
Blank.

(c)           No later than the
366th day after the receipt of any Net Casualty
Proceeds aggregating in excess of $2,000,000 for any single transaction or
related series of transactions, Borrower shall apply such Net Casualty Proceeds
to repay the Revolving Loans, and the Revolving Loan Commitment shall be
permanently reduced in an aggregate amount equal to such Net Casualty Proceeds.

(d)           Each prepayment of
principal under this section shall be accompanied by all interest then accrued
and unpaid on the principal so prepaid. 
Any principal or interest prepaid pursuant to this section shall be in
addition to, and not in lieu of, all payments otherwise required to be paid
under the Loan Documents at the time of such prepayment.

Section
2.8             Intentionally Left
Blank.

Section
2.9             Letters of Credit.  Subject to the terms and conditions hereof,
Borrower may during the Commitment Period request LC Issuer to, and LC Issuer
shall, issue one or more Letters of Credit, provided that, after taking such
Letter of Credit into account:

(a)           the Revolving
Facility Usage does not exceed the Aggregate Commitment (whether due to a
reduction in the Aggregate Commitment in accordance with this Agreement, or
otherwise) at such time; and

(b)           the expiration date
of such Letter of Credit is prior to the end of the Commitment Period.

All Existing Letters of Credit shall be deemed to have
been issued pursuant hereto, and from and after the Closing Date shall be
subject to and governed by the terms and conditions hereof.

Section
2.10           Requesting Letters of
Credit.  Borrower must make written
application for any Letter of Credit at least two (2) Business Days (or such
shorter period as LC Issuer may in its discretion from time to time agree)
before the date on which Borrower desires for LC Issuer to issue such Letter of
Credit.  By making any such written application
Borrower shall be deemed to have represented and warranted that the LC
Conditions described in Section 2.11 will be met as of the date of issuance of
such Letter of Credit.  Each such written
application for a Letter of Credit must be made in writing in the form and
substance of Exhibit 2.10, the terms and provisions of which are hereby
incorporated herein by reference (or in such other form as may mutually be
agreed upon by LC Issuer and Borrower). 
Two (2) Business Days after the LC Conditions for a Letter of Credit
have been met (or if LC Issuer otherwise desires to issue such Letter of
Credit), LC Issuer will issue such Letter of Credit at LC Issuer’s office in
Houston, Texas.  If any provisions of any
LC Application conflict with any provisions of this Agreement, the provisions
of this Agreement shall govern and control. 
Borrower shall promptly examine a 

 23
 

copy of each Letter of Credit and each amendment
thereto that is delivered to it and, in the event of any claim of noncompliance
with Borrower’s instructions or other irregularity, Borrower will promptly
notify LC Issuer.

Section
2.11           Reimbursement and
Participations.  (a)  Reimbursement by Borrower.  Each Matured LC Obligation shall constitute a
Revolving Loan by LC Issuer to Borrower. 
Borrower promises to pay to LC Issuer, or to LC Issuer’s order, on the
Business Day immediately following the day on which a demand is made, the full
amount of each Matured LC Obligation, together with interest thereon at the
Default Rate applicable to Base Rate Loans. 
The obligation of Borrower to reimburse LC Issuer for each Matured LC
Obligation shall be absolute, unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement (including any LC
Application) under all circumstances, including the following: (i) any lack of
validity or enforceability of such Letter of Credit or any other agreement or
instrument relating thereto; (ii) the existence of any claim, counterclaim,
set-off, defense or other right that Borrower may have at any time against any
beneficiary or any transferee of such Letter of Credit (or any Person for whom
any such beneficiary or any such transferee may be acting), LC Issuer or any
other Person, whether in connection with this Agreement, the transactions
contemplated hereby or by such Letter of Credit or any agreement or instrument
relating thereto, or any unrelated transaction; (iii) any draft, demand,
certificate or other document presented under such Letter of Credit proving to
be forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under such Letter of Credit; (iv) any payment by LC Issuer under such Letter of
Credit against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit; or (v) any other circumstance
or happening whatsoever, whether or not similar to any of the foregoing.  Without limiting the generality of the
foregoing, it is expressly agreed that the absolute and unconditional nature of
Borrower’s obligations under this section to reimburse LC Issuer for each
drawing under a Letter of Credit will not be excused by the gross negligence or
willful misconduct of LC Issuer. 
However, the foregoing shall not be construed to excuse LC Issuer from
liability to Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by Borrower to the extent
permitted by applicable Law) suffered by Borrower that are caused by LC Issuer’s
gross negligence or willful misconduct in determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof.

(b)           Letter of Credit
Advances.  If the beneficiary of any
Letter of Credit makes a draft or other demand for payment thereunder then
Borrower may, during the interval between the making thereof and the honoring
thereof by LC Issuer, request Lenders to make Loans to Borrower in the amount
of such draft or demand, which Loans shall be made concurrently with LC Issuer’s
payment of such draft or demand and shall be immediately used by LC Issuer to
repay the amount of the resulting Matured LC Obligation.  Such a request by Borrower shall be made in
compliance with all of the provisions hereof, provided that for the purposes of
the first sentence of Section 2.1(b), the amount of such Loans shall be
considered, but the amount of the Matured LC Obligation to be concurrently paid
by such Loans shall not be considered.

(c)           Participation by
Lenders.  LC Issuer irrevocably
agrees to grant and hereby grants to each Lender, and to induce LC Issuer to
issue Letters of Credit hereunder each Lender 

 24
 

irrevocably agrees to accept and purchase and hereby
accepts and purchases from LC Issuer, on the terms and conditions hereinafter
stated and for such Lender’s own account and risk, an undivided interest equal
to such Lender’s Percentage Share of LC Issuer’s obligations and rights under
each Letter of Credit issued hereunder and the amount of each Matured LC
Obligation paid by LC Issuer thereunder. 
Each Lender unconditionally and irrevocably agrees with LC Issuer that,
if a Matured LC Obligation is paid under any Letter of Credit for which LC
Issuer is not reimbursed in full by Borrower in accordance with the terms of
this Agreement and the related LC Application (including any reimbursement by
means of concurrent Loans or by the application of LC Collateral), such Lender
shall (in all circumstances and without set-off or counterclaim) pay to LC
Issuer on demand, in immediately available funds at LC Issuer’s address for
notices hereunder, such Lender’s Percentage Share of such Matured LC Obligation
(or any portion thereof which has not been reimbursed by Borrower).  Each Lender’s obligation to pay LC Issuer
pursuant to the terms of this subsection is irrevocable and unconditional.  If any amount required to be paid by any
Lender to LC Issuer pursuant to this subsection is paid by such Lender to LC
Issuer within three Business Days after the date such payment is due, LC Issuer
shall in addition to such amount be entitled to recover from such Lender, on
demand, interest thereon calculated from such due date at the Federal Funds
Rate.  If any amount required to be paid
by any Lender to LC Issuer pursuant to this subsection is not paid by such
Lender to LC Issuer within three Business Days after the date such payment is due,
LC Issuer shall in addition to such amount be entitled to recover from such
Lender, on demand, interest thereon calculated from such due date at the
Default Rate.

(d)           Distributions to
Participants.  Whenever LC Issuer has
in accordance with this section received from any Lender payment of such Lender’s
Percentage Share of any Matured LC Obligation, if LC Issuer thereafter receives
any payment of such Matured LC Obligation or any payment of interest thereon
(whether directly from Borrower or by application of LC Collateral or
otherwise, and excluding only interest for any period prior to LC Issuer’s
demand that such Lender make such payment of its Percentage Share), LC Issuer
will distribute to such Lender its Percentage Share of the amounts so received
by LC Issuer; provided, however, that if any such payment received by LC Issuer
must thereafter be returned by LC Issuer, such Lender shall return to LC Issuer
the portion thereof which LC Issuer has previously distributed to it.

(e)           Calculations.  A written advice setting forth in reasonable
detail the amounts owing under this section, submitted by LC Issuer to Borrower
or any Lender from time to time, shall be conclusive, absent manifest error, as
to the amounts thereof.

Section
2.12           Letter of Credit Fees.  In consideration of LC Issuer’s issuance of
any Letter of Credit, Borrower agrees to pay (a) to Agent, for the account of
all Lenders in accordance with their respective Percentage Shares, a per annum
letter of credit issuance fee at a rate equal to 75% of the Eurodollar Margin
in effect for Revolving Loans, and (b) to such LC Issuer for its own account, a
letter of credit fronting fee at a rate equal to 0.125% per annum.  The letter of credit fee and the letter of
credit fronting fee will be calculated on the undrawn face amount of each
Letter of Credit outstanding on each day at the above-applicable rates and will
be due and payable in arrears on the first day of each Fiscal Quarter and at
the end of the Commitment Period.

 25
 

Section
2.13           No Duty to Inquire.  (a) Drafts and Demands.  LC Issuer is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of Credit
without requiring, and without responsibility for, any determination as to the
existence of any event giving rise to said draft, either at the time of acceptance
or payment or thereafter.  LC Issuer is
under no duty to determine the proper identity of anyone presenting such a
draft or making such a demand (whether by tested telex or otherwise) as the
officer, representative or Agent of any beneficiary under any Letter of Credit,
and payment by LC Issuer to any such beneficiary when requested by any such
purported officer, representative or Agent is hereby authorized and
approved.  Borrower releases each Lender
Party from, and agrees to hold each Lender Party harmless and indemnified
against, any liability or claim in connection with or arising out of the
subject matter of this section, which indemnity shall apply whether or not any
such liability or claim is in any way or to any extent caused, in whole or in
part, by any negligent act or omission of any kind by any Lender Party,
provided only that no Lender Party shall be entitled to indemnification for
that portion, if any, of any liability or claim which is proximately caused by
its own individual gross negligence or willful misconduct, as determined in a
final judgment.

(b)           Extension of
Maturity.  If the maturity of any
Letter of Credit is extended by its terms or by Law or governmental action, if
any extension of the maturity or time for presentation of drafts or any other
modification of the terms of any Letter of Credit is made at the request of any
Restricted Person, or if the amount of any Letter of Credit is increased at the
request of any Restricted Person, this Agreement shall be binding upon all Restricted
Persons with respect to such Letter of Credit as so extended, increased or
otherwise modified, with respect to drafts and property covered thereby, and
with respect to any action taken by LC Issuer, LC Issuer’s correspondents, or
any Lender Party in accordance with such extension, increase or other
modification.

(c)           Transferees of
Letters of Credit.  If any Letter of
Credit provides that it is transferable, LC Issuer shall have no duty to
determine the proper identity of anyone appearing as transferee of such Letter
of Credit, nor shall LC Issuer be charged with responsibility of any nature or
character for the validity or correctness of any transfer or successive
transfers, and payment by LC Issuer to any purported transferee or transferees
as determined by LC Issuer is hereby authorized and approved, and Borrower
releases each Lender Party from, and agrees to hold each Lender Party harmless
and indemnified against, any liability or claim in connection with or arising
out of the foregoing, which indemnity shall apply whether or not any such
liability or claim is in any way or to any extent caused, in whole or in part,
by any negligent act or omission of any kind by any Lender Party, provided only
that no Lender Party shall be entitled to indemnification for that portion, if
any, of any liability or claim which is proximately caused by its own
individual gross negligence or willful misconduct, as determined in a final
judgment.

Section
2.14           LC Collateral.  (a) Intentionally Left Blank.

(b)           Acceleration of
LC Obligations.  If the Obligations
or any part thereof become immediately due and payable pursuant to Section 8.1
then, unless Required Lenders otherwise specifically elect to the contrary
(which election may thereafter be retracted by Required Lenders at any time),
all LC Obligations shall be deemed to become immediately due and payable
without regard to whether or not actual drawings or payments on the Letters of
Credit have occurred, and Borrower shall be obligated to pay to LC Issuer
immediately an amount equal to 

 26
 

the aggregate LC Obligations which are then
outstanding, which amount shall be held by LC Issuer as security for LC
Obligations (the “LC Collateral”) and the other Obligations, and such LC
Collateral may be applied from time to time to any Matured LC Obligations or
any other Obligations which are due and payable.

(c)           Investment of LC
Collateral.  Pending application
thereof, all LC Collateral shall be invested by the Agent in such Investments
as the Agent may choose in its sole discretion. 
All interest on (and other proceeds of) such Investments shall be
reinvested or applied to Matured LC Obligations or other Obligations which are
due and payable.  When all Obligations
have been satisfied in full, including all LC Obligations, all Letters of
Credit have expired or been terminated, and all of Borrower’s reimbursement
obligations in connection therewith have been satisfied in full or when the
condition pursuant to which the LC Collateral was required no longer exists,
the Agent shall release any remaining LC Collateral.  Borrower hereby assigns and grants to the
Agent a continuing security interest in all LC Collateral paid by it to the
Agent, all Investments purchased with such LC Collateral, and all proceeds
thereof to secure its Matured LC Obligations and its Obligations under this
Agreement, each Note, and the other Loan Documents, and Borrower agrees that
such LC Collateral, Investments and proceeds shall be subject to all of the
terms and conditions of the Security Documents. 
Borrower further agrees that the Agent shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code as adopted in the
State of Texas with respect to such security interest and that an Event of
Default under this Agreement shall constitute a default for purposes of such
security interest.

(d)           Payment of LC
Collateral.  When Borrower is
required to provide LC Collateral for any reason and fails to do so on the day
when required,  the Agent or LC
Issuer  may without notice to Borrower or
any other Restricted Person provide such LC Collateral (whether by application
of proceeds of other Collateral, by transfers from other accounts maintained
with the Agent or LC Issuer, or otherwise) using any available funds of
Borrower or any other Person also liable to make such payments.  Any such amounts which are required to be
provided as LC Collateral and which are not provided on the date required
shall, for purposes of each Security Document, be considered past due
Obligations owing hereunder, and LC Issuer is hereby authorized to exercise its
respective rights under each Security Document to obtain such amounts.

Section
2.15           Existing Letters of
Credit.  On the effective date of
this Agreement, without further action by any party hereto, (x) the applicable
LC Issuer for each Existing Letter of Credit shall be deemed to have granted to
each Lender, and each Lender shall be deemed to have acquired from the LC
Issuer, a participation in each of the Existing Letters of Credit equal to such
Lender’s Percentage Share of (A) the aggregate amount available to be drawn
under such Existing Letters of Credit and (B) the aggregate amount of any
outstanding reimbursement obligations in respect thereof.  With respect to each of the Existing Letters
of Credit (i) if the applicable LC Issuer has heretofore sold a participation
therein to a Lender, the applicable LC Issuer and such Lender agree that such
participation shall be automatically canceled on the effective date of this
Agreement and (ii) if the applicable LC Issuer has heretofore sold a
participation therein to any bank or financial institution that is not a
Lender, then the applicable LC Issuer shall procure the termination of such
participation on or prior to the effective date of this Agreement.  On and after the effective date of this
Agreement, each of the Existing Letters 

 27
 

of Credit shall be a Letter of Credit issued
hereunder.  Further, with respect to that
certain Existing Letter of Credit issued by Prior Agent on January 14, 2004 in
the amount of $20,287,414.00 for the benefit of American Zurich Insurance Co.,
Borrower shall use commercially reasonable efforts to replace such Existing
Letter of Credit with a Letter of Credit issued by Wachovia Bank, N.A., as LC
Issuer, on or before the expiration of sixty (60) days immediately following
the effective date of this Agreement.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]

 28

ARTICLE III

PAYMENTS TO LENDERS

Section
3.1             General Procedures.  Borrower will make each payment which it owes
under the Loan Documents to Agent for the account of the Lender Party to whom
such payment is owed, in lawful money of the United States of America, without
set-off, deduction or counterclaim, and in immediately available funds.  Each such payment must be received by Agent
not later than 11:00 a.m., Houston, Texas time, on the date such payment
becomes due and payable.  Any payment
received by Agent after such time will be deemed to have been made on the next
following Business Day.  Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. 
Each payment under a Loan Document shall be due and payable at the place
set forth for Agent on Schedule 3.1 hereto. When Agent collects or
receives money on account of the Obligations, Agent shall distribute all money
so collected or received, and each Lender Party shall apply all such money so
distributed, as follows (except as otherwise provided in Section 8.3):

(a)           first, for the
payment of all Obligations which are then due (and if such money is
insufficient to pay all such Obligations, first to any reimbursements due Agent
under Section 6.9 or 10.4 and then to the partial payment of all other
Obligations then due in proportion to the amounts thereof, or as Lender Parties
shall otherwise agree);

(b)           then for the
prepayment of amounts owing under the Loan Documents (other than principal of
the Loans) if so specified by Borrower;

(c)           then for the
prepayment of principal of the Loans, together with accrued and unpaid interest
on the principal so prepaid; and

(d)           last, for the
payment or prepayment of any other Obligations.

All payments applied to principal or interest on any
Note shall be applied first to any interest then due and payable, then to
principal then due and payable, and last to any prepayment of principal and
interest in compliance with Sections 2.6 and 2.7.  All distributions of amounts described in any
of subsections (b), (c) or (d) above shall be made by Agent pro rata to each
Lender Party then owed Obligations described in such subsection in proportion
to all amounts owed to all Lender Parties which are described in such
subsection; provided that if any Lender then owes payments to LC Issuer for the
purchase of a participation under Section 2.13(c) or to Agent under Section
9.9, any amounts otherwise distributable under this section to such Lender
shall be deemed to belong to LC Issuer, or Agent, respectively, to the extent
of such unpaid payments, and Agent shall apply such amounts to make such unpaid
payments rather than distribute such amounts to such Lender.

Section
3.2             Capital Reimbursement.  If either (a) the introduction or implementation
after the date hereof of or the compliance with or any change after the date
hereof in or in the interpretation of any Law regarding capital adequacy, or
(b) the introduction or implementation

 29
 

after the date hereof of or the compliance with any
request, directive or guideline issued after the date hereof from any central
bank or other governmental authority (whether or not having the force of Law)
regarding capital requirements has or would have the effect of reducing the
rate of return on any Lender Party’s capital, or on the capital of any
corporation controlling such Lender Party, as a consequence of the Loans made,
or Letters of Credit issued, by such Lender Party, to a level below that which
such Lender Party or such corporation could have achieved but for such change
(taking into consideration such Lender Party’s policies and the policies of any
such corporation with respect to capital adequacy), then from time to time
Borrower will pay to Agent for the benefit of such Lender Party, within five (5)
Business Days of demand therefore by such Lender Party, such additional amount
or amounts which such Lender Party shall determine to be appropriate to
compensate such Lender Party for such reduction.

Section
3.3             Increased Cost of
Eurodollar Loans or Letters of Credit. 
(a) If any change after the date hereof in any applicable Law (whether
now in effect or hereinafter enacted or promulgated, including Regulation D) or
any interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of Law):

(i)            shall change the basis of taxation
of payments to any Lender Party of any principal, interest, or other amounts
attributable to any Eurodollar Loan or Letter of Credit or otherwise due under
this Agreement in respect of any Eurodollar Loan or Letter of Credit (other
than Reimbursable Taxes governed by Section 3.6 and taxes imposed on or
measured by its overall net income, and franchise taxes imposed on it (in lieu
of net income taxes), by the jurisdiction (or any political subdivision
thereof) under the Laws of which it is organized or otherwise resides for tax
purposes or maintains any Applicable Lending Office); or

(ii)           shall change, impose, modify, apply
or deem applicable any reserve, special deposit or similar requirements in
respect of any Eurodollar Loan made by any Lender Party or any Letter of Credit
(excluding any reserve requirement included in the computation of the Adjusted
Eurodollar Rate) or against assets of, deposits with or for the account of, or
credit extended by, such Lender Party; or

(iii)          shall impose on any Lender Party or
the interbank eurocurrency deposit market any condition affecting any
Eurodollar Loan or Letter of Credit,

the result of which is to increase the cost to any
Lender Party of agreeing to make or making, funding or maintaining Eurodollar
Loans or (as the case may be) issuing or participating in Letters of Credit, or
a reduction in the amount received or receivable by such Lender in connection
with any of the foregoing, then such Lender Party shall promptly notify Agent
and Borrower in writing of the happening of such event and of the amount
required to compensate such Lender Party for such additional costs or reduced
return (on an after-tax basis, taking into account any taxes on and deductions,
credits or other tax benefits in respect of such compensation), whereupon (i)
Borrower shall pay such amount to Agent for the account of such Lender Party
and (ii) Borrower may elect, by giving to Agent and such Lender Party not less
than three Business Days’ notice, to convert all (but not less than all) of any
such Eurodollar Loans of such Lender Party into Base Rate Loans.

 30
 

(b)           A certificate of a
Lender Party setting forth the amount or amounts necessary to compensate such
Lender Party or the corporation controlling such Lender Party, as the case may
be, as specified in Section 3.2 or this Section 3.3 shall be delivered to
Borrower and shall be conclusive absent manifest error.  Borrower shall pay the applicable Lender
Party the amount shown as due on any such certificate within 3 Business Days
after receipt thereof.

(c)           Failure or delay on
the part of any Lender Party to demand compensation pursuant to Section 3.2 or
this Section 3.3 shall not constitute a waiver of such Lender Party’s right to
demand such compensation.

Section
3.4             Illegality.  If any change after the date hereof in
applicable Laws, or in the interpretation or administration thereof of or in
any jurisdiction whatsoever, domestic or foreign, shall make it unlawful for
any Lender Party to fund or maintain Eurodollar Loans, then, upon notice by
such Lender Party to Borrower and Agent, (a) Borrower’s right to elect
Eurodollar Loans from such Lender Party shall be suspended to the extent and
for the duration of such illegality, (b) all Eurodollar Loans of such Lender
Party which are then the subject of any Borrowing Notice and which cannot be
lawfully funded shall be funded as Base Rate Loans of such Lender Party, and
(c) all Eurodollar Loans of such Lender Party shall be converted automatically
to Base Rate Loans on the respective last days of the then current Interest
Periods with respect to such Loans or within such earlier period as required by
Law.  If any such conversion of a Eurodollar
Loan occurs on a day which is not the last day of the then current Interest
Period with respect thereto, Borrower shall pay to such Lender Party such
amounts, if any, as may be required pursuant to Section 3.5.

Section
3.5             Funding Losses.  In addition to its other obligations
hereunder, Borrower will indemnify each Lender Party against, and reimburse
each Lender Party on demand for, any loss or expense incurred or sustained by
such Lender Party (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a Lender
Party to fund or maintain Eurodollar Loans but excluding any loss of Base Rate
Margin or Eurodollar Margin), as a result of (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or a portion of
a Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the effective date, of
a Continuation/Conversion Notice requesting the continuation of outstanding
Eurodollar Loans as, or the conversion of outstanding Base Rate Loans to,
Eurodollar Loans, if such payment or prepayment prevents such Continuation/Conversion
Notice from becoming fully effective, (c) the failure of any Loan to be made or
of any Continuation/Conversion Notice requesting the continuation of
outstanding Eurodollar Loans as, or the conversion of outstanding Base Rate
Loans to, Eurodollar Loans to become effective due to any condition precedent
not being satisfied or due to any other action or inaction of any Restricted
Person, (d) any Conversion (whether authorized or required hereunder or
otherwise) of all or any portion of any Eurodollar Loan into a Base Rate Loan
or into a different Eurodollar Loan on a day other than the day on which the
applicable Interest Period ends, or (e) any assignment of a Eurodollar Loan on
a day other than the last day of the Interest Period therefor as a result of a
request by Borrower pursuant to Section 3.8(b).

 31
 

Section
3.6             Reimbursable Taxes.  Borrower covenants and agrees that:

(a)           Borrower will
indemnify each Lender Party against and reimburse each Lender Party for all
present and future income, stamp and other taxes, levies, costs and charges
whatsoever imposed, assessed, levied or collected on or in respect of this
Agreement or any Eurodollar Loans or Letters of Credit (whether or not legally
or correctly imposed, assessed, levied or collected), excluding, however, (i)
taxes imposed on or measured by its overall net income, and franchise taxes
imposed on it (in lieu of net income taxes), by the jurisdiction (or any
political subdivision thereof) under the Laws of which it is organized or
otherwise resides for tax purposes or maintains any Applicable Lending Office,
(ii) with respect to each Lender Party, taxes imposed by reason of any present
or former connection between such Lender Party and the jurisdiction imposing
such taxes, other than solely as a result of this Agreement or any Note or any
transaction contemplated hereby, and (iii) any United States withholding tax
imposed on any payment by Borrower pursuant to this Agreement or under any
Eurodollar Loans or Letters of Credit, but not excluding any portion of such
tax that exceeds the United States withholding tax which would have been
imposed on such a payment to such Lender Party under the laws and treaties in
effect when such Lender Party first becomes a party to this Agreement (all such
non-excluded taxes, levies, costs and charges being collectively called “Reimbursable
Taxes”).  Such indemnification shall be
on an after-tax basis and, except as otherwise provided in Section 3.6(b), paid
within 3 Business Days after a Lender Party makes demand therefor.

(b)           All payments on
account of the principal of, and interest on, each Lender Party’s Loans and
Note, and all other amounts payable by Borrower to any Lender Party hereunder,
shall be made in full without set-off or counterclaim and shall be made free
and clear of and without deductions or withholdings of any nature by reason of
any Reimbursable Taxes, all of which will be for the account of Borrower.  In the event of Borrower being compelled by
Law to make any such deduction or withholding from any payment to any Lender
Party, Borrower shall pay on the due date of such payment, by way of additional
interest, such additional amounts as are needed to cause the amount receivable
by such Lender Party after such deduction or withholding to equal the amount
which would have been receivable in the absence of such deduction or
withholding.  If Borrower should make any
deduction or withholding as aforesaid, Borrower shall within 60 days thereafter
forward to such Lender Party an official receipt or other official document
evidencing payment of such deduction or withholding.

(c)           If Borrower is ever
required to pay any Reimbursable Tax with respect to any Eurodollar Loan,
Borrower may elect, by giving to Agent and such Lender Party not less than
three Business Days’ notice, to convert all (but not less than all) of any such
Eurodollar Loan into a Base Rate Loan, but such election shall not diminish
Borrower’s obligation to pay all Reimbursable Taxes.

(d)           Notwithstanding the
foregoing provisions of this section, Borrower shall be entitled, to the extent
it is required to do so by Law, to deduct or withhold (and not to make any
indemnification or reimbursement for) income or other similar taxes imposed by
the United States of America from interest, fees or other amounts payable
hereunder for the account of any Lender Party, other than a Lender Party (i)
who is a U.S. person for Federal income tax purposes or (ii) who has the
Prescribed Forms on file with Agent (with copies provided to Borrower) for the
applicable year to the extent deduction or withholding of such taxes is not
required as a result

 32
 

of the filing of such Prescribed Forms, provided that if Borrower shall
so deduct or withhold any such taxes, it shall provide a statement to Agent and
such Lender Party, setting forth the amount of such taxes so deducted or
withheld, the applicable rate and any other information or documentation which
such Lender Party may reasonably request for assisting such Lender Party to
obtain any allowable credits or deductions for the taxes so deducted or
withheld in the jurisdiction or jurisdictions in which such Lender Party is
subject to tax.  As used in this section,
“Prescribed Forms” means such duly executed forms or statements, and in such
number of copies, which may, from time to time, be prescribed by Law and which,
pursuant to applicable provisions of (x) an income tax treaty between the
United States and the country of residence of the Lender Party providing the
forms or statements, (y) the Internal Revenue Code, or (z) any applicable rules
or regulations thereunder, permit Borrower to make payments hereunder for the
account of such Lender Party free of such deduction or withholding of income or
similar taxes.

Section
3.7             Alternative Rate of
Interest.  If prior to the commencement
of any Interest Period for a Borrowing of Eurodollar Loans:

(a)           Agent determines
that adequate and reasonable means do not exist for ascertaining the Eurodollar
Rate for such Interest Period (any such determination shall be conclusive
absent manifest error); or

(b)           Agent is advised by
Required Lenders that the Eurodollar Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders of making or maintaining
their Loans included in such Borrowing for such Interest Period;

then Agent shall give notice thereof to Borrower and
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until Agent notifies Borrower and Lenders that the circumstances giving rise to
such notice no longer exist, (i) any Continuation/Conversion Notice that
requests the conversion of any Borrowing to, or continuation of any Borrowing
as, a Borrowing of Eurodollar Loans shall be ineffective and shall be deemed a
request to continue such Borrowing as a Borrowing of Base Rate Loans and (ii)
if any Borrowing Notice requests a Borrowing of Eurodollar Loans, such
Borrowing shall be made as a Borrowing of Base Rate Loans.  Upon receipt of such notice, Borrower may
revoke any pending request for a Borrowing of, conversion to or continuation of
Eurodollar Loans.

Section
3.8             Change of Applicable
Lending Office; Replacement of Lenders.

(a)           Each Lender Party
agrees that, upon the occurrence of any event giving rise to the operation of
Sections 3.2, 3.3, 3.4 or 3.6 with respect to such Lender Party, it will, if
requested by Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender Party) to designate another Applicable Lending
Office, provided that such designation is made on such terms that such Lender
Party and its Applicable Lending Office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such section. 
Nothing in this section shall affect or postpone any of the obligations
of Borrower or the rights of any Lender Party provided in Sections 3.2, 3.3,
3.4, or 3.6.

 33
 

(b)           If any Lender
requests compensation under Section 3.2 or 3.3, or if Borrower is required to
pay any additional amount to any Lender Party or any governmental authority for
the account of any Lender Party pursuant to Section 3.6, or if the obligation
of any Lender Party to make or maintain Loans as, or convert Loans to,
Eurodollar Loans is suspended pursuant to Section 3.4, or if any Lender Party
defaults in its obligation to fund Loans hereunder, then Borrower may, at its
sole expense and effort (such expense to include any transfer fee payable to
Agent under Section 10.5(c) and any expense pursuant to Article III), upon
notice to such Lender Party and Agent, require such Lender Party to assign and
delegate in whole (but not in part), without recourse (in accordance with and
subject to the restrictions contained in Section 10.5), all its interests,
rights and obligations under this Agreement to an Eligible Transferee that
shall assume such obligations (which Eligible Transferee may be another Lender
Party, if a Lender Party accepts such assignment); provided that (i) Borrower
shall have received the prior written consent of Agent, which consent shall not
unreasonably be withheld, (ii) such Lender Party shall have received payment of
an amount equal to the outstanding principal of its Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder from
Borrower or such Eligible Transferee (including any amounts payable pursuant to
Section 3.5), (iii) in the case of any such assignment resulting from a claim
for compensation under Section 3.2 or 3.3 or payments required to be made
pursuant to Section 3.6, such assignment will result in a reduction in such
compensation or payments, and (iv) if the Borrower elects to exercise such
right with respect to any Lender Party, it shall be obligated to replace all
Lender Parties that have made similar requests. 
A Lender Party shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender Party or
otherwise, the circumstances entitling Borrower to require such assignment and
delegation cease to apply.  Any Lender
Party being replaced shall execute and deliver an Assignment and Acceptance
with respect to such Lender Party’s outstanding Loans and participations in LC
Obligations.

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ARTICLE IV

CONDITIONS PRECEDENT TO LENDING

Section
4.1             Documents to be
Delivered.  No Lender has any
obligation to make its first Loan, and LC Issuer has no obligation to issue the
first Letter of Credit, unless Agent shall have received all of the following,
at Agent’s office in Houston, Texas, duly executed and delivered and in form,
substance and date reasonably satisfactory to the Agent, the Lenders and their
counsel:

(a)           This Agreement.

(b)           Each Revolving Note.

(c)           A Guaranty executed
by each Guarantor existing on the date hereof.

(d)           Each Security
Document listed on Schedule 4.1.

(e)           The following
certificates of Borrower and, as appropriate, the Subsidiaries:

(i)            An “Omnibus Certificate” of the
Secretary or Assistant Secretary of the Borrower and each Guarantor, which
shall contain the names and signatures of the officers of Borrower and each
Guarantor authorized to execute Loan Documents and which shall certify to the
truth, correctness and completeness of the following exhibits attached thereto:  (1) a copy of resolutions duly adopted by the
Board of Directors of Borrower and each Guarantor and in full force and effect
at the time this Agreement is entered into, authorizing the execution of this
Agreement and the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions contemplated
herein and therein, (2) a copy of the charter documents of Borrower and each
Guarantor and all amendments thereto, certified by the appropriate official of
such party’s state of organization, and (3) a copy of the bylaws of Borrower
and each Guarantor; and

(ii)           A “Closing Certificate” of the chief
financial officer of Borrower, as of the Closing Date, certifying that (A) the
conditions set out in subsections (a), (b), and (c) of Section 4.2 have been
satisfied and (B) the Initial Financial Statements of Borrower delivered to the
Agent fairly present the Consolidated financial position for the periods
covered thereby, as of the date of such Initial Financial Statements.

(f)            A certificate of
existence and good standing for Borrower issued by the Secretary of State of
Delaware, a certificate of due qualification to do business for the Borrower
issued by the Secretary of State of Texas, and a certificate of account status
for the Borrower issued by the Texas Comptroller of Public Accounts.

(g)           A favorable opinion
of (i) Bracewell & Giuliani LLP, counsel for Restricted Persons,
substantially in the form set forth in Exhibit 4.1(g)(i); and (ii) Trent
McKenna, in-house counsel for Restricted Persons, substantially in the form set
forth in Exhibit 4.1(g)(ii).

(h)           The Initial
Financial Statements.

 35
 

(i)            The certificate or
certificates of insurance required by Section 6.8.

(j)            Payment of all fees
including all Commitment Fees, upfront, Agent, and Lead Arranger fees required
to be paid to any Lender or any other Party pursuant to any Loan Documents.

(k)           Confirmation that
all Indebtedness under the Prior Credit Documents has been paid or renewed and
extended.

(l)            The Assignment of
Prior Credit Documents in form and substance satisfactory to the Agent in its
sole discretion, executed by the Prior Agent, as agent, and each of the lenders
party to the Prior Credit Agreement on the Closing Date and the delivery of all
Collateral in possession of the Prior Agent.

(m)          Such other documents
and instruments as the Agent and its counsel may reasonably require.

Section
4.2             Additional Conditions
Precedent.  No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no obligation
to issue any Letter of Credit (including its first), unless the following
conditions precedent have been satisfied:

(a)           All representations
and warranties made by any Restricted Person in any Loan Document shall be true
in all material respects (without duplication of materiality qualifiers
contained therein) on and as of the date of such Loan or the date of
issuance of such Letter of Credit as if such representations and warranties had
been made as of the date of such Loan or the date of issuance of such Letter of
Credit, except to the extent that such representation or warranty was made as
of a specific date or updated, modified or supplemented as of a subsequent date
with the consent of Required Lenders.

(b)           No Default shall
exist at the date of such Loan or the date of issuance of such Letter of
Credit.

(c)           The making of such
Loan or the issuance of such Letter of Credit shall not be prohibited by any
Law and shall not subject any Lender or any LC Issuer to any penalty or other
onerous condition under or pursuant to any such Law.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES

To confirm each Lender’s understanding concerning
Restricted Persons and Restricted Persons’ businesses, properties and obligations
and to induce each Lender to enter into this Agreement and to extend credit
hereunder, Borrower represents and warrants to each Lender that:

Section
5.1             No Default.  No event has occurred and is continuing which
constitutes a Default or an Event of Default.

Section
5.2             Organization and Good
Standing.  Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated
hereby.  Each Restricted Person is duly
qualified, in good standing, and authorized to do business in all other
jurisdictions within the United States wherein the character of the properties
owned or held by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to so qualify or be
authorized could not reasonably be expected to result in a Material Adverse
Change.  Each Restricted Person has taken
all actions and procedures customarily taken in order to enter, for the purpose
of conducting business or owning property, each jurisdiction outside the United
States wherein the character of the properties owned or held by it or the
nature of the business transacted by it makes such actions and procedures
desirable could not reasonably be expected to result in a Material Adverse
Change.

Section
5.3             Authorization.  Each Restricted Person has the power and
authority to execute, deliver, and perform its respective obligations under
this Agreement and the other Loan Documents. Each Restricted Person has taken
all action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder.  This Agreement and the other
Loan Documents have been duly executed and delivered by Borrower and each other
Restricted Person a Party thereto. 
Borrower is duly authorized to borrow funds hereunder.

Section
5.4             No Conflicts or
Consents.  The execution and delivery
by the various Restricted Persons of the Loan Documents to which each is a
party, the performance by each of its obligations under such Loan Documents,
and the consummation of the transactions contemplated by the various Loan
Documents, do not and will not (a) conflict with any provision of (i) any Law,
(ii) the organizational documents of any Restricted Person, or (iii) any
material agreement, judgment, license, order or permit applicable to or binding
upon any Restricted Person; (b) result in the acceleration of any Indebtedness
owed by any Restricted Person; or (c) result in or require the creation of any
Lien upon any assets or properties of any Restricted Person except as expressly
contemplated or permitted in the Loan Documents.  Except as expressly contemplated in the Loan
Documents, no permit, consent, approval, authorization or order of, and no
notice to or filing with, any Tribunal or third party is required in connection
with the execution, delivery or performance by any Restricted Person of any
Loan Document or to consummate any transactions contemplated by the Loan
Documents.

 37
 

Section
5.5             Enforceable Obligations.  This Agreement is, and the other Loan
Documents when duly executed and delivered will be, legal, valid and binding
obligations of each Restricted Person which is a party hereto or thereto,
enforceable in accordance with their respective terms except as such
enforcement may be limited by bankruptcy, insolvency or similar Laws of general
application relating to the enforcement of creditors’ rights.

Section
5.6             Initial Financial
Statements.  Restricted Persons have
heretofore delivered to each Lender true, correct and complete copies of the
Initial Financial Statements.  The
Initial Financial Statements fairly present Borrower’s Consolidated financial
position at the respective dates thereof and the Consolidated results of
Borrower’s operations and Borrower’s Consolidated cash flows for the respective
periods thereof.  Since the date of the
annual Initial Financial Statements, no Material Adverse Change has occurred,
except as reflected in the quarterly Initial Financial Statements or in Section
5.6 of the Disclosure Schedule.

Section
5.7             Other Obligations and
Restrictions.  As of the Closing
Date, no Restricted Person has any outstanding Liabilities of any kind which
are, in the aggregate, material to Borrower or material with respect to
Borrower’s Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in Section 5.7 of the Disclosure Schedule or otherwise
permitted under Section 7.1.  Except as
shown in the Initial Financial Statements or disclosed in Section 5.7 of the
Disclosure Schedule, no Restricted Person is subject to or restricted by any
franchise, contract, deed, charter restriction, or other instrument or
restriction which could reasonably be expected to cause a Material Adverse
Change.

Section
5.8             Full Disclosure.  No certificate, written statement or other
written information delivered herewith or heretofore by any Restricted Person
to any Lender in connection with the negotiation of this Agreement or in
connection with any transaction contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact known to any
Restricted Person (other than industry-wide risks normally associated with the
types of businesses conducted by Restricted Persons) necessary to make the
statements contained herein or therein, taken as a whole, not misleading as of
the date made or deemed made.  There is
no fact known to any Restricted Person that has not been disclosed to each
Lender in writing which could reasonably be expected to cause a Material
Adverse Change.  There are no statements
or conclusions in any report delivered by any Restricted Person to the Lenders
which are based upon or include misleading information or fail to take into
account material information regarding the matters reported therein.

Section
5.9             Litigation.  Except as disclosed in the Initial Financial
Statements or in Section 5.9 of the Disclosure Schedule:  (a) there are no actions, suits or legal,
equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person or
affecting any Collateral (including any which challenge or otherwise pertain to
any Restricted Person’s title to any Collateral) before any Tribunal which
could reasonably be expected to cause a Material Adverse Change, and (b) there are
no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or, to the knowledge of Borrower, any
Restricted Person’s stockholders, partners, directors or officers, or affecting
any Collateral or any of its material assets or property which could reasonably
be expected to cause a Material Adverse Change.

 38
 

Section
5.10           Labor Disputes and Acts
of God.  Except as disclosed in
Section 5.10 of the Disclosure Schedule, neither the business nor the properties
of any Restricted Person has been affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty (whether or not
covered by insurance), which could reasonably be expected to cause a Material
Adverse Change.

Section
5.11           ERISA Plans and
Liabilities.  All ERISA Plans in
effect on the Closing Date are listed in Section 5.11 of the Disclosure
Schedule.  Except as disclosed in the
Initial Financial Statements or in Section 5.11 of the Disclosure Schedule, no
Termination Event has occurred with respect to any ERISA Plan and all ERISA
Affiliates are in compliance with ERISA which could reasonably be expected to
cause a Material Adverse Change.  Except
as permitted under Section 7.10 hereof, no ERISA Affiliate is required to
contribute to, or has any other absolute or contingent liability in respect of,
any “multiemployer plan” as defined in Section 4001 of ERISA.  Except as set forth in Section 5.11 of the
Disclosure Schedule as of the Closing Date: 
(a) no “accumulated funding deficiency” (as defined in Section 412(a) of
the Internal Revenue Code) exists with respect to any ERISA Plan, whether or
not waived by the Secretary of the Treasury or his delegate, and (b) the
current value of each ERISA Plan’s benefits does not exceed the current value
of such ERISA Plan’s assets available for the payment of such benefits which
could reasonably be expected to cause a Material Adverse Change.

Section
5.12           Environmental and Other
Laws.  Except as disclosed in Section
5.12 of the Disclosure Schedule: (a) Restricted Persons are conducting their
businesses in compliance with all applicable Laws, including Environmental
Laws, which the failure to so comply could reasonably be expected to cause a
Material Adverse Change, and have and are in compliance with all licenses and
permits required under any such Laws which the failure to so comply could
reasonably be expected to cause a Material Adverse Change; (b) none of the
operations or properties of any Restricted Person is the subject of federal,
state or local investigation evaluating whether any material remedial action is
needed to respond to a release of any Hazardous Materials into the environment
or to the improper storage or disposal (including storage or disposal at
offsite locations) of any Hazardous Materials which could reasonably be
expected to cause a Material Adverse Change; (c) no Restricted Person (and to
the best knowledge of Borrower, no other Person) has filed any notice under any
Law indicating that any Restricted Person is responsible for the improper
release into the environment, or the improper storage or disposal, of any
material amount of any Hazardous Materials or that any Hazardous Materials have
been improperly released, or are improperly stored or disposed of, upon any
property of any Restricted Person which could reasonably be expected to cause a
Material Adverse Change; (d) to the knowledge of Borrower, no Restricted Person
has transported or arranged for the transportation of any Hazardous Material to
any location which is (i) listed on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, listed for possible inclusion on such National Priorities List by
the Environmental Protection Agency in its Comprehensive Environmental
Response, Compensation and Liability Information System List, or listed on any
similar state list or (ii) the subject of federal, state or local enforcement
actions or other investigations, in the case of either of the forgoing clauses
(i) and (ii), which may lead to claims against any Restricted Person for
clean-up costs, remedial work, damages to natural resources or for personal
injury claims (whether under Environmental Laws or otherwise) which could
reasonably be expected to cause

 39
 

a Material Adverse Change; and (e) no Restricted
Person otherwise has any known material contingent liability under any
Environmental Laws or in connection with the release into the environment, or
the storage or disposal, of any Hazardous Materials which could reasonably be
expected to cause a Material Adverse Change. 
Each Restricted Person undertook, at the time of its acquisition of each
of its material properties, all appropriate inquiry into the previous ownership
and uses of the Property and any potential environmental liabilities associated
therewith.

Section
5.13           Names and Places of
Business.  As of the Closing Date, no
Restricted Person has, during the preceding two (2) years, been known by, or
used any other trade or fictitious name, except as disclosed in Section 5.13 of
the Disclosure Schedule.  Except as
otherwise indicated in Section 5.13 of the Disclosure Schedule, as of the
Closing Date, the chief executive office and principal place of business of
each Restricted Person are (and for the preceding two (2) years have been)
located at the address of Borrower set out on Schedule 5.13.  Except as indicated in Section 5.13 of the
Disclosure Schedule otherwise disclosed in writing to Agent, no Restricted
Person has any other office or place of business.

Section
5.14           Subsidiaries.  Borrower does not presently have any
Subsidiary except those listed in Section 5.14 of the Disclosure Schedule or
disclosed to Agent in writing.  No
Restricted Person has any equity investments in any other Person except those
listed in Section 5.14 of the Disclosure Schedule or otherwise permitted under
this Agreement.  Borrower owns, directly
or indirectly, the equity interests in each of its Subsidiaries indicated in
Section 5.14 of the Disclosure Schedule or as disclosed to Agent in writing.

Section
5.15           Government Regulation.  Neither Borrower nor any other Restricted
Person owing Obligations is (a) a “registered holding company”, or a “subsidiary
company” of a “registered holding company”, or an “affiliate” of a “registered
holding company” within the meaning of the Public Utility Holding Company Act
of 1935, as amended; or (b) an “investment company” or a company “controlled”
by an “investment company” within the meaning of the Investment Company Act of
1940, as amended.  The pledge of the
Equity of each Subsidiary of Borrower does not violate Regulation T, U, or X of
the Board of Governors of the Federal Reserve System.

Section
5.16           Insider.  No Restricted Person, nor, to the knowledge
of Borrower as of the Closing Date, any Person having “control” (as that term
is defined in 12 U.S.C. § 375b(9) or in regulations promulgated pursuant
thereto) of any Restricted Person, is a “director” or an “executive officer” or
“principal shareholder” (as those terms are defined in 12 U.S.C. § 375b(8) or
(9) or in regulations promulgated pursuant thereto) of any Lender, of a bank
holding company of which any Lender is a Subsidiary or of any Subsidiary of a
bank holding company of which any Lender is a Subsidiary.

Section
5.17           Solvency.  Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and each Guarantor and
the consummation of the transactions contemplated hereby, Borrower and the
Guarantors, on a Consolidated basis, will be Solvent.  Neither Borrower nor any Restricted Person
has incurred (whether under the Loan Documents or otherwise), nor does any
Restricted Person intend to incur or believe that it will incur Liabilities
which will be beyond its ability to pay as such debts mature.

 40
 

Section
5.18           Tax Shelter Regulations.  Borrower does not intend to treat the Loans
and/or Letters of Credit and related transactions as being a “reportable
transaction” (within the meaning of Treasury Regulation Section 1.6011-4).  In the event Borrower determines to take any
action inconsistent with such intention, it will promptly notify Agent
thereof.  If Borrower so notifies Agent,
Borrower acknowledges that one or more of the Lenders may treat its Loans
and/or Letters of Credit as part of a transaction that is subject to Treasury
Regulation Section 301.6112-1, and such Lender or Lenders, as applicable, will
maintain the lists and other records required by such Treasury Regulation.

Section
5.19           Title to Properties;
Licenses.  Each Restricted Person has
good and defensible title to all of the Collateral and to all of its material
properties and assets, free and clear of all Liens, encumbrances, or adverse
claims other than Permitted Liens and free and clear of all impediments to the
use of such properties and assets in such Restricted Person’s business.  Each Restricted Person possesses all
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
and other intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, which could reasonably be
expected to cause a Material Adverse Change and no Restricted Person is in
violation of the terms under which it possesses such intellectual property or
the right to use such intellectual property, the violation of which could
reasonably be expected to cause a Material Adverse Change.

Section
5.20           Regulation U. None
of the Borrower and its Subsidiaries are engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no proceeds
of any Loans will be used for a purpose which violates Regulation U.

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ARTICLE VI

AFFIRMATIVE COVENANTS OF BORROWER.

Borrower covenants and agrees that until the full and
final payment of the Obligations and the termination of this Agreement, unless
Required Lenders have previously agreed otherwise:

Section
6.1             Payment and Performance.  Borrower will cause each other Restricted
Person to observe, perform and comply with every term, covenant and condition
in any Loan Document.

Section
6.2             Books, Financial
Statements and Reports.  Each
Restricted Person will at all times maintain full and accurate books of account
and records.  Borrower will maintain and
will cause its Subsidiaries to maintain a standard system of accounting, will
maintain its Fiscal Year, and will furnish the following statements and reports
to each Lender Party at Borrower’s expense:

(a)           As soon as
available, and in any event within one hundred twenty (120) days after the end
of each Fiscal Year, complete Consolidated and consolidating financial
statements of Borrower together with all notes thereto, prepared in reasonable
detail in accordance with GAAP, together with an unqualified opinion on the
Consolidated Statements, based on an audit using GAAP, by independent certified
public accountants selected by Borrower of nationally recognized standing,
stating that such Consolidated financial statements have been so prepared.  These financial statements shall contain a
Consolidated and consolidating balance sheet as of the end of such Fiscal Year
and Consolidated and consolidating statements of income for such Fiscal Year
and Consolidated statements of cash flows and stockholders’ equity for such
Fiscal Year, each setting forth in comparative form the corresponding figures
for the preceding Fiscal Year.

(b)           As soon as
available, and in any event within forty-five (45) days after the end of the
first three Fiscal Quarters in each Fiscal Year, Borrower’s unaudited
Consolidated and consolidating balance sheet and income statements as of the
end of such Fiscal Quarter and Consolidated statements of Borrower’s cash flows
and stockholders’ equity for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting from normal
year-end adjustments.  In addition
Borrower will, together with each such set of financial statements and each set
of financial statements furnished under subsection (a) of this section, furnish
a certificate in the form of Exhibit 6.2(b) signed by the chief
financial officer of Borrower stating that such financial statements are fair
and complete in all material respects and fairly present the Consolidated
financial position of Borrower for the periods covered thereby (subject to
normal year-end adjustments), stating that he has reviewed the Loan Documents,
containing calculations showing compliance (or non-compliance) at the end of
such Fiscal Quarter with the requirements of Section 7.11 and stating that no
Default exists at the end of such Fiscal Quarter or at the time of such certificate
or specifying the nature and period of existence of any such Default.

(c)           Promptly upon their
becoming available, copies of all financial statements, reports, notices and
proxy statements sent by any Restricted Person to its stockholders and all registration
statements, periodic reports and other statements and schedules filed by any

 42
 

Restricted Person with any securities exchange, the Securities and
Exchange Commission or any similar governmental authority.

(d)           Each Restricted
Person will cooperate with the Agent in connection with the publication of
certain materials and/or information provided by or on behalf of each such
Restricted Person to Agent and Lenders (collectively, the “Information
Materials”) pursuant to this Article 6 and will designate Information Materials
(i) that are either available to the public or not material with respect to any
Restricted Person or any of their respective securities for purposes of United
States federal and state securities laws, as “Public Information” and (ii) that
are not Public Information as “Private Information.”

Section
6.3             Other Information and
Inspections.  Each Restricted Person
will furnish to each Lender any information which Agent may from time to time
reasonably request concerning any provision of the Loan Documents, any
Collateral, or any matter in connection with Restricted Persons’ businesses,
properties, prospects, financial condition and operations, including all
evidence which Agent from time to time reasonably requests in writing as to the
accuracy and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in the Loan Documents, the satisfaction
of all conditions contained therein, and all other matters pertaining thereto.  Each Restricted Person will permit
representatives appointed by Agent (including independent accountants,
auditors, Agents, attorneys, appraisers and any other Persons) to visit and
inspect during normal business hours any of such Restricted Person’s property,
including its books of account, other books and records, and any facilities or
other business assets, and to make extra copies therefrom and photocopies and
photographs thereof, and to write down and record any information such
representatives obtain, and each Restricted Person shall permit Agent or its
representatives to investigate and verify the accuracy of the information
furnished to Agent or any Lender in connection with the Loan Documents and to
discuss all such matters with its officers, employees and representatives.

Section
6.4             Notice of Material
Events and Change of Address. 
Borrower will, after it has knowledge thereof, promptly notify each
Lender in writing, stating that such notice is being given pursuant to this
Agreement, of:

(a)           the occurrence of
any Material Adverse Change,

(b)           the occurrence of
any Default or Event of Default,

(c)           the acceleration of
the maturity of any Indebtedness owed by any Restricted Person or of any
default by any Restricted Person under any indenture, mortgage, agreement,
contract or other instrument to which any of them is a party or by which any of
them or any of their properties is bound, if such acceleration or default could
reasonably be expected to cause a Material Adverse Change,

(d)           the occurrence of
any Termination Event,

(e)           any claim of
$2,000,000 or more, any notice of potential liability under any Environmental
Laws which might exceed such amount, or any other material adverse claim
asserted against any Restricted Person or with respect to any Restricted Person’s
properties,

 43
 

(f)            the filing of any
suit or proceeding against any Restricted Person in which an adverse decision
could reasonably be expected to cause a Material Adverse Change, and

(g)           the filing of any
material financing statement, registration of a pledge (such as with an issuer
of uncertificated securities), or other arrangement or action which would serve
to perfect a Lien, regardless of whether such financing statement is filed,
such registration is made, or such arrangement or action is undertaken before
or after such Lien exists.

Upon the occurrence of any of the foregoing Restricted
Persons will take all necessary or appropriate steps to promptly remedy any
such Material Adverse Change, Default, Event of Default, acceleration, default
or Termination Event, to protect against any such adverse claim, to defend any
such suit or proceeding, and to resolve all controversies on account of any of
the foregoing.  Borrower will also notify
Agent and Agent’s counsel in writing at least ten (10) Business Days prior to
the date that any Restricted Person changes its name or the location of its
chief executive office or its location under the Uniform Commercial Code.

Section
6.5             Maintenance of
Properties.  Each Restricted Person
will maintain, preserve, protect, and keep all Collateral and all other
material property used or useful in the conduct of its business in good
condition (ordinary wear and tear excepted) in accordance with reasonably
prudent industry standards, and in compliance with all applicable Laws which could
reasonably be expected to cause a Material Adverse Change, in conformity with
all applicable contracts, servitudes, leases and agreements which could
reasonably be expected to cause a Material Adverse Change, and will from time
to time make all commercially reasonable repairs, renewals and replacements
needed to enable the business and operations carried on in connection therewith
to be promptly and advantageously conducted at all times.

Section
6.6             Maintenance of
Existence and Qualifications.  Except
as permitted under Section 7.4, each Restricted Person will maintain and
preserve its existence and its rights and franchises in full force and effect
and will qualify to do business in all states or jurisdictions where required
by applicable Law, except where the failure to maintain, preserve and qualify
could reasonably be expected to cause a Material Adverse Change.

Section
6.7             Payment of Taxes.  Each Restricted Person will (a) timely file
all required tax returns including any extensions; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property before the same become delinquent; and (c)
maintain appropriate accruals and reserves for all of the foregoing in
accordance with GAAP.  Each Restricted
Person may, however, delay paying or discharging any of the foregoing so long
as it is in good faith contesting the validity thereof by appropriate
proceedings, if necessary, and has set aside on its books adequate reserves
therefore which are required by GAAP.

Section 6.8             Insurance.

(a)           Each Restricted
Person shall at all times maintain (at its own expense) insurance for its
property and insurance with respect to all Collateral and liability insurance,
with financially sound and reputable insurance companies, in such amounts and
against such risks as is customary in the industry for similarly situated
businesses and properties.  All insurance

 44
 

policies covering Collateral shall be endorsed (i) to provide for
payment of losses to Agent as its interests may appear and Borrower shall
deliver a certificate to that effect, (ii) to provide that such policies may
not be canceled or reduced or affected in any material manner for any reason
without ten (10) days prior notice to Agent from the insurer, (iii) to provide
for any other matters specified in any applicable Security Document or which
Agent may reasonably require; and (iv) to provide for insurance against fire,
casualty and any other hazards normally insured against, (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured.

(b)           Each such policy
shall (A) if such policy is for liability insurance, name the appropriate
Restricted Person and Agent, as agent for the Lenders, as insured parties
thereunder (without any representation or warranty by or obligation upon Agent
or Lenders) as their interests may appear, (B) if such policy is for property
insurance, contain the agreement by the insurer that any loss thereunder shall
be payable to Agent notwithstanding any action, inaction or breach of
representation or warranty by any Restricted Person, and (C) provide that there
shall be no recourse against Agent or Lenders for payment of premiums or other
amounts with respect thereto.  Each
Restricted Person will, if so requested by Agent, deliver to Agent original or
duplicate policies of such insurance. 
Agent is hereby authorized to enforce payment under all such insurance
policies and to compromise and settle any claims thereunder, in its own name or
in the name of the Restricted Persons.

(c)           Reimbursement under
any liability insurance maintained by Restricted Persons pursuant to this
Section 6.8 may be paid directly to the Person who has incurred the liability
covered by such insurance.  With respect
to any loss involving damage to Collateral as to which subsection (d) of this
Section 6.8 is not applicable, each Restricted Person will make or cause to be
made the necessary repairs to or replacements of such Collateral, and any
proceeds of insurance maintained by each Restricted Person pursuant to this
Section 6.8 shall be paid to such Restricted Person by Agent as reimbursement
for the costs of such repairs or replacements as such repairs or replacements are
made or acquired.

(d)           Upon the occurrence
and during the continuance of an Event of Default or upon the occurrence of a
loss of any Collateral, all property and casualty insurance payments in respect
of such Collateral shall be paid to Agent and applied as specified in Section
2.7.

Section
6.9             Performance on Borrower’s
Behalf.  If any Restricted Person
fails to pay any taxes, insurance premiums, expenses, attorneys’ fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.  Borrower shall immediately reimburse Agent
for any such payments and each amount paid by Agent shall constitute an
Obligation owed hereunder which is due and payable on the date such amount is
paid by Agent.

Section
6.10           Interest.  Borrower hereby promises to each Lender Party
to pay interest at the Default Rate on all Obligations (including Obligations
to pay fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender Party and which are not paid when
due.  Such interest shall accrue from the
date such Obligations become due until they are paid.

 45
 

Section
6.11           Compliance with Law.  Each Restricted Person will conduct its
business and affairs in compliance with all Laws applicable thereto. Each
Restricted Person will cause all licenses and permits necessary or appropriate
for the conduct of its business and the ownership and operation of its property
used and useful in the conduct of its business to be at all times maintained in
good standing and in full force and effect, except as could reasonably be
expected to cause a Material Adverse Change.

Section 6.12           Environmental
Matters; Environmental Reviews.

(a)           Each Restricted
Person will comply with all Environmental Laws now or hereafter applicable to
such Restricted Person, as well as all contractual obligations and agreements
with respect to environmental remediation or other environmental matters
(except as could not reasonably be expected to result in a Material Adverse
Change), and shall obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits, licenses and
other authorizations necessary for its operations (except as could not
reasonably be expected to result in a Material Adverse Change) and will
maintain such authorizations in full force and effect (except as could not
reasonably be expected to result in a Material Adverse Change).  No Restricted Person will do anything or
permit anything to be done which will subject any of its properties to any
remedial obligations under, or result in noncompliance with applicable permits
and licenses issued under, any applicable Environmental Laws, assuming
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances (except as could not reasonably be expected to
result in a Material Adverse Change).

(b)           Borrower will
promptly furnish to Agent copies of all written notices of violation, orders,
claims, citations, complaints, penalty assessments, suits or other proceedings
received by any Restricted Person, or of which Borrower otherwise has notice,
pending or threatened against any Restricted Person by any governmental
authority with respect to any alleged violation of or non-compliance with any
Environmental Laws or with respect to any permits, licenses or authorizations
in connection with any Restricted Person’s ownership or use of its properties
or the operation of its business, in each case, that could reasonably be
expected to result in a Material Adverse Change.

(c)           Borrower will
promptly furnish to Agent all written requests for information, notices of
claim, demand letters, and other written notifications, received by Borrower in
connection with any Restricted Person’s ownership or use of its properties or the
conduct of its business, relating to potential responsibility with respect to
any investigation or clean-up of Hazardous Material at any location that could
reasonably be expected to have a Material Adverse Change.

Section 6.13           Intentionally
Left Blank.

Section
6.14           Bank Accounts; Offset.  To secure the repayment of the Obligations
Borrower hereby grants to each Lender a security interest, a lien, and a right
of offset, each of which shall be in addition to all other interests, liens,
and rights of any Lender at common law, under the Loan Documents, or otherwise,
and each of which shall be upon and against (a) any and all moneys, securities
or other property (and the proceeds therefrom) of Borrower now or

 46
 

hereafter held or received by or in transit to any
Lender from or for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, (b) any and all deposits
(general or special, time or demand, provisional or final) of Borrower with any
Lender, and (c) any other credits and claims of Borrower at any time existing
against any Lender, including claims under certificates of deposit.  At any time and from time to time after the
occurrence of any Event of Default, each Lender is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in
either case without notice to Borrower), any and all items hereinabove referred
to.  The remedies of foreclosure and
offset are separate and cumulative, and either may be exercised independently of
the other without regard to procedures or restrictions applicable to the other.

Section
6.15           Guaranties of Borrower’s
Subsidiaries.  Each Subsidiary
created, acquired or coming into existence after the date hereof, other than an
Immaterial Subsidiary, shall, promptly upon request by Agent, execute and
deliver to Agent an absolute and unconditional guaranty of the timely repayment
of the Obligations and the due and punctual performance of the obligations of
Borrower hereunder, which guaranty shall be reasonably satisfactory to Agent in
form and substance.  Borrower will cause
each of its Subsidiaries hereafter formed or acquired, other than an Immaterial
Subsidiary, to deliver to Agent, simultaneously with its delivery of such a
guaranty, written evidence satisfactory to Agent and its counsel that such
Subsidiary has taken all corporate or partnership action necessary to duly
approve and authorize its execution, delivery and performance of such guaranty
and any other documents which it is required to execute.

Section
6.16           Agreement to Deliver
Security Documents.  Borrower agrees
to deliver and to cause each Guarantor to deliver, to further secure the
Obligations whenever requested by Agent in its sole and absolute discretion,
deeds of trust, mortgages, chattel mortgages, security agreements, financing
statements continuation statements, extension agreements, acknowledgments, and
other Security Documents in form and substance satisfactory to Agent for the
purpose of granting, confirming, protecting and perfecting Liens or security
interests in any personal property now owned or hereafter acquired by Borrower
or any Guarantor.

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BLANK]

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ARTICLE VII

NEGATIVE COVENANTS OF BORROWER

To conform with the terms and conditions under which
each Lender is willing to have credit outstanding to Borrower, and to induce
each Lender to enter into this Agreement and make the Loans, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Required Lenders have previously
agreed otherwise:

Section
7.1             Indebtedness.  No Restricted Person will in any manner owe
or be liable for Indebtedness except:

(a)           the Obligations;

(b)           unsecured
Indebtedness among Borrower and the Guarantors arising in the ordinary course
of business;

(c)           purchase money
Indebtedness and Capital Lease Obligations in an aggregate principal amount not
to exceed $10,000,000 at any time, provided that the original principal amount
of any such Indebtedness shall not be in excess of the purchase price of the
assets acquired thereby and such Indebtedness shall be secured only by the
acquired assets;

(d)           Indebtedness
existing on the date hereof and listed on Schedule 7.1, and renewals and
extensions thereof;

(e)           Subordinated Debt
incurred in connection with Permitted Acquisitions having a maturity date
beyond the term of this Agreement;

(f)            Indebtedness in
respect of deferred software licensing fees in connection with Borrower or any
of its Subsidiaries licensing software in the ordinary course of business
consistent with past practices in a total amount not to exceed $2,000,000 in
the aggregate at any time outstanding;

(g)           unsecured
Indebtedness consisting of industrial revenue bonds in a total amount not to
exceed $600,000 in the aggregate at any time outstanding;

(h)           unsecured
Indebtedness incurred in connection with Permitted Acquisitions in an aggregate
amount not to exceed $25,000,000 at any time outstanding; and

(i)            any other unsecured
Indebtedness not to exceed $2,000,000 in the aggregate at any time outstanding.

Section
7.2             Limitation on Liens.  Except for Permitted Liens, no Restricted
Person will create, assume or permit to exist any Lien upon any of the
properties or assets which it now owns or hereafter acquires.

Section
7.3             Hedging Contracts.  No Restricted Person will be a party to or in
any manner be liable on any Hedging Contract except Hedging Contracts entered
into by a Restricted

 48
 

Person and the Agent or any other Lender with the
purpose and effect of fixing interest rates on a principal amount of
indebtedness of such Restricted Person that is accruing interest at a variable
rate, provided that (a) the aggregate notional amount of such contracts never
exceeds seventy-five percent (75%) of the anticipated outstanding principal
balance of the indebtedness to be hedged by such contracts or an average of
such principal balances calculated using a generally accepted method of
matching interest swap contracts to declining principal balances, and (b) the
floating rate index of each such contract generally matches the index used to
determine the floating rates of interest on the corresponding indebtedness to
be hedged by such contract.

Section
7.4             Limitation on Mergers,
Issuances of Securities.  No
Restricted Person will merge or consolidate with or into any other Person,
except that any Subsidiary of Borrower may be merged into or consolidated with
(a) another Subsidiary of Borrower and, if a Guarantor is one of the merged
entities, so long as a Guarantor is the surviving business entity, (b)
Borrower, so long as Borrower is the surviving business entity, and (c) any
other Person in connection with a sale of such Restricted Person’s Equity that
is permitted by Section 7.5.  Borrower
will not issue any securities other than shares of its common or preferred
stock and any options or warrants giving the holders thereof only the right to
acquire such shares.  No Subsidiary of
Borrower will issue any additional shares of its capital stock or other
securities or any options, warrants or other rights to acquire such additional
shares or other securities except to Borrower or another Subsidiary of Borrower
and only to the extent not otherwise forbidden under the terms hereof.  No Subsidiary of Borrower which is a
partnership will allow any diminution of Borrower’s interest (direct or
indirect) therein.

Section
7.5             Limitation on Sales of
Property.  No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any of its material assets
or properties or any material interest therein, or discount, sell, pledge or
assign any notes payable to it, accounts receivable or future income, except:

(a)           equipment which is
worthless, obsolete, no longer used by or useful to a Restricted Person or
which is replaced by equipment of equal suitability and value;

(b)           inventory which is
sold in the ordinary course of business;

(c)           assets sold as part
of the ALC Sale; and

(d)           other property which
is sold for fair consideration not in the aggregate in excess of $30,000,000 in
any Fiscal Year, the sale of which will not materially impair or diminish the
value of the Collateral or the Consolidated financial condition, business or
operations of Borrower.

Section
7.6             Limitation on
Distributions and Subordinated Debt.

(a)           No Restricted Person
will declare or make any Distribution unless no Default or Event of Default
exists at the time of any such Distribution or would occur as a result thereof.

(b)           No Restricted Person
will make any payments on Subordinated Debt, unless no Default or Event of
Default exists at such time or would occur as a result thereof.

 49
 

Section
7.7             Limitation on
Investments, Acquisitions, Capital Expenditures, and Lines of Business.  No Restricted Person will

(a)           make any Investments
other than Permitted Investments;

(b)           make any Capital
Expenditures in excess of the sum of (i) $40,000,000 in the aggregate in any
Fiscal Year plus (ii) the cash proceeds from the sale of Capital Assets
received in such Fiscal Year;

(c)           make any Acquisition
(i) that is hostile in nature, (ii) that acquires the capital stock, or
assets, liabilities and businesses, of any Person engaged in a line of business
that is not similar to Borrower prior to such Acquisition, (iii) if, after
giving effect to such Acquisition, Borrower’s Net Leverage Ratio is greater
than 1.0 to 1.0, for which the cash portion of the purchase price for such
individual Acquisition is greater than $25,000,000, or (iv) if, after giving
effect to such Acquisition, Borrower’s Net Leverage Ratio is greater than 1.0
to 1.0, which would cause the aggregate cash portions of the purchase prices
for all Acquisitions during any Fiscal Year to exceed $50,000,000; or

(d)           engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations.

Section
7.8             Intentionally Omitted.

Section
7.9             Transactions with
Affiliates.  Neither Borrower nor any
of its Subsidiaries will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would have
been obtainable at the time in arm’s-length dealing with Persons other than
such Affiliates, provided that such restriction shall not apply to transactions
among Borrower and its Subsidiaries.

Section
7.10           Prohibited Contracts.  Except as expressly provided for in the Loan
Documents, no Restricted Person will, directly or indirectly, enter into,
create, or otherwise allow to exist any contract that restricts or other
consensual restriction on, the ability of any Subsidiary of Borrower to: (a)
pay dividends or make other Distributions to Borrower, (b) to redeem Equity
held in it by Borrower, (c) to repay loans and other Indebtedness owing by it
to Borrower, (d) to transfer any of its assets to Borrower, or (e) make loans
or advances to Borrower or any of its Subsidiaries.  No Restricted Person will enter, or permit
the entry by any Restricted Person into, any contract, lease, or amendment that
releases, qualifies, limits, makes contingent or otherwise materially
detrimentally affects the rights and benefits of Agent or any Lender under or
acquired pursuant to any Security Documents. 
No ERISA Affiliate will incur any obligation to contribute to any “multiemployer
plan” as defined in Section 4001 of ERISA, except in the ordinary course of
business for employees subject to collective bargaining agreements.

Section
7.11           Financial Covenants.

(a)           Minimum Fixed
Charge Coverage Ratio.  The Borrower
will not permit the ratio, determined as of the end of each of its Fiscal
Quarters for the then most-recently ended four Fiscal Quarters, of (i) its
Consolidated EBITDA, minus (A) Consolidated Capital Expenditures, (B) the
provision for income taxes (excluding one-time tax charges arising solely from
changes

 50
 

to GAAP), and (C) if Borrower’s Net Leverage Ratio is greater than 1.0
to 1.0, Distributions and any payment made by a Restricted Person for an
Acquisition not prohibited by Section 7.7(c) of this Agreement, all
calculated on a Consolidated basis, to (ii) its Consolidated Interest
Expense, plus scheduled principal payments of
Indebtedness, to be less than 1.5 to 1.0.

(b)           Intentionally Left
Blank.

(c)           Consolidated
Total Indebtedness Ratio.  The
Borrower will not permit the ratio, determined as of the end of each of its
Fiscal Quarters for the then most-recently ended four Fiscal Quarters, of its
Consolidated Total Indebtedness on such day to its Consolidated EBITDA for such
period, to be greater than 2.5 to 1.0.

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ARTICLE VIII

EVENTS OF DEFAULT AND REMEDIES

Section
8.1             Events of Default.  Each of the following events constitutes an
Event of Default under this Agreement:

(a)           Any Restricted
Person fails to pay any principal component of any Obligation when due and payable;

(b)           Any Restricted
Person fails to pay any payment of interest or fees on the date which such
payment is due and such failure continues for a period of three (3) days;

(c)           Any Restricted
Person fails to pay any Obligation (other than the Obligations in subsections
(a) and (b) above) within three Business Days after the same becomes due and
payable, whether at a date for the payment of a fixed installment or as a
contingent or other payment becomes due and payable or as a result of
acceleration or otherwise;

(d)           Any “default” or “event
of default” occurs under any Loan Document which defines either such term, and
the same is not remedied within the applicable period of grace (if any)
provided in such Loan Document;

(e)           Any Restricted
Person fails to duly observe, perform or comply with any covenant, agreement or
provision of Article VII;

(f)            Any Restricted
Person fails (other than as referred to in subsections (a), (b), (c), (d) or
(e) above) to duly observe, perform or comply with any covenant, agreement,
condition or provision of any Loan Document, and such failure remains
unremedied for a period of thirty (30) days after notice of such failure is
given by Agent to Borrower;

(g)           Any representation
or warranty previously, presently or hereafter made in writing by or on behalf
of any Restricted Person in connection with any Loan Document shall prove to
have been false or incorrect in any material respect on any date on or as of
which made, or any Loan Document at any time ceases to be valid, binding and enforceable
as warranted in Section 5.5 for any reason other than its release or
subordination by Agent;

(h)           Any Restricted
Person (i) fails to pay any portion, when such portion is due, of any of its
Indebtedness in excess of $10,000,000, or (ii) breaches or defaults in the
performance of any agreement or instrument by which any such Indebtedness is
issued, evidenced, governed, or secured, and any such failure, breach or
default continues beyond any applicable period of grace provided therefor;

(i)            Either (i) any “accumulated
funding deficiency” (as defined in Section 412(a) of the Internal Revenue Code)
in excess of $10,000,000 exists with respect to any ERISA Plan, whether or not
waived by the Secretary of the Treasury or his delegate, or (ii) any Termination
Event occurs with respect to any ERISA Plan and the then current value of such
ERISA Plan’s benefit liabilities exceeds the then current value of such ERISA
Plan’s assets available for the payment of such benefit liabilities by more
than $10,000,000 (or in the case of a Termination

 52
 

Event involving the withdrawal of a substantial employer, the
withdrawing employer’s proportionate share of such excess exceeds such amount);

(j)            Any Restricted
Person:

(i)            suffers the entry against it of a
judgment, decree or order for relief by a Tribunal of competent jurisdiction in
an involuntary proceeding commenced under any applicable bankruptcy, insolvency
or other similar Law of any jurisdiction now or hereafter in effect, including
the federal Bankruptcy Code, as from time to time amended, or has any such
proceeding commenced against it which remains undismissed for a period of sixty
days; or

(ii)           commences a voluntary case under any
applicable bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended; or applies
for or consents to the entry of an order for relief in an involuntary case
under any such Law; or makes a general assignment for the benefit of creditors;
or fails generally to pay (or admits in writing its inability to pay) its debts
as such debts become due; or takes corporate or other action to authorize any
of the foregoing; or

(iii)          suffers the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of all or a substantial part of its assets or
of any part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made ineffective nor
discharged within sixty days after the making thereof, or such appointment or
taking possession is at any time consented to, requested by, or acquiesced to
by it; or

(iv)          suffers the entry against it of a
final judgment for the payment of money in excess of $10,000,000 (not covered
by insurance satisfactory to Agent in its reasonable discretion), unless the
same is discharged within forty-five days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained; or

(v)           suffers a writ or warrant of
attachment or any similar process to be issued by any Tribunal against all or
any substantial part of its assets or any part of the Collateral, and such writ
or warrant of attachment or any similar process is not stayed or released
within forty-five days after the entry or levy thereof or after any stay is
vacated or set aside;

(k)           Any Change of
Control occurs;

(l)            The occurrence of
an event of default under any document to which any Restricted Person and any
surety are both parties that, with the passage of time, would permit
foreclosure by such surety on a material portion of the Collateral.

Upon the occurrence of an Event of Default described
in subsection (k)(i), (k)(ii) or (k)(iii) of this section with respect to
Borrower, all of the Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment,

 53
 

protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower and each
Restricted Person who at any time ratifies or approves this Agreement.  Upon any such acceleration, any obligation of
any Lender and any obligation of LC Issuer to issue Letters of Credit hereunder
to make any further Loans shall be permanently terminated.  During the continuance of any other Event of
Default, Agent at any time and from time to time may (and upon written
instructions from Required Lenders, Agent shall), without notice to Borrower or
any other Restricted Person, do either or both of the following:  (1) terminate any obligation of Lenders to
make Loans hereunder, and any obligation of LC Issuer to issue Letters of
Credit hereunder, and (2) declare any or all of the Obligations immediately due
and payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Borrower and each
Restricted Person who at any time ratifies or approves this Agreement.

Section
8.2             Remedies.  If any Event of Default shall occur and be
continuing, each Lender Party may terminate its Revolving Loan Commitment and
protect and enforce its rights under the Loan Documents by any appropriate
proceedings, including proceedings for specific performance of any covenant or
agreement contained in any Loan Document, and each Lender Party may enforce the
payment of any Obligations due it or enforce any other legal or equitable right
which it may have.  All rights, remedies
and powers conferred upon Lender Parties under the Loan Documents shall be
deemed cumulative and not exclusive of any other rights, remedies or powers
available under the Loan Documents or at Law or in equity.

Section
8.3             Application of Proceeds
after Acceleration.  Except as
otherwise provided in the Security Documents with respect to application of
proceeds to any reimbursements due Agent thereunder and to the Lender Hedging
Obligations, if Agent collects or receives money on account of the Obligations
after the acceleration of the Obligations as provided in Section 8.1, Agent
shall distribute all money so collected or received:

(a)           First, to any
reimbursements due Agent hereunder;

(b)           Second, ratably to
payment of that portion of Obligations constituting accrued and unpaid interest
and Lender Hedging Obligations; provided that Agent shall have no independent
responsibility to determine the existence or amount of Lender Hedging
Obligations and may reserve from the application of amounts under this Section
amounts distributable in respect of Lender Hedging Obligations until it has
received evidence satisfactory to it of the existence and amount of such Lender
Hedging Obligations; provided further, however, that Agent may rely on statements
of the Lender Parties as to the existence and amounts of Lender Hedging
Obligations owing to them;

(c)           Third, ratably to
the payment or cash-collateralization of all other Obligations of the Borrower
or any Guarantor owing under or in respect of the Loan Documents that are due
and payable on such date (and among such Obligations in the manner provided in
Section 3.1); and

 54
 

(d)           The balance, if any,
after all of the Obligations have been indefeasibly paid in full, to the
Borrower or as otherwise required by Law.

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ARTICLE IX

AGENT

Section
9.1             Appointment and
Authority.  Each Lender Party hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto.  The relationship of Agent to the other Lender
Parties is only that of one commercial lender acting as Agent for others, and
nothing in the Loan Documents shall be construed to constitute Agent a trustee
or other fiduciary for any Lender Party or any holder of any participation in a
Note nor to impose on Agent duties and obligations other than those expressly
provided for in the Loan Documents.  With
respect to any matters not expressly provided for in the Loan Documents and any
matters which the Loan Documents place within the discretion of Agent, Agent
shall not be required to exercise any discretion or take any action, and it may
request instructions from Lenders with respect to any such matter, in which
case it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Lender Parties in so acting or
refraining from acting) upon the instructions of Required Lenders (including
itself), provided, however, that Agent shall not be required to take any action
which exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Loan Documents or to applicable Law.

Section
9.2             Exculpation, Agent’s
Reliance, Etc.  Neither Agent nor any
of its directors, officers, Agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, including their negligence of any kind, except that
each shall be liable for its own gross negligence or willful misconduct.  Without limiting the generality of the
foregoing, Agent (a) may treat the Person whose name is set forth on the
Register as the holder of any Obligation as the holder thereof until Agent receives
written notice of the assignment or transfer thereof in accordance with this
Agreement, signed by such Person and in the form required under Section 10.5(c)
payee and in form satisfactory to Agent; (b) may consult with legal counsel
(including counsel for Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any other Lender
and shall not be responsible to any other Lender Party for any statements,
warranties or representations made in or in connection with the Loan Documents;
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of the Loan Documents
on the part of any Restricted Person or to inspect the property (including the
books and records) of any Restricted Person; (e) shall not be responsible to
any other Lender for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Loan Document or any instrument or
document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Restricted Person or Lender Party in exercising
its powers hereunder; and (g) shall incur no liability under or in respect of
the Loan Documents by acting upon any notice, consent, certificate or other
instrument or writing (including any facsimile, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or
Persons.

 56
 

Section
9.3             Credit Decisions.  Each Lender Party acknowledges that it has,
independently and without reliance upon any other Lender Party, made its own
analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan
Documents.  Each Lender Party also
acknowledges that it will, independently and without reliance upon any other Lender
Party and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Loan Documents.

Section
9.4             Indemnification.  Each Lender agrees to indemnify Agent (to the
extent not reimbursed by Borrower within ten (10) days after demand) from and
against such Lender’s Percentage Share of any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this section collectively called “liabilities and costs”) which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against
Agent growing out of, resulting from or in any other way associated with any of
the Collateral, the Loan Documents and the transactions and events (including
the enforcement thereof) at any time associated therewith or contemplated
therein (whether arising in contract or in tort and otherwise and including any
violation or noncompliance with any Environmental Laws by any Person or any
liabilities or duties of any Person with respect to Hazardous Materials found
in or released into the environment).

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER
OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN
WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED,
IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,

provided only that no Lender shall be obligated under
this section to indemnify Agent for that portion, if any, of any liabilities
and costs which is proximately caused by Agent’s own individual gross
negligence or willful misconduct, as determined in a final judgment.  Cumulative of the foregoing, each Lender
agrees to reimburse Agent promptly upon demand for such Lender’s Percentage
Share of any costs and expenses to be paid to Agent by Borrower under Section
10.4(a) to the extent that Agent is not timely reimbursed for such expenses by
Borrower as provided in such section.  As
used in this section the term “Agent” shall refer not only to the Person
designated as such in Section 1.1 but also to each director, officer, Agent,
attorney, employee, representative and Affiliate of such Person.

Section
9.5             Rights as Lender.  In its capacity as a Lender, Agent shall have
the same rights and obligations as any Lender and may exercise such rights as
though it were not Agent.  Agent may
accept deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with any Restricted Person or their
Affiliates, all as if it were not Agent hereunder and without any duty to
account therefor to any other Lender.

Section
9.6             Sharing of Set-Offs and
Other Payments.  Each Lender Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker’s lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent

 57
 

under Section 3.1, causes such Lender Party to have
received more than it would have received had such payment been received by
Agent and distributed pursuant to Section 3.1, then (a) it shall be deemed to
have simultaneously purchased and shall be obligated to purchase interests in
the Obligations as necessary to cause all Lender Parties to share all payments
as provided for in Section 3.1, and (b) such other adjustments shall be made
from time to time as shall be equitable to ensure that Agent and all Lender
Parties share all payments of Obligations as provided in Section 3.1; provided,
however, that nothing herein contained shall in any way affect the right of any
Lender Party to obtain payment (whether by exercise of rights of banker’s lien,
set-off or counterclaim or otherwise) of indebtedness other than the
Obligations.  Borrower expressly consents
to the foregoing arrangements and agrees that any holder of any such interest
or other participation in the Obligations, whether or not acquired pursuant to
the foregoing arrangements, may to the fullest extent permitted by Law exercise
any and all rights of banker’s lien, set-off, or counterclaim as fully as if
such holder were a holder of the Obligations in the amount of such interest or
other participation.  If all or any part
of any funds transferred pursuant to this section is thereafter recovered from
the seller under this section which received the same, the purchase provided
for in this section shall be deemed to have been rescinded to the extent of
such recovery, together with interest, if any, if interest is required pursuant
to the order of a Tribunal order to be paid on account of the possession of
such funds prior to such recovery.

Section
9.7             Investments.  Whenever Agent in good faith determines that
it is uncertain about how to distribute to Lender Parties any funds which it
has received, or whenever Agent in good faith determines that there is any
dispute among Lender Parties about how such funds should be distributed, Agent
may choose to defer distribution of the funds which are the subject of such
uncertainty or dispute.  If Agent in good
faith believes that the uncertainty or dispute will not be promptly resolved,
or if Agent is otherwise required to invest funds pending distribution to
Lender Parties, Agent shall invest such funds pending distribution; all
interest on any such Investment shall be distributed upon the distribution of
such Investment and in the same proportion and to the same Persons as such
Investment.  All monies received by Agent
for distribution to Lender Parties (other than to the Person who is Agent in
its separate capacity as a Lender Party) shall be held by Agent pending such
distribution solely as Agent for such Lender Parties, and Agent shall have no
equitable title to any portion thereof.

Section
9.8             Benefit of Article IX.  The provisions of this Article (other than
the following Section 9.9) are intended solely for the benefit of Lender
Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any
Lender.  Lender Parties may waive or amend
such provisions as they desire without any notice to or consent of Borrower or
any Restricted Person.

Section
9.9             Resignation.  Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. 
Each such notice shall set forth the date of such resignation.  Upon any such resignation, Required Lenders
shall have the right to appoint (with, unless an Event of Default shall have
occurred and be continuing, the consent of Borrower, such consent not to be
unreasonably withheld or delayed) a successor Agent.  A successor must be appointed for any
retiring Agent, and such Agent’s resignation shall become effective when such
successor accepts such appointment.  If,
within thirty days after the date of the retiring Agent’s resignation, no
successor Agent has been appointed and has accepted such appointment, then the
retiring Agent may appoint (with, unless an Event of Default shall have
occurred and be continuing, the

 58
 

consent of Borrower, such consent not to be
unreasonably withheld or delayed) a successor Agent, which shall be a
commercial bank organized or licensed to conduct a banking or trust business
under the Laws of the United States of America or of any state thereof.  Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, the retiring Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents.  After any retiring Agent’s
resignation hereunder the provisions of this Article IX shall continue to inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Agent under the Loan Documents.

Section
9.10           Notice of Default.  Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default, except with respect to defaults in
the payment of principal, interest and fees required to be paid to Agent for
the account of Lenders, unless Agent shall have received written notice from a
Lender or Borrower referring to this Agreement, describing such Default and
stating that such notice is a “notice of default.”  Agent will notify Lenders of its receipt of
any such notice.  Agent shall take such
action with respect to such Default as may be directed by Required Lenders in
accordance with Article VIII; provided, however, that unless and until Agent
has received any such direction, Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
as it shall deem advisable or in the best interest of Lenders.

Section
9.11           Co-Agents.  The Parties identified on the facing page of
this Agreement as “Lead Arranger” or “Co-Agent” have no right, power,
obligation, liability, responsibility, or duty under the Loan Documents in such
capacity.  Without limiting the
foregoing, each Party so identified as “Lead Arranger” and “Co-Agent” shall not
have and shall not be deemed to have any fiduciary relationship with any other
Lender.  Each Lender acknowledges that it
has not relied, and will not rely, on taking or not taking action hereunder.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]

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ARTICLE X

MISCELLANEOUS

Section 10.1           Waivers
and Amendments; Acknowledgments.

(a)           Waivers and
Amendments.  No failure or delay
(whether by course of conduct or otherwise) by any Lender in exercising any
right, power or remedy which such Lender Party may have under any of the Loan
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by any Lender Party of any
such right, power or remedy preclude any other or further exercise thereof or of
any other right, power or remedy.  No
waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as
provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. 
No notice to or demand on any Restricted Person shall in any case of
itself entitle any Restricted Person to any other or further notice or demand
in similar or other circumstances.  This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if
such party is Agent or LC Issuer, by such party, and (iii) if such party is a
Lender, by such Lender or by Agent on behalf of Lenders with the written consent
of Required Lenders (which consent has already been given as to the termination
of the Loan Documents as provided in Section 10.9).  Notwithstanding the foregoing or anything to
the contrary herein, Agent shall not, without the prior consent of each individual
Lender, execute and deliver on behalf of such Lender any waiver or amendment
which would:  (1) waive any of the
conditions specified in Article IV (provided that Agent may in its discretion
withdraw any request it has made under Section 4.2), (2) increase the maximum
amount which such Lender is committed hereunder to lend, (3) reduce any fees
payable to such Lender hereunder, or the principal of, or interest on, either
of such Lender’s Notes, (4) extend the Maturity Date, or postpone any date
fixed for any payment of any such fees, principal or interest, (5) amend the
definition herein of “Required Lenders” or otherwise change the aggregate
amount of Percentage Shares which is required for Agent, Lenders or any of them
to take any particular action under the Loan Documents, (6) release Borrower
from its obligation to pay such Lender’s Obligations or any Guarantor (other
than a Guarantor which ceases to be a Subsidiary pursuant to a sale or other
disposition permitted by the Loan Documents) from its guaranty of such payment
or (7) release all or substantially all of the any Collateral, except for such
releases relating to sales or dispositions of property permitted by the Loan
Documents, or (8) amend this Section 10.1(a). 
Notwithstanding the foregoing or anything to the contrary herein, Agent
shall not, without the prior consent of each individual Lender affected thereby
(or, as applicable, an Affiliate of such Lender), execute and deliver any
waiver or amendment to any Loan Document which would (i) cause an obligation
under any outstanding Hedging Contract owing to such Lender (or its Affiliate)
that, prior to such waiver or amendment, constituted a “Lender Hedging
Obligation” to cease to be a “Lender Hedging Obligation” or (ii) cause the
priority of the Lien securing such obligation or the priority of payment with
respect to such obligation in connection with the exercise of remedies under
such Loan Document to be subordinate in any manner to the 

 60
 

Obligations (other than expense reimbursements, expenses of
enforcement, and other similar obligations owing under the Loan Documents).

(b)           Acknowledgments
and Admissions.  Borrower hereby
represents, warrants, acknowledges and admits that (i) it has been advised by
counsel in the negotiation, execution and delivery of the Loan Documents to
which it is a party, (ii) it has made an independent decision to enter into
this Agreement and the other Loan Documents to which it is a party, without
reliance on any representation, warranty, covenant or undertaking by Agent or
any Lender, whether written, oral or implicit, other than as expressly set out
in this Agreement or in another Loan Document delivered on or after the date
hereof, (iii) there are no representations, warranties, covenants, undertakings
or agreements by any Lender as to the Loan Documents except as expressly set
out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iv) no Lender has any fiduciary obligation toward Borrower with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower and the other
Restricted Persons, on one hand, and each Lender, on the other hand, is and
shall be solely that of debtor and creditor, respectively, provided that,
solely for purposes of Section 10.5(f), Agent shall act as Agent of Borrower in
maintaining the Register as set forth therein, (vi) no partnership or joint
venture exists with respect to the Loan Documents between any Restricted Person
and any Lender, (vii) Agent is not Borrower’s Agent, but Agent for Lenders,
provided that, solely for purposes of Section 10.5(f), Agent shall act as Agent
of Borrower in maintaining the Register as set forth therein, (viii) should an
Event of Default or Default occur or exist, each Lender will determine in its
sole discretion and for its own reasons what remedies and actions it will or
will not exercise or take at that time subject to the terms of this Agreement,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Lender, or any representative thereof, and no
such representation or covenant has been made, that any Lender will, at the
time of an Event of Default or Default, or at any other time, waive, negotiate,
discuss, or take or refrain from taking any action permitted under the Loan
Documents with respect to any such Event of Default or Default or any other
provision of the Loan Documents, and (x) all Lender Parties have relied upon
the truthfulness of the acknowledgments in this section in deciding to execute
and deliver this Agreement and to become obligated hereunder.

(c)           Joint
Acknowledgment.  THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

Section
10.2           Survival of Agreements;
Cumulative Nature.  Except for
representations and warranties given as of a specified date, all of Restricted
Persons’ various representations, warranties, covenants and agreements in the
Loan Documents shall survive the execution and delivery of this Agreement and
the other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loans and the delivery of the Notes and the other
Loan Documents, and shall further survive until all of the Obligations are paid
in full to each Lender Party and all of Lender Parties’ obligations to Borrower
are terminated.  All statements and
agreements contained in any certificate or other instrument delivered by any 

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Restricted Person to any Lender Party under any Loan
Document shall be deemed representations and warranties by Borrower or agreements
and covenants of Borrower under this Agreement. 
The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and
privileges granted to Lender Parties in the Loan Documents, are cumulative,
and, except for expressly specified waivers and consents, no Loan Document
shall be construed in the context of another to diminish, nullify, or otherwise
reduce the benefit to any Lender Party of any such representation, warranty,
indemnity, covenant, right, power or privilege. 
In particular and without limitation, no exception set out in this
Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or covenant
contained in any other Loan Document, unless the Loan Documents shall expressly
provide that such exception shall apply to such similar representation,
warranty, indemnity, or covenant.

Section
10.3           Notices.  All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Lender Parties), and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
facsimile or other electronic transmission, by delivery service with proof of
delivery, or by registered or certified United States mail, postage prepaid, to
Borrower and Restricted Persons at the address of Borrower specified on the
signature pages hereto and to each Lender Party at its address specified on Schedule
3.1 hereto (unless changed by similar notice in writing given by the
particular Person whose address is to be changed).  Any such notice or communication shall be
deemed to have been given (a) in the case of personal delivery or delivery
service, as of the date of first attempted delivery during normal business
hours at the address provided herein, (b) in the case of facsimile or other
electronic transmission, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail; provided,
however, that no Borrowing Notice shall become effective until actually
received by Agent.

Section 10.4           Payment
of Expenses; Indemnity.

(a)           Payment of
Expenses.  Whether or not the
transactions contemplated by this Agreement are consummated, Borrower will
promptly (and in any event, within thirty (30) days after any invoice or other
statement or notice) pay: (i) all transfer, stamp, mortgage, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Loan
Documents or any other document or transaction referred to herein or therein,
(ii) all reasonable costs and expenses incurred by or on behalf of Agent
(including without limitation reasonable attorneys’ fees, travel costs and
miscellaneous expenses), but excluding consultants fees other than in
connection with  an annual field audit
permitted below, in connection with (1) the negotiation, preparation, execution
and delivery of the Loan Documents, and any and all consents, waivers or other
documents or instruments relating thereto, (2) the filing, recording, refiling
and re-recording of any Loan Documents and any other documents or instruments
or further assurances required to be filed or recorded or refiled or
re-recorded by the terms of any Loan Document, (3) the borrowings hereunder and
other action reasonably required in the course of administration hereof, (4)
monitoring or confirming (or preparation or negotiation of any document related
to) any Restricted Person’s compliance with any covenants or conditions
contained in this Agreement or 

 62
 

in any Loan Document, and (iii) all reasonable costs and expenses
incurred by the Agent on behalf of any Lender Party (including without
limitation reasonable attorneys’ fees, reasonable consultants’ fees and
reasonable accounting fees) in connection with the conduct of an annual field
audit, the preservation of any rights under the Loan Documents or the defense
or enforcement of any of the Loan Documents (including this section), any
attempt to cure any breach thereunder by any Restricted Person, or the defense
of any Lender Party’s exercise of its rights thereunder.  In addition to the foregoing, until all
Obligations have been paid in full, Borrower will also pay or reimburse Agent
for all reasonable out-of-pocket costs and expenses of Agent or its agents or
employees in connection with the continuing administration of the Loans and the
related due diligence of Agent, including travel and miscellaneous expenses and
reasonable fees and expenses of Agent’s outside counsel and consultants engaged
in connection with the Loan Documents.

(b)           Indemnity.
Borrower agrees to indemnify each Lender Party, upon demand, from and against
any and all liabilities, obligations, broker’s fees, claims, losses, damages,
penalties, fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, accountants, experts and
advisors) of any kind or nature whatsoever (in this section collectively called
“liabilities and costs”) which to any extent (in whole or in part) may be
imposed on, incurred by, or asserted against such Lender Party growing out of,
resulting from or in any other way associated with any of the Collateral, the
Loan Documents and the transactions and events (including the enforcement or
defense thereof) at any time associated therewith or contemplated therein
(whether arising in contract or in tort or otherwise).  Among other things, the foregoing
indemnification covers all liabilities and costs incurred by any Lender Party
related to any breach of a Loan Document by a Restricted Person, any bodily
injury to any Person or damage to any Person’s property, or any violation or
noncompliance with any Environmental Laws by any Lender Party or any other
Person or any liabilities or duties of any Lender Party or any other Person
with respect to Hazardous Materials found in or released into the environment.

THE FOREGOING INDEMNIFICATION
SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY
EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY
OR CAUSED, IN WHOLE OR IN PART BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY
ANY LENDER PARTY,

provided only that no Lender Party shall be entitled
under this section to receive indemnification for that portion, if any, of any
liabilities and costs which is proximately caused by its own individual gross
negligence or willful misconduct, as determined in a final judgment.  If any Person (including Borrower or any of
its Affiliates) ever alleges such gross negligence or willful misconduct by any
Lender Party, the indemnification provided for in this section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful
misconduct.  As used in this section the
term “Lender Party” shall refer not only to each Person designated as such in
Section 1.1 but also to each director, officer, Agent, trustee, attorney,
employee, representative and Affiliate of or for such Person.

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Section
10.5           Joint and Several
Liability; Parties in Interest; Assignments.

(a)           All Obligations
which are incurred by two or more Restricted Persons shall be their joint and
several obligations and liabilities.  All
grants, covenants and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective successors and
assigns; provided, however, that no Restricted Person may assign or transfer
any of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of the Required Lenders.  Neither Borrower nor any Affiliates of
Borrower shall directly or indirectly purchase or otherwise retire any
Obligations owed to any Lender nor will any Lender accept any offer to do so,
unless each Lender shall have received substantially the same offer with
respect to the same Percentage Share of the Obligations owed to it.  If Borrower or any Affiliate of Borrower at
any time purchases some but less than all of the Obligations owed to all Lender
Parties, such purchaser shall not be entitled to any rights of any Lender under
the Loan Documents unless and until Borrower or its Affiliates have purchased
all of the Obligations.

(b)           No Lender shall sell
any participation interest in its commitment hereunder or any of its rights
under its Loans or under the Loan Documents to any Person unless the agreement
between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Restricted Person under Sections 3.2 through 3.8 of amounts in excess
of those payable to such Lender under such sections (determined without regard
to the sale of such participation), and (iii) unless such participant is an
Affiliate of such Lender, that such participant shall not be entitled to
require such Lender to take any action under any Loan Document or to obtain the
consent of such participant prior to taking any action under any Loan Document,
except for actions which would require the consent of all Lenders under
subsection (a) of Section 10.1.  No
Lender selling such a participation shall, as between the other parties hereto
and such Lender, be relieved of any of its obligations hereunder as a result of
the sale of such participation.  Each
Lender which sells any such participation to any Person (other than an
Affiliate of such Lender) shall give prompt notice thereof to Agent and
Borrower.

(c)           Except for sales of
participations under the immediately preceding subsection, no Lender shall make
any assignment or transfer of any kind of its commitments or any of its rights
under its Loans or under the Loan Documents, except for assignments to an
Eligible Transferee, and then only if such assignment is made in accordance
with the following requirements:

(i)            Each such assignment shall apply to
all Obligations owing to the assignor Lender hereunder and to the unused
portion of the assignor Lender’s Revolving Loan Commitment, so that after such
assignment is made the assignor Lender shall have a fixed (and not a varying)
Percentage Share in its Loans and Notes and be committed to make that
Percentage Share of all future Loans, the assignee shall have a fixed
Percentage Share in the aggregate Loans and Notes and be committed to make that
Percentage Share of all future Loans, and, except in the case of an assignment
of the entire remaining amount of the assignor’s Percentage Share of the
Revolving Loan 

 64
 

Commitment,
the Revolving Loan Commitment of both the assignor and assignee, after giving
effect to such assignment, shall equal or exceed $2,500,000.

(ii)           The parties to each such assignment
shall execute and deliver to Agent, for its acceptance and recording in the “Register”
(as defined below in this section), an Assignment and Acceptance in the form of
Exhibit 10.5, appropriately completed, together with the Note subject to
such assignment and a processing fee payable to Agent of $3,500.  Upon such execution, delivery, and payment
and upon the satisfaction of the conditions set out in such Assignment and
Acceptance, then (1) Borrower shall issue new Notes to such assignor and
assignee upon return of the old Notes to Borrower, and (2) as of the “Settlement
Date” specified in such Assignment and Acceptance the assignee thereunder shall
be a party hereto and a Lender hereunder and Agent shall thereupon deliver to
Borrower and each Lender a schedule showing the revised Percentage Shares of
such assignor Lender and such assignee Lender and the Percentage Shares of all
other Lenders.

(iii)          Each assignee Lender which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Internal Revenue Code) for Federal income tax purposes, shall (to the extent it
has not already done so) provide Agent and Borrower with the “Prescribed Forms”
referred to in Section 3.6(d).

(iv)          Unless the assignee is an Affiliate of
the assignor, such assignment shall not be effective unless consented to in
writing by Agent and, unless an Event of Default shall have occurred and be
continuing, Borrower (such consent not to be unreasonably withheld or delayed).

(d)           Nothing contained in
this section shall prevent or prohibit any Lender from assigning or pledging
all or any portion of its Loans and Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank; provided that no such assignment or pledge shall relieve such
Lender from its obligations hereunder.

(e)           By executing and
delivering an Assignment and Acceptance, each assignee Lender thereunder will
be confirming to and agreeing with Borrower, Agent and each other Lender Party
that such assignee understands and agrees to the terms hereof, including
Article IX hereof.

(f)            Agent shall
maintain a copy of each Assignment and Acceptance and a register for the
recordation of the names and addresses of Lenders and the Percentage Shares of,
and principal amount of the Loans owing to, each Lender from time to time (in
this section called the “Register”).  The
entries in the Register shall be conclusive, in the absence of manifest error,
and Borrower and each Lender Party may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes.  The Register shall be available for
inspection by Borrower or any Lender Party at any reasonable time and from time
to time upon reasonable prior notice. 
Agent shall act as Agent of Borrower solely for purposes of maintaining
the Register as set forth in this Section 10.5(f).

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Section
10.6           Confidentiality.  Each Lending Party agrees to keep
confidential any information furnished or made available to it by any
Restricted Person pursuant to this Agreement that is financial information,
information in connection with a proposed transaction, or information marked
confidential; provided that nothing herein shall prevent any Lending Party from
disclosing such information (a) to any other Lending Party or any Affiliate of
any Lending Party, or any officer, director, employee, Agent, attorney,
auditor, or advisor of any Lending Party or Affiliate of any Lending Party, (b)
to any other Person if reasonably incidental to the administration of the
credit facility provided herein, (c) as required by any Law, (d) upon the order
of any court or administrative agency, (e) upon the request or demand of any
Tribunal, (f) that is or becomes available to the public or that is or becomes
available to any Lending Party other than as a result of a disclosure by any
Lending Party prohibited by this Agreement, (g) to the extent necessary in
connection with the exercise of any right or remedy under this Agreement or any
other Loan Document, (h) subject to provisions substantially similar to those
contained in this section, to any actual or proposed participant or assignee or
any actual or proposed contractual counterparty (or its advisors) to any
securitization, hedge, or other derivative transaction relating to the parties’
obligations hereunder, and (i) if it is otherwise available in the public
domain.  Notwithstanding anything set
forth herein to the contrary, each party to this Agreement and each of its
employees, representatives, and other Agents is hereby expressly authorized to
disclose the “tax treatment” and “tax structure” (as those terms are defined in
Treas. Reg. §§ 1.6011-4(c)(8) and (9), respectively) of the transactions
contemplated hereby and all materials of any kind, including opinions or other
tax analyses, that have been provided to it by any other party relating to such
tax treatment or tax structure.  Any
Person required to maintain the confidentiality of information described in
this section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such information as such Person would accord to its own
confidential information.

Section
10.7           Governing Law;
Submission to Process.  Except to the
extent that the Law of another jurisdiction is expressly elected in a Loan
Document, the Loan Documents shall be deemed contracts and instruments made
under the Laws of the State of Texas and shall be construed and enforced in
accordance with and governed by the Laws of the State of Texas and the Laws of
the United States of America, without regard to principles of conflicts of
law.  Chapter 346 of the Texas Finance
Code (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) does not apply to this Agreement or to the Notes.  Borrower hereby irrevocably submits itself
and each other Restricted Person to the exclusive jurisdiction of the state and
federal courts sitting in the State of Texas and agrees and consents that
service of process may be made upon it or any Restricted Person in any legal
proceeding relating to the Loan Documents or the Obligations by any means
allowed under Texas or federal law.  Any
legal proceeding arising out of or in any way related to any of the Loan Documents
shall be brought and litigated exclusively in the United States District Court
for the Southern District of Texas, Houston Division, to the extent it has
subject matter jurisdiction, and otherwise in the Texas District Courts sitting
in Harris County, Texas.  The parties
hereto hereby waive and agree not to assert, by way of motion, as a defense or
otherwise, that any such proceeding is brought in an inconvenient forum or that
the venue thereof is improper, and further agree to a transfer of any such
proceeding to a federal court sitting in the State of Texas to the extent that
it has subject matter jurisdiction, and otherwise to a state court in Houston,
Texas.  In furtherance thereof, Borrower
and Lender Parties each hereby acknowledge and agree that it was not
inconvenient for 

 66
 

them to negotiate and receive funding of the
transactions contemplated by this Agreement in such county and that it will be
neither inconvenient nor unfair to litigate or otherwise resolve any disputes
or claims in a court sitting in such county.

Section
10.8           Limitation on Interest.  Lender Parties, Restricted Persons and any
other parties to the Loan Documents intend to contract in strict compliance
with applicable usury Law from time to time in effect.  In furtherance thereof such Persons stipulate
and agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance
or detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable Law from time to time in effect.  Neither any Restricted Person nor any present
or future guarantors, endorsers, or other Persons hereafter becoming liable for
payment of any Obligation shall ever be liable for unearned interest thereon or
shall ever be required to pay interest thereon in excess of the maximum amount
that may be lawfully contracted for, charged, or received under applicable Law
from time to time in effect, and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in conflict or
apparent conflict herewith.  Lender
Parties expressly disavow any intention to contract for, charge, or collect
excessive unearned interest or finance charges in the event the maturity of any
Obligation is accelerated.  If (a) the
maturity of any Obligation is accelerated for any reason, (b) any Obligation is
prepaid and as a result any amounts held to constitute interest are determined
to be in excess of the legal maximum, or (c) any Lender or any other holder of any
or all of the Obligations shall otherwise collect moneys which are determined
to constitute interest which would otherwise increase the interest on any or
all of the Obligations to an amount in excess of that permitted to be charged
by applicable Law then in effect, then all sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations or,
at such Lender’s or holder’s option, promptly returned to Borrower or the other
payor thereof upon such determination. 
In determining whether or not the interest paid or payable, under any
specific circumstance, exceeds the maximum amount permitted under applicable
Law, Lender Parties and Restricted Persons (and any other payors thereof) shall
to the greatest extent permitted under applicable Law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the
entire contemplated term of the instruments evidencing the Obligations in
accordance with the amounts outstanding from time to time thereunder and the
maximum legal rate of interest from time to time in effect under applicable Law
in order to lawfully contract for, charge, or receive the maximum amount of
interest permitted under applicable Law. 
In the event applicable Law provides for an interest ceiling under Chapter
303 of the Texas Finance Code (the “Texas Finance Code”) as amended, for that
day, the ceiling shall be the “weekly ceiling” as defined in the Texas Finance
Code, provided that if any applicable Law permits greater interest, the Law
permitting the greatest interest shall apply. As used in this section the term “applicable
Law” means the Laws of the State of Texas or the Laws of the United States of
America, whichever Laws allow the greater interest, as such Laws now exist or
may be changed or amended or come into effect in the future.

 67
 

 

Section
10.9           Termination; Limited
Survival.

(a)           In its sole and
absolute discretion Borrower may at any time that no Obligations are owing
(other than indemnity obligations and similar obligations that survive the termination
of this Agreement for which no notice of a claim has been received by Borrower)
elect in a written notice delivered to Agent to terminate this Agreement.  Upon receipt by Agent of such a notice, if no
Obligations are then owing, this Agreement and all other Loan Documents shall
thereupon be terminated and the parties thereto released from all prospective
obligations thereunder.  Notwithstanding
the foregoing or anything herein to the contrary, any waivers or admissions
made by any Restricted Person in any Loan Document, any Obligations under
Sections 3.2 through Section 3.6, and any obligations which any Person may have
to indemnify or reimburse any Lender Party shall survive any termination of
this Agreement or any other Loan Document. 
The foregoing consent shall constitute the written consent of Required
Lenders required under Section 10.1(a)(iii). 
At the request and expense of Borrower, Agent shall prepare and execute
all necessary instruments to reflect and effect such termination of the Loan Documents.  Agent is hereby authorized to execute all
such instruments on behalf of all Lenders, without the joinder of or further
action by any Lender.

(b)           The Agent and the
Lenders hereby consent to (i) the automatic release of any Liens securing the
Obligations in Collateral that is sold or otherwise disposed of by a Restricted
Person in compliance with this Agreement and (ii) the automatic release from
the relevant Guaranty of any Guarantor that ceases to be a Subsidiary pursuant
to a sale or disposal of property that is permitted by this Agreement, in each
case without need for further approval of the Agent or any Lender.  The foregoing consent shall constitute the
written consent of Required Lenders required under clause (iii) of the fourth
sentence of Section 10.1(a), with respect to such releases of Liens and
Guarantors.  At the request and expense
of Borrower, Agent shall prepare and execute all necessary or reasonably
requested instruments and documents to reflect and effect such releases of
Liens and Guarantors.  Agent is hereby
authorized to execute all such instruments and documents on behalf of all
Lenders, without the joinder of or further action by any Lender.

Section
10.10         Severability.  If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.

Section
10.11         Counterparts; Fax.  This Agreement may be separately executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.  This Agreement
and the Loan Documents may be validly executed and delivered by facsimile or
other electronic transmission.

Section
10.12         Intentionally Omitted.

Section
10.13         Waiver of Jury Trial,
Punitive Damages, etc.  Each of the
Borrower and each Lender Party hereby knowingly, voluntarily, intentionally,
and irrevocably (a) waives, to the maximum extent not prohibited by Law, any
right it may have to a trial by jury in respect of 

 68
 

any litigation based hereon, or directly or indirectly
at any time arising out of, under or in connection with the Loan Documents or
any transaction contemplated thereby or associated therewith, before or after
maturity; (b) waives, to the maximum extent not prohibited by Law, any right
they may have to claim or recover in any such litigation any “Special Damages”,
as defined below, (c) certifies that no party hereto nor any representative or
Agent or counsel for any party hereto has represented, expressly or otherwise,
or implied that such party would not, in the event of litigation, seek to
enforce the foregoing waivers, and (d) acknowledges that it has been induced to
enter into this Agreement, the other Loan Documents and the transactions
contemplated hereby and thereby by, among other things, the mutual waivers and
certifications contained in this section. 
As used in this section, “Special Damages” includes all special,
consequential, exemplary, or punitive damages (regardless of how named), but
does not include any payments or funds which any party hereto has expressly
promised to pay or deliver to any other party hereto.

Section
10.14         Intentionally Left Blank.

Section
10.15         Renewal and Extension.  The Indebtedness arising under this Agreement
is a renewal, extension and restatement on revised terms of (but not an
extinguishment or novation of) the Prior Indebtedness and, from and after the
date hereof, the terms and provisions of the Prior Credit Documents shall be
superseded by the terms and provisions of this Agreement.  Borrower hereby agrees that (i) the Prior
Indebtedness, all accrued and unpaid interest thereon, and all accrued and
unpaid fees under the Prior Credit Documents shall be deemed to be Indebtedness
of Borrower outstanding under and governed by this Agreement and (ii) all Liens
securing the Prior Indebtedness shall continue in full force and effect to
secure the Secured Obligations.

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BLANK]

 

 69

IN WITNESS WHEREOF, this Agreement is executed as of
the date first written above.

	
  

  	
   

  	
  COMFORT SYSTEMS USA, INC.,

  
	
   

  	
   

  	
  Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ William George, III

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  William George, III

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Executive Vice President and

  
	
   

  	
   

  	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  777 Post Oak Boulevard, Suite 500

  
	
   

  	
   

  	
  Houston, Texas 77056

  
	
   

  	
   

  	
  Attention: William George, III

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone: (713) 830-9650

  
	
   

  	
   

  	
  Fax: (713) 830-9659

  

 

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BLANK]

 1
 

 

	
  

  	
   

  	
  WACHOVIA BANK, N.A.,

  
	
   

  	
   

  	
  Agent, LC Issuer and Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Gale Smith

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Gale Smith

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  Wachovia Bank, N.A.

  
	
   

  	
   

  	
  2800 Post Oak Blvd., Suite 3400

  
	
   

  	
   

  	
  Houston, Texas 77056

  
	
   

  	
   

  	
  Attention: Gale Smith

  
	
   

  	
   

  	
  Telephone: (713) 402-3614

  
	
   

  	
   

  	
  Fax: (713) 402-3637

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CAPITAL ONE, N.A.,

  
	
   

  	
   

  	
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Debra Halling

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Debra Halling

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
  Capital One, N.A.

  
	
   

  	
   

  	
  5718 Westheimer, Suite 600

  
	
   

  	
   

  	
  Houston, Texas 77057

  
	
   

  	
   

  	
  Attention: Debra Halling

  
	
   

  	
   

  	
  Telephone: (713) 435-5024

  
	
   

  	
   

  	
  Fax: (713) 706-5499

  

 

 2
 

 

	
  

  	
   

  	
  BANK OF TEXAS, N.A.,

  
	
   

  	
   

  	
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Edward H. Braddock

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Edward H. Braddock

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Bank of Texas, N.A.

  
	
   

  	
   

  	
  5 Houston Center

  
	
   

  	
   

  	
  1401 McKinney, Suite 1650

  
	
   

  	
   

  	
  Houston, Texas 
  77010

  
	
   

  	
   

  	
  Attention: 
  Edward H. Braddock

  
	
   

  	
   

  	
  Telephone: 
  (713) 289-5855

  
	
   

  	
   

  	
  Fax:  (713)
  289-5825

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BANK OF SCOTLAND,

  
	
   

  	
   

  	
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Karen Weich

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Karen Weich

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Bank of Scotland

  
	
   

  	
   

  	
  565 Fifth Avenue

  
	
   

  	
   

  	
  New York, New York 
  10017

  
	
   

  	
   

  	
  Attention: 
  Shirley Vargas

  
	
   

  	
   

  	
  Telephone: 
  (212) 450-0875

  
	
   

  	
   

  	
  Fax:  (212)
  479-2807

  

 

 3EXHIBIT
10.07

FORMFACTOR,
INC.

2002 EQUITY INCENTIVE PLAN

As Adopted April
18, 2002

As Amended February 9, 2006 and May 18, 2006

1.             PURPOSE.  The purpose of this Plan is to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company, its Parent
and Subsidiaries, by offering them an opportunity to participate in the Company’s
future performance through awards of Options, Restricted Stock and Stock
Bonuses.  Capitalized terms not defined
in the text are defined in Section 24.

2.             SHARES SUBJECT TO THE PLAN.

2.1           Number of Shares Available.  Subject to Sections 2.2 and 18, the total
number of Shares reserved and available for grant and issuance pursuant to this
Plan will be 500,000 Shares plus Shares that are subject to: (a) issuance
upon exercise of an Option but cease to be subject to such Option for any
reason other than exercise of such Option; (b) an Award granted hereunder
but are forfeited or are repurchased by the Company at the original issue
price; and (c) an Award that otherwise terminates without Shares being
issued.  In addition, any authorized
shares not issued or subject to outstanding grants under the Company’s 1996
Stock Option Plan, Incentive Option Plan and Management Incentive Option Plan
on the Effective Date (as defined below) and any shares issued under the
Company’s 1995 Stock Plan, 1996 Stock Option Plan, Incentive Option Plan and
Management Incentive Option Plan (the “Prior Plans”)
that are forfeited or repurchased by the Company or that are issuable upon
exercise of options granted pursuant to the Prior Plans that expire or become
unexercisable for any reason without having been exercised in full, will no
longer be available for grant and issuance under the Prior Plans, but will be
available for grant and issuance under this Plan.  In addition, on each January 1, the aggregate
number of Shares reserved and available for grant and issuance pursuant to this
Plan will be increased automatically by a number of Shares equal to 5% of the
total outstanding shares of the Company as of the immediately preceding
December 31; provided, that the Board may in its sole discretion reduce
the amount of the increase in any particular year; and, provided further,
provided that no more than 40,000,000 shares shall be issued as ISOs (as
defined in Section 5 below).  At all
times the Company shall reserve and keep available a sufficient number of
Shares as shall be required to satisfy the requirements of all outstanding Options
granted under this Plan and all other outstanding but unvested Awards granted
under this Plan.

2.2           Adjustment of Shares.  In the event that the number of outstanding
shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassifica­tion or similar change in
the capital structure of the Company without consideration, then (a) the number
of Shares reserved for issuance under this Plan, (b) the number of Shares that
may be granted pursuant to Sections 3 and 9 below, (c) the Exercise Prices of
and number of Shares subject to outstanding Options, and (d) the number of
Shares subject to other outstanding Awards may, upon approval of the Board in
its discretion, be proportionately adjusted in compliance with applicable
securities laws; provided, however, that fractions of a Share
will not be issued but will either be replaced by a cash payment equal to the
Fair Market Value of such fraction of a Share or will be rounded up to the
nearest whole Share, as determined by the Committee.

3.             ELIGIBILITY.  ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company.  All other Awards may be granted to employees,
officers, directors, consultants, independent contractors and advisors of the
Company or any Parent or Subsidiary of the Company; provided such
consultants, contractors and advisors render bona fide services not in connection
with the offer and sale of securities in a capital-raising

transaction.  No
person will be eligible to receive more than 1,000,000 Shares in any calendar
year under this Plan pursu­ant to the grant of Awards hereunder, other than new
employees of the Company or of a Parent or Subsidiary of the Company (including
new employees who are also officers and directors of the Company or any Parent
or Subsidiary of the Company), who are eligible to receive up to a maximum of
3,000,000 Shares in the calendar year in which they commence their
employment.  A person may be granted more
than one Award under this Plan.

4.             ADMINISTRATION.

4.1           Committee Authority.  This Plan will be administered by the
Committee or by the Board acting as the Committee.  Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, and subject to the general purposes,
terms and conditions of this Plan, and to the direc­tion of the Board, the
Committee will have full power to implement and carry out this Plan.  Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, the Committee will have the authority
to:

(a)                                  construe
and interpret this Plan, any Award Agreement and any other agreement or
document executed pursuant to this Plan;

(b)                                 prescribe,
amend and rescind rules and regulations relating to this Plan or any Award;

(c)                                  select
persons to receive Awards;

(d)                                 determine
the form and terms of Awards;

(e)                                  determine
the number of Shares or other consideration subject to Awards;

(f)                                    determine
whether Awards will be granted singly, in combination with, in tandem with, in
replacement of, or as alternatives to, other Awards under this Plan or any
other incentive or compensation plan of the Company or any Parent or Subsidiary
of the Company;

(g)                                 grant
waivers of Plan or Award conditions;

(h)                                 determine
the vesting, exercisability and payment of Awards;

(i)                                     correct
any defect, supply any omission or reconcile any inconsistency in this Plan,
any Award or any Award Agreement;

(j)                                     determine
whether an Award has been earned; and

(k)                                  make
all other determinations necessary or advisable for the administration of this
Plan.

4.2           Committee Discretion.  Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding
on the Com­pany and on all persons having an interest in any Award under this
Plan.  The Committee may delegate to one
or more officers of the Company the authority to grant an Award under this Plan
to Participants who are not Insiders of the Company.

5.             OPTIONS.  The Committee may grant Options to eligible
persons and will determine whether such Options will be Incentive Stock Options
within the meaning of the Code (“ISO”) or
Nonqualified Stock Options (“NQSOs”),
the number of Shares subject to the Option, the Exercise Price of the Option,
the period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:

 2
 

5.1           Form of Option Grant.  Each Option granted under this Plan will be
evidenced by an Award Agreement which will expressly identify the Option as an
ISO or an NQSO (“Stock Option Agreement”),
and, except as otherwise required by the terms of Section 9 hereof, will be in
such form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.

5.2           Date of Grant.  The date of grant of an Option will be the
date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. 
The Stock Option Agreement and a copy of this Plan will be delivered to
the Participant within a reasonable time after the granting of the Option.

5.3           Exercise Period.  Options may be exercisable within the times
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no
Option granted on or before February 9, 2006 will be exercisable after the
expiration of ten (10) years from the date the Option is granted and no Option
granted after February 9, 2006 will be exercisable after the expiration of
seven (7) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company (“Ten Percent Stockholder”)
will be exercisable after the expiration of five (5) years from the date the ISO
is granted.  The Committee also may
provide for Options to become exercisable at one time or from time to time,
peri­odically or otherwise, in such number of Shares or percentage of Shares as
the Committee determines.

5.4           Exercise Price.  The Exercise Price of an Option will be
determined by the Committee when the Option is granted; provided that: (i) the
Exercise Price of an ISO will be not less than 100% of the Fair Market Value of
the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted
to a Ten Percent Stockholder will not be less than 110% of the Fair Market
Value of the Shares on the date of grant. 
Payment for the Shares purchased may be made in accordance with Section
8 of this Plan.

5.5           Method of Exercise.  Options may be exercised only by delivery to
the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form
approved by the Committee (which need not be the same for each Participant),
stating the number of Shares being purchased, the restrictions imposed on the
Shares purchased under such Exercise Agreement, if any, and such
representations and agreements regarding Participant’s investment intent and
access to information and other matters, if any, as may be required or
desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.

5.6           Termination.  Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:

(a)                                  If
the Participant is Terminated for any reason except death or Disability, then
the Participant may exercise such Participant’s Options only to the extent that
such Options would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such shorter or longer
time period not exceeding five (5) years as may be determined by the Committee,
with any exercise beyond three (3) months after the Ter­mination Date deemed to
be an NQSO), but in any event, no later than the expiration date of the
Options.

(b)                                 If
the Participant is Terminated because of Participant’s death or Disability (or
the Partici­pant dies within three (3) months after a Termination other than for
Cause or because of Participant’s Disability), then Participant’s Options may
be exercised only to the extent that such Options would have been exercisable
by Participant on the Termination Date and must be exercised by Participant (or
Participant’s legal representative or authorized assignee) no later than twelve
(12) months after the Termination Date (or such shorter or

 3
 

longer time period
not exceeding five (5) years as may be determined by the Committee, with any
such exercise beyond (i) three (3) months after the Termination Date when the
Termination is for any reason other than the Participant’s death or disability,
within the meaning of Section 22(e)(3) of the Code, or (ii) twelve (12) months
after the Termination Date when the Termination is for Participant’s
disability, within the meaning of Section 22(e)(3) of the Code, deemed to be an
NQSO), but in any event no later than the expiration date of the Options.

(c)                                  If
the Participant is terminated for Cause, then the Participant may exercise such
Participant’s Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than one month after the
Termination Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any exercise beyond three (3)
months after the Ter­mination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.

5.7           Limitations on Exercise.  The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.

5.8           Limitations on ISO.  The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISO are exercisable
for the first time by a Participant during any calendar year (under this Plan
or under any other incentive stock option plan of the Company, Parent or
Subsidiary of the Company) will not exceed $100,000.  If the Fair Market Value of Shares on the
date of grant with respect to which ISO are exercisable for the first time by a
Participant during any calendar year exceeds $100,000, then the Options for the
first $100,000 worth of Shares to become exercisable in such calendar year will
be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs.  In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date of this Plan to
provide for a different limit on the Fair Market Value of Shares permitted to
be subject to ISO, such different limit will be automatically incorporated
herein and will apply to any Options granted after the effective date of such
amendment.

5.9           Modification, Extension or Renewal.  The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options in substitution
therefor, provided that any such action may not, without the written consent of
a Participant, impair any of such Participant’s rights under any Option
previously granted.  Any outstanding ISO
that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code. 
The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them; provided,
however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.

5.10         No Disqualification.  Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Par­ticipant affected, to disqualify any ISO under
Section 422 of the Code.

6.             RESTRICTED STOCK.  A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to
restrictions.  The Committee will
determine to whom an offer will be made, the number of Shares the person may
purchase, the price to be paid (the “Purchase Price”),
the restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:

6.1           Form of Restricted Stock Award.  All purchases under a Restricted Stock Award
made pursuant to this Plan will be evidenced by an Award Agreement (“Restricted Stock Purchase Agreement”)
that will be in such form (which need not be the same for each Participant) as
the Committee will from time to time approve,

 4
 

and will comply with and be subject to the terms and
conditions of this Plan.  The offer of
Restricted Stock will be accepted by the Participant’s execution and delivery
of the Restricted Stock Purchase Agreement and full payment for the Shares to the
Company within thirty (30) days from the date the Restricted Stock Purchase
Agree­ment is delivered to the person. 
If such person does not execute and deliver the Restricted Stock
Purchase Agree­ment along with full payment for the Shares to the Company
within thirty (30) days, then the offer will terminate, unless otherwise
determined by the Committee.

6.2           Purchase Price.  The Purchase Price of Shares sold pursuant to
a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten
Percent Stockholder, in which case the Purchase Price will be 100% of the Fair
Market Value.  Pay­ment of the Purchase
Price may be made in accordance with Section 8 of this Plan.

6.3           Terms of Restricted
Stock Awards.  Restricted Stock
Awards shall be subject to such restrictions as the Committee may impose.  These restrictions may be based upon
completion of a specified number of years of service with the Company or upon
completion of the performance goals as set out in advance in the Participant’s
individual Restricted Stock Purchase Agreement. 
Restricted Stock Awards may vary from Partici­pant to Participant and
between groups of Participants.  Prior to
the grant of a Restricted Stock Award, the Commit­tee shall:  (a) determine the nature, length and starting
date of any Performance Period for the Restricted Stock Award; (b) select from
among the Performance Factors to be used to measure performance goals, if any; and
(c) determine the number of Shares that may be awarded to the Participant.  Prior to the payment of any Restricted Stock
Award, the Committee shall determine the extent to which such Restricted Stock
Award has been earned.  Perform­ance
Periods may overlap and Participants may participate simultaneously with
respect to Restricted Stock Awards that are subject to different Performance
Periods and having different performance goals and other criteria.

6.4           Termination During Performance Period.  If a Participant is Terminated during a
Performance Period for any reason, then such Participant will be entitled to
payment (whether in Shares, cash or otherwise) with respect to the Restricted
Stock Award only to the extent earned as of the date of Termination in
accordance with the Restricted Stock Purchase Agreement, unless the Committee
will determine otherwise.

7.             STOCK BONUSES.

7.1           Awards of Stock Bonuses.  A Stock Bonus is an award of Shares (which
may consist of Restricted Stock) for services rendered to the Company or any
Parent or Subsidiary of the Company.  A
Stock Bonus may be awarded for past services already rendered to the Company,
or any Parent or Subsidiary of the Company pursuant to an Award Agreement (the “Stock Bonus Agreement”)
that will be in such form (which need not be the same for each Participant) as
the Committee will from time to time approve, and will comply with and be
subject to the terms and conditions of this Plan.  A Stock Bonus may be awarded upon
satisfaction of such perform­ance goals as are set out in advance in the
Participant’s individual Award Agreement (the “Performance
Stock Bonus Agreement”) that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of
this Plan.  Stock Bonuses may vary from
Participant to Participant and between groups of Participants, and may be based
upon the achievement of the Company, Parent or Subsidiary and/or individual
performance factors or upon such other criteria as the Committee may determine.

7.2           Terms of Stock Bonuses.  The Committee will determine the number of
Shares to be awarded to the Participant. 
If the Stock Bonus is being earned upon the satisfaction of performance
goals pursu­ant to a Performance Stock Bonus Agreement, then the Committee
will: (a) determine the nature, length and starting date of any Performance
Period for each Stock Bonus; (b) select from among the Performance Factors to
be used to measure the performance, if any; and (c) determine the number of
Shares that may be awarded to the Participant. 
Prior to the payment of any Stock Bonus, the Committee shall determine
the extent to which such Stock Bonuses have been earned.  Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals
and other criteria.  The number of Shares
may be fixed or may vary in accordance with such performance goals and criteria
as may be

 5
 

determined by the Committee.  The Committee may adjust the performance
goals applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.

7.3           Form of Payment.  The earned portion of a Stock Bonus may be
paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine.  Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.

8.             PAYMENT FOR SHARE PURCHASES.

8.1           Payment.  Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:

(a)                                  by
cancellation of indebtedness of the Company to the Participant;

(b)                                 by
surrender of shares that either:  (1)
have been owned by Participant for more than six (6) months and have been paid
for within the meaning of SEC Rule 144 (and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares); or (2) were obtained by Participant in the public
market;

(c)                                  by
tender of a full recourse promissory note having such terms as may be approved
by the Committee and bearing interest at a rate sufficient to avoid imputation
of income under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not employees or directors of the Company will not be
entitled to purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;

(d)                                 by
waiver of compensation due or accrued to the Participant for services rendered;

(e)                                  with
respect only to purchases upon exercise of an Option, and provided that a
public mar­ket for the Company’s stock exists:

(1)                                  through
a “same day sale” commitment from the Participant and a broker-dealer that is a
member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the
Participant irrevocably elects to exercise the Option and to sell a portion of
the Shares so purchased to pay for the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or

(2)                                  through
a “margin” commitment from the Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the Option and to pledge the Shares
so purchased to the NASD Dealer in a margin account as security for a loan from
the NASD Dealer in the amount of the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or

(f)                                    by
any combination of the foregoing.

8.2           Loan Guarantees.  The Committee may help the Participant pay
for Shares pur­chased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.

 6
 

9.             AUTOMATIC GRANTS
TO OUTSIDE DIRECTORS.

9.1           Types of Options and
Shares.  Options granted under this
Plan and subject to this Section 9 shall be NQSOs.

9.2           Eligibility.  Options subject to this Section 9 shall be
granted only to Outside Directors.

9.3           Initial Grant.  Each Outside Director who first becomes a
member of the Board after the Effective Date will automatically be granted an
option for 15,000 Shares (an “Initial Grant”)
on the date such Outside Director first becomes a member of the Board.  Each Outside Director who became a member of
the Board on or prior to the Effective Date and who did not receive a prior
option grant (under this Plan or otherwise and from the Company or any of its
corporate predecessors) will receive an Initial Grant on the Effective Date.

9.4           Succeeding Grant.  Immediately following each Annual Meeting of
stockholders, each Outside Director will automatically be granted an option for
15,000 Shares (a “Succeeding Grant”), provided,
that the Outside Director is a member of the Board on such date and has served
continuously as a member of the Board for a period of at least twelve (12)
months since the last option grant (whether an Initial Grant or a Succeeding
Grant) to such Outside Director.  If less
than twelve (12) months has passed, then the number of shares subject to the
Succeeding Grant will be pro-rated based on the number of days passed since the
last option grant to such Outside Director, divided by 365 days.

9.5           Vesting and
Exercisability.  The date an Outside
Director receives an Initial Grant or a Succeeding Grant is referred to in this
Plan as the “Start Date” for such option.

(a)                                  Initial
Grant.  So long as the Outside
Director continuously remains a director or a consultant of the Company, each
Initial Grant will vest as to 1/12th of the Shares at the end of each full
succeeding month from Start Date.  Each
Initial Grant will be immediately exercisable subject to the Company’s right to
repurchase unvested shares in the event the Outside Director does not remain a
member of the Board or a consultant of the Company.

(b)                                 Succeeding
Grant.  So long as the Outside
Director continuously remains a director or a consultant of the Company, each
Succeeding Grant will vest as to 1/12th of the Shares at the end of each full
succeeding month from the later of (i) the Start Date of such Succeeding Grant
or (ii) the date when all outstanding stock options, and all outstanding shares
issued upon exercise of any stock options granted by the Company to the Outside
Director prior to the grant of such Succeeding Grant have fully vested.  Each Succeeding Grant will be immediately
exercisable subject to the Company’s right to repurchase unvested shares in the
event the Outside Director does not remain a member of the Board or a
consultant of the Company.

(c)                                  Pro-Rated
Succeeding Grant.  Any Succeeding
Grant that has been pro-rated is referred to in this Plan as a “Pro-Rated Succeeding Grant”.  Notwithstanding anything in this Plan to the
contrary, so long as the Outside Director continuously remains a director or a
consultant of the Company, each Pro-Rated Succeeding Grant will vest as to 1/12th of the Shares that would have been subject to
a full Succeeding Grant (i.e., 15,000 shares) at the end of each full
succeeding month from the later of:

(i)                                     the
Start Date of such Pro-Rated Succeeding Grant, or

(ii)                                  the
date when all outstanding stock options, and all outstanding shares issued upon
exercise of any stock options granted by the Company to the Outside Director
prior to the grant of such Pro-Rated Succeeding Grant have fully vested

 7
 

to the end of the full
calendar month in which the twelve month anniversary of the Company’s annual
meeting of stockholders, immediately after which such Outside Director obtained
such Pro-Rated Succeeding Grant, provided, that in the last month of the
Pro-Rated Succeeding Grant’s vesting term, any shares remaining shall
vest.  Each Succeeding Grant will be
immediately exercisable subject to the Company’s right to repurchase unvested
shares in the event the Outside Director does not remain a member of the Board
or a consultant of the Company.

Notwithstanding any provision to the contrary, in the
event of a Corporate Transaction described in Section 18.1, the vesting of all
options granted to Outside Directors pursuant to this Section 9 will accelerate
and such options will become exercisable in full prior to the consummation of
such event at such times and on such conditions as the Committee determines,
and must be exercised, if at all, within three (3) months of the consummation
of said event.  Any options not exercised
within such three-month period shall expire.

9.6           Exercise Price.  The exercise price of an option pursuant to
an Initial Grant and Succeeding Grant shall be the Fair Market Value of the
Shares, at the time that the option is granted.

10.          WITHHOLDING TAXES.

10.1         Withholding Generally.  Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount suffi­cient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. 
Whenever, under this Plan, payments in satisfaction of Awards are to be
made in cash, such payment will be net of an amount sufficient to satisfy
federal, state, and local withholding tax requirements.

10.2         Stock Withholding.  When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Partici­pant is obligated
to pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be
issued that number of Shares having a Fair Market Value equal to the minimum
amount required to be withheld, determined on the date that the amount of tax
to be withheld is to be determined.  All
elections by a Participant to have Shares withheld for this purpose will be
made in accordance with the require­ments established by the Committee and be
in writing in a form acceptable to the Committee.

11.          TRANSFERABILITY.

11.1         Except as otherwise
provided in this Section 11, Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by
will or by the laws of descent and distribution or as determined by the
Committee and set forth in the Award Agreement with respect to Awards that are
not ISOs.

11.2         All Awards other than
NQSO’s.  All Awards other than NQSO’s
shall be exercisable: (i) during the Participant’s lifetime, only by
(A) the Participant, or (B) the Participant’s guardian or legal
representative; and (ii) after Participant’s death, by the legal representative
of the Participant’s heirs or legatees.

11.3         NQSOs.  Unless otherwise restricted by the Committee,
an NQSO shall be exercisable: (i) during the Participant’s lifetime only by (A)
the Participant, (B) the Participant’s guardian or legal representative,
(C) a Family Member of the Participant who has acquired the NQSO by “permitted
transfer;” and (ii) after Participant’s death, by the legal representative of
the Participant’s heirs or legatees.  “Permitted
transfer” means, as authorized by this Plan and the Committee in an NQSO, any
transfer effected by the Participant during the Participant’s lifetime of an
interest in such NQSO but only such transfers which are by gift or domestic
relations order.  A permitted transfer
does not include any transfer for value and neither of the following are
transfers for value:  (a) a transfer
of under a domestic relations order in settlement of marital property rights or
(b) a transfer to an

 8
 

entity in which more than fifty percent of the voting
interests are owned by Family Members or the Participant in exchange for an
interest in that entity.

12.          PRIVILEGES OF STOCK OWNERSHIP;
RESTRICTIONS ON SHARES..

12.1         Voting and Dividends.  No Participant will have any of the rights of
a stock­holder with respect to any Shares until the Shares are issued to the
Participant.  After Shares are issued to
the Partici­pant, the Participant will be a stockholder and have all the rights
of a stockholder with respect to such Shares, including the right to vote and
receive all dividends or other distributions made or paid with respect to such
Shares; provided, that if such Shares are Restricted Stock, then any
new, additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock split
or any other change in the corporate or capital structure of the Company will
be subject to the same restrictions as the Restricted Stock; provided, further,
that the Participant will have no right to retain such stock dividends or stock
distributions with respect to Shares that are repurchased at the Participant’s
Purchase Price or Exercise Price pursuant to Section 12.

12.2         Restrictions on
Shares.  At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the
Award Agreement a right to repurchase a portion of or all Unvested Shares held
by a Participant following such Participant’s Termination at any time within
ninety (90) days after the later of Participant’s Termination Date and the date
Participant purchases Shares under this Plan, for cash and/or cancellation of
purchase money indebtedness, at the Participant’s Exercise Price or Purchase
Price, as the case may be.

13.          CERTIFICATES.  All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer orders,
legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regula­tions and other requirements of
the SEC or any stock exchange or automated quotation system upon which the
Shares may be listed or quoted.

14.          ESCROW; PLEDGE OF SHARES.  To enforce any restrictions on a Participant’s
Shares, the Committee may require the Participant to deposit all certificates
representing Shares, together with stock powers or other instruments of
transfer approved by the Committee, appropriately endorsed in blank, with the
Company or an agent designated by the Company to hold in escrow until such
restrictions have lapsed or termi­nated, and the Committee may cause a legend
or legends referencing such restrictions to be placed on the certifi­cates.  Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under this Plan will be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant’s obligation to the Company under the promissory note; provided,
however, that the Committee may require or accept other or additional
forms of collateral to secure the payment of such obligation and, in any event,
the Company will have full recourse against the Participant under the
promissory note notwith­standing any pledge of the Participant’s Shares or
other collateral.  In connection with any
pledge of the Shares, Par­ticipant will be required to execute and deliver a
written pledge agreement in such form as the Committee will from time to time
approve.  The Shares purchased with the
promissory note may be released from the pledge on a pro rata basis as the
promissory note is paid.

15.          EXCHANGE AND BUYOUT OF AWARDS.  The Committee may, at any time or from time
to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. 
The Committee may at any time buy from a Participant an Award previously
granted with payment in cash, Shares (including Restricted Stock) or other consideration,
based on such terms and conditions as the Committee and the Participant may
agree.

16.          SECURITIES LAW AND OTHER REGULATORY COMPLIANCE.  An Award will not be effective unless such
Award is in compliance with all applicable federal and state securities laws,
rules and regulations of any governmental body, and the requirements of any
stock exchange or automated quotation system upon which the Shares may then be
listed or quoted, as they are in effect on the date of grant of the Award and
also

 9
 

on the date of exercise or other issuance.  Notwithstanding any other provision in this
Plan, the Company will have no obligation to issue or deliver certificates for
Shares under this Plan prior to:  (a)
obtaining any approvals from governmental agencies that the Company determines
are necessary or advisable; and/or (b) completion of any registration or other
qualification of such Shares under any state or federal law or ruling of any
governmental body that the Company determines to be necessary or
advisable.  The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have
no liability for any inability or failure to do so.

17.          NO OBLIGATION TO EMPLOY.  Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the
right of the Company or any Parent or Subsidiary of the Company to terminate
Participant’s employment or other relation­ship at any time, with or without
cause.

18.          CORPORATE TRANSACTIONS.

18.1         Assumption or Replacement of Awards by Successor.  Except for automatic grants to Outside
Directors pursuant to Section 9 hereof, in the event of (a) a dissolution or
liquidation of the Company, (b) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly-owned subsidiary, a reincorporation of the Com­pany in a
different jurisdiction, or other transaction in which there is no substantial
change in the stockholders of the Company or their relative stock holdings and
the Awards granted under this Plan are assumed, converted or replaced by the
successor corporation, which assumption will be binding on all Participants),
(c) a merger in which the Company is the surviving corporation but after which
the stockholders of the Company immediately prior to such merger (other than
any stockholder that merges, or which owns or controls another corporation that
merges, with the Company in such merger) cease to own their shares or other equity
interest in the Company, (d) the sale of substantially all of the assets of the
Company, or (e) the acquisition, sale, or transfer of more than 50% of the
outstanding shares of the Company by tender offer or similar transaction (each,
a “Corporate Transaction”), any or all
outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement will be
binding on all Participants.  In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provi­sions of the
Awards).  The successor corporation may
also issue, in place of outstanding Shares of the Company held by the
Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant.  In the event such successor corporation (if
any) refuses to assume or substitute Awards, as provided above, pursuant to a
transaction described in this Subsection 18.1, such Awards will expire on such
transaction at such time and on such conditions as the Committee will
determine.  Notwithstanding anything in
this Plan to the contrary, the Committee may, in its sole discretion, provide
that the vesting of any or all Awards granted pursuant to this Plan will
accelerate upon a transaction described in this Section 18.  If the Committee exercises such discretion
with respect to Options, such Options will become exercis­able in full prior to
the consum­mation of such event at such time and on such conditions as the
Committee determines, and if such Options are not exer­cised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.

18.2         Other Treatment of Awards.  Subject to any greater rights granted to
Partici­pants under the foregoing provisions of this Section 18, in the event
of the occurrence of any Corporate Transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.

18.3         Assumption of Awards by the Company.  The Company, from time to time, also may substitute
or assume outstanding awards granted by another company, whether in connection
with an acquisi­tion of such other company or otherwise, by either; (a)
granting an Award under this Plan in substitution of such other company’s
award; or (b) assuming such award as if it had been granted under this Plan if
the terms of such assumed award could be applied to an Award granted under this
Plan.  Such substitution or assumption
will be permissible if

 10
 

the holder of the substituted or assumed award would have
been eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant. 
In the event the Company assumes an award granted by another company,
the terms and conditions of such award will remain unchanged (except
that the exercise price and the number and nature of Shares issuable upon
exercise of any such option will be adjusted appropriately pursuant to Section
424(a) of the Code).  In the event the
Company elects to grant a new Option rather than assuming an existing option,
such new Option may be granted with a similarly adjusted Exercise Price.

19.          ADOPTION AND STOCKHOLDER APPROVAL.  This Plan will become effective on the date
on which the registration statement filed by the Company with the SEC under the
Securities Act registering the initial public offering of the Company’s Common
Stock is declared effective by the SEC (the “Effective Date”).  This Plan shall be approved by the
stockholders of the Company (excluding Shares issued pur­suant to this Plan),
consistent with applicable laws, within twelve (12) months before or after the
date this Plan is adopted by the Board. 
Upon the Effective Date, the Committee may grant Awards pursuant to this
Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved
by the Board will be exercised prior to the time such increase has been
approved by the stockholders of the Company; (c) in the event that initial
stockholder approval is not obtained within the time period provided herein,
all Awards granted hereunder shall be cancelled, any Shares issued pursuant to
any Awards shall be cancelled and any purchase of Shares issued hereunder shall
be rescinded; and (d) in the event that stockholder approval of such increase
is not obtained within the time period provided herein, all Awards granted
pursuant to such increase will be cancelled, any Shares issued pursuant to any
Award granted pursuant to such increase will be cancelled, and any purchase of
Shares pursuant to such increase will be rescinded.

20.          TERM OF PLAN/GOVERNING
LAW.  Unless earlier terminated
as provided herein, this Plan will terminate ten (10) years from the date this
Plan is adopted by the Board or, if earlier, the date of stock­holder
approval.  This Plan and all agreements
thereunder shall be governed by and construed in accordance with the laws of
the State of California.

21.          AMENDMENT OR TERMINATION OF PLAN.  The Board may at any time terminate or amend
this Plan in any respect, including without limitation amendment of any form of
Award Agreement or instrument to be executed pursuant to this Plan; provided,
however, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.

22.          NONEXCLUSIVITY OF THE PLAN.  Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.

23.          INSIDER TRADING
POLICY.  Each Participant and Outsider Director
who receives an Award shall comply with any policy, adopted by the Company from
time to time covering transactions in the Company’s securities by employees,
officers and/or directors of the Company.

24.          DEFINITIONS. 
As used in this Plan, the following terms will have the following
meanings:

“Award”
means any award under this Plan, including any Option, Restricted Stock or
Stock Bonus.

“Award Agreement”
means, with respect to each Award, the signed written agreement between the
Company and the Participant setting forth the terms and conditions of the
Award.

“Board”
means the Board of Directors of the Company.

 11
 

“Cause”
means (a) the commission of an act of theft, embezzlement, fraud, dishonesty,
(b) a breach of fiduciary duty to the Company or a Parent or Subsidiary of the
Company or (c) a failure to materially perform the customary duties of employee’s
employment.

“Code”
means the Internal Revenue Code of 1986, as amended.

“Committee”
means the Compensation Committee of the Board.

“Company”
means FormFactor, Inc. or any successor corporation.

“Disability”
means a disability, whether temporary or permanent, partial or total, as
determined by the Committee.

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Exercise Price”
means the price at which a holder of an Option may purchase the Shares issuable
upon exercise of the Option.

“Fair Market Value”
means, as of any date, the value of a share of the Company’s Common Stock
determined as follows:

(a)                                  if
such Common Stock is then quoted on the Nasdaq Global Market, its closing price
on the Nasdaq Global Market on the date of determination as reported in The
Wall Street Journal;

(b)                                 if
such Common Stock is publicly traded and is then listed on a national
securities exchange, its closing price on the date of determination on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street Journal;

(c)                                  if
such Common Stock is publicly traded but is not quoted on the Nasdaq Global
Market nor listed or admitted to trading on a national securities exchange, the
average of the closing bid and asked prices on the date of determination as
reported in The Wall Street Journal;

(d)                                 in
the case of an Award made on the Effective Date, the price per share at which
shares of the Company’s Common Stock are initially offered for sale to the
public by the Company’s underwriters in the initial public offering of the
Company’s Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act;  or

(e)                                  if
none of the foregoing is applicable, by the Committee in good faith.

“Family
Member” includes any of the following:

(a)                                  child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law of the Participant, including
any such person with such relationship to the Participant by adoption;

(b)                                 any
person (other than a tenant or employee) sharing the Participant’s household;

(c)                                  a
trust in which the persons in (a) and (b) have more than fifty percent of the
beneficial interest;

 12
 

(d)                                 a
foundation in which the persons in (a) and (b) or the Participant control the
management of assets; or

(e)                                  any
other entity in which the persons in (a) and (b) or the Participant own more
than fifty percent of the voting interest.

“Insider”
means an officer or director of the Company or any other person whose transac­tions
in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

“Option”
means an award of an option to purchase Shares pursuant to Section 5.

“Outside
Director” means a member of the Board who is not an employee of
the Company or any Parent or Subsidiary.

“Parent”
means any corporation (other than the Company) in an unbroken chain of corpo­rations
ending with the Company if each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

“Participant”
means a person who receives an Award under this Plan.

“Performance
Factors” means the factors selected by the Committee from among
the following measures to determine whether the performance goals established
by the Committee and applicable to Awards have been satisfied:

(a)           Net revenue and/or net
revenue growth;

(b)                                 Earnings
before income taxes and amortization and/or earnings before income taxes and
amortization growth;

(c)           Operating income and/or
operating income growth;

(d)           Net income and/or net
income growth;

(e)           Earnings per share
and/or earnings per share growth;

(f)            Total stockholder
return and/or total stockholder return growth;

(g)           Return on equity;

(h)           Operating cash flow
return on income;

(i)            Adjusted operating
cash flow return on income;

(j)            Economic value added;
and

(k)           Individual confidential
business objectives.

“Performance
Period” means the period of service determined by the Committee,
not to exceed five years, during which years of service or performance is to be
measured for Restricted Stock Awards or Stock Bonuses.

“Plan”
means this FormFactor, Inc. 2002 Equity Incentive Plan, as amended from time to
time.

 13
 

“Restricted Stock Award”
means an award of Shares pursuant to Section 6.

“SEC”
means the Securities and Exchange Commission.

“Securities Act”
means the Securities Act of 1933, as amended.

“Shares”
means shares of the Company’s Common Stock reserved for issuance under this
Plan, as adjusted pursuant to Sections 2 and 18, and any successor security.

“Stock Bonus”
means an award of Shares, or cash in lieu of Shares, pursuant to Section 7.

“Subsidiary”
means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

“Termination”
or “Terminated” means, for purposes of
this Plan with respect to a Partici­pant, that the Participant has for any
reason ceased to provide services as an employee, officer, director,
consultant, independent contractor, or advisor to the Company or a Parent or
Subsidiary of the Company.  An employee
will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of
absence approved by the Committee, provided, that such leave is for a period of
not more than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing.  In
the case of any employee on an approved leave of absence, the Committee may
make such provisions respecting suspension of vesting of the Award while on
leave from the employ of the Company or a Subsidiary as it may deem
appropriate, except that in no event may an Option be exercised after the
expiration of the term set forth in the Option agreement.  The Committee will have sole discretion to
determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the “Termination Date”).

“Unvested
Shares” means “Unvested Shares” as defined in the Award
Agreement.

“Vested
Shares” means “Vested Shares” as defined in the Award Agreement.

 14

DIRECTOR INITIAL GRANT
NO.           
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT
FormFactor, Inc., a Delaware corporation (the “COMPANY”), hereby grants an option (this “OPTION”) to the Optionee named below (“OPTIONEE”) as of the Date of Grant set forth below (the “DATE OF GRANT”) pursuant to the Company’s 2002 Equity Incentive Plan (the “PLAN”) and this Stock Option Agreement (this “AGREEMENT”), which includes the Terms and Conditions (the “TERMS AND CONDITIONS”) set forth on Exhibit A hereto. Capitalized terms not defined in this Agreement have the meanings ascribed to them in the Plan.

	
  OPTIONEE:

  	
   

  
	
   

  	
   

  
	
  SOCIAL SECURITY NUMBER:

  	
   

  
	
   

  	
   

  
	
  OPTIONEE’S ADDRESS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TOTAL OPTION SHARES:

  	
   

  
	
   

  	
   

  
	
  EXERCISE PRICE PER SHARE:

  	
   

  
	
   

  	
   

  
	
  DATE OF GRANT:

  	
   

  
	
   

  	
   

  
	
  EXPIRATION DATE:

  	
   

  
	
   

  	
  (unless earlier terminated under Section 3 hereof or
  pursuant to Section 9 of the Plan)

  
	
   

  	
   

  
	
  START DATE:

  	
   

  
	
   

  	
   

  
	
  VESTING SCHEDULE:

  	
  1/12 of the Shares will vest on each monthly
  anniversary of the Start Date until 100% vested.

  
	
   

  	
   

  
	
  TYPE OF STOCK OPTION:

  	
  Nonqualified Stock Option

  

 

The Company has signed this Agreement effective as the Date of Grant and has caused it to be executed in duplicate by its duly authorized representative.

	
  FORMFACTOR, INC.

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  
	
   

  	
   

  
	
  (Please print title)

  	
   

  
			

 

Optionee acknowledges receipt of this Agreement (including the Terms and Conditions), a copy of the Plan, attached hereto as Exhibit C, and the form of Exercise Agreement, attached hereto as Exhibit B. Optionee has read and understands these documents and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee has executed this Agreement in duplicate as of the Date of Grant.

	
  OPTIONEE

  	
   

  
	
   

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  

 

DIRECTOR INITIAL
GRANT

EXHIBIT A

STOCK OPTION
AGREEMENT TERMS AND CONDITIONS

This Option is subject to the following Terms and Conditions and the terms and conditions of the Plan, which are incorporated herein by reference. This Agreement, the Plan and the Exercise Agreement constitute the entire agreement and understanding of the Company and the Optionee with respect to this Option and supersede all prior understandings and agreements with respect to such subject matter. If there is any discrepancy, conflict or omission between this Agreement and the provisions of the Plan as interpreted by the Committee, the provisions of the Plan shall apply.
1.             GRANT OF OPTION. The Company hereby grants to Optionee this Option to purchase up to the total number of shares of Common Stock of the Company (the “SHARES”) at the Exercise Price Per Share (the “EXERCISE PRICE”), each as set forth on the first page of this Agreement, subject to the terms and conditions of this Agreement and the Plan.
2.             EXERCISE PERIOD.
2.1 Vesting of Shares. This Option is immediately exercisable, although the Shares issued upon exercise of this Option will be subject to the restrictions on transfer and Repurchase Option set forth in this Agreement. Subject to the terms and conditions of the Plan and this Agreement, this Option shall vest as set forth on the first page of this Agreement if Optionee has continuously served as a director and/or consultant of the Company. Shares that are vested pursuant to the schedule set forth on the first page of this Agreement are “VESTED SHARES.” Shares that are not vested pursuant to the schedule set forth on the first page of this Agreement are “UNVESTED Shares.” Options for Unvested Shares will not be exercisable on or after an Optionee’s Termination Date. In the event of a Corporate Transaction (as defined in the Plan) the Shares shall vest and become exercisable upon the terms and conditions of Section 9.5 of the Plan.
2.2 Expiration. This Option shall expire on the Expiration Date set forth on the first page of this Agreement and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is earlier terminated in accordance with the provisions of Section 3 of this Agreement or Section 9 of the Plan.
3.             TERMINATION. Except as provided below in this Section, this Option shall terminate and may not be exercised if Optionee ceases to be either a member of the Board of Directors of the Company or a consultant to the Company (“BOARD MEMBER”). The date on which Optionee ceases to be a Board Member shall be referred to as the “TERMINATION DATE.”
3.1 Termination for Any Reason Except Death or Disability. If Optionee ceases to be a Board Member for any reason except death or Disability (as such term is defined in the Plan), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by

FormFactor, Inc.

Stock Option Agreement

For Non-Employee Directors

2002 Equity Incentive Plan
Optionee during the three (3) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee ceases to be a Board Member due to Optionee’s death or Disability (or dies within 3 months after a termination because of Disability), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee (or Optionee’s legal representative or authorized assignee) no later than twelve (12) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.3 No Obligation or Right to Continue as Board Member. Nothing in the Plan or this Agreement confers on Optionee any right or obligation to continue as a Board Member or in any other relationship with the Company or any Parent or Subsidiary of the Company (or any successor-in-interest to the Company).
4.             MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee’s death or Disability, Optionee’s legal representative) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit B, or in such other form as may be approved by the Committee from time to time (the “EXERCISE AGREEMENT”). If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised (a)  unless such exercise is in compliance with all applicable federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance and (b) as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. The Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check),  or, where permitted by law, by any method set forth in the Exercise Agreement or any additional method approved by the Committee from time to time.
4.4 Tax Withholding. At the time of exercise, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company associated with the exercise of this Option. If the Committee permits at the time of exercise, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld,

 3
 

in which case, the
Company shall issue the net number of Shares to Optionee after deducting the
Shares retained from the Shares issuable upon exercise.

5.             COMPANY’S REPURCHASE OPTION FOR UNVESTED SHARES. In the event Optionee ceases to be a Board Member for any reason, the Company, or its assignee, shall have the option to repurchase Optionee’s Unvested Shares (the “REPURCHASE OPTION”) at any time within ninety (90) days after the later of Optionee’s Termination Date and the date Optionee purchases the Shares by giving Optionee written notice of its election to exercise the Repurchase Option. The Company or its assignee may repurchase from Optionee (or from Optionee’s legal representative, as the case may be) all or a portion of the Unvested Shares at Optionee’s Exercise Price, proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan, which repurchase price shall be paid, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company or such assignee, or by any combination thereof. The repurchase price shall be paid without interest within the ninety (90) day time period set forth above.
6.             NONTRANSFERABILITY OF OPTION AND SHARES. This Option may not be transferred in any manner other than under the terms and conditions of the Plan or by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the legal representatives and authorized executors and assignees of Optionee. Unvested Shares may not be sold or otherwise transferred without the Company’s prior written consent.
7.             TAX CONSEQUENCES. Optionee should refer to the prospectus for the Plan for a description of the federal tax consequences of exercising this Option, including the effects of filing an election under 83(b) of the Code in connection with the exercise of this Option for Unvested Shares, and disposing of the Shares. A copy of the Prospectus is available at the Finance/Stock Administration page of the Company’s internal website, or upon request from the Company’s Stock Administrator at (925) 456-7334.
8.             PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the rights of a stockholder with respect to any Shares until the Shares are issued to Optionee.
9.             NOTICES. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated on the first page of this Agreement or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile or email.

 4
 

10.           SUCCESSORS AND ASSIGNS.
The Company may assign any of its rights under this Agreement. This Agreement
shall be binding upon and inure to the benefit of the successors and assigns of
the Company. Subject to the restrictions on transfer set forth herein, this
Agreement shall be binding upon Optionee and Optionee’s legal representatives
and authorized assignees.

11.           GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflicts of law.

 5

Stock Option Agreement No.           
EXHIBIT B
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN (THE “PLAN”)

STOCK OPTION EXERCISE AGREEMENT
I (“OPTIONEE”) hereby elect to purchase the number of shares of Common Stock of FormFactor, Inc. (the “Company”) indicated below:

	
  Optionee

  
	
   

  
	
  Social Security Number:

  
	
   

  
	
  Address:

  
	
   

  
	
   

  
	
   

  
	
  Type of Option:

  	
  o
  Incentive Stock Option

  
	
   

  	
  o
  Nonqualified Stock Option

  
	
   

  
	
  Number of Shares Purchased:

  
	
   

  
	
  Purchase Price per Share:

  
	
   

  
	
  Aggregate Purchase Price:

  
	
   

  
	
  Date of Grant:

  
	
   

  
	
  Exact Name of Title to Shares:

  
	
   

  

 

1.             DELIVERY
OF PURCHASE PRICE. Optionee hereby delivers to the Company the Aggregate
Purchase Price as follows (check as applicable and complete):

 

o            in
cash (by check) in the amount of $                                          ,
receipt of which is acknowledged by the Company;

 

o            [by cancellation of indebtedness of the
Company to Optionee in the amount of $                                                                      ;]

 

o            [by delivery of                                                              fully-paid,  nonassessable and vested shares of the Common
Stock of the Company owned by Optionee for at least six (6) months prior to the
date hereof  (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the open
public market, and owned free and clear of all liens, claims, encumbrances or
security interests, valued at the current Fair Market Value of $                                per share;]

 

o            [by the waiver hereby of compensation due
or accrued to Optionee for services rendered in the amount of $                                   ;]

 

o            through a “same-day-sale” commitment from
Optionee and a broker-dealer that is a member of the National Association of
Securities Dealers (an “NASD DEALER”) whereby Optionee irrevocably elects to
exercise the Option and to sell a portion of the Shares so purchased to pay for
the Aggregate Purchase Price and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Aggregate Purchase Price (together
with any required tax withholding) directly to the Company; or

 

o            [through a “margin” commitment from
Optionee and the NASD Dealer named therein, whereby Optionee irrevocably elects
to exercise the Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Aggregate Purchase Price (together with
any required tax withholding) directly to the Company.]

 

2.             UNDERTAKINGS.
Optionee acknowledges that any Unvested Shares remain subject to the Terms and
Conditions of the Optionee’s Stock Option Agreement. If Optionee is married,
the Spousal Consent, attached hereto as Exhibit 1, should be completed by
Optionee’s spouse and returned with this Agreement.

 

3              TAX
CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE’S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.

 

4.             ENTIRE
AGREEMENT. The Plan and the Stock Option Agreement are incorporated herein by
reference. This Stock Option Exercise Agreement, the Plan and the Stock Option
Agreement constitute the entire agreement and understanding and supersede in
their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or conflicts
of law.

 

	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SIGNATURE OF OPTIONEE

  	
   

  
				

EXHIBIT 1
SPOUSAL CONSENT
I have read the foregoing Stock Option Exercise Agreement (the “AGREEMENT”) and I know its contents. I consent to and approve of the Agreement, and agree that the shares of the Common Stock of FormFactor, Inc. purchased pursuant to the Agreement (the “SHARES”) including any interest I may have in the Shares, are subject to all the provisions of the Agreement. I will take no action at any time to hinder application of the Agreement to the Shares or to any interest I may have in the Shares.

	
  

  	
   

  	
  Date:

  	
   

  
	
  SIGNATURE OF OPTIONEE’S SPOUSE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SPOUSE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OPTIONEE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  

EXHIBIT C
FORMFACTOR, INC.
2002 EQUITY INCENTIVE PLAN

DIRECTOR SUCCEEDING GRANT
NO.           
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT
FormFactor, Inc., a Delaware corporation (the “COMPANY”), hereby grants an option (this “OPTION”) to the Optionee named below (“OPTIONEE”) as of the Date of Grant set forth below (the “DATE OF GRANT”) pursuant to the Company’s 2002 Equity Incentive Plan (the “PLAN”) and this Stock Option Agreement (this “AGREEMENT”), which includes the Terms and Conditions (the “TERMS AND CONDITIONS”) set forth on Exhibit A hereto. Capitalized terms not defined in this Agreement have the meanings ascribed to them in the Plan.

	
  OPTIONEE:

  	
   

  
	
   

  	
   

  
	
  SOCIAL SECURITY NUMBER:

  	
   

  
	
   

  	
   

  
	
  OPTIONEE’S ADDRESS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TOTAL OPTION SHARES:

  	
   

  
	
   

  	
   

  
	
  EXERCISE PRICE PER SHARE:

  	
   

  
	
   

  	
   

  
	
  DATE OF GRANT:

  	
   

  
	
   

  	
   

  
	
  EXPIRATION DATE:

  	
   

  
	
   

  	
  (unless earlier terminated under Section 3 hereof or
  pursuant to Section 9 of the Plan)

  
	
   

  	
   

  
	
  START DATE:

  	
   

  
	
   

  	
   

  
	
  VESTING SCHEDULE:

  	
  1/12 of the Shares will vest on each monthly
  anniversary of the later of (a) the Start Date or (b) the date when all
  outstanding stock options and all outstanding shares issued upon exercise of
  any options granted to Optionee as an Outside Director prior to the Date of
  Grant have fully vested, until 100% vested.

  
	
   

  	
   

  
	
  TYPE OF STOCK OPTION:

  	
  Nonqualified Stock Option

  

 

The Company has signed this Agreement effective as the Date of Grant and has caused it to be executed in duplicate by its duly authorized representative.

	
  FORMFACTOR, INC.

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  
	
   

  	
   

  
	
  (Please print title)

  	
   

  

 

Optionee acknowledges receipt of this Agreement (including the Terms and Conditions), a copy of the Plan, attached hereto as Exhibit C, and the form of Exercise Agreement, attached hereto as Exhibit B. Optionee has read and understands these documents and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee has executed this Agreement in duplicate as of the Date of Grant.

	
  OPTIONEE

  	
   

  
	
   

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  

DIRECTOR SUCCEEDING GRANT
EXHIBIT A
STOCK OPTION AGREEMENT TERMS AND CONDITIONS
This Option is subject to the following Terms and Conditions and the terms and conditions of the Plan, which are incorporated herein by reference. This Agreement, the Plan and the Exercise Agreement constitute the entire agreement and understanding of the Company and the Optionee with respect to this Option and supersede all prior understandings and agreements with respect to such subject matter. If there is any discrepancy, conflict or omission between this Agreement and the provisions of the Plan as interpreted by the Committee, the provisions of the Plan shall apply.
1.             GRANT OF OPTION. The Company hereby grants to Optionee this Option to purchase up to the total number of shares of Common Stock of the Company (the “SHARES”) at the Exercise Price Per Share (the “EXERCISE PRICE”), each as set forth on the first page of this Agreement, subject to the terms and conditions of this Agreement and the Plan.
2.             EXERCISE PERIOD.
2.1 Vesting of Shares. This Option is immediately exercisable, although the Shares issued upon exercise of this Option will be subject to the restrictions on transfer and Repurchase Option set forth in this Agreement. Subject to the terms and conditions of the Plan and this Agreement, this Option shall vest as set forth on the first page of this Agreement if Optionee has continuously served as a director and/or consultant of the Company. Shares that are vested pursuant to the schedule set forth on the first page of this Agreement are “VESTED SHARES.” Shares that are not vested pursuant to the schedule set forth on the first page of this Agreement are “UNVESTED SHARES.” Options for Unvested Shares will not be exercisable on or after an Optionee’s Termination Date. In the event of a Corporate Transaction (as defined in the Plan) the Shares shall vest and become exercisable upon the terms and conditions of Section 9.5 of the Plan.
2.2 Expiration. This Option shall expire on the Expiration Date set forth on the first page of this Agreement and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is earlier terminated in accordance with the provisions of Section 3 of this Agreement or Section 9 of the Plan.
3.             TERMINATION. Except as provided below in this Section, this Option shall terminate and may not be exercised if Optionee ceases to be either a member of the Board of Directors of the Company or a consultant to the Company (“BOARD MEMBER”). The date on which Optionee ceases to be a Board Member shall be referred to as the “TERMINATION DATE.”
3.1 Termination for Any Reason Except Death or Disability. If Optionee ceases to be a Board Member for any reason except death or Disability (as such term is defined in the Plan), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee during the three (3) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.

FormFactor, Inc.

Stock Option Agreement

For Non-Employee Directors

2002 Equity Incentive Plan

 

3.2 Termination Because of Death or Disability. If Optionee ceases to be a Board Member due to Optionee’s death or Disability (or dies within 3 months after a termination because of Disability), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee (or Optionee’s legal representative or authorized assignee) no later than twelve (12) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.3 No Obligation or Right to Continue as Board Member. Nothing in the Plan or this Agreement confers on Optionee any right or obligation to continue as a Board Member or in any other relationship with the Company or any Parent or Subsidiary of the Company (or any successor-in-interest to the Company).
4.             MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee’s death or Disability, Optionee’s legal representative) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit B, or in such other form as may be approved by the Committee from time to time (the “EXERCISE AGREEMENT”). If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised (a) unless such exercise is in compliance with all applicable federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance and (b) as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. The Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or, where permitted by law, by any method set forth in the Exercise Agreement or any additional method approved by the Committee from time to time.
4.4 Tax Withholding. At the time of exercise, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company associated with the exercise of this Option. If the Committee permits at the time of exercise, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld, in which case, the Company shall issue the net number of Shares to Optionee after deducting the Shares retained from the Shares issuable upon exercise.

 

5.             COMPANY’S REPURCHASE OPTION FOR UNVESTED SHARES. In the event Optionee ceases to be a Board Member for any reason, the Company, or its assignee, shall have the option to repurchase Optionee’s Unvested Shares (the “REPURCHASE OPTION”) at any time within ninety (90) days after the later of Optionee’s Termination Date and the date Optionee purchases the Shares by giving Optionee written notice of its election to exercise the Repurchase Option. The Company or its assignee may repurchase from Optionee (or from Optionee’s legal representative, as the case may be) all or a portion of the Unvested Shares at Optionee’s Exercise Price, proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan, which repurchase price shall be paid, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company or such assignee, or by any combination thereof. The repurchase price shall be paid without interest within the ninety (90) day time period set forth above.
6.             NONTRANSFERABILITY OF OPTION AND SHARES. This Option may not be transferred in any manner other than under the terms and conditions of the Plan or by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the legal representatives and authorized executors and assignees of Optionee. Unvested Shares may not be sold or otherwise transferred without the Company’s prior written consent.
7.             TAX CONSEQUENCES. Optionee should refer to the prospectus for the Plan for a description of the federal tax consequences of exercising this Option, including the effects of filing an election under 83(b) of the Code in connection with the exercise of this Option for Unvested Shares, and disposing of the Shares. A copy of the Prospectus is available at the Finance/Stock Administration page of the Company’s internal website, or upon request from the Company’s Stock Administrator at (925) 456-7334.
8.             PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the rights of a stockholder with respect to any Shares until the Shares are issued to Optionee.
9.             NOTICES. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated on the first page of this Agreement or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile or email.
10.           SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and

 
assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee’s legal representatives and authorized assignees.
11.           GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflicts of law.

Stock Option Agreement No.           

EXHIBIT B

 

FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN (THE “PLAN”)

STOCK OPTION EXERCISE AGREEMENT

 

I (“OPTIONEE”) hereby elect to purchase the number of shares of Common Stock of FormFactor, Inc. (the “Company”) indicated below:

	
  Optionee

  	
   

  	
  Number of Shares Purchased:

  
	
  Social Security Number:

  	
   

  	
  Purchase Price per Share:

  
	
  Address:

  	
   

  	
  Aggregate Purchase Price:

  
	
   

  	
   

  	
  Date of Grant:

  
	
   

  	
   

  	
   

  
	
  Type of Option:

  	
  o
  Incentive Stock Option

  	
   

  	
  Exact Name of Title to Shares:

  
	
   

  	
  o
  Nonqualified Stock Option

  	
   

  	
   

  

 

1.             DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the Aggregate Purchase Price as follows (check as applicable and complete):
o            in cash (by check) in the amount of $                                          , receipt of which is acknowledged by the Company;
o            [by cancellation of indebtedness of the Company to Optionee in the amount of $                                                                      ;]
o            [by delivery of                                                              fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $                                         per share;]
o            [by the waiver hereby of compensation due or accrued to Optionee for services rendered in the amount of $                                                                     ;]
o            through a “same-day-sale” commitment from Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD DEALER”) whereby Optionee irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Aggregate Purchase Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (together with any required tax withholding) directly to the Company; or
o            [through a “margin” commitment from Optionee and the NASD Dealer named therein, whereby Optionee irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (together with any required tax withholding) directly to the Company.]
2.             UNDERTAKINGS. Optionee acknowledges that any Unvested Shares remain subject to the Terms and Conditions of the Optionee’s Stock Option Agreement. If Optionee is married, the Spousal Consent, attached hereto as Exhibit 1, should be completed by Optionee’s spouse and returned with this Agreement.
3.             TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE’S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4.             ENTIRE AGREEMENT. The Plan and the Stock Option Agreement are incorporated herein by reference. This Stock Option Exercise Agreement, the Plan and the Stock Option Agreement constitute the entire agreement and understanding and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by California law except for that body of law pertaining to choice of law or conflicts of law.

	
  Date:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SIGNATURE OF OPTIONEE

  

EXHIBIT 1
SPOUSAL CONSENT
I have read the foregoing Stock Option Exercise Agreement (the “AGREEMENT”) and I know its contents. I consent to and approve of the Agreement, and agree that the shares of the Common Stock of FormFactor, Inc. purchased pursuant to the Agreement (the “SHARES”) including any interest I may have in the Shares, are subject to all the provisions of the Agreement. I will take no action at any time to hinder application of the Agreement to the Shares or to any interest I may have in the Shares.

	
  

  	
   

  	
  Date:

  	
   

  
	
  SIGNATURE OF OPTIONEE’S SPOUSE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SPOUSE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OPTIONEE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  

DIRECTOR SUCCEEDING GRANT
EXHIBIT C
FORMFACTOR, INC.
2002 EQUITY INCENTIVE PLAN

  
NON-EXEMPT/EXERCISABLE AFTER 6 MONTHS
 
NO.           
 
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT
 
FormFactor, Inc., a Delaware corporation (the "COMPANY"), hereby grants an option (this "OPTION") to the Optionee named below ("OPTIONEE") as of the Date of Grant set forth below (the "DATE OF GRANT") pursuant to the Company's 2002 Equity Incentive Plan (the "PLAN") and this Stock Option Agreement (this "AGREEMENT"), which includes the Terms and Conditions (the "TERMS AND CONDITIONS") set forth on Exhibit A hereto. Capitalized terms not defined in this Agreement have the meanings ascribed to them in the Plan.
 
  	  OPTIONEE:
  	   
  
	   
  	   
  
	  SOCIAL SECURITY NUMBER:
  	   
  
	   
  	   
  
	  OPTIONEE'S ADDRESS:
  	   
  
	   
  	   
  
	   
  	   
  
	  TOTAL OPTION SHARES:
  	   
  
	   
  	   
  
	  EXERCISE PRICE PER SHARE:
  	   
  
	   
  	   
  
	  DATE OF GRANT:
  	   
  
	   
  	   
  
	  EXPIRATION DATE:
  	   
  
	   
  	   
  	  (unless earlier
  terminated under
  
	   
  	   
  	  Section 3 hereof
  or pursuant to
  
	   
  	   
  	  Section 18 of
  the Plan)
  
	   
  	   
  
	  FIRST VESTING DATE:
  	   
  
	   
  	   
  
	  VESTING SCHEDULE: 
  	       % of the Shares will
  vest on the First Vesting Date; then
       % of the Shares will
  vest on each monthly anniversary of the First Vesting Date until 100% vested.
  
	   
  	   
  
	  TYPE OF STOCK OPTION:
  	  o
  INCENTIVE STOCK OPTION
  
	   
  	   
  
	  (CHECK ONE):
  	  o
  NONQUALIFIED STOCK OPTION
  

   
  The Company has signed this Agreement effective as the Date of Grant and has caused it to be executed in duplicate by its duly authorized representative.
   
  	  FORMFACTOR, INC.
  	   
  
	   
  	   
  	   
  
	  By:
  	   
  	   
  
	   
  	   
  	   
  
	   
  	   
  
	  (Please print name)
  	   
  
	   
  	   
  
	  (Please print title)
  	   
  

   

  FormFactor, Inc.

Stock Option Agreement

2002 Equity Incentive Plan

No.          
 
Optionee acknowledges receipt of this Agreement (including the Terms and Conditions), a copy of the Plan, attached hereto as Exhibit C, and the form of Exercise Agreement, attached hereto as Exhibit B. Optionee has read and understands these documents and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee has executed this Agreement in duplicate as of the Date of Grant.
 
  	  OPTIONEE
  	   
  
	   
  	   
  
	  (Signature)
  	   
  
	   
  	   
  
	  (Please print name)
  	   
  

 2
 

  FormFactor, Inc.

Stock Option Agreement

2002 Equity Incentive Plan

Terms & Conditions
 
EXHIBIT A
 
STOCK OPTION AGREEMENT TERMS AND CONDITIONS
 
This Option is subject to the following Terms and Conditions and the terms and conditions of the Plan, which are incorporated herein by reference. This Agreement, the Plan and the Exercise Agreement constitute the entire agreement and understanding of the Company and the Optionee with respect to this Option and supersede all prior understandings and agreements with respect to such subject matter. If there is any discrepancy, conflict or omission between this Agreement and the provisions of the Plan as interpreted by the Committee, the provisions of the Plan shall apply.
 
1.             GRANT OF OPTION. The Company hereby grants to Optionee this Option to purchase up to the total number of shares of Common Stock of the Company (the "SHARES") at the Exercise Price Per Share (the "EXERCISE PRICE"), each as set forth on the first page of this Agreement, subject to the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option, this Option is intended to qualify to the extent permitted as an "incentive stock option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE").
 
2.             EXERCISE PERIOD.
 
2.1 Vesting of Shares. This Option is exercisable beginning six (6) months from the Date of Grant, although the Shares issued upon exercise of this Option will be subject to the restrictions on transfer and Repurchase Option set forth in this Agreement. Subject to the terms and conditions of the Plan and this Agreement, this Option shall vest as set forth on the first page of this Agreement if Optionee has continuously provided services to the Company, or any Parent or Subsidiary of the Company. Shares that are vested pursuant to the schedule set forth on the first page of this Agreement are "VESTED SHARES." Shares that are not vested pursuant to the schedule set forth on the first page of this Agreement are "UNVESTED SHARES." Notwithstanding any provision in the Plan or this Agreement to the contrary, Options for Unvested Shares will not be exercisable on or after an Optionee's Termination Date.
 
2.2 Acceleration of Vesting in Certain Circumstances Following a Corporate Transaction. In addition to the vesting provided herein, the Option and Shares subject to this Option shall become vested immediately prior to the occurrence of a Non-Justifiable Termination (as defined below) occurring during the period beginning on the date of consummation of a Corporate Transaction (as defined in the Plan) and ending twelve (12) months thereafter, as to an additional number of Shares equal to the number of Shares that would have vested during the twelve (12) months following the date of such Non-Justifiable Termination (which accelerated vesting is referred to herein as the "CORPORATE TRANSACTION VESTING"). "NON-JUSTIFIABLE TERMINATION" means any Termination by the Company, or any Parent or Subsidiary of the Company or the successor-in-interest to the Company following a Corporate Transaction, other
 

 3
 

    than for Cause (as defined below). "CAUSE" (for purposes of
this paragraph only) means (i) any willful participation by Optionee in acts of
either material fraud or material dishonesty against the Company or any
Subsidiary or Parent of the Company or the successor-in-interest to the Company
following a Corporate Transaction; (ii) any indictment or conviction of
Optionee of any felony (excluding drunk driving); (iii) any willful act of
gross misconduct by Optionee which is materially and demonstrably injurious to
the Company or any Subsidiary or Parent of the Company or the
successor-in-interest to the Company following a Corporate Transaction; or (iv)
the death or Disability of Optionee. Notwithstanding anything to the contrary
set forth in this Agreement, if a Corporate Transaction Vesting occurs by
reason of a Non-Justifiable Termination, then this Option may be exercised by
Optionee up to, but no later than, three (3) months after the date of such
Non-Justifiable Termination, but in any event no later than the Expiration
Date.]
   
[2.3 Acceleration of Vesting on Death or Disability. In the event of Termination of Optionee as a result of his or her death or "permanent and total disability," as such term is defined in Section 22(e)(3) of the Code, then, in addition to the vesting provided herein, the Option and Shares subject to the Option shall become vested as to an additional number of Shares equal to the number of Shares that would have vested during the twelve (12) months following the Termination Date of Optionee; provided, however, such vested Option may be exercised no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date.]
 
2. [4] Expiration. This Option expires on the Expiration Date set forth on the first page of this Agreement and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is terminated in accordance with the provisions of this Section 2, Section 3 of this Agreement or Section 18 of the Plan.
 
3.             TERMINATION.
 
3.1 Termination for Any Reason Except Death, Disability or Cause. If Optionee is Terminated for any reason except Optionee's death, Disability or Cause (as such terms are defined in the Plan), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee during the three (3) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.
 
3.2 Termination Because of Death or Disability. If Optionee is Terminated because of Optionee's death or Disability (or Optionee dies within three (3) months after Termination for any reason except Cause or Disability), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee (or Optionee's legal representative or authorized assignee) during the twelve (12) months following the Termination Date, but in any event must be exercised no later than the Expiration Date. Any exercise occurring more than
   

 4
 

    three months following the Termination Date (when the Termination is
for any reason other than Optionee's death or disability (as defined in the
Code)), shall be deemed to be the exercise of a nonqualified stock option.
   
3.3 Termination for Cause. If Optionee is Terminated for Cause, then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee no later than one (1) month after the Termination Date, but in any event must be exercised no later than the Expiration Date.
 
3.4 No Obligation to Employ. Nothing in the Plan or this Agreement confers on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company (or any successor-in-interest to the Company), or limits in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionee's employment or other relationship at any time, with or without Cause.
 
4.             MANNER OF EXERCISE.
 
4.1 Stock Option Exercise Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee's death or Disability, Optionee's legal representative) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit B, or in such other form as may be approved by the Committee from time to time (the "EXERCISE AGREEMENT"). If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option.
 
4.2 Limitations on Exercise. This Option may not be exercised (a) unless such exercise is in compliance with all applicable federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance and (b) as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. The Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
 
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or, where permitted by law, by any method set forth in the Exercise Agreement or any additional method approved by the Committee from time to time.
 
4.4 Tax Withholding. At the time of exercise, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company associated with the exercise of this Option. If the Committee permits at the time of exercise, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld,
 

 5
 

    in which case, the Company shall issue the net number of Shares to
Optionee after deducting the Shares retained from the Shares issuable upon
exercise.
   
5.             COMPANY'S REPURCHASE OPTION FOR UNVESTED SHARES. In the event Optionee is Terminated for any reason, the Company, or its assignee, shall have the option to repurchase Optionee's Unvested Shares (the "REPURCHASE OPTION") at any time within ninety (90) days after the later of Optionee's Termination Date and the date Optionee purchases the Shares by giving Optionee written notice of its election to exercise the Repurchase Option. The Company or its assignee may repurchase from Optionee (or from Optionee's legal representative, as the case may be) all or a portion of the Unvested Shares at Optionee's Exercise Price, proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan, which repurchase price shall be paid, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company or such assignee, or by any combination thereof. The repurchase price shall be paid without interest within the ninety (90) day time period set forth above.
 
6.             NONTRANSFERABILITY OF OPTION AND SHARES. This Option may not be transferred in any manner other than under the terms and conditions of the Plan or by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the legal representatives and authorized executors and assignees of Optionee. Unvested Shares may not be sold or otherwise transferred without the Company's prior written consent.
 
7.             TAX CONSEQUENCES. Optionee should refer to the prospectus for the Plan for a description of the federal tax consequences of exercising this Option, including the effects of filing an election under 83(b) of the Code in connection with the exercise of this Option for Unvested Shares, and disposing of the Shares. A copy of the Prospectus is available at the Finance/Stock Administration page of the Company's internal website, or upon request from the Company's Stock Administrator at (925) 456-7334.
 
8.             PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the rights of a stockholder with respect to any Shares until the Shares are issued to Optionee.
 
9.             NOTICES. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated on the first page of this Agreement or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile or email.
 

 6
 

    10.           SUCCESSORS
AND ASSIGNS. The Company may assign any of its rights under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the successors
and assigns of the Company. Subject to the restrictions on transfer set forth
herein, this Agreement shall be binding upon Optionee and Optionee's legal
representatives and authorized assignees.
   
11.           GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflicts of law.

 7

Stock Option Agreement No.      
EXHIBIT B
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN (THE “PLAN”)

STOCK OPTION EXERCISE AGREEMENT
I (“OPTIONEE”) hereby elect to purchase the number of shares of Common Stock of FormFactor, Inc. (the “Company”) indicated below:

	
  Optionee

  	
   

  	
  Number of Shares Purchased:

  
	
  Social Security Number:

  	
   

  	
  Purchase Price per Share:

  
	
  Address:

  	
   

  	
  Aggregate Purchase Price:

  
	
   

  	
   

  	
  Date of Grant:

  
	
   

  	
   

  	
   

  
	
  Type of Option: 

  	
  [ ] Incentive Stock Option

  	
   

  	
  Exact Name of Title to Shares:

  
	
   

  	
  [ ] Nonqualified Stock Option

  	
   

  	
   

  

 

1.             DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the Aggregate Purchase Price as follows (check as applicable and complete): 
o                                    in cash (by check) in the amount of $                                         , receipt of which is acknowledged by the Company; 
o                                    [by cancellation of indebtedness of the Company to Optionee in the amount of $                                                  ;] 
o                                    [by delivery of                                                           fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $                                   per share;] 
o                                    [by the waiver hereby of compensation due or accrued to Optionee for services rendered in the amount of $                                                         ;] 
o                                    through a “same-day-sale” commitment from Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD DEALER”) whereby Optionee irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Aggregate Purchase Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (along with any required tax withholding) directly to the Company; or 
o                                    [through a “margin” commitment from Optionee and the NASD Dealer named therein, whereby Optionee irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (along with any required tax withholding) directly to the Company.]
2.             UNDERTAKINGS. Optionee acknowledges that any Unvested Shares remain subject to the Terms and Conditions of the Optionee’s Stock Option Agreement. To the extent this Option is an ISO, if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1) year after transfer of such Shares to Optionee upon exercise of this Option, then Optionee shall immediately notify the Company in writing of such disposition. If Optionee is married, the Spousal Consent, attached hereto as Exhibit 1, should be completed by Optionee’s spouse and returned with this Agreement.
3.             TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE’S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4.             ENTIRE AGREEMENT. The Plan and the Stock Option Agreement are incorporated herein by reference. This Stock Option Exercise Agreement, the Plan and the Stock Option Agreement constitute the entire agreement and understanding and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by California law except for that body of law pertaining to choice of law or conflicts of law.

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
  SIGNATURE OF OPTIONEE

  

 
EXHIBIT 1
SPOUSAL CONSENT
I have read the foregoing Stock Option Exercise Agreement (the “AGREEMENT”) and I know its contents. I consent to and approve of the Agreement, and agree that the shares of the Common Stock of FormFactor, Inc. purchased pursuant to the Agreement (the “SHARES”) including any interest I may have in the Shares, are subject to all the provisions of the Agreement. I will take no action at any time to hinder application of the Agreement to the Shares or to any interest I may have in the Shares.

	
  

  	
   

  	
  Date:

  	
   

  
	
  SIGNATURE OF OPTIONEE’S SPOUSE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SPOUSE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OPTIONEE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  

EXHIBIT C
FORMFACTOR, INC.
2002 EQUITY INCENTIVE PLAN

EXEMPT/IMMEDIATELY EXERCISABLE
NO.            
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT
FormFactor, Inc., a Delaware corporation (the “COMPANY”), hereby grants an option (this “OPTION”) to the Optionee named below (“OPTIONEE”) as of the Date of Grant set forth below (the “DATE OF GRANT”) pursuant to the Company’s 2002 Equity Incentive Plan (the “PLAN”) and this Stock Option Agreement (this “AGREEMENT”), which includes the Terms and Conditions (the “TERMS AND CONDITIONS”) set forth on Exhibit A hereto. Capitalized terms not defined in this Agreement have the meanings ascribed to them in the Plan.

	
  OPTIONEE:

  	
   

  
	
   

  	
   

  
	
  SOCIAL SECURITY NUMBER:

  	
   

  
	
   

  	
   

  
	
  OPTIONEE’S ADDRESS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TOTAL OPTION SHARES:

  	
   

  
	
   

  	
   

  
	
  EXERCISE PRICE PER SHARE:

  	
   

  
	
   

  	
   

  
	
  DATE OF GRANT:

  	
   

  
	
   

  	
   

  
	
  EXPIRATION DATE:

  	
   

  
	
   

  	
  (unless earlier
  terminated under Section 3 hereof or pursuant to Section 18 of the Plan)

  
	
   

  	
   

  
	
  FIRST VESTING DATE:

  	
   

  
	
   

  	
   

  
	
  VESTING SCHEDULE:

  	
         % of the
  Shares will vest on the First Vesting Date; then

  
	
   

  	
         % of the
  Shares will vest on each monthly anniversary of the First Vesting Date until
  100% vested.

  
	
   

  	
   

  
	
  TYPE OF STOCK OPTION:

  	
  o
  INCENTIVE STOCK OPTION

  
	
   

  	
   

  
	
  (CHECK ONE):

  	
  o
  NONQUALIFIED STOCK OPTION

  

 

The Company has signed this Agreement effective as the Date of Grant and has caused it to be executed in duplicate by its duly authorized representative.

	
  FORMFACTOR, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  
	
   

  	
   

  
	
  (Please print title)

  	
   

  

 

FormFactor, Inc.

Stock Option Agreement

2002 Equity Incentive
Plan

No.
          

Optionee acknowledges receipt of this Agreement (including the Terms and Conditions), a copy of the Plan, attached hereto as Exhibit C, and the form of Exercise Agreement, attached hereto as Exhibit B. Optionee has read and understands these documents and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee has executed this Agreement in duplicate as of the Date of Grant.

	
  OPTIONEE

  	
   

  
	
   

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  

 2
 

FormFactor, Inc.

Stock Option Agreement

2002 Equity Incentive
Plan

 

EXHIBIT A
STOCK OPTION AGREEMENT TERMS AND CONDITIONS
This Option is subject to the following Terms and Conditions and the terms and conditions of the Plan, which are incorporated herein by reference. This Agreement, the Plan and the Exercise Agreement constitute the entire agreement and understanding of the Company and the Optionee with respect to this Option and supersede all prior understandings and agreements with respect to such subject matter. If there is any discrepancy, conflict or omission between this Agreement and the provisions of the Plan as interpreted by the Committee, the provisions of the Plan shall apply.
1.             GRANT OF OPTION. The Company hereby grants to Optionee this Option to purchase up to the total number of shares of Common Stock of the Company (the “SHARES”) at the Exercise Price Per Share (the “EXERCISE PRICE”), each as set forth on the first page of this Agreement, subject to the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option, this Option is intended to qualify to the extent permitted as an “incentive stock option” (“ISO”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “CODE”).
2.             EXERCISE PERIOD.
2.1 Vesting of Shares. This Option is immediately exercisable, although the Shares issued upon exercise of this Option will be subject to the restrictions on transfer and Repurchase Option set forth in this Agreement. Subject to the terms and conditions of the Plan and this Agreement, this Option shall vest as set forth on the first page of this Agreement if Optionee has continuously provided services to the Company, or any Parent or Subsidiary of the Company. Shares that are vested pursuant to the schedule set forth on the first page of this Agreement are “VESTED SHARES.” Shares that are not vested pursuant to the schedule set forth on the first page of this Agreement are “UNVESTED SHARES.” Notwithstanding any provision in the Plan or this Agreement to the contrary, Options for Unvested Shares will not be exercisable on or after an Optionee’s Termination Date.
[2.2 Acceleration of Vesting in Certain Circumstances Following a Corporate Transaction. In addition to the vesting provided herein, the Option and Shares subject to this Option shall become vested immediately prior to the occurrence of a Non-Justifiable Termination (as defined below) occurring during the period beginning on the date of consummation of a Corporate Transaction (as defined in the Plan) and ending twelve (12) months thereafter, as to an additional number of Shares equal to the number of Shares that would have vested during the twelve (12) months following the date of such Non-Justifiable Termination (which accelerated vesting is referred to herein as the “CORPORATE TRANSACTION VESTING”). “NON-JUSTIFIABLE

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TERMINATION” means any Termination by the Company, or any Parent or Subsidiary of the Company or the successor-in-interest to the Company following a Corporate Transaction, other than for Cause (as defined below). “CAUSE” (for purposes of this paragraph only) means (i) any willful participation by Optionee in acts of either material fraud or material dishonesty against the Company or any Subsidiary or Parent of the Company or the successor-in-interest to the Company following a Corporate Transaction; (ii) any indictment or conviction of Optionee of any felony (excluding drunk driving); (iii) any willful act of gross misconduct by Optionee which is materially and demonstrably injurious to the Company or any Subsidiary or Parent of the Company or the successor-in-interest to the Company following a Corporate Transaction; or (iv) the death or Disability of Optionee. Notwithstanding anything to the contrary set forth in this Agreement, if a Corporate Transaction Vesting occurs by reason of a Non-Justifiable Termination, then this Option may be exercised by Optionee up to, but no later than, three (3) months after the date of such Non-Justifiable Termination, but in any event no later than the Expiration Date.]
[2.3 Acceleration of Vesting on Death or Disability. In the event of Termination of Optionee as a result of his or her death or “permanent and total disability,” as such term is defined in Section 22(e)(3) of the Code, then, in addition to the vesting provided herein, the Option and Shares subject to the Option shall become vested as to an additional number of Shares equal to the number of Shares that would have vested during the twelve (12) months following the Termination Date of Optionee; provided, however, such vested Option may be exercised no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date.]
2. [4] Expiration. This Option expires on the Expiration Date set forth on the first page of this Agreement and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is terminated in accordance with the provisions of this Section 2, Section 3 of this Agreement or Section 18 of the Plan.
3.             TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause. If Optionee is Terminated for any reason except Optionee’s death, Disability or Cause (as such terms are defined in the Plan), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee during the three (3) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is Terminated because of Optionee’s death or Disability (or Optionee dies within three (3) months after Termination for any reason except Cause or Disability), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee (or Optionee’s legal representative or authorized assignee) during the twelve (12) months following the Termination Date, but in any

 4
 

event must be exercised no later than the Expiration Date. Any exercise occurring more than three months following the Termination Date (when the Termination is for any reason other than Optionee’s death or disability (as defined in the Code)), shall be deemed to be the exercise of a nonqualified stock option.
3.3 Termination for Cause. If Optionee is Terminated for Cause, then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee no later than one (1) month after the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.4 No Obligation to Employ. Nothing in the Plan or this Agreement confers on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company (or any successor-in-interest to the Company), or limits in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionee’s employment or other relationship at any time, with or without Cause.
4.             MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee’s death or Disability, Optionee’s legal representative) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit B, or in such other form as may be approved by the Committee from time to time (the “EXERCISE AGREEMENT”). If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised (a) unless such exercise is in compliance with all applicable federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance and (b) as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. The Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or, where permitted by law, by any method set forth in the Exercise Agreement or any additional method approved by the Committee from time to time.
4.4 Tax Withholding. At the time of exercise, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company associated with the exercise of this Option. If the Committee permits at the time of exercise, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld,

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in which case, the Company shall issue the net number of Shares to Optionee after deducting the Shares retained from the Shares issuable upon exercise.
5.             COMPANY’S REPURCHASE OPTION FOR UNVESTED SHARES.
In the event Optionee is Terminated for any reason, the Company, or its assignee, shall have the option to repurchase Optionee’s Unvested Shares (the “REPURCHASE OPTION”) at any time within ninety (90) days after the later of Optionee’s Termination Date and the date Optionee purchases the Shares by giving Optionee written notice of its election to exercise the Repurchase Option. The Company or its assignee may repurchase from Optionee (or from Optionee’s legal representative, as the case may be) all or a portion of the Unvested Shares at Optionee’s Exercise Price, proportionately adjusted for any stock split or similar change in the capital structure of the Company as set forth in Section 2.2 of the Plan, which repurchase price shall be paid, at the option of the Company or its assignee, by check or by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company or such assignee, or by any combination thereof. The repurchase price shall be paid without interest within the ninety (90) day time period set forth above.
6.             NONTRANSFERABILITY OF OPTION AND SHARES.
This Option may not be transferred in any manner other than under the terms and conditions of the Plan or by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the legal representatives and authorized executors and assignees of Optionee. Unvested Shares may not be sold or otherwise transferred without the Company’s prior written consent.
7.             TAX CONSEQUENCES.
Optionee should refer to the prospectus for the Plan for a description of the federal tax consequences of exercising this Option, including the effects of filing an election under 83(b) of the Code in connection with the exercise of this Option for Unvested Shares, and disposing of the Shares. A copy of the Prospectus is available at the Finance/Stock Administration page of the Company’s internal website, or upon request from the Company’s Stock Administrator at (925) 456-7334.
8.             PRIVILEGES OF STOCK OWNERSHIP.
Optionee shall not have any of the rights of a stockholder with respect to any Shares until the Shares are issued to Optionee.
9.             NOTICES.
Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in

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writing and addressed to Optionee at the address indicated on the first page of this Agreement or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile or email.
10.           SUCCESSORS AND ASSIGNS.
The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee’s legal representatives and authorized assignees.
11.           GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflicts of law.

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Stock Option Agreement No.        
EXHIBIT B
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN (THE “PLAN”)

STOCK OPTION EXERCISE AGREEMENT
I (“OPTIONEE”) hereby elect to purchase the number of shares of Common Stock of FormFactor, Inc. (the “Company”) indicated below:

	
  Optionee

  	
  Number of Shares Purchased:

  
	
  Social Security Number:

  	
  Purchase Price per Share:

  
	
  Address:

  	
  Aggregate Purchase Price:

  
	
   

  	
  Date of Grant:

  
	
   

  	
   

  
	
  Type of Option:

  	
  o
  Incentive Stock Option

  	
  Exact Name of Title to Shares:

  
	
   

  	
  o
  Nonqualified Stock Option

  	
   

  

 

1.             DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the Aggregate Purchase Price as follows (check as applicable and complete):
o                                    in cash (by check) in the amount of $                     , receipt of which is acknowledged by the Company;
o                                    [by cancellation of indebtedness of the Company to Optionee in the amount of $                                   ;]
o                                    [by delivery of                                fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $                     per share;]
o                                    [by the waiver hereby of compensation due or accrued to Optionee for services rendered in the amount of $                                     ;]
o                                    through a “same-day-sale” commitment from Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD DEALER”) whereby Optionee irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Aggregate Purchase Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (along with any required tax withholding) directly to the Company; or
o                                    [through a “margin” commitment from Optionee and the NASD Dealer named therein, whereby Optionee irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (along with any required tax withholding) directly to the Company.]
2.             UNDERTAKINGS. Optionee acknowledges that any Unvested Shares remain subject to the Terms and Conditions of the Optionee’s Stock Option Agreement. To the extent this Option is an ISO, if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1) year after transfer of such Shares to Optionee upon exercise of this Option, then Optionee shall immediately notify the Company in writing of such disposition. If Optionee is married, the Spousal Consent, attached hereto as Exhibit 1, should be completed by Optionee’s spouse and returned with this Agreement.
3.             TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE’S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4.             ENTIRE AGREEMENT. The Plan and the Stock Option Agreement are incorporated herein by reference. This Stock Option Exercise Agreement, the Plan and the Stock Option Agreement constitute the entire agreement and understanding and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by California law except for that body of law pertaining to choice of law or conflicts of law.

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
  SIGNATURE OF OPTIONEE

  

 

EXHIBIT 1
SPOUSAL CONSENT
I have read the foregoing Stock Option Exercise Agreement (the “AGREEMENT”) and I know its contents. I consent to and approve of the Agreement, and agree that the shares of the Common Stock of FormFactor, Inc. purchased pursuant to the Agreement (the “SHARES”) including any interest I may have in the Shares, are subject to all the provisions of the Agreement. I will take no action at any time to hinder application of the Agreement to the Shares or to any interest I may have in the Shares.

	
  

  	
  Date: 

  	
   

  
	
  SIGNATURE OF OPTIONEE’S SPOUSE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SPOUSE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OPTIONEE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  

EXHIBIT C
FORMFACTOR, INC.
2002 EQUITY INCENTIVE PLAN

EXEMPT AND NON-EXEMPT/EXERCISABLE AS VESTS
NO.               
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT
FormFactor, Inc., a Delaware corporation (the “COMPANY”), hereby grants an option (this “OPTION”) to the Optionee named below (“OPTIONEE”) as of the Date of Grant set forth below (the “DATE OF GRANT”) pursuant to the Company’s 2002 Equity Incentive Plan (the “PLAN”) and this Stock Option Agreement (this “AGREEMENT”), which includes the Terms and Conditions (the “TERMS AND CONDITIONS”) set forth on Exhibit A hereto. Capitalized terms not defined in this Agreement have the meanings ascribed to them in the Plan.

	
  OPTIONEE:

  	
   

  
	
   

  	
   

  
	
  SOCIAL SECURITY NUMBER:

  	
   

  
	
   

  	
   

  
	
  OPTIONEE’S ADDRESS:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TOTAL OPTION SHARES:

  	
   

  
	
   

  	
   

  
	
  EXERCISE PRICE PER SHARE:

  	
   

  
	
   

  	
   

  
	
  DATE OF GRANT:

  	
   

  
	
   

  	
   

  
	
  EXPIRATION DATE:

  	
   

  
	
   

  	
  (unless earlier
  terminated under Section 3 hereof or pursuant to Section 18 of the Plan)

  
	
   

  	
   

  
	
  FIRST VESTING DATE:

  	
   

  
	
   

  	
   

  
	
  VESTING SCHEDULE:

  	
        % of the Shares
  will vest on the First Vesting Date; then

  
	
   

  	
        % of the Shares
  will vest on each monthly anniversary of the First Vesting Date until 100%
  vested.

  
	
   

  	
   

  
	
  TYPE OF STOCK OPTION:

  	
  o
  INCENTIVE STOCK OPTION

  
	
   

  	
   

  
	
  (CHECK ONE):

  	
  o
  NONQUALIFIED STOCK OPTION

  

 

The Company has signed this Agreement effective as the Date of Grant and has caused it to be executed in duplicate by its duly authorized representative.

	
  FORMFACTOR, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  
	
   

  	
   

  
	
  (Please print title)

  	
   

  

FormFactor, Inc.

Stock Option Agreement

2002 Equity Incentive Plan

No.            

Optionee acknowledges receipt of this Agreement (including the Terms and Conditions), a copy of the Plan, attached hereto as Exhibit C, and the form of Exercise Agreement, attached hereto as Exhibit B. Optionee has read and understands these documents and accepts this Option subject to all the terms and conditions of the Plan and this Agreement. Optionee has executed this Agreement in duplicate as of the Date of Grant.

	
  OPTIONEE

  	
   

  
	
   

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  (Please print name)

  	
   

  

 

 2
 

FormFactor, Inc.

Stock Option Agreement

2002 Equity Incentive Plan

Terms & Conditions

 

EXHIBIT A

 

STOCK OPTION AGREEMENT TERMS AND CONDITIONS
This Option is subject to the following Terms and Conditions and the terms and conditions of the Plan, which are incorporated herein by reference. This Agreement, the Plan and the Exercise Agreement constitute the entire agreement and understanding of the Company and the Optionee with respect to this Option and supersede all prior understandings and agreements with respect to such subject matter. If there is any discrepancy, conflict or omission between this Agreement and the provisions of the Plan as interpreted by the Committee, the provisions of the Plan shall apply.
1.             GRANT OF OPTION. The Company hereby grants to Optionee this Option to purchase up to the total number of shares of Common Stock of the Company (the “SHARES”) at the Exercise Price Per Share (the “EXERCISE PRICE”), each as set forth on the first page of this Agreement, subject to the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option, this Option is intended to qualify to the extent permitted as an “incentive stock option” (“ISO”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “CODE”).
2.             EXERCISE PERIOD.
2.1 Vesting of Shares. This Option is exercisable as it vests. Subject to the terms and conditions of the Plan and this Agreement, this Option shall vest and become exercisable as set forth on the first page of this Agreement if Optionee has continuously provided services to the Company, or any Parent or Subsidiary of the Company.
[2.2 Acceleration of Vesting in Certain Circumstances Following a Corporate Transaction. In addition to the vesting provided herein, the Option and Shares subject to this Option shall become vested and exercisable immediately prior to the occurrence of a Non-Justifiable Termination (as defined below) occurring during the period beginning on the date of consummation of a Corporate Transaction (as defined in the Plan) and ending twelve (12) months thereafter, as to an additional number of Shares equal to the number of Shares that would have vested and become exercisable during the twelve (12) months following the date of such Non-Justifiable Termination (which accelerated vesting and exercisability is referred to herein as the “CORPORATE TRANSACTION VESTING”). “NON-JUSTIFIABLE TERMINATION” means any Termination by the Company, or any Parent or Subsidiary of the Company or the successor-in-interest to the Company following a Corporate Transaction, other than for Cause (as defined below). “CAUSE” (for purposes of this paragraph only) means (i) any willful participation by Optionee in acts of either material fraud or material dishonesty against the Company or any Subsidiary or Parent of

 3
 

the Company or the successor-in-interest to the Company following a Corporate Transaction; (ii) any indictment or conviction of Optionee of any felony (excluding drunk driving); (iii) any willful act of gross misconduct by Optionee which is materially and demonstrably injurious to the Company or any Subsidiary or Parent of the Company or the successor-in-interest to the Company following a Corporate Transaction; or (iv) the death or Disability of Optionee. Notwithstanding anything to the contrary set forth in this Agreement, if a Corporate Transaction Vesting occurs by reason of a Non-Justifiable Termination, then this Option may be exercised by Optionee up to, but no later than, three (3) months after the date of such Non-Justifiable Termination, but in any event no later than the Expiration Date.]
[2.3 Acceleration of Vesting on Death or Disability. In the event of Termination of Optionee as a result of his or her death or “permanent and total disability,” as such term is defined in Section 22(e)(3) of the Code, then, in addition to the vesting provided herein, the Option and Shares subject to the Option shall become vested and exercisable as to an additional number of Shares equal to the number of Shares that would have vested and become exercisable during the twelve (12) months following the Termination Date of Optionee; provided, however, such vested Option may be exercised no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date.]
2. [4] Expiration. This Option expires on the Expiration Date set forth on the first page of this Agreement and must be exercised, if at all, on or before the earlier of the Expiration Date or the date on which this Option is terminated in accordance with the provisions of this Section 2, Section 3 of this Agreement or Section 18 of the Plan.
3.             TERMINATION.
3.1 Termination for Any Reason Except Death, Disability or Cause. If Optionee is Terminated for any reason except Optionee’s death, Disability or Cause (as such terms are defined in the Plan), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee during the three (3) months following the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is Terminated because of Optionee’s death or Disability (or Optionee dies within three (3) months after Termination for any reason except Cause or Disability), then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee (or Optionee’s legal representative or authorized assignee) during the twelve (12) months following the Termination Date, but in any event must be exercised no later than the Expiration Date. Any exercise occurring more than three months following the Termination Date (when the Termination is for any reason other than Optionee’s death or disability (as defined in the Code)), shall be deemed to be the exercise of a nonqualified stock option.

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3.3 Termination for Cause. If Optionee is Terminated for Cause, then this Option, to the extent (and only to the extent) that it is vested on the Termination Date in accordance with the schedule set forth on the first page of this Agreement, may be exercised by Optionee no later than one (1) month after the Termination Date, but in any event must be exercised no later than the Expiration Date.
3.4 No Obligation to Employ. Nothing in the Plan or this Agreement confers on Optionee any right to continue in the employ of, or other relationship with, the Company or any Parent or Subsidiary of the Company (or any successor-in-interest to the Company), or limits in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Optionee’s employment or other relationship at any time, with or without Cause.
4.             MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option, Optionee (or in the case of exercise after Optionee’s death or Disability, Optionee’s legal representative) must deliver to the Company an executed stock option exercise agreement in the form attached hereto as Exhibit B, or in such other form as may be approved by the Committee from time to time (the “EXERCISE AGREEMENT”). If someone other than Optionee exercises this Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised (a) unless such exercise is in compliance with all applicable federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Stock may be listed at the time of such issuance and (b) as to fewer than 100 Shares unless it is exercised as to all Shares as to which this Option is then exercisable. The Company is under no obligation to register or qualify the Shares with the SEC, any state securities commission or any stock exchange to effect such compliance.
4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or, where permitted by law, by any method set forth in the Exercise Agreement or any additional method approved by the Committee from time to time.
4.4 Tax Withholding. At the time of exercise, Optionee must pay or provide for any applicable federal or state withholding obligations of the Company associated with the exercise of this Option. If the Committee permits at the time of exercise, Optionee may provide for payment of withholding taxes upon exercise of this Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld, in which case, the Company shall issue the net number of Shares to Optionee after deducting the Shares retained from the Shares issuable upon exercise.

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5.             NONTRANSFERABILITY OF OPTION AND SHARES.
This Option may not be transferred in any manner other than under the terms and conditions of the Plan or by will or by the laws of descent and distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the legal representatives and authorized executors and assignees of Optionee.
6.             TAX CONSEQUENCES.
Optionee should refer to the prospectus for the Plan for a description of the federal tax consequences of exercising this Option and disposing of the Shares. A copy of the Prospectus is available at the Finance/Stock Administration page of the Company’s internal website, or upon request from the Company’s Stock Administrator at (925) 456-7334.
7.             PRIVILEGES OF STOCK OWNERSHIP.
Optionee shall not have any of the rights of a stockholder with respect to any Shares until the Shares are issued to Optionee.
8.             NOTICES.
Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated on the first page of this Agreement or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by facsimile or email.
9.             SUCCESSORS AND ASSIGNS.
The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Optionee and Optionee’s legal representatives and authorized assignees.
10.           GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to that body of law pertaining to choice of law or conflicts of law.

 6

Stock Option Agreement

No.
          

 
EXHIBIT B
FORMFACTOR, INC.

2002 EQUITY INCENTIVE PLAN (THE “PLAN”)

STOCK OPTION EXERCISE AGREEMENT
I (“OPTIONEE”) hereby elect to purchase the number of shares of Common Stock of FormFactor, Inc. (the “Company”) indicated below:

	
  Optionee

  	
   

  	
  Number of Shares Purchased:

  
	
  Social Security Number:

  	
   

  	
  Purchase Price per Share:

  
	
  Address:

  	
   

  	
  Aggregate Purchase Price:

  
	
   

  	
   

  	
  Date of Grant:

  
	
  Type of Option:

  	
  o      Incentive
  Stock Option

  	
   

  	
  Exact Name of Title to Shares:

  
	
   

  	
  o      Nonqualified
  Stock Option

  	
   

  	
   

  

 

1.             DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the Aggregate Purchase Price as follows (check as applicable and complete):
o            in cash (by check) in the amount of $                                         , receipt of which is acknowledged by the Company;
o            [by cancellation of indebtedness of the Company to Optionee in the amount of $                                                                     ;]
o            [by delivery of                                                                  fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valuedat the current Fair Market Value of $                                           per share;]
o            [by the waiver hereby of compensation due or accrued to Optionee for services rendered in the amount of $                                                         ;]
o            through a “same-day-sale” commitment from Optionee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD DEALER”) whereby Optionee irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Aggregate Purchase Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (along with any required tax withholding) directly to the Company; or
o            [through a “margin” commitment from Optionee and the NASD Dealer named therein, whereby Optionee irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Aggregate Purchase Price (along with any required tax withholding) directly to the Company.] 
2.             UNDERTAKINGS. To the extent this Option is an ISO, if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (a) the date two (2) years after the Date of Grant, and (b) the date one (1) year after transfer of such Shares to Optionee upon exercise of this Option, then Optionee shall immediately notify the Company in writing of such disposition. If Optionee is married, the Spousal Consent, attached hereto as Exhibit 1, should be completed by Optionee’s spouse and returned with this Agreement.
3.             TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE’S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 
4.             ENTIRE AGREEMENT. The Plan and the Stock Option Agreement are incorporated herein by reference. This Stock Option Exercise Agreement, the Plan and the Stock Option Agreement constitute the entire agreement and understanding and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and are governed by California law except for that body of law pertaining to choice of law or conflicts of law.

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  SIGNATURE OF OPTIONEE

  

 

EXHIBIT 1
SPOUSAL CONSENT
I have read the foregoing Stock Option Exercise Agreement (the “AGREEMENT”) and I know its contents. I consent to and approve of the Agreement, and agree that the shares of the Common Stock of FormFactor, Inc. purchased pursuant to the Agreement (the “SHARES”) including any interest I may have in the Shares, are subject to all the provisions of the Agreement. I will take no action at any time to hinder application of the Agreement to the Shares or to any interest I may have in the Shares.

	
  

  	
   

  	
  Date:

  	
   

  
	
  SIGNATURE OF OPTIONEE’S SPOUSE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SPOUSE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  OPTIONEE’S NAME - TYPED OR PRINTED

  	
   

  	
   

  

 

EXHIBIT C
FORMFACTOR, INC.
2002 EQUITY INCENTIVE PLAN

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