-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tq/YyUVLCBY8IT1rhe0DFPIPBgsUbrYM5sI4KbnlGoThPTDgz57jQv9n8VVMO4Mo jWBjepKF83Moxo8F9VbvdQ== 0000914025-03-000036.txt : 20031107 0000914025-03-000036.hdr.sgml : 20031107 20031107143407 ACCESSION NUMBER: 0000914025-03-000036 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANTRONICS INC /CA/ CENTRAL INDEX KEY: 0000914025 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 770207692 STATE OF INCORPORATION: DE FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12696 FILM NUMBER: 03984785 BUSINESS ADDRESS: STREET 1: 345 ENCINAL ST CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 BUSINESS PHONE: 8314265858 MAIL ADDRESS: STREET 1: 345 ENCINAL STREET STREET 2: PO BOX 1802 CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 FORMER COMPANY: FORMER CONFORMED NAME: PI PARENT CORP DATE OF NAME CHANGE: 19931025 10-Q 1 q2fy04.htm FORM 10Q SECOND QUARTER FISCAL 2004

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to _________

Commission file number 1-12696

Plantronics, Inc.
(Exact name of Registrant as Specified in its Charter)

Delaware	77-0207692
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

345 Encinal Street
Santa Cruz, California 95060
(Address of Principal Executive Offices including Zip Code)

(831) 426-5858
(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X ] NO [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) YES [X ] NO [ ].

The number of shares outstanding of Plantronics' common stock as of October 24, 2003 was 44,421,485.

Plantronics, Inc.
FORM 10-Q
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page No.

Item 1. Financial Statements (unaudited):
Balance Sheets as of March 31, 2003 and September 30, 2003	3
Statements of Operations for the Three and Six Months Ended September 30, 2002 and 2003	4
Statements of Cash Flows for the Six Months Ended September 30, 2002 and 2003	5
Notes to Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Disclosure Controls and Procedures	31
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K	32
Signature	33

Part I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLANTRONICS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

                                                            March 31,   September 30,
                                                              2003          2003
                                                          ------------  ------------
ASSETS                                                                              
Current assets:
     Cash, cash equivalents and marketable securities .. $     59,725  $     92,105
     Accounts receivable, net ..........................       50,503        52,033
     Inventory, net ....................................       33,758        37,764
     Deferred income taxes .............................        6,357         6,357
     Other current assets ..............................        2,674         2,536
                                                          ------------  ------------
         Total current assets ..........................      153,017       190,795
Property, plant and equipment, net .....................       36,957        35,815
Intangibles, net .......................................        3,682         3,355
Goodwill, net ..........................................        9,386         9,386
Other assets, net ......................................        2,167         2,617
                                                          ------------  ------------
        Total assets ................................... $    205,209  $    241,968
                                                          ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY                                                
Current liabilities:
     Accounts payable .................................. $     13,596  $     18,243
     Accrued liabilities ...............................       27,235        32,540
     Income taxes payable ..............................        8,581         2,752
                                                          ------------  ------------
         Total current liabilities .....................       49,412        53,535
Deferred tax liability .................................        8,867         8,867
                                                          ------------  ------------
        Total liabilities ..............................       58,279        62,402
                                                          ------------  ------------
Stockholders' equity:
     Preferred stock, $0.01 par value per share; 1,000
       shares authorized, no shares outstanding.........           --            --
     Common stock, $0.01 par value per share; 100,000
       shares authorized, 59,728 and 60,409 shares
       outstanding at March 31, 2003 and September 30,
       2003, respectively...............................          597           604
     Additional paid-in capital ........................      158,160       169,031
     Accumulated other comprehensive income (loss)......          209          (552)
     Retained earnings .................................      285,350       309,064
                                                          ------------  ------------
                                                              444,316       478,147
     Less: Treasury stock (common: 16,090 and 16,104
       shares at March 31, 2003 and September 30, 2003,
       respectively) at cost ...........................     (297,386)     (298,581)
                                                          ------------  ------------
         Total stockholders' equity ....................      146,930       179,566
                                                          ------------  ------------
         Total liabilities and stockholders' equity .... $    205,209  $    241,968
                                                          ============  ============

See Notes to Unaudited Condensed Consolidated Financial Statements

PLANTRONICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)



                                                      Three Months Ended    Six Months Ended
                                                         September 30,        September 30,
                                                    --------------------  --------------------
                                                       2002       2003       2002       2003
                                                    ---------  ---------  ---------  ---------
Net sales ........................................ $  82,370  $  95,117  $ 162,638  $ 187,903
Cost of sales ....................................    40,735     46,351     79,545     93,670
                                                    ---------  ---------  ---------  ---------
    Gross profit .................................    41,635     48,766     83,093     94,233
                                                    ---------  ---------  ---------  ---------
Operating expenses:
    Research, development and engineering ........     8,164      8,247     16,414     16,852
    Selling, general and administrative ..........    19,763     22,984     39,369     44,137
                                                    ---------  ---------  ---------  ---------
         Total operating expenses ................    27,927     31,231     55,783     60,989
                                                    ---------  ---------  ---------  ---------
Operating income .................................    13,708     17,535     27,310     33,244
Interest and other income, net ...................       272        141      1,205        633
                                                    ---------  ---------  ---------  ---------
Income before income taxes .......................    13,980     17,676     28,515     33,877
Income tax expense ...............................     2,450      5,303      6,811     10,163
                                                    ---------  ---------  ---------  ---------
Net income ....................................... $  11,530  $  12,373  $  21,704  $  23,714
                                                    =========  =========  =========  =========

Basic earnings per common share (Note 5) ......... $    0.25  $    0.28  $    0.47  $    0.54
                                                    =========  =========  =========  =========

Shares used in basic per share calculations.......    45,773     44,052     45,828     43,861
                                                    =========  =========  =========  =========

Diluted earnings per common share (Note 5) ....... $    0.24  $    0.27  $    0.46  $    0.52
                                                    =========  =========  =========  =========

Shares used in diluted per share calculations.....    47,298     46,372     47,522     45,672
                                                    =========  =========  =========  =========

See Notes to Unaudited Condensed Consolidated Financial Statements

PLANTRONICS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)



                                                                    Six Months Ended
                                                                      September 30,
                                                                 ----------------------
                                                                     2002        2003
                                                                 ----------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $   21,704  $   23,714
      Adjustments to reconcile net income to net cash
      provided by operating activities:
           Depreciation and amortization ......................      5,572       6,350
           Deferred income taxes ..............................        (55)         --
           Income tax benefit associated with stock options ...        725       3,087
           Loss on disposal of fixed assets ...................         14          12
      Changes in assets and liabilities:
           Accounts receivable, net ...........................     (7,465)     (1,530)
           Inventory, net .....................................        444      (4,006)
           Other current assets ...............................       (475)        138
           Other assets .......................................        302          51
           Accounts payable ...................................       (241)      4,647
           Accrued liabilities ................................        392       5,305
           Income taxes payable ...............................     (1,070)     (5,829)
                                                                 ----------  ----------
Cash provided by operating activities .........................     19,847      31,939
                                                                 ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Proceeds from maturities of marketable securities .......     10,000       5,020
      Purchase of marketable securities .......................    (13,020)         --
      Purchase of equity investment............................         --        (450)
      Capital expenditures ....................................     (6,631)     (4,946)
                                                                 ----------  ----------
Cash (used in) investing activities ...........................     (9,651)       (376)
                                                                 ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Purchase of treasury stock ..............................     (9,571)     (1,833)
      Proceeds from sale of treasury stock ....................        812       1,564
      Proceeds from exercise of stock options .................        771       6,868
                                                                 ----------  ----------
Cash (used in) provided by financing activities ...............     (7,988)      6,599

Effect of exchange rate changes on cash and cash equivalents...      1,033        (761)
                                                                 ----------  ----------
Net increase in cash and cash equivalents .....................      3,241      37,401
Cash and cash equivalents at beginning of period ..............     43,048      54,704
                                                                 ----------  ----------
Cash and cash equivalents at end of period .................... $   46,289  $   92,105
                                                                 ==========  ==========
Supplemental disclosures of cash flow information:
   Cash paid for:
           Interest ........................................... $       67  $       65
           Income taxes ....................................... $    7,418  $   12,932

See Notes to Unaudited Condensed Consolidated Financial Statements

PLANTRONICS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Plantronics, Inc. ("Plantronics," "we," or "our") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in our Annual Report on Form 10-K for the year ended March 31, 2003. The interim financial information is unaudited, but reflects all normal recurring adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Certain prior period balances have been reclassified to co nform to the current period presentation. The interim financial statements should be read in connection with the financial statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

2. PERIODS PRESENTED

Our fiscal year-end is the Saturday closest to March 31 and the second fiscal quarter-end is the last Saturday in September. For purposes of presentation, we have indicated our accounting year ending on March 31, and our interim quarterly periods ending on the applicable month-end. Our fiscal quarters ended September 30, 2002, and September 30, 2003, each consisted of thirteen weeks.

3. DETAILS OF CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS)

March 31, September 30, 2003 2003 ------------ ------------ Cash, cash equivalents and marketable securities: Cash and cash equivalents ........................... $ 54,704 $ 92,105 Marketable securities ............................... 5,021 -- ------------ ------------ $ 59,725 $ 92,105 ============ ============ Accounts receivable, net: Accounts receivable from customers .................. $ 65,931 $ 66,717 Less: sales returns, promotions and rebates ......... (12,067) (11,043) Less: allowance for doubtful accounts ............... (3,361) (3,641) ------------ ------------ $ 50,503 $ 52,033 ============ ============ Inventory, net: Finished goods ...................................... $ 22,664 $ 23,701 Work in process ..................................... 1,229 1,681 Purchased parts ..................................... 18,273 21,901 Less: provision for excess and obsolete inventory ... (8,408) (9,519) ------------ ------------ $ 33,758 $ 37,764 ============ ============

March 31, September 30, 2003 2003 ------------ ------------ Property, plant and equipment, net: Land ................................................ $ 4,693 $ 4,693 Buildings and improvements (useful lives: 7-30 years) 19,189 20,564 Machinery and equipment (useful lives: 2-10 years) .. 61,496 64,885 ------------ ------------ 85,378 90,142 Less: accumulated depreciation ...................... (48,421) (54,327) ------------ ------------ $ 36,957 $ 35,815 ============ ============ Accrued liabilities: Employee benefits ................................... $ 12,283 $ 12,086 Accrued advertising and sales and marketing ......... 2,150 4,285 Warranty accrual .................................... 5,905 6,590 Accrued other ....................................... 6,897 9,579 ------------ ------------ $ 27,235 $ 32,540 ============ ============

4. FOREIGN CURRENCY TRANSACTIONS

The functional currency of our Mexican manufacturing operations and European sales and logistics headquarters is the U.S. dollar. Accordingly, all revenues and cost of sales related to foreign operations are recorded using the U.S. dollar as functional currency. The functional currency of our foreign sales and marketing offices and research and development facilities is the local currency of the respective operations. The assets and liabilities of the subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date. Income and expense items are translated using the average exchange rate for the period. Cumulative translation adjustments are included in accumulated other comprehensive income (loss), which is reflected as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in the results of operations.

Plantronics has entered into foreign currency forward contracts, which typically mature in one month, to hedge a portion of our exposure to foreign currency fluctuations in forecasted foreign currency-denominated receivables, payables and cash balances. We record on the balance sheet at each reporting period the fair value of our forward contracts and record any fair value adjustments in results of operations. Gains and losses associated with currency rate changes on the contracts are recorded in results of operations, as other income (expense), offsetting transaction gains and losses on the related assets and liabilities. Plantronics does not enter into foreign currency forward contracts for trading purposes.

As of September 30, 2003, we had foreign currency forward contracts of approximately $4.4 million denominated in the Euro as a hedge against a portion of our forecasted foreign currency-denominated receivables, payables and cash balances. The following table summarizes our net currency position, and approximate U.S. dollar equivalent (in thousands), at September 30, 2003:

                              Local            USD
                                Currency       Equivalent   Position    Maturity
                           -----------------  ------------ ----------- ----------- 
Forward Contracts
EUR                     €             3,829  $      4,400     Sell       1 month

Foreign currency transactions, net of the effect of hedging activity on forward contracts, resulted in neither a net gain nor loss for the fiscal quarter ended September 30, 2003, compared to a net loss of approximately $35,000 in the quarter ended September 30, 2002, which is included in interest and other income in the results of operations

Plantronics periodically hedges foreign currency forecasted transactions related to sales with currency options. These transactions are designated as cash flow hedges. The effective portion of the hedge gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the hedged exposure affects earnings. Any ineffective portion of related gains or losses are recorded in the income statement immediately. On a monthly basis, Plantronics enters into option contracts with a one-year term. Plantronics does not purchase options for trading purposes. As of September 30, 2003, we had foreign currency call option contracts of approximately €22.8 million and £8.7 million denominated in Euros and Great British Pounds, respectively. As of September 30, 2003, we also had foreign currency put option contracts of approximately €22.8 million and £8.7 million denominated in Euros and Great British Pounds, respectively. Collectively our option contracts hedge a portion of our forecasted foreign denominated sales. The following table summarizes option positions at September 30, 2003 (in thousands):


                                      Balance Sheet            Income Statement
                                -------------------------  ------------ -----------
                                 As of September 30, 2003      September 30, 2003
                                   Accumulated Other       Three Months  Six Months
                                     Comprehensive             Ended       Ended
                                     Income/(Loss)           Net Sales   Net Sales
                                -------------------------  ------------ -----------
Realized loss on closed
   transactions............... $                      --          (326)       (510)
Recognized but unrealized
   loss on open transactions..                    (1,617)           --          --
                                -------------------------  ------------ -----------
                                                  (1,617)         (326)       (510)
                                =========================  ============ ===========

Foreign currency transactions related to hedging activities on option contracts resulted in a net reduction to revenue of $0.3 million and $0.5 million for the three and six months ended September 30, 2003, respectively. There were no such option contracts in place for the three and six months ended September 30, 2002.

5. COMPUTATION OF EARNINGS PER COMMON SHARE

Basic Earnings Per Share ("EPS") is computed by dividing net income available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Basic EPS excludes the dilutive effect of stock options. Diluted EPS gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased using the proceeds from the exercise of stock options. The rise in Plantronics' overall common stock value during the quarter ended September 30, 2003 contributed to the increased number of dilutive potential common shares included in the diluted earnings per share calculation.

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended September 30, 2002 and 2003 (in thousands, except earnings per share):




                                                      Three Months Ended    Six Months Ended
                                                         September 30,         September 30,
                                                    --------------------  --------------------
                                                       2002       2003       2002       2003
                                                    ---------  ---------  ---------  ---------
Net income........................................ $  11,530  $  12,373  $  21,704  $  23,714

Weighted average shares outstanding:

Weighted average shares - basic...................    45,773     44,052     45,828     43,861
Effect of dilutive securities - employee
   stock options..................................     1,525      2,320      1,694      1,811
                                                    ---------  ---------  ---------  ---------
Weighted average shares - diluted.................    47,298     46,372     47,522     45,672
                                                    =========  =========  =========  =========

Earnings per common share-basic................... $    0.25  $    0.28  $    0.47  $    0.54
Earnings per common share-diluted................. $    0.24  $    0.27       0.46  $    0.52

Dilutive potential common shares consist of employee stock options. Outstanding stock options to purchase approximately 5.5 million and 2.1 million shares of Plantronics' stock at September 30, 2002 and September 30, 2003, respectively, were excluded from the computation of diluted earnings per share because their effect would have been antidilutive and out of the money.

6. PRO FORMA EFFECTS OF STOCK - BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. We have elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and to provide additional disclosures with respect to the pro forma effects of adoption had we recorded compensation expense as provided in SFAS 123 and Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure as it Relates to Interim Disclosures".

All options in the quarters ended September 30, 2002 and 2003 were granted at an exercise price equal to the market value of Plantronics' Common Stock at the date of grant. The following table sets forth net income and earnings per share amounts that would have been reported as if Plantronics had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation for the three and six months ended September 30, 2002 and 2003 (in thousands, except earnings per share):


                                                      Three Months Ended    Six Months Ended
                                                         September 30,         September 30,
                                                    --------------------  --------------------
                                                       2002       2003       2002       2003
                                                    ---------  ---------  ---------  ---------
Net income - as reported.......................... $  11,530  $  12,373     21,704  $  23,714
Less stock based employee compensation determined
   under fair value based method, net of tax .....    (3,507)    (3,193)    (6,720)    (6,633)
                                                    ---------  ---------  ---------  ---------
Net income - pro forma............................     8,023      9,180     14,984     17,081
                                                    =========  =========  =========  =========
Earnings per common share:
Basic net income per share - as reported.......... $    0.25  $    0.28       0.47  $    0.54
Basic net income per share  - pro forma........... $    0.18  $    0.21       0.33  $    0.39
Diluted net income per share  - as reported....... $    0.24  $    0.27       0.46  $    0.52
Diluted net income per share - proforma........... $    0.17  $    0.20       0.32  $    0.37

The fair value of options at the date of grant was estimated using the Black-Scholes model. The following assumptions were used and weighted-average fair values resulted:


                                                                                  Employee Stock       Employee Stock
                                     Stock Option Plans    Stock Option Plans      Purchase Plan        Purchase Plan
                                     Three Months Ended    Six Months Ended      Three Months Ended    Six Months Ended
                                        September 30,        September 30,         September 30,        September 30,
                                      2002        2003     2002        2003      2002        2003      2002       2003 
                                     ------      ------   ------      ------    ------      ------    ------     ------

Expected dividend yield...........     0.0%       0.0%      0.0%       0.0%       0.0%        0.0%     0.0%       0.0%
Expected life (in years)..........     6.0        6.0       6.0        6.0        0.5         0.5      0.5        0.5
Expected volatility...............    59.4%      55.6%     59.4%      55.7%      46.2%       31.7%    46.2%      31.7%
Risk-free interest rate...........     3.4%       3.3%      3.4%       3.2%       1.2%        1.0%     1.2%       1.0%

Weighted-average fair value....... $   9.72    $ 14.38   $  9.72    $ 14.29   $   3.02      $ 2.58   $ 3.02     $ 2.58

7. PRODUCT WARRANTY OBLIGATIONS

Plantronics provides for the estimated costs of product warranties at the time revenue is recognized. The specific terms and conditions of those warranties vary depending upon the product sold. In the case of products manufactured by us, our warranties generally start from the delivery date and continue for up to two years depending on the product purchased. Factors that affect our warranty obligation include product failure rates, material usage, and service delivery costs incurred in correcting product failures. We assess the adequacy of our recorded warranty liabilities quarterly and make adjustments to the liability if necessary.

Changes in warranty obligation, which is included as a component of "Accrued liabilities" on the condensed consolidated balance sheets, during the three and six months ended September 30, 2003, are as follows (in thousands):

Warranty liability at March 31, 2003............................... $ 5,905 Warranty provision relating to product shipped during the quarter.. 2,647 Deductions for warranty claims processed........................... (2,229) --------- Warranty liability at June 30, 2003................................ 6,323 ========= Warranty provision relating to product shipped during the quarter.. 2,231 Deductions for warranty claims processed........................... (1,964) --------- Warranty liability at September 30, 2003........................... $ 6,590 =========

8. COMPREHENSIVE INCOME

Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. The components of comprehensive income, net of tax, are as follows (in thousands):



                                                             Three Months Ended     Six Months Ended
                                                                September 30,         September 30,
                                                            --------------------  --------------------
                                                              2002       2003       2002       2003
                                                            ---------  ---------  ---------  ---------
Net income................................................ $  11,530  $  12,373  $  21,704  $  23,714

  Unrealized (loss) on hedges, for the three and six
    months ended September 30, 2002 and 2003, net of tax
    of $0 and ($95), $0 and ($485), respectively..........        --       (222)        --     (1,132)

  Foreign currency translation, for the three and
    months ended September 30, 2002 and 2003, net of tax
    of $44 and $34, $310 and $256 , respectively .........       103         79        723        597
                                                            ---------  ---------  ---------  ---------
Other comprehensive income................................ $  11,633  $  12,230  $  22,427  $  23,179
                                                            =========  =========  =========  =========

The decrease in the components of foreign currency translation adjustment in the current quarter was primarily due to unfavorable fair value adjustments related to cash flow hedges of $0.3 million offset by favorable increases in exchange rates of $0.1 million. The increase in the year ago quarter was solely due to favorable exchange rates. During the three months ended September 30, 2003, the exchange rate for the Euro and the Great British Pound relative to the U.S. dollar increased 1% and 1%, respectively. For the six months ended September 30, 2003, the exchange rate for the Euro and Great British Pound relative to the U.S. dollar increased 7% and 5%, respectively. Also, there was a strengthening of foreign currencies in countries where the local currency is the functional currency of the entity, further accounting for the increase.

9. SEGMENTS AND ENTERPRISE-WIDE DISCLOSURES

SEGMENTS. We are engaged in the design, manufacture, marketing and sales of telecommunications equipment including headsets, telephone headset systems, and other specialty telecommunications products. Plantronics considers itself to operate in one business segment.

PRODUCTS AND SERVICES. We organize our operations to focus on three principal markets: office and contact center products, mobile and computer products, and other specialty products. The following table presents net revenue by market (in thousands):



                                                      Three Months Ended    Six Months Ended
                                                         September 30,         September 30,
                                                    --------------------  --------------------
                                                       2002       2003       2002       2003
                                                    ---------  ---------  ---------  ---------
Net revenues from unaffiliated customers:
   Office and contact center...................... $  59,742  $  64,192  $ 121,310  $ 126,272
   Mobile and computer............................    16,208     24,049     28,938     48,030
   Other specialty products.......................     6,420      6,876     12,390     13,601
                                                    ---------  ---------  ---------  ---------
                                                   $  82,370  $  95,117  $ 162,638  $ 187,903
                                                    =========  =========  =========  =========

MAJOR CUSTOMERS. No customer accounted for 10% or more of total revenue for the three and six months ended September 30, 2002 and 2003, nor did any customer account for 10% or more of accounts receivable from consolidated sales at the end of such periods.

GEOGRAPHIC INFORMATION. In geographical reporting, revenues are attributed to the geographical location of the sales and service organizations. The following table presents net revenues and long-lived assets by geographic area (in thousands) but may not actually reflect end-user markets:


                                                       Three Months Ended         Six Months Ended
                                                          September 30,             September 30,
                                                    ------------------------  -----------------------
                                                        2002         2003         2002        2003
                                                    -----------  -----------  ----------  -----------
Net revenues from unaffiliated customers:

   United States.................................. $    57,426  $    64,929  $  113,040  $   129,853

     Europe, Middle East and Africa...............      17,934       21,826      34,435       41,009
     Asia Pacific and Latin America...............       4,734        6,010       9,587       11,405
     Other International..........................       2,276        2,352       5,576        5,636
                                                    -----------  -----------  ----------  -----------
   Total International............................      24,944       30,188      49,598       58,050
                                                    -----------  -----------  ----------  -----------
                                                   $    82,370  $    95,117  $  162,638  $   187,903
                                                    ===========  ===========  ==========  ===========


                                                      March 31, September 30,
                                                       2003         2003
                                                    -----------  -----------
Long-lived assets:
   United States.................................. $    23,907  $    23,861
   International..................................      13,050       11,954
                                                    -----------  -----------
                                                   $    36,957  $    35,815
                                                    ===========  ===========

10. RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 were effective for Plantronics beginning in the second quarter of fiscal 2004. The adoption of this standard did not have a material impact on our financial statements.

In January 2003, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. We believe that the adoption of FIN 46 will not have a material impact on our financial position or results of operations.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. This Statement is generally effective for contracts entered into or modified after September 30, 2003 and is not expected to have a material impact on our financial statements.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. The adoption of this standard did not have a material impact on our financial position or results of operations.

11. INTANGIBLES

Aggregate amortization expense on intangibles for the three and six months ended September 30, 2002 was $0.2 million and $0.5 million, respectively. For the three and six months ended September 30, 2003, aggregate amortization expense was $0.2 million and $0.4 million, respectively. The following table presents information on acquired intangible assets (in thousands):



                                           March 31, 2003                September 30, 2003
                                    -----------------------------  -----------------------------
                                    Gross Carrying  Accumulated    Gross Carrying  Accumulated
                                       Amount       Amortization       Amount      Amortization
                                    --------------  -------------  --------------  -------------
Intangible assets
Technology........................ $         2,460 $        (817) $       2,460   $        (960)
State contracts...................           1,300          (232)         1,300            (325)
Patents...........................             700          (125)           700            (175)
Trademarks........................             300           (54)           300             (75)
Non-compete agreements............             200           (50)           200             (70)
                                    --------------  -------------  -------------  --------------
Total............................. $         4,960 $      (1,278) $       4,960  $       (1,605)
                                    ==============  =============  =============  ==============

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CERTAIN FORWARD-LOOKING INFORMATION:

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). In addition, we may from time to time make oral forward-looking statements. These statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will," or "shall," and include, but are not necessarily limited to, all of the statements marked below with an asterisk ("*"). These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth below under "Risk Factors Affecting Future Operating Results ." When reading the sections titled "Results of Operations" and "Financial Condition," you should also read our unaudited condensed consolidated financial statements and related notes included elsewhere herein, our Annual Report on Form 10-K, and the section below entitled "Risk Factors Affecting Future Operating Results." We disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this Quarterly Report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon Plantronics' consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

REVENUE RECOGNITION. We recognize revenue net of estimated product returns and expected payments to resellers for customer programs including cooperative advertising, marketing development funds, volume rebates, and special pricing programs. Product returns are provided against revenues upon shipment, based on historical return rates, the product stage relative to its expected life cycle, and assumptions regarding the rate of sell-through to end users from our various channels based on historical sell-through rates. Should product lives vary significantly from our estimates, or should a particular selling channel experience a higher than estimated return rate, or a slower sell-through rate causing inventory build-up, then our estimated returns, which net against revenue, may need to be revised. Reductions to revenue for expected and actual payments to resellers for volume rebates and pricing protection are based on actual expenses incurred during the period, on estimates for what is due to resellers for estimated credits earned during the period and any adjustments for credits based on actual activity. If market conditions warrant, Plantronics may take action to stimulate demand, which could include increasing promotional programs, decreasing prices, or increasing discounts. Such actions could result in incremental reductions to revenue and margin at the time incentives are offered. To the extent that we reduce pricing, we may incur reductions to revenue for price protection based on our estimate of inventory in the channel that is subject to such pricing actions.

ACCOUNTS RECEIVABLE. We perform ongoing credit evaluations of our customers' financial condition and generally require no collateral from our customers. Plantronics maintains allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is reviewed monthly and adjusted if deemed necessary. If the financial condition of our customers should deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

INVENTORY. We maintain reserves for estimated excess and obsolete inventory based on projected future shipments using historical selling rates, and taking into account market conditions, inventory on-hand, purchase commitments, product development plans and life expectancy, and competitive factors. If markets for Plantronics' products and corresponding demand decline, then additional reserves may be necessary.

WARRANTY. We provide for the estimated cost of warranties at the time revenue is recognized. Our warranty obligation is affected by product failure rates and our costs to repair or replace the products. Should actual failure rates and costs differ from our estimates, revisions to the warranty obligation may be required.

GOODWILL AND INTANGIBLES. As a result of acquisitions we have made, we have goodwill and intangible assets on our balance sheet. These assets affect the amount of future amortization expense and possible impairment charges that we may incur. The determination of the value of goodwill and intangible assets, as well as the useful life of amortizable intangible assets, requires management to make estimates and assumptions that affect our financial statements. We perform an annual impairment review of goodwill. If actual or expected revenue significantly declines, we may be required to record an impairment charge.

DEFERRED TAXES. We record deferred tax assets at the amounts estimated to be realizable. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the value of the corresponding assets, if we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, then an adjustment would be required.

RESULTS OF OPERATIONS:

The following table sets forth items from the Unaudited Condensed Consolidated Statements of Operations as a percentage of net sales:



                                                      Three Months Ended    Six Months Ended
                                                         September 30,         September 30,
                                                    --------------------  --------------------
                                                       2002       2003       2002       2003
                                                    ---------  ---------  ---------  ---------
Net sales ........................................     100.0 %    100.0 %    100.0 %    100.0 %
Cost of sales ....................................      49.5       48.7       48.9       49.9
                                                    ---------  ---------  ---------  ---------
    Gross profit .................................      50.5       51.3       51.1       50.1
                                                    ---------  ---------  ---------  ---------
Operating expenses:
    Research, development and engineering ........       9.9        8.7       10.1        9.0
    Selling, general and administrative ..........      24.0       24.2       24.2       23.4
                                                    ---------  ---------  ---------  ---------
         Total operating expenses ................      33.9       32.9       34.3       32.4
                                                    ---------  ---------  ---------  ---------
Operating income .................................      16.6       18.4       16.8       17.7
Interest and other income, net ...................       0.4        0.1        0.7        0.3
                                                    ---------  ---------  ---------  ---------
Income before income taxes .......................      17.0       18.5       17.5       18.0
Income tax expense ...............................       3.0        5.5        4.2        5.4
                                                    ---------  ---------  ---------  ---------
Net income .......................................      14.0 %     13.0 %     13.3 %     12.6 %
                                                    =========  =========  =========  =========

NET SALES. Net sales for the quarter ended September 30, 2003, increased by 15.5% to $95.1 million, compared to $82.4 million for the quarter ended September 30, 2002. Net sales for the six months ended September 30, 2003 were $187.9 million compared to $162.6 million for the six months ended September 30, 2002, an increase of 15.5%. For the quarter ended September 30, 2003, compared to the same period in the prior year, net sales in all product groups grew with the largest increase coming from new headsets for mobile phones. Net sales in this product group were up 56% in comparison to the year-ago quarter. The launch of the M3000, a wireless Bluetooth headset with 8-hour average talk time, and continued growth in demand for the MX150, were the key drivers of the mobile products growth versus a year ago. Our Office and Contact Center products business grew 7% versus the year ago quarter. This growth was primarily international and was fueled by the successful introduction of the CS60, a wireless headset for DECT-based office phones.

For the six month period, net sales increased domestically by 14.9% and internationally by 17.0%, with the increase in international sales in the European, Asia Pacific and Latin American regions, driven by increased unit sales of new office and contact center products, headsets sales for computers and favorable currency exchange rates. Domestic sales for the first six months of fiscal 2004 also increased due to strong sales of new headsets for mobile and computer products and sales of our Walker and Ameriphone products for the hearing impaired.

Overall, we remain cautiously optimistic regarding sales growth, based primarily on the strength of demand for new products.* While our net sales have grown over the last quarter, it is not clear the market is growing and that we can sustain our current level of growth. In addition, macro-economic factors remain uncertain and the sales growth in Europe was favorably affected by exchange rates on the Euro and Great British Pound relative to the U.S. Dollar.

GROSS PROFIT. Gross profit for the quarter ended September 30, 2003, increased by 17.1% to $48.8 million (51.3% of net sales), compared to $41.6 million (50.5% of net sales) for the quarter ended September 30, 2002. Gross profit for the six months ended September 30, 2003 increased to $94.2 million (50.1% of net sales) from $83.1 million (51.1% of net sales) for the comparable period of fiscal 2003. As a percent of revenue, gross margins increased by 0.8 percentage points compared to the year ago quarter, due to favorable product mix, favorable foreign exchange rates and continued cost reductions, partially offset by increased provisions for excess and obsolete inventory.

Gross profit for the first six months of fiscal 2004 decreased as a percent of revenue by 1 percentage point compared to the first six months of fiscal 2003 due to product mix, with higher sales of lower margin mobile and computer products in the current fiscal year.

RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and engineering expenses for the quarter ended September 30, 2003, were flat at $8.2 million (8.7% of net sales), compared to $8.2 million (9.9% of net sales) for the quarter ended September 30, 2002, reflecting improved efficiencies in our research and development efforts with process improvements contributing to better ratios of expense to revenue.

Research, development and engineering expenses for the first six months of fiscal 2004 increased by 2.7% to $16.9 million (9.0% of net sales) compared to $16.4 million (10.1% of net sales) in the first six months of fiscal 2003. The increase in absolute dollars was anticipated, as well as the reduction as a percent of revenues, as we continue to expend R&D dollars in Europe where exchange rates are driving costs up, but also continue to make process improvements.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the quarter ended September 30, 2003, increased 16.3% to $23.0 million (24.2% of net sales), compared to $19.8 million (24.0% of net sales) for the quarter ended September 30, 2002. Compared to the year ago quarter, costs were higher in part, as a result of exchange rates. In addition, we had significant marketing spending domestically for planned marketing programs including test advertising, PR campaigns and catalog expenses, and in Europe, to support recently passed U.K. hands-free legislation. We have also increased our overall level of marketing programs related to new product launches and intend to increase those further throughout our fiscal year 2004.*

Selling, general and administrative expenses for the first six months of fiscal 2004 increased 12.1% to $44.1 million, compared to $39.4 million in the first six months of fiscal 2003, also driven by foreign exchange rates and the increased level of spending to support new product launches.

OPERATING INCOME. Operating income for the quarter ended September 30, 2003, increased by 27.9% to $17.5 million (18.4% of net sales), compared to $13.7 million (16.6% of net sales) for the quarter ended September 30, 2002. The increase in absolute dollars was driven primarily by the increase in revenues and gross margins.

Operating income for the first six months of fiscal 2004 increased by 21.7% to $33.2 million compared to $27.3 million in the first six month of fiscal 2003 driven by higher revenues and lower operating expenses as a percent of revenues.

INTEREST AND OTHER INCOME, NET. Interest and other income for the quarter ended September 30, 2003, was $0.1 million compared to $0.3 million for the quarter ended September 30, 2002, representing a decrease of 48.2%. Compared to the year ago-quarter, interest income decreased commensurate with lower prevailing interest rates. Foreign exchange gains were down only slightly compared to the year ago quarter.

Interest and other income for the first six months of fiscal 2004 was $0.6 million compared to $1.2 million in the first six months of fiscal 2003. Interest and other income also decreased during the first six months of fiscal 2004, in part due to an insurance refund received in fiscal 2003.

INCOME TAX EXPENSE. Income tax expense for the quarter ended September 30, 2003 was $5.3 million compared to $2.5 million for the quarter ended September 30, 2002 and represented tax rates of 30.0% compared the prior year's unusually low rate of 17.5% reflecting a release of tax reserves for expiration of a statute of limitations that year.

Income tax expense for the first six months of fiscal 2004 was $10.2 million or 30% of net income before taxes compared to $6.8 million or 23.9% of net income before taxes, in the first six months of fiscal 2003 reflecting the same release of reserves.

Financial Condition:

OPERATING ACTIVITIES. During the six months ended September 30, 2003, we generated $31.9 million in cash from operating activities, primarily from $23.7 million in net income, increases in accounts payable and accrued liabilities aggregating $10.0 million, depreciation and amortization of $6.4 million, and an income tax benefit from stock option exercises of $3.1 million, offset by a decrease in taxes payable of $5.8 million, an increase in inventory of $4.0 million and an increase in accounts receivable of $1.5 million. In comparison, in the six months ended September 30, 2002, we generated $19.8 million in operating activities, primarily from $21.7 million in net income.

INVESTING ACTIVITIES. During the six months ended September 30, 2003 we received $5.0 million from maturities of marketable securities. We incurred capital expenditures of $4.9 million principally for building and leasehold improvements, machinery and equipment, andtooling and computers. In comparison, during the six months ended September 30, 2002, we received $10 million in proceeds from the sale of marketable securities and purchased $13.0 million in marketable securities. We incurred capital expenditures of $6.6 million principally for building and leasehold improvements, tooling, and machinery and equipment..

FINANCING ACTIVITIES. In the six months ended September 30, 2003, we repurchased 122,800 shares of our common stock for $1.8 million and reissued through employee benefit plans 108,088 shares of our treasury stock for $1.6 million. As of September 30, 2003, 142,600 shares remained available for repurchase under our stock repurchase plan. We received $6.9 million in proceeds from the exercise of stock options during the six months ended September 30, 2003. In comparison, during the six months ended September 30, 2002, we repurchased 526,200 shares of our common stock for $9.6 million and reissued through employee benefit plans 43,118 shares of our treasury stock for $0.8 million. We received $0.8 million in proceeds from the exercise of stock options during the six months ended September 30, 2002.

EFFECT OF EXCHANGE RATE ON NET CHANGES IN CASH AND CASH EQUIVALENTS. During the six month ended September 30, 2003, we recorded ($0.8) million in unfavorable currency translation adjustments relating to the recording of the fair value of cash flow hedges of ($1.6) million offset by favorable exchange rate gains of $0.8 million due to strengthening of the Euro and Great British Pound values relative to the U.S. dollar. During the six months ended September 30, 2002, we recorded $1.0 million in favorable currency translation adjustments related to foreign currency translation gains.

LIQUIDITY AND CAPITAL RESOURCES. As of September 30, 2003, we had working capital of $137.3 million, including $92.1 million of cash, cash equivalents and marketable securities, compared to working capital of $103.6 million, including $59.7 million of cash, cash equivalents and marketable securities at March 31, 2003. As of September 30, 2003, we expect to spend an additional $13 million for capital expenditures for the remainder of the fiscal year relating to purchase of tooling, machinery and equipment, furniture and fixtures and building and leasehold improvements.* Of the $13 million mentioned above, we expect to spend approximately $5 million to purchase buildings for our UK subsidiary. We expect that any capital expenditure commitments will be funded by cash from operations.*

We have a revolving credit facility with a major bank for $75 million, including a letter of credit subfacility. The facility and subfacility both expire on July 31, 2005. As of October 24, 2003 we had no cash borrowings under the revolving credit facility and $0.8 million outstanding under the letter of credit subfacility. The amounts outstanding under the letter-of-credit subfacility were principally associated with purchases of inventory. The terms of the credit facility contain covenants that materially limit our ability to incur debt and pay dividends, among other matters. These covenants may adversely affect us to the extent we cannot comply with them. We are currently in compliance with the covenants under this agreement.

We believe that our current cash, cash equivalents and marketable securities balances and cash provided by operations, will be sufficient to fund operations for at least the next twelve months.* However, any projections of future financial needs and sources of working capital are subject to uncertainty. See "Certain Forward-Looking Information" and "Risk Factors Affecting Future Operating Results" in this Quarterly Report for factors that could affect our estimates for future financial needs and sources of working capital.

RISK FACTORS AFFECTING FUTURE OPERATING RESULTS:

Investors or potential investors in our stock should carefully consider the risks described below. Our stock price will reflect the performance of our business relative to, among other things, our competition, general economic and market conditions and industry conditions. You should carefully consider the following factors in connection with any investment in our stock. Our business, financial condition and results of operations could be materially adversely affected if any of the risks occur. Should any or all of the following risks materialize, the trading price of our stock could decline and investors could lose all or part of their investment.

We may face reductions in overall demand for our products if the national or international economic growth declines or experiences a "double-dip" recession.

Our markets have exhibited cyclical behavior since the fourth quarter of fiscal 2001. Our business is affected by general economic conditions in the U.S. and globally, which have led to reduced demand for a variety of goods and services, including many technology products. While certain economic indicators have improved, the overall economic and geopolitical environment continues to be challenging and unpredictableWe remain uncertain about the overall level of demand for our products and, consequently, our level of future profitability. In particular, we believe our business is heavily influenced by employment levels If employment levels do not improve, we may not achieve the level of sales required to achieve our projected financial results, which could in turn materially adversely affect the market price of our stock.

A substantial portion of our sales come from the contact center market and a further decline in demand in that market could materially adversely affect our results.

We have historically derived, and continue to derive, a substantial portion of our net sales from the contact center market. Although we saw a slight increase in sales in this market in the second half of fiscal year 2003, this market has shown signs of saturation in the past year. There was a general reduction in the level of overall market demand for contact center products, and there may also be a surplus of existing inventory in use at contact centers that will slow future demand for our products. While we believe that this market may grow in future periods, this growth could be slow or revenues from this market could continue to decline in response to various factors. For example, legislation enabling consumers to block telemarketing calls is upheld, it may adversely affect growth in the contact center market. A deterioration in general economic conditions could result in a reduction in the establishment of new contact centers and in capital investments to expand or upgrade e xisting centers, and we believe this is in fact currently negatively affecting our business. Because of our reliance on the contact center market, we will be affected more by changes in the rate of contact center establishment and expansion and the communications products that contact center agents use than would a company serving a broader market. Any decrease in the demand for contact centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations.

New product development is risky, and we will be materially adversely affected if we do not respond to changing customer requirements and new technologies.

Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on a number of factors, including the proper selection of new technologies, product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. Although we attempt to determine the specific needs of headset users in our target markets, because almost all of our sales are indirect, we may not always be able to timely and accurately predict end-user requirements. As a result, our products, specifically, our range of Bluetoothproducts, may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or achieve broad customer acceptance among end-users, which could materially adversely affect our business, financial condition and results of operations. Demand for new wireless headsets may not develop as we anticipate. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenue growth rates and operating margins from new products may not be sufficient to recover the associated development costs.

Historically, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new technologies. The technology used in hands-free communications devices, including our products, is evolving more rapidly now than it has historically and we anticipate that this trend may accelerate. We believe this is particularly true for our newer emerging technology products especially in the mobile, computer, residential and certain parts of the office markets. We believe products designed to serve these markets generally exhibit shorter lifecycles and are increasingly based on open standards and protocols. The end markets served are much larger than the traditional contact center market. This combination of factors may lead to increased commoditization, as a greater number of competitors attempt to introduce products, or reverse engineer our products and offer similar but lower quality products at lower price points.

Our success depends upon our ability to enhance existing products, to respond to changing market requirements, and to develop and introduce in a timely manner new products that keep pace with technological developments. Although we strive to be a leader in developing new technologies, products and solutions, the technologies, products and solutions that we choose to pursue may not become as commercially successful as we planned. We may experience difficulties in realizing the expected benefits from our investments in new technologies. If we are unable to develop and introduce enhanced or new products in a timely manner in response to changing market conditions or customer requirements, it will materially adversely affect our business, financial condition and results of operations.

With the historically slow evolution of our products, we have generally been able to phase out obsolete products without significant impact to our operating margins. As we develop new generations of products more quickly, we expect that the pace of product obsolescence will increase concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins and materially adversely affect our earnings and results of operations.

Increased adoption of speech-activated and voice interactive software products by businesses could limit our ability to grow in the contact center market.

We are seeing a proliferation of speech-activated and voice interactive software in the market place. We have been re-assessing long-term growth prospects for the contact center market given the growth rate and the advancement of these new voice recognition-based technologies. Businesses that first embraced them to resolve labor shortages at the peak of the last economic up cycle are now increasing spending on these technologies in hopes of reducing total costs. We may experience a decline in our sales to the contact center market if businesses increase their adoption of speech-activated and voice interactive software as an alternative to customer service agents. Should this trend continue, it could cause a net reduction in contact center agents and our revenues to this market segment could decline rather than grow in future years.

We are counting on the office, mobile, computer and residential markets to develop, and we could be materially adversely affected if they do not develop as we expect.

While the contact center market is still a substantial portion of our business, we believe that our future prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer and residential markets. These communications headset markets are relatively new and continue to be developed. Moreover, we do not have extensive experience in selling headset products to customers in these markets. If the demand for headsets in these markets fails to develop, or develops more slowly than we currently anticipate, or if we are unable to effectively market our products to customers in these markets, it would have a material adverse effect on the potential demand for our products and on our business, financial condition, results of operations and cash flows.

These headset markets are also subject to general economic conditions and if there is a slowing of national or international economic growth, these markets may not materialize to the levels we require to achieve our anticipated financial results, which could in turn materially adversely affect the market price of our stock. In particular, we may be under obligation to absorb from our retailers products which have failed to sell as expected, and in some instances, such products may be returned to our inventory. Should product returns vary significantly from our estimate, then our estimated returns which net against revenue, may need to be revised.

Our quarterly operating results may fluctuate significantly from a number of causes outside our control.

Our quarterly results of operations may vary significantly in the future for a variety of reasons, including the following:

general economic conditions, compounded by the events on and following September 11, 2001;
changes in demand for our products, including order cancellation by customers;
impact of acquired businesses and technologies;
insolvency of purchasers of our products or failure of purchasers of our products to pay amounts due to us;
timing and size of orders from customers;
price erosion;
inability to ramp production or delays in deliveries of components and subassemblies by our suppliers;
inability to compete with the pricing pressures in the mobile headset category;
penalties for cancellation or inability to cancel custom components;
changes in the mix of products sold by us;
variances in the timing and amount of engineering and operating expenses;
distribution channel mix variations;
changes in the levels of cooperative advertising or market development funding required by retail resellers of our products;
delays in shipments of our products;
material product returns and customer credits;
new product introductions by us or our competitors;
entrance of new competitors;
changes in actual or target inventory levels of our channel partners;
changes in the costs of our raw materials, components and subassemblies;
seasonal fluctuations in demand and linearity of sales within the quarter; and
the impact on the U.S. economy due to the continued presence of US troops in Iraq and geopolitical risk factors in Africa, the Middle East and North Korea.

Each of the above factors is difficult to forecast and thus could have a material adverse effect on our business, financial condition and results of operations.

We generally ship most orders during the quarter in which they are received. As a result, quarterly net sales and operating results depend primarily on the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portion of our operating expenses, including rent, salaries and certain manufacturing expenses, are fixed and difficult to reduce or modify, if net sales do not meet our expectations, our business, financial condition and results of operations could be materially adversely affected.

We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future operating results. In addition, our operating results in a future quarter or quarters may fall below the expectations of securities analysts or investors, and, as a result, the price of our common stock might fall.

If we are not able to collect on our accounts receivable due to the general economic conditions, we may be materially adversely affected.

If the overall economy slows further, it could affect the financial health of certain purchasers of our products, potentially resulting in the failure of such purchasers to pay amounts that they owe to us. Due to the decline in the economy, the credit risks relating to these resellers/customers have increased. We generally offer our customers certain credit terms, allowing them to pay for products purchased from us between 30 and 60 days or more after we ship the products. Receipt of payment for our products depends on the financial liquidity of those customers. If significant customers, or a significant number of customers, experience liquidity problems, this could affect our ability to collect our accounts receivable, which could materially adversely affect our business, financial condition or results of operations. While we have implemented certain programs to assist us in monitoring and mitigating these risks, there can be no assurance that such programs will be effective in r educing our credit risks. We also continue to monitor credit exposures from weakened financial conditions in certain geographic regions and the impact that such conditions may have on the worldwide economy. We have experienced losses due to defaults by our customers on their accounts payable. Although these losses have not been significant, future payment defaults by customers could harm our business and have a material adverse effect on our operating results, financial condition and cash flows.

We have strong competitors and will likely face additional competition in the future.

The markets for our products are highly competitive. We compete with a variety of companies in the various markets for communications headsets. Our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate.

GN Netcom has made a number of acquisitions over the years, most recently, Claria Headsets, an Australian based manufacturer of office, contact center and mobile headsets. We believe the acquisitions of Unex, ACS Wireless, Nortel Liberation, AB Transistor, Jabra, Hello Direct, Sensortech, QuBit and Claria have provided GN Netcom with a broader product line and greater marketing presence than it had prior to these acquisitions. We believe it is reasonable to anticipate that GN Netcom may continue to make additional acquisitions.

We currently operate principally in a multilevel distribution model -- we sell most of our products to distributors who, in turn, resell to dealers or end-customers. GN Netcom's acquisitions indicate it may be moving towards a direct sales model, since six of the nine acquisitions were of companies employing direct sales and marketing models. While we believe that our business and our customers benefit from our current distribution structure, if GN Netcom or other competitors sell directly, they may offer lower prices which could materially adversely affect our business and results of operations.

Labtec, Inc. was acquired by Logitech International S.A. in March 2001 and is a significant competitor in the computer headset market. Logitech is a manufacturer and seller of computer accessory products. Following this acquisition, Labtec gained greater resources with which to compete with us than it had prior to the acquisition. In addition, it has expanded its product offerings to include mobile headsets to address the changing regulatory environment regarding driver safety and mobile phone usage.

We anticipate that we will face additional competition from companies that currently do not offer communications headsets. This is particularly true in the office, mobile, computer and residential markets. The Sony-Ericsson joint venture has announced the launch of several Bluetooth handsfree solutions.

On October 25, 2002, Danish manufacturer of audiology products, William Demant Holdings A/S, and Germany's maker of professional electroacoustic products, Sennheiser Electronics Gmbh & Co. KG, announced the establishment of a joint venture in the telecommunication headset industry, Sennheiser Communications A/S. We expect the combination of William Demant Holdings' technology expertise with Sennheiser's established distribution channels will create additional competition.

We anticipate other competition from consumer electronics companies that currently manufacture and sell mobile phones or computer peripheral equipment. These new competitors are likely to be larger, offer broader product lines, bundle or integrate with other products communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do.

We anticipate that we will also face additional competition from companies, principally located in the Far East, which offer very low cost headset products, including products which are modeled on, or are direct copies of our products. These new competitors are likely to offer very low cost products which may result in price pressure in the market. If market prices are substantially reduced by such new entrants into the headset market, our business, financial condition or results of operations could be materially adversely affected.

We believe that the market for lightweight communications headsets is showing some signs of commoditization. In particular, we believe that our competitors, especially GN Netcom, have chosen to compete more on price than they have historically. While this has long been true of competitors from the Far East, and has been true of GN for the last two years or so, we think the trend remains and that customers are also more receptive to lower cost products, even when the quality, service or total value of the offer may be notably lower as well. In April 2003, GN announced the closing of Hello Direct's headquarters in San Jose, California and the consolidation of that subsidiary into GN's North American headquarters in Nashua, New Hampshire, while moving substantially all of Hello Direct's manufacturing operations to Asia. This move may enable GN to drive their prices down even further.

Historically, our expertise in acoustics and design has allowed us to design, develop and manufacture products with the levels of sound quality enabling us to meet the needs of our customers. Due to technological advances such as better digital signal processing, our current and future competitors may be able to develop products with the same or better audio quality at lower costs. These competitors could then be able to compete more effectively in terms of product quality or price that could materially adversely affect our business and results of operations.

We believe that important competitive factors for us are:

price;
product reliability;
product features;
product mix;
customer service and support;
marketing;
reputation;
distribution;
ability to meet delivery schedules; and
warranty terms and product life.

If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. Further, if we do not successfully develop and market products that compete successfully with those of our competitors, it would materially adversely affect our business, financial condition and results of operations.

If we do not match production to demand, we will be at risk of losing business or our gross margins could be materially adversely affected.

Historically, we have generally been able to increase production to meet increasing demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. We have experienced sharp fluctuations in demand, especially for headsets for wireless and cellular phones. Significant unanticipated fluctuations in demand and the global trend towards consignment of products could cause the following operating problems, among others:

If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of excess products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins.

Significant reduction in production levels to address decreases in demand may leave us unprepared to meet a rapid increase in demand for our products.

If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and are experiencing greater dependencies on single source suppliers. Therefore, we might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues.

Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins.

The introduction of the new Bluetooth headsets presents many significant manufacturing, marketing and other operational risks and uncertainties, including: developing and marketing these wireless headset products; unforeseen delays or difficulties in introducing and achieving volume production of such products; our dependence on third parties to supply key components, many of which have long lead times; and our ability to forecast demand and customer return rates accurately for this new product category for which relevant data is incomplete or not available. We have longer lead times with certain suppliers than commitments from some of our customers. In particular, a major customer only provides us with a 45 day commitment while we commit to over $2 million of inventory purchases beyond this time period. As this inventory is unique to this customer and we have no alternative means of selling any finished products, this could potentially result in significant write-downs of excess inve ntories.

Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations.

We expect to make future acquisitions and acquisitions involve material risks.

On January 2, 2002, we acquired Ameriphone, a manufacturer of specialty products for the hearing impaired community. We may in the future acquire other companies. There are inherent risks in the acquisition of another company that could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with acquisitions include:

cultural differences in the conduct of business;
difficulties in integration of the operations, technologies, and products of the acquired company;
the risk of diverting management's attention from normal daily operations of the business;
potential difficulties in completing projects associated with purchased in-process research and development;
risks of entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
the abilities of representatives, distributors, OEM customers and other resellers which are retained by the acquired company or customers of the acquired company;
differences in the business information systems of the companies;
difficulties in integrating the transactions and business information systems of the acquired company; and
the potential loss of key employees of the acquired company.

Mergers and acquisitions, particularly those of high-technology companies, are inherently risky, and no assurance can be given that the Ameriphone acquisition, or future acquisitions, will be successful and will not materially adversely affect our business, operating results or financial condition. We must also manage any such growth effectively. Failure to manage growth effectively and successfully integrate acquisitions made by us could materially harm our business and operating results.

We depend on our suppliers and failure of our suppliers to provide quality components or services in a timely manner could adversely affect our results.

Our growth and ability to meet customer demands depend in part on our capability to obtain timely deliveries of raw materials, components, subassemblies and products from our suppliers. We buy raw materials, components and subassemblies from a variety of suppliers and assemble them into finished products. We also have certain of our products manufactured for us by third party suppliers. The cost, quality, and availability of such goods are essential to the successful production and sale of our products. Obtaining raw materials, components, subassemblies and finished products entails various risks, including the following:

We obtain certain raw materials, subassemblies, components and products from single suppliers, and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these raw materials, subassemblies, components and products, none of which has significantly affected our results of operations. Current adverse economic conditions could lead to a higher risk of failure of our suppliers to remain in business or to be able to purchase the raw materials, subcomponents and parts required by them to produce and provide to us the parts we need. An interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations.

Prices of raw materials, components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations.

Due to the lead times required to obtain certain raw materials, subassemblies, components and products from certain foreign suppliers, we may not be able to react quickly to changes in demand, potentially resulting in either excess inventories of such goods or shortages of the raw materials, subassemblies, components and products. Lead times are particularly long on silicon-based components incorporating radio frequency and digital signal processing technologies and such components are an increasingly important part of our product costs. Failure in the future to match the timing of purchases of raw materials, subassemblies, components and products to demand could increase our inventories and/or decrease our revenues, consequently materially adversely affecting our business, financial condition and results of operations.

Most of our suppliers are not obligated to continue to provide us with raw materials, components and subassemblies. Rather, we buy most raw materials, components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those raw materials, components and subassemblies. This would materially adversely affect our business, financial condition and results of operations.

Although we generally use standard raw materials, parts and components for our products, the high development costs associated with emerging wireless technologies permits us to work with only a single source of silicon chip-sets on any particular new product. We, or our chosen supplier of chip-sets, may experience challenges in designing, developing and manufacturing components in these new technologies which could affect our ability to meet time to market schedules. Due to our dependence on single suppliers for certain chip sets, we could experience higher prices, a delay in development of the chip-set, and/or the inability to meet our customer demand for these new products. Our business, operating results and financial condition could therefore be materially adversely affected as a result of these factors.

We sell our products through various channels of distribution and a failure of those channels to operate as we expect could decrease our revenues.

We sell substantially all of our products through distributors, retailers, OEMs and telephony service providers. Our existing relationships with these parties are not exclusive and can be terminated by either party without cause. Our channel partners also sell or can potentially sell products offered by our competitors. To the extent that our competitors offer our channel partners more favorable terms, such partners may decline to carry, de-emphasize or discontinue carrying our products. In the future, we may not be able to retain or attract a sufficient number of qualified channel partners. Further, such partners may not recommend, or continue to recommend, our products. In the future, our OEM customers or potential OEM customers may elect to manufacture their own products, similar to those we currently sell to them. The inability to establish or maintain successful relationships with distributors, OEMs, retailers and telephony service providers or to expand our distribution chann els could materially adversely affect our business, financial condition or results of operations.

As a result of the growth of our mobile headset business, our customer mix is changing and certain OEMs and wireless carriers are becoming significant. This greater reliance on certain large customers could increase the volatility of our revenues and earnings.

Our distribution channels generally hold inventories of our products, determined in their own business judgment to be sufficient to meet their customer's delivery requirements. Such inventory levels are subject to market conditions, business judgment by the reseller and our ability to meet their time-to-ship needs. Rapid reductions by our distributors, OEMs, retailers and other customers in the levels of inventories held in our products could materially adversely affect our business, financial condition or results of operations. We are also exposed to long lead term commitments with certain suppliers for a key component while such exposure is not similarly passed through to our customers. We may be at risk for these components if our customers reject or cancel orders unexpectedly or with inadequate notice.

Our stock price may be volatile and your investment in Plantronics stock could be lost.

The market price for our common stock may continue to be affected by a number of factors, including:

uncertain economic conditions and the decline in investor confidence in the market place;
the announcement of new products or product enhancements by us or our competitors;
the loss of services of one or more of our executive officers or other key employees;
quarterly variations in our or our competitors' results of operations;
changes in our published forecasts of future results of operations;
changes in earnings estimates or recommendations by securities analysts;
developments in our industry;
sales of substantial numbers of shares of our common stock in the public market;
general market conditions; and
other factors unrelated to our operating performance or the operating performance of our competitors.

In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of these companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, could materially adversely affect the market price of our common stock.

If there are problems that affect our principal manufacturing facility in Mexico, we could face losses in revenues or material increases in costs of our operations.

The majority of our manufacturing operations are currently performed in a single facility in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facility could have a material adverse effect on our business, financial condition and results of operations. The prospect of such unscheduled interruptions may continue for the foreseeable future and we are unable to predict their occurrence, duration or cessation. While we have developed a disaster recovery plan and believe we are adequately insured with respect to this facility, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies.

We have significant foreign operations and there are inherent risks in operating abroad.

During our second quarter of fiscal 2004, approximately 32% of our net sales were derived from customers outside the United States. In addition, we conduct the majority of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers. We also purchase a growing number of turn-key products directly from Asia. The inherent risks of international operations, either in Mexico or in Asia, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include:

cultural differences in the conduct of business;
greater difficulty in accounts receivable collection;
unexpected changes in regulatory requirements;
tariffs and other trade barriers;
economic and political conditions in each country;
management and operation of an enterprise spread over various countries; and
the burden of complying with a wide variety of foreign laws.

Our foreign operations put us at risk of loss if there are material changes in currency values as compared to the U.S. dollar.

A significant portion of our business is conducted in currencies other than the U.S. dollar. Substantially all of our sales outside of North America are transacted in the Euro or local currencies. We are therefore exposed to risks associated with fluctuations in exchange rates that can affect our revenue and gross margins and can also generate currency transaction gains and losses.

We administer programs designed to reduce our foreign currency net asset exposure and our economic exposure. However, there can be no assurance that our hedging policy will be effective in reducing transaction and/or economic gains and losses. There can be no assurance that we will not continue to experience currency losses in the future, nor can we predict the effects of future exchange rate fluctuations on future operating results. To the extent that sales to our foreign customers increase or transactions in foreign currencies increase, our business, financial condition and results of operations could be materially adversely affected by exchange rate fluctuations.

Changes in regulatory requirements may adversely impact our gross margins as we comply with such changes or reduce our ability to generate revenues if we are unable to comply.

Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in which we sell them. As regulations and local laws change, we must modify our products to address those changes. Regulatory restrictions may increase the costs to design and manufacture our products, resulting in a decrease in demand for our products if the costs are passed along or a decrease in our margins. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products, reducing their marketability.

The terrorist attacks on New York City on September 11, 2001, marked a turning point in current U.S. political, military and security strategies which we believe have, and may continue to, adversely impact our business, both directly and indirectly.

The events of September 11^th, 2001 and its aftermath contributed to a slowing in the economy. We believe that one direct impact of the attacks is the reduction of contact center agents in the travel and leisure industries. We are indirectly affected by the continuing concern on future terrorist attacks on U.S. soil. We are unable to estimate the impact these threats and their consequences have on our business, however, we expect that as these events adversely affect the global economy in general, our financial condition, our operations and our prospects will be similarly adversely affected.

We have intellectual property rights that could be infringed by others and we are potentially at risk of infringement of the intellectual property rights of others.

Our success will depend in part on our ability to protect our copyrights, patents, trademarks, trade dress, trade secrets, and similar intellectual property, including our rights to certain domain names. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. Effective trademark, patent, copyright, and trade secret protection may not be available in every country in which our products and media properties are distributed to customers worldwide. We currently hold 77 United States patents and additional foreign patents and will continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations.

We are exposed to potential lawsuits alleging defects in our products and/or hearing loss caused by our products.

The use of our products exposes us to the risk of product liability and hearing loss claims. These claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect.* Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability or hearing loss claims brought against us could have a material adverse effect upon our business, financial condition and results of operations.

Our mobile headsets are used with mobile telephones. There has been continuing public controversy over whether the radio frequency emissions from mobile telephones are harmful to users of mobile phones. We believe that there is no conclusive proof of any health hazard from the use of mobile telephones but that research in this area is incomplete. We have tested our headsets through independent laboratories and have found that use of our headsets reduces radio frequency emissions at the user's head to virtually zero. However, if research was to establish a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for our mobile phones, which reduces demands for headset products.

There is also continuing and increasing public controversy over the use of mobile telephones by operators of motor vehicles. While we believe that our products enhance driver safety by permitting a motor vehicle operator to generally be able to keep both hands-free to operate the vehicle, there is no certainty that this is the case and we may be subject to claims arising from allegations that use of a mobile telephone and headset contributed to a motor vehicle accident. We maintain product liability insurance and general liability insurance that we believe would cover any such claims. However, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations.

We are exposed to potential litigation from third parties which is costly to defend and consumes management's time and could possibly divert focus away from our business.

From time to time, third parties, including our competitors, may assert intellectual property rights or other commercial claims against us. These claims, if they are asserted, could result in costly litigation and diversion of management's attention regardless of the merit of a claim. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations.

While we believe we comply with environmental laws and regulations, we are still exposed to potential risks from environmental matters.

We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation of the site of one of our previous businesses. While no claims have been asserted against us in connection with this matter, such claims could be asserted in the future and any liability that might result could exceed the amount of the reserve.

We have several significant stockholders, and given the low trading volume of our stock, if they sell their shares in a short period of time we could see an adverse effect on the market price of our stock.

As of October 24, 2003, we had 44,421,485 shares of common stock outstanding. These shares are freely tradable except for approximately 1,132,987 shares held by affiliates of Plantronics. These approximately 1,132,987 shares may be sold in reliance on Rule 144 under the Securities Act, or pursuant to an effective registration statement filed with the Securities and Exchange Commission.

Approximately 11,801,419 additional shares are subject to outstanding stock options as of October 24, 2003. The shares that would be issued upon exercise of stock options has been registered. Accordingly, to the extent that these options vest and shares of our common stock are issued in the future, they may be freely resold by stockholders who are not our affiliates. Our affiliates may resell these shares to the extent permitted by Rule 144 under the Securities Act.

Our stock is not heavily traded. The average daily trading volume of our stock in the second quarter of fiscal 2004 was approximately 298,971 shares per day with a median volume in that period of 263,300 shares per day. Sales of a substantial number of shares of our common stock in the public market by any of our officers, directors or other stockholders could adversely affect the prevailing market price of our common stock and impair our ability to raise capital through the sale of equity securities.

Our business could be materially adversely affected if we lose the benefit of the services of Ken Kannappan or other key personnel.

Our success depends to a significant extent upon the services of a limited number of executive officers and other key employees. The unanticipated loss of the services of our president and chief executive officer, Mr. Kannappan, or one or more of our other executive officers or key employees could have a material adverse effect upon our business, financial condition and results of operations.

We also believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense. We may not be successful in attracting and retaining such personnel, and our failure to do so could have a material adverse effect on our business, operating results or financial condition.

Provisions in our charter documents and Delaware law and our adoption of a stockholder rights plan may delay or prevent a third party from acquiring us, which could decrease the value of our stock.

Our board of directors has the authority to issue preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire us. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing our acquisition by a third party. Further, certain provisions of our Certificate of Incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of our common stock.

Our board of directors adopted a stockholders right plan in 2002, pursuant to which we distributed one right for each outstanding share of common stock held by stockholders of record as of April 12, 2002. Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our board of directors, the plan could make it more difficult for a third party to acquire us, or a significant percentage of our outstanding capital stock, without first negotiating with our board of directors regarding such acquisition

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discusses our exposure to market risk related to changes in interest rates and foreign currency exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in "Risk Factors Affecting Future Operating Results."

INTEREST RATE RISK

At September 30, 2003, we had cash and cash equivalents totaling $92.1 million, compared to $54.7 million at March 31, 2003. At September 30, 2003, we had no marketable securities compared to $5.0 million at March 31, 2003. Cash equivalents have an original maturity of ninety days or less; marketable securities have an original maturity of greater than ninety days, but less than one year. We believe we are not currently exposed to significant interest rate risk as the majority of our cash and marketable securities were invested in securities or interest bearing accounts with maturities of less than ninety days. The average maturity period for our investments at September 30, 2003, was less than three months. The taxable equivalent interest rates locked in on those investments averages approximately 1.5%. Our investment policy requires that we only invest in deposit accounts, certificates of deposit or commercial paper with minimum ratings of A1/P1 and money market mutual fund s with minimum ratings of AAA.

Our $75 million revolving credit facility and letter of credit subfacility both expire on July 31, 2005. As of October 24, 2003, we had no cash borrowings under the revolving credit facility and $0.8 million outstanding under the letter of credit subfacility. If we choose to borrow under this facility in the future, and market interest rates rise, then our interest payments would increase accordingly.

FOREIGN CURRENCY EXCHANGE RATE RISK

In the second quarter of fiscal 2004, approximately 32% of our net sales were derived from customers outside the United States, with approximately 20.7% of total revenues denominated in foreign currencies, predominately the Euro and the Great British Pound. In fiscal 2002, we implemented a hedging strategy to minimize the effect of these currency fluctuations. Specifically, we began to hedge our European transaction exposure, hedging both our Euro and Great British Pound positions. However, we have no assurance that exchange rate fluctuations will not materially adversely affect our business in the future.

As of September 30, 2003, we had foreign currency exchange contracts of approximately $4.4 million denominated in the Euro as a hedge against a portion of our forecasted foreign currency-denominated receivables, payables and cash balances. The table below provides information about our financial instruments and underlying transactions that are sensitive to foreign currency exchange rates, including foreign currency forward-exchange contracts and nonfunctional currency-denominated receivables and payables. If these net exposed currency positions are subjected to either a 10% appreciation or 10% depreciation versus the U.S. dollar we could incur a loss of $1.0 million or a gain of $0.8 million.

The table below presents the impact on our foreign currency transaction exposure of a 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated currencies.



September 30, 2003
(in millions)                                 Net
                                           Underlying       Net          FX           FX
                                            Foreign      Exposed     Gain (Loss)  Gain (Loss)
                               USD Value    Currency    Long (Short)  From 10%     From 10%
                               of Net FX   Transaction   Currency    Appreciation Depreciation
Currency - forward contracts   Contracts    Exposures    Position      of USD       of USD
- ----------------------------  -----------  -----------  -----------  -----------  -----------
Euro........................ $       4.4  $      10.3  $       5.9  $       0.5  $      (0.7)
Great British Pound.........          --          3.1          3.1          0.3         (0.3)
                              -----------  -----------  -----------  -----------  -----------
Net position                 $       4.4  $      13.4  $       9.0  $       0.8  $      (1.0)
                              ===========  ===========  ===========  ===========  ===========

As of September 30, 2003, we had foreign currency call option contracts of approximately €22.8 million and £8.7 million denominated in Euros and Great British Pounds, respectively. As of September 30, 2003, we also had foreign currency put option contracts of approximately €22.8 million and £8.7 million denominated in Euros and Great British Pounds, respectively. Collectively our option contracts hedge against a portion of our forecasted foreign denominated sales. The table below provides information about our financial instruments and underlying transactions that are sensitive to foreign currency exchange rates, including foreign currency option contracts. If these net exposed currency positions are subjected to either a 10% appreciation or 10% depreciation versus the U.S. dollar we could incur a gain of $3.7 million or a loss of $3.8 million.

The table below presents the impact on our currency option contracts of a 10% appreciation and a 10% depreciation of the U.S. dollar against the indicated option contract type for cash flow hedges:

September 30, 2003 (in millions) FX FX Gain (Loss) Gain (Loss) USD Value From 10% From 10% of Net FX Appreciation Depreciation Currency - option contracts Contracts of USD of USD - --------------------------- ------------ ----------- ----------- Call options............... $ (39.6) $ 1.8 $ (3.5) Put options................ 39.2 1.9 (0.3) ------------ ----------- ----------- $ (0.4) $ 3.7 $ (3.8) ============ =========== ===========

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. -- OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits. The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description of Document
10.1	Wells Fargo Bank Credit Facility dated July 31, 2003
31.1	CEO's Certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	CFO's Certification under Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Audit Committee Charter, as amended on August 1, 2003

Reports on Form 8-K

On August 12, 2003, the Company filed a Current Report on Form 8-K announcing the Company's financial results for the quarter ended September 30, 2003.

SIGNATURE

Pursuant to the requirements of the Exchange Act, Plantronics has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PLANTRONICS, INC.
	(Registrant)

	By:	/s/ Barbara V. Scherer
	Barbara V. Scherer
	Senior Vice President - Finance and Administration and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer of the Registrant)

Date: November 7, 2003

Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description of Document
10.1	Wells Fargo Bank Credit Facility dated July 31, 2003
31.1	CEO's Certification under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	CFO's Certification under Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Audit Committee Charter, as amended on August 1, 2003

EX-10.1 4 wfbpltag.htm CREDIT AGREEMENT BETWEEN PLANTRONICS AND WELLS FARGO BANK

CREDIT AGREEMENT

Dated as of July 31, 2003

between

PLANTRONICS, INC.,

as the Company,

and

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as the Bank

TABLE OF CONTENTS

Section

Page

ARTICLE 1

1

DEFINITIONS

1

1.01

Certain Defined Terms.

1

1.02

Other Interpretive Provisions.

19

1.03

Accounting Principles.

20

ARTICLE 2

20

THE CREDIT

20

2.01

The Revolving Credit.

20

2.02

Loan Accounts; Notes.

20

2.03

Procedure for Borrowing.

21

2.04

Conversion and Continuation Elections.

21

2.05

Voluntary Termination or Reduction of the Commitment.

23

2.06

Optional Prepayments.

23

2.07

Cash Collateralization; Mandatory Prepayments.

23

2.08

Repayment.

24

2.09

Interest.

24

2.1

Commitment Fee.

25

2.11

Computation of Fees and Interest.

25

2.12

Payments by the Company.

25

ARTICLE 3

26

THE LETTERS OF CREDIT

26

3.01

The Letter of Credit Subfacility.

26

3.02

Issuance, Amendment and Renewal of Letters of Credit.

27

3.03

Drawings and Reimbursements.

28

3.04

Role of the Bank.

28

3.05

Obligations Absolute.

29

3.06

Cash Collateralization Obligations.

30

3.07

Letter of Credit Fees.

30

3.08

Uniform Customs and Practice.

30

ARTICLE 4

30

TAXES, YIELD PROTECTION AND ILLEGALITY

30

4.01

Taxes.

30

4.02

Illegality.

31

4.03

Increased Costs and Reduction of Return.

32

4.04

Funding Losses.

32

4.05

Inability to Determine Rates.

33

4.06

Reserves on LIBOR Loans.

33

4.07

Certificates of the Bank.

34

4.08

Survival.

34

ARTICLE 5

34

CONDITIONS PRECEDENT

34

5.01

Conditions of Effectiveness of Agreement.

34

5.02

Conditions to All Credit Extensions.

35

ARTICLE 6

36

REPRESENTATIONS AND WARRANTIES

36

6.01

Corporate Existence and Power.

36

6.02

Corporate Authorization; No Contravention.

36

6.03

Governmental Authorization.

37

6.04

Binding Effect.

37

6.05

Litigation.

37

6.06

ERISA Compliance.

37

6.07

Use of Proceeds; Margin Regulations.

38

6.08

Title to Properties.

38

6.09

Taxes.

38

6.1

Financial Condition.

38

6.11

Environmental Matters.

39

6.12

Regulated Entities.

39

6.13

No Burdensome Restrictions; Labor Relations.

39

6.14

Solvency.

39

6.15

Copyrights, Patents, Trademarks and Licenses, etc.

40

6.16

Subsidiaries.

40

6.17

Insurance.

40

6.18

Swap Obligations.

40

6.19

Full Disclosure.

41

6.2

Intentionally Deleted.

41

6.21

Good Standing Certificates.

41

ARTICLE 7

41

AFFIRMATIVE COVENANTS

41

7.01

Financial Statements.

42

7.02

Certificates; Other Information.

42

7.03

Notices.

43

7.04

Preservation of Existence, Rights, etc.

44

7.05

Maintenance of Property.

44

7.06

Insurance.

45

7.07

Payment of Obligations.

45

7.08

Compliance with Laws.

45

7.09

Inspection of Property and Books and Records.

45

7.1

Environmental Laws.

46

7.11

Use of Proceeds.

46

7.12

Intentionally Deleted.

46

7.13

Solvency.

46

7.14

Internal Controls.

46

ARTICLE 8

47

NEGATIVE COVENANTS

47

8.01

Limitation on Liens.

47

8.02

Disposition of Assets.

49

8.03

Consolidations and Mergers.

50

8.04

Loans and Investments.

50

8.05

Limitation on Indebtedness.

52

8.06

Transactions with Affiliates.

54

8.07

Use of Proceeds.

54

8.08

Operating Lease Obligations.

54

8.09

Restricted Payments.

55

8.1

ERISA.

55

8.11

Net Funded Debt to EBITDA Ratio.

56

8.12

Interest Coverage Ratio.

56

8.13

Quick Ratio

56

8.14

Change in Business.

56

8.15

Accounting Changes.

56

ARTICLE 9

56

EVENTS OF DEFAULT

56

9.01

Event of Default.

56

9.02

Remedies.

58

9.03

Rights Not Exclusive.

59

ARTICLE 10

59

GENERAL PROVISIONS

59

10.01

Amendments and Waivers.

59

10.02

Notices.

60

10.03

No Waiver; Cumulative Remedies.

60

10.04

Costs and Expenses.

60

10.05

Indemnity.

61

10.06

Payments Set Aside.

62

10.07

Successors and Assigns.

62

10.08

Assignments, Participations, etc.

62

10.09

Confidentiality.

63

10.1

Set-off.

63

10.11

Counterparts.

64

10.12

Severability.

64

10.13

No Third Parties Benefited.

64

10.14

Governing Law; Jurisdiction.

64

10.15

Arbitration.

65

10.16

Entire Agreement.

67

SCHEDULES

3.07 Letter of Credit Fees and Charges

6.05 Certain Litigation Matters

6.06 Certain ERISA Matters

6.10 Certain Permitted Liabilities

6.11 Certain Environmental Matters

6.15 Certain Intellectual Property Matters

6.16 Subsidiaries and Minority Interests

6.17 Certain Insurance Matters

8.01(a) Certain Permitted Liens

8.05(b) Certain Permitted Indebtedness

10.02 Bank's Payment Office/Lending Office; Notice Information

EXHIBITS

A Form of Compliance Certificate

B Form of Note

C Form of Notice of Borrowing

D Form of Notice of Conversion/Continuation

CREDIT AGREEMENT

This CREDIT AGREEMENT (this "Agreement"), dated as of July 31, 2003, is between PLANTRONICS, INC., a Delaware corporation (the "Company"), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Bank").

RECITALS

The Company has requested the Bank to extend credit to the Company in the form of a revolving credit facility with a letter of credit sub-facility to finance the operations of the Company and its Subsidiaries, to include certain acquisitions, the repurchase of stock, and capital expenditures, and for other general corporate purposes.

The Bank has agreed to make available such credit to the Company on the terms and conditions contained herein.

Accordingly, the parties agree as follows:

ARTICLE 1

DEFINITIONS

1.01 Certain Defined Terms.

As used herein:

"AAA" has the meaning specified in Section 10.15(b).

"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in connection with an Acquisition from such Person or (b) existing at the time such Person becomes a Subsidiary of another Person.

"Acquiree" has the meaning specified in Section 8.04(g).

"Acquisition" means any transaction, or any series of related transactions, by which any Person, in the transaction or as of the most recent transaction in a series of transactions, directly or indirectly: (a) acquires all or substantially all of the assets of a Person (other than a Person that is a Subsidiary of the Company), or of any business or division of a Person (other than a Person that is a Subsidiary of the Company); (b) acquires in excess of fifty percent (50%) of the capital stock, partnership interests or equity of any Person (other than a Person that is a Subsidiary of the Company) or otherwise causes any such Person to become a Subsidiary of the Company; or (c) merges, consolidates or otherwise combines with another Person (other than a Person that is a Subsidiary of the Company), provided that the Company or the Company's Subsidiary is the surviving entity or the surviving or resulting entity is under the control of, or under common control with, the Company.

"Adjusted EBITDA" means, for any period, for the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP, EBITDA for such period minus Capital Expenditures incurred during such period.

"Affiliate" means any Person that directly or indirectly controls, or is under common control with, or is controlled by, another Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") means the possession, directly or indirectly, of power to direct or cause the direction of the management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person that owns directly or indirectly securities having 5% or more of the voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, with respect to the Company or any Subsidiary of the Company, the definition of "Affiliate" shall not include (a) any individual solely by reason of his or her being a director, officer or employee of (i) the Company or (ii) any of the Company's Subsidiaries or (b) the Bank.

"Agreement" means this Credit Agreement.

"Applicable Commitment Fee Percentage" means, on any date, fifteen-hundredths of one percent (0.15%) per annum.

"Applicable Lending Office" means, for each Type of Loan, the "Lending Office" of the Bank (or of an Affiliate of the Bank) designated for such Type of Loan on Schedule 10.02 or such other office of the Bank (or of an Affiliate of the Bank) as the Bank may from time to time specify to the Company as the office for its Loans of such Type.

"Approved Replacement Director" means: (a) any director of the Company who has been approved by two-thirds of the Board of Directors of the Company as constituted at the beginning of any relevant period or by a Permitted Holder; or (b) any director of the Company who has been approved by two-thirds of those members of the Board of Directors of the Company, as constituted at the beginning of any relevant period, entitled pursuant to the Organizational Documents of the Company to vote for such director, together with any directors referred to in the preceding clause (a) or previously approved in accordance with this clause (b) or by a Permitted Holder.

"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease or other disposition to any Person other than the Company or a Subsidiary of the Company, in one transaction or a series of related transactions, of: (a) any Capital Stock of any Subsidiary of the Company; or (b) any other Property of the Company or any Subsidiary of the Company other than sales of inventory or other assets in the Ordinary Course of Business and other than isolated transactions which do not exceed $250,000, individually, or $500,000, in the aggregate. For purposes hereof, the term "Asset Sale" shall not include the following: (i) any disposition of the Property of the Company or any Subsidiary of the Company that is governed under and complies with Section 8.03 or any disposition of Investments of the type described in Sections 8.04(b), (c), (e), (f) and (k); or (ii) any issuance by the Company of its Capital Stock.

"Assignee" has the meaning specified in Section 10.08(a).

"Attorney Costs" means all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel.

"Bank" has the meaning specified in the introduction hereto.

"Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the United States Code.

"Bank's Payment Office" means the address of the Bank for payments specified on Schedule 10.02 or such other address therefor as the Bank may from time to time specify in accordance with the terms hereof.

"Base LIBOR" has the meaning specified in the definition of "LIBOR" contained herein.

"Borrowing" means a borrowing hereunder consisting of Loans of the same Type made to the Company on the same day by the Bank under Article 2, and, other than in the case of Prime Rate Loans, having the same Interest Period.

"Borrowing Date" means any date on which a Borrowing occurs under Section 2.03.

"Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York or San Francisco, California are authorized or required by law to close and, if the applicable Business Day relates to any LIBOR Loan, means such a day on which dealings are carried on in the applicable offshore dollar inter-bank market.

"Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank.

"Capital Expenditures" means, for any period, the aggregate expenditures (whether paid in cash or accrued as a liability, including the aggregate amount of Capital Lease Obligations incurred during such period, but excluding capitalized interest and items paid in cash that had been accrued and counted as "Capital Expenditures" in a prior period) made by the Company or any of its Subsidiaries to acquire or to construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs in the ordinary course) during such period, determined in accordance with GAAP.

"Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount of such obligations, determined in accordance with GAAP.

"Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock (including any partnership interest), whether outstanding on the Closing Date or issued after the Closing Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock.

"Cash Collateralize" means to pledge and deposit with or deliver to the Bank, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Bank. Derivatives of such term shall have corresponding meaning.

"Cash Equivalents" means:

(a) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof, provided that the full faith and credit of the United States is pledged in support thereof);

(b) certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $100,000,000;

(c) commercial paper with a maturity of 365 days or less issued by a corporation (other than an Affiliate of the Company or any of its Subsidiaries) organized under the laws of any State of the United States or the District of Columbia and rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Services, Inc.;

(d) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States government, in each case maturing within one year from the date of acquisition, provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depositary Institutions with Securities and Others, as adopted by the Comptroller of the Currency of the United States;

(e) deposit accounts maintained with financial institutions referred to in the preceding clause (b); and

(f) investments in mutual funds which invest exclusively in the items described in the preceding clauses (a) through (e).

"Cash Interest Expense" means, for any period, on a consolidated basis, total interest expense for the period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments) for the Company and its Subsidiaries, less non-cash items included in such interest expense (including any amortization of discount or interest expense not payable in cash).

"Change of Control" means the occurrence, after the date of this Agreement, of any of the following: (a) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the Property of the Company and its Subsidiaries, taken as a whole, to any Person or group of Persons acting in concert as a partnership or other group (a "group of Persons"), other than a Permitted Holder; (b) the merger or consolidation of the Company with or into another Person with the effect that a Person or group of Persons (such Person or group of Persons, the "Acquiring Persons"), other than Permitted Holders, has become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the surviving Person of such merger or consolidation or the corporation resulting from such merger or consolidation representing 35% or more of the combined voting power of the then outstanding securities of such surviving or resulting Person, as the ca se may be, ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors, provided that such a merger or consolidation shall not be a "Change of Control" if, after giving effect to such merger or consolidation, Permitted Holders are then the beneficial owner of securities of such surviving Person representing combined voting power in excess of the combined voting power of such securities as to which the Acquiring Persons have become the beneficial owner; (c) a change to the composition of the Board of Directors of the Company over a two-year period such that the directors who constituted such Board of Directors at the beginning of such period, together with all Approved Replacement Directors elected since the beginning of such period, shall cease to constitute a majority of the Board of Directors of the Company; and (d) a Person or group of Persons (such Person or group of Persons, the "Purchasers"), other than Permitted Hold ers, shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 35% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors, provided that such a change of ownership shall not be a "Change of Control" if, after giving effect to such change, Permitted Holders are then the beneficial owner of securities of the Company representing combined voting power in excess of the combined voting power of such securities as to which the Purchasers have become the beneficial owner.

"Closing Date" means the date on which all conditions precedent set forth in Section 5.01 are satisfied, made conditions subsequent or waived by the Bank.

"Code" means the Internal Revenue Code of 1986 and all regulations promulgated thereunder.

"Commitment" has the meaning specified in Section 2.01.

"Compliance Certificate" means a certificate substantially in the form of Exhibit A executed and delivered on behalf of the Company by a Responsible Officer.

"Consolidated Current Liabilities" means, as of any date of determination, for the Company and its Subsidiaries on a consolidated basis, the amount of all liabilities which have been or properly should be classified as current liabilities in accordance with GAAP.

"Consolidated Fixed Charge Coverage Ratio" means, with respect to the Company for any period, the ratio of (a) the aggregate amount of EBITDA in such period for the four full fiscal quarters for which financial information in respect thereof is available immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to (b) the aggregate amount of Consolidated Fixed Charges for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Adjusted EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to, without duplication, (i) any incurrences, and permanent repayments out of the proceeds of such incurrences, of Indebtednes s of the Company or any of its Subsidiaries occurring during the period commencing on the first day of the Four Quarter Period through the Transaction Date (the "Reference Period"), including the incurrence of the Indebtedness giving rise to the need to make such calculation, as if such incurrence or repayment, as the case may be, occurred on the first day of the Reference Period, but excluding Indebtedness incurred or repaid under any revolving credit or similar facility pursuant to which amounts incurred may be repaid and reborrowed for working capital purposes (it being understood that such incurrences and repayments referred to in this exclusion are included in the calculation of "Consolidated Fixed Charge Coverage Ratio" on an actual basis), unless a permanent reduction in the commitments is effected by such repayment and (ii) any Asset Sales or Acquisitions (including any Acquisition giving rise to the need to make such calculation as a result of the Company or one of its Subsidiaries (in cluding any Person who becomes a Subsidiary as a result of the Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Acquisition occurred on the first day of the Reference Period. Without limiting the generality of the foregoing, in calculating "Consolidated Interest Expense" and "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of "Consolidated Fixed Charge Coverage Ratio," (A) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (B) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eu rocurrency inter-bank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Reference Period; and (C) notwithstanding the immediately preceding clauses (A) and (B), interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by Swap Agreements, shall be deemed to have accrued at the rate per annum resulting after giving effect to such agreements. If the Company or any of its Subsidiaries directly or indirectly enters into a Guaranty Obligation with respect to Indebtedness of a third Person (other than Indebtedness of a consolidated Subsidiary of such Person or, with respect to a consolidated Subsidiary of the Company, other than Indebtedness of the Company), the immediately preceding clause shall give effect to the incurrence of such Guaranty Obligation as if such Person or such Subsidiary had directly incurred or otherwise assumed such Guaranty Obligation.

"Consolidated Fixed Charges" means, with respect to the Company for any period, the amounts for such period of (a) Consolidated Interest Expense and (b) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Disqualified Capital Stock of the Company and its Subsidiaries on a consolidated basis; provided that, if, during such period, the Company or any of its consolidated Subsidiaries shall have made any Asset Sales or Acquisitions, "Consolidated Fixed Charges" for the Company and its consolidated Subsidiaries for such period shall be adjusted to give pro forma effect to the Consolidated Fixed Charges directly attributable to the Properties which are the subject of such Asset Sales or Acquisitions during such period.

"Consolidated Interest Expense" means, with respect to the Company for any period, without duplication, the sum of (a) the interest expense of such the Company and its Subsidiaries for such period on a consolidated basis determined in accordance with GAAP, including (i) any amortization of debt discount, (ii) the net cost of obligations under any Swap Agreements (including any amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (v) all accrued interest, (b) the interest component of Capitalized Lease Obligations paid, accrued or scheduled to be paid or accrued by the Company and its Subsidiaries during such period on a consolidated basis determined in accordance with GAAP and (c) one-third of the amount of all lease payments (other than Capitalized Lease Obligations) paid, accrued or scheduled to be paid or acc rued by the Company and its Subsidiaries during such period on a consolidated basis determined in accordance with GAAP.

"Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary ob ligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each of the foregoing, a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations other than in respect of Swap Contracts, shall be equal to the maximum reasonably anticipated liability in respect thereof and, in the case of Contingent Obligations in respect of Swap Contracts, shall be equal to the Swap Termination Value.

"Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its Property is bound.

"Conversion/Continuation Date" means any date on which, under Section 2.04, the Company does either or both of the following: (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date.

"Credit Documents" means this Agreement, any Note, the L/C Related Documents and all other documents delivered to the Bank in connection herewith.

"Credit Extension" means the following: (a) the making of any Loans or L/C Advances hereunder; and (b) the Issuance of any Letters of Credit hereunder.

"Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default.

"Dispute" has the meaning specified in Section 10.15.

"Disqualified Capital Stock" means, with respect to any Person, any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Revolving Termination Date.

"Dollars," "dollars" and "$" each mean lawful money of the United States.

"Domestic Subsidiary" means any Subsidiary that is organized under the laws of the United States or any State thereof.

"EBITDA" means, for any period, for the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, the sum of: (a) the net income (or net loss) for such period; plus (b) all amounts treated as expenses for such period for depreciation and interest and the amortization of intangibles of any kind, but in each case only to the extent included in the determination of such net income (or net loss); plus all accrued taxes for such period on or measured by income, but in each case only to the extent included in the determination of such net income (or net loss); plus (d) all non-cash expenses or charges for management stock compensation for such period, but in each case only to the extent included in the determination of such net income (or net loss); provided that net income (or net loss) shall be computed for all of the foregoing purposes without giving effect to extraordinary gains or extraordinary losses.

"Effective Amount" means: (a) with respect to any Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments occurring on such date; and (b) with respect to any outstanding L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date.

"Eligible Assignee" means any of the following: (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country which is a member of the OECD, provided that such bank is acting through a branch or agency located in the United States; (d) any (i) a finance company, savings and loan association or other financial institution, mutual fund or other fund (whether a corporation, partnership, trust or other entity), or (ii) insurance company engaged in the busines s of writing insurance that, in either case, (A) is organized under the laws of the United States (or any state thereof or the District of Columbia), (B) is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets of $500,000,000 or more, and (C) is operationally and procedurally able to meet the obligations of the Bank hereunder to the same degree as a commercial bank that would be an Eligible Assignee, as determined by the Bank; and (e) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of the Bank, (ii) a Subsidiary of a Person of which the Bank is a Subsidiary or (iii) a Person of which the Bank is a Subsidiary.

"Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility of any of the Company or any of its Subsidiaries for violation of any Environmental Law, or for release or injury to the environment.

"Environmental Laws" means all federal, state, local or foreign laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters.

"ERISA" means the Employee Retirement Income Security Act of 1974 and regulations promulgated thereunder.

"ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of subsection 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

"ERISA Event" means any of the following: (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate.

"Eurocurrency Liabilities" has the meaning specified in Regulation D (as amended) of the FRB.

"Event of Default" has the meaning specified in Section 9.01.

"Exchange Act" means the Securities Exchange Act of 1934 and all regulations promulgated thereunder.

"Fair Market Value" means, with respect to any Property, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Company acting in good faith; provided that, in the case of any transaction in excess of $500,000, Fair Market Value shall be determined by the Board of Directors of the Company acting in good faith and shall be evidenced by a certified copy of a resolution of such Board of Directors delivered to the Bank.

"FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions.

"Foreign Subsidiary" means, with respect to any Person, any Subsidiary of such Person that is not a Domestic Subsidiary of such Person.

"FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions.

"Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 4.01.

"GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances and consistently applied.

"Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

"Guaranty Obligation" has the meaning specified in the definition of "Contingent Obligation" contained herein.

"Honor Date" has the meaning specified in Section 3.03(c).

"Indebtedness" of any Person means (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person issued, undertaken or assumed as the deferred purchase price of property or services; (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments issued by such Person, including obligations so evidenced incurred in connection with the acquisition of Property or businesses; (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to Property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such Property); (f) all Capital Lease Obligations of such Person; (g) all C ontingent Obligations referred to in clause (d) of the definition of "Contingent Obligations" contained herein; (h) all indebtedness referred to in the immediately preceding clauses (a) through (g) secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person (but only to the extent of the lesser of such indebtedness or the fair market value of the Property subject to such Lien, where such Lien secured another Person's indebtedness), even though such Person has not assumed or become liable for the payment of such Indebtedness; (i) all Guaranty Obligations of such Person in respect of the indebtedness or other obligations of others of the kinds referred to in the immediately preceding clauses (a) through (g); and (j) all other Contingent Obligations; provided that, with respect to any Person, "Indebtedness" shall not include trade payabl es and accrued expenses (including those between the Company and its Subsidiaries), in each case arising in the Ordinary Course of Business; provided further that, for all purposes of this Agreement, "Indebtedness" of any Person shall include all recourse obligations or indebtedness of any partnership or joint venture or limited liability company in which such Person is a general partner or a joint venturer or a member.

"Indemnified Liabilities" has the meaning specified in Section 10.05(a).

"Indemnified Person" has the meaning specified in Section 10.05(a).

"Independent Auditor" has the meaning specified in Section 7.01(a).

"Insolvency Proceeding" means, with respect to any Person: (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors; or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in either event undertaken under United States federal, state or foreign law, including the Bankruptcy Code.

"Interest Coverage Ratio" means, as of any date of determination, in respect of the Company and its Subsidiaries on a consolidated basis, (a) Adjusted EBITDA divided by (b) Cash Interest Expense, such amounts being calculated on a rolling four-quarter basis (all through the then-most recent quarter end for which the Company has delivered to the Bank a Compliance Certificate).

"Interest Payment Date" means, as to any Loan other than a Prime Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Prime Rate Loan, the last Business Day of each calendar month and each date such Loan is converted into another Type of Loan; provided that, if any Interest Period for a LIBOR Loan exceeds one month, then each day during such Interest Period which is a monthly anniversary of the beginning of such Interest Period shall also be an Interest Payment Date.

"Interest Period" means, as to any LIBOR Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which a Loan is converted into or continued as a LIBOR Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that:

(a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day;

(b) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of 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 of the calendar month at the end of such Interest Period; and

(c) no Interest Period shall extend beyond the date set forth in clause (a) of the definition of "Revolving Termination Date" contained herein.

"Investments" has the meaning specified in Section 8.04.

"IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code.

"Issuance Date" has the meaning specified in Section 3.01(a).

"Issue" means, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings.

"Joint Venture" means a single-purpose corporation, partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person.

"L/C Advance" means an extension of credit resulting from a drawing under any Letter of Credit which is not reimbursed on the date of such drawing nor converted into a Loan.

"L/C Amendment Application" means an application form for amendment of outstanding standby or commercial documentary letters of credit as shall at any time be in use at the Bank, as the Bank shall request.

"L/C Application" means an application form for issuances of standby or commercial documentary letters of credit as shall at any time be in use at the Bank, as the Bank shall request.

"L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which is not reimbursed on the date when made nor converted into a Borrowing under Section 3.03(c).

"L/C Commitment" means the obligation of the Bank to issue Letters of Credit pursuant to Article 3 and to make L/C Advances, in an aggregate amount not to exceed on any date the amount equal to $10,000,000 less the Effective Amount of all L/C Obligations outstanding on such date. The L/C Commitment is a part of the Commitment, rather than a separate, independent commitment.

"L/C Obligations" means at any time the sum of: (a) the aggregate undrawn amount of all Letters of Credit then outstanding; plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings.

"L/C-Related Documents" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other documents relating to any Letter of Credit, including any of the Bank's standard form documents for letter of credit issuances.

"Lending Office" means the office or offices of the Bank specified on Schedule 10.02, or such other office or offices as the Bank may from time to time notify the Company.

"Letters of Credit" means all letters of credit (whether standby letters of credit or commercial letters of credit) Issued by the Bank pursuant to Article 3.

"LIBOR" means, for any Interest Period, with respect to LIBOR Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the nearest 1/16th of 1%) determined by the Bank as follows:

LIBOR = BASE LIBOR____________

1.00 - LIBOR Reserve Percentage

Where,

"Base LIBOR" means the rate per annum for United States dollar deposits quoted by the Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by the Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of an Interest Period for delivery of funds on such date for a period of time approximately equal to the number of days in such Interest Period and in an amount approximately equal to the principal amount to which such Interest Period applies. The understands and agrees that the Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as the Bank in its sole discretion deems appropriate, including the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

"LIBOR Reserve Percentage" means the reserve percentage prescribed by the FRB for Eurocurrency Liabilities, adjusted by the Bank for expected changes in such reserve percentage during the applicable Interest Period.

The LIBOR shall be adjusted automatically as to all LIBOR Loans then outstanding as of the effective date of any change in the LIBOR Reserve Percentage.

"LIBOR Loan" means a Loan that bears interest based on the LIBOR.

"Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the UCC or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease.

"Loan" means an extension of credit made (or deemed made) by the Bank to the Company under Article 2, which extension of credit may be a Prime Rate Loan or a LIBOR Loan (each, a "Type" of Loan).

"Margin Stock" means "margin stock" as such term is defined in Regulation U of the FRB.

"Material Adverse Effect" means any of the following: (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole; (b) a material impairment of the ability of the Company to perform its payment obligations under any of the Credit Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability of any Credit Document.

"Material Subsidiary" means, with respect to any Person, a Subsidiary of such Person that would, on a pro forma basis after giving effect to any Transfer permitted hereunder, constitute a "significant subsidiary" as such term is defined under Rule 1.02(v) of Regulation S-X of the SEC.

"Multiemployer Plan" means a "multiple employer plan" or a "multiemployer plan," within the meaning of Sections 4064(a) and 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions.

"Net Funded Debt" means, as of any date of determination, (a) Indebtedness (other than the types described in clause (i) of the definition thereof) and, without duplication, all Guaranty Obligations with respect to any such Indebtedness of another Person less (b) cash and Cash Equivalents, to the extent not subject to any Lien, and to the extent exceeding in aggregate the amount of $5,000,000, in each case determined on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP.

"Net Funded Debt to EBITDA Ratio" means, as of any date of determination, the ratio of Net Funded Debt to EBITDA, calculated on a rolling four-quarter basis (through the then-most recent quarter end for which the Company has delivered to the Bank a Compliance Certificate).

"Net Proceeds" means, in the case of any sale, lease, conveyance or other disposition of Property (including a sale/leaseback), the gross consideration received in cash, checks or other cash equivalent financial instruments (including Cash Equivalents) as and when received by the Person making the disposition from such disposition (other than liabilities assumed directly or indirectly by the buyer), less: (a) the amount of actual liabilities for taxes reasonably anticipated by the Company to be attributable to such disposition; (b) the amount of any reserves against any liabilities associated with such disposition required to be retained by the Person making such disposition after the disposition in conformity with GAAP (but only for the period required to be retained as a reserve); (c) the amount of Indebtedness required to be repaid or defeased under the terms thereof or under the terms of the disposition in connection with the disposition; and (d) the amount of fees and commissi ons payable to Persons other than the Person making the disposition and other costs and expenses related to the disposition that are to be paid in cash, in each case only to the extent customarily borne by a seller in an arm's-length transaction; provided that gross consideration shall not include the amount of intercompany indebtedness forgiven in connection with the disposition.

"Note" means a promissory note executed by the Company in favor of the Bank pursuant to Section 2.02(b), in substantially the form of Exhibit B.

"Notice of Borrowing" means a notice in substantially the form of Exhibit C.

"Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit D.

"Obligations" means all advances, debts, liabilities, obligations, covenants and duties and other Indebtedness arising under any Credit Document (including all Loans and L/C Borrowings and any obligation to Cash Collateralize) owing by the Company to the Bank or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired.

"OECD" has the meaning specified in the definition of "Eligible Assignee" contained herein.

"Ordinary Course of Business" means, in respect of any transaction involving any Person, the ordinary course of such Person's business, as undertaken by such Person in good faith and, with respect to the Company and any Subsidiary of the Company, not for the specific purpose of evading any covenant or restriction contained in any Credit Document.

"Organization Documents" means: (a) for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation; (b) for any partnership, the partnership agreement, any other agreements or instruments relating to the rights or the partners of such partnership or limiting or authorizing the activities of such partnership, and all applicable resolutions of such partnership; and (c) for any limited liability company, the articles or certificate of formation, the operating agreement, any other agreements or instruments relating to the rights or the members of such limited liability company or authorizing the activities of such limited liability company, and all applicable resolutions of such limited liability company.

"Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Credit Documents.

"Participant" has the meaning specified in Section 10.08(b).

"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA.

"PBV" means Plantronics B.V., a Netherlands corporation, and a Wholly Owned Subsidiary of the Company.

"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years.

"Permitted Holders" means Citicorp Venture Capital Ltd. and its Affiliates.

"Permitted Liens" has the meaning specified in Section 8.01.

"Permitted Swap Obligations" means all obligations (contingent or otherwise) of the Company or any of its Subsidiaries existing or arising under Swap Contracts, provided that each of the following criteria is satisfied: (a) such obligations are (or were) entered into by such Person in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view"; and (b) such Swap Contracts do not contain (i) any provision (a "walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party, or (ii) any provision creating or permitting the declaration of an event of default , termination event or similar event upon the occurrence of an Event of Default hereunder (other than an Event of Default under Section 9.01(a)).

"Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority.

"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan.

"Plantronics Germany" means Plantronics Gmbh, a German Corporation, and a Wholly Owned Subsidiary of the Company.

"Plantronics UK" means Plantronics Limited, a United Kingdom corporation, and a Wholly Owned Subsidiary of the Company.

"Prime Rate" means at any time the rate of interest most recently announced within the Bank at its principal office as its "Prime Rate," with the understanding that the Bank's "Prime Rate" is one of the Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as the Bank may designate. Any change in the Bank's "Prime Rate" as announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change.

"Prime Rate Loan" means a Loan or an L/C Advance that bears interest based on the Prime Rate.

"Property" means any estate or interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible.

"Purchase Money Indebtedness" means any Indebtedness incurred in the Ordinary Course of Business by a Person to finance the cost (including the cost of construction) of an item of Property, the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith.

"Quick Ratio" means, as of any date of determination for any period, the ratio of (a) the sum of all cash, marketable securities and trade accounts receivable of the Company and its Subsidiaries on such date of determination (the foregoing determined on a consolidated basis in accordance with GAAP) to (b) Consolidated Current Liabilities including without limitation the outstanding principal balance of Loans irrespective of the maturity date(s) thereof.

"Reportable Event" means, any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.

"Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject.

"Responsible Officer" means the chief executive officer, the president, or the chief financial officer (or, if at the relevant time there is no chief financial officer, the General Counsel and Secretary) of the Company, or any other officer having substantially the same authority and responsibility or, with respect to compliance with financial covenants, the chief financial officer (or, if at the relevant time there is no chief financial officer, the General Counsel and Secretary) or the treasurer of the Company, or any other officer having substantially the same authority and responsibility.

"Revolving Termination Date" means the earlier to occur of: (a) July 31, 2005; and (b) the date on which the Commitment terminates in accordance with the provisions of this Agreement.

"Santa Cruz Property" means those certain three buildings containing an aggregate of approximately 160,000 square feet owned by the Company and located in Santa Cruz, California.

"SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

"Solvent" means, as to any Person at any time, that: (a) the fair value of the Property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code and, in the alternative, for purposes of the California Uniform Fraudulent Transfer Act; (b) the present fair saleable value of the Property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its Property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; and (d) such Person is not engaged in business or a transaction for which such Person's property would constitute unreasonably small capital.

"Subordinated Indebtedness" means any Indebtedness of the Company which is by its terms subordinated in any manner in right of payment of the Obligations.

"Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company.

"Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments.

"Swap Contract" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swap option, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing.

"Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include the Bank).

"Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by its net income or gross receipts by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office.

"Transfers" has the meaning specified in Section 8.02.

"Type" has the meaning specified in the definition of "Loan" contained herein.

"UCC" means the Uniform Commercial Code as in effect in the State of California.

"Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

"United States" and "U.S." each means the United States of America.

"Wholly Owned Domestic Subsidiary" means a Domestic Subsidiary that is a Wholly Owned Subsidiary.

"Wholly Owned Subsidiary" means, with respect to any Person, any entity of which (other than directors' qualifying shares required by law) 100% of the Capital Stock of each class having ordinary voting power, and 100% of the Capital Stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by such Person or by one or more of such Person's other Wholly Owned Subsidiaries, or both.

1.02 Other Interpretive Provisions.

The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.

The words "hereof," "herein," "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced; and the term "including" is not limiting and means "including without limitation."

In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including."

Unless otherwise expressly provided herein: (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Credit Document; and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation.

The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement.

This Agreement and other Credit Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Bank by way of agreement, consent, approval or waiver shall be deemed modified by the phrase "in its sole discretion."

This Agreement and the other Credit Documents are the result of negotiations among and have been reviewed by counsel to the Company and the Bank, and are the products of all parties. Accordingly, they shall not be construed against the Bank merely because of the Bank's involvement in their preparation.

1.03 Accounting Principles.

Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made or determined, in accordance with GAAP consistently applied.

References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company.

ARTICLE 2

THE CREDIT

2.01 The Revolving Credit.

The Bank agrees, on the terms and conditions set forth herein, to make loans to the Company from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date in an aggregate amount not to exceed at any time outstanding the principal amount of Seventy-Five Million Dollars ($75,000,000) (such amount, as the same may be reduced under Section 2.05 or as a result of one or more assignments under Section 10.08, the Bank's "Commitment"); provided that, after giving effect to any Credit Extension, the Effective Amount of all outstanding Loans and L/C Obligations together shall not at any time exceed the Commitment. Within the limits of the Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01, prepay under Section 2.06 and reborrow under this Section 2.01.

2.02 Loan Accounts; Notes.

The Loans made, and the Letters of Credit Issued, by the Bank shall be evidenced by one or more accounts or records maintained by the Bank in the Ordinary Course of Business. The accounts or records maintained by the Bank shall be prima facie evidence of the amount of the Loans made by the Bank to the Company and the Letters of Credit Issued for the account of the Company, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans or any Letters of Credit.

Upon the request of the Bank, the Loans made by the Bank may be evidenced by one or more Notes, instead of or in addition to loan accounts. The Bank shall endorse on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. The Company hereby irrevocably authorizes the Bank to endorse its Note(s) and acknowledges and agrees that the Bank's record shall be prima facie evidence of the amounts so stated; provided that the failure of the Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to the Bank.

2.03 Procedure for Borrowing.

Each Borrowing shall be made upon the Company's irrevocable written notice delivered to the Bank in the form of a Notice of Borrowing (which notice must be received by the Bank prior to noon (San Francisco time) (i) three Business Days prior to the requested Borrowing Date, in the case of LIBOR Loans; and (ii) on the requested Borrowing Date, in the case of Prime Rate Loans, specifying:

(A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $500,000, in the case of LIBOR Loans, or $100,000, in the case of Prime Rate Loans (provided that, if there shall have been a partial assignment to an Assignee pursuant to Section 10.08, the minimum principal amount for any Prime Rate Loan shall be $500,000) or any multiple of $100,000 in excess thereof;

(B) the requested Borrowing Date, which shall be a Business Day;

(C) the Type of Loans comprising the Borrowing; and

(D) with respect to LIBOR Loans, the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of LIBOR Loans, such Interest Period shall be three months.

.

The Bank will make the amount of each Borrowing available to the Company at the Bank's Payment Office by 2:00 p.m. (San Francisco time) on the Borrowing Date requested by the Company by crediting the account of the Company on the books of the Bank or, if requested by the Company, by wire transfer in accordance with written instructions provided to the Bank by the Company, less customary fees for such wire transfer.

Unless the Bank otherwise consents, after giving effect to any Borrowing, there may not be more than five (5) different Interest Periods in effect.

2.04 Conversion and Continuation Elections.

The Company may, upon irrevocable written notice to the Bank in accordance with Section 2.04(b):

elect to convert, as of any Business Day, any Prime Rate Loans (or any part thereof in an amount not less than $500,000 or that is in an integral multiple of $100,000 in excess thereof) into LIBOR Loans;

elect to convert, as of the last day of the applicable Interest Period, any LIBOR Loans expiring on such day (or any part thereof in an amount not less than $100,000, or that is in an integral multiple of $100,000 in excess thereof) into Prime Rate Loans; provided that, if there shall have been a partial assignment to an Assignee pursuant to Section 10.08, the minimum principal amount which may be converted into Prime Rate Loans shall be $500,000 or any integral multiple of $100,000 in excess thereof; or

elect to continue, as of the last day of the applicable Interest Period, any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $500,000, or that is in an integral multiple of $100,000 in excess thereof);

provided that, if at any time the aggregate amount of LIBOR Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof (but not by partial assignment to an Assignee pursuant to Section 10.08), to be less than $500,000, such LIBOR Loans shall automatically convert into Prime Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, LIBOR Loans shall terminate.

The Company shall deliver a Notice of Conversion/Continuation for receipt by the Bank not later than noon (San Francisco time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as LIBOR Loans; and (ii) on the Conversion/Continuation Date, if the Loans are to be converted into Prime Rate Loans, specifying:

(A) the proposed Conversion/Continuation Date;

(B) the aggregate amount of Loans to be converted or continued;

(C) the Type of Loans resulting from the proposed conversion or continuation; and

(D) other than in the case of conversions into Prime Rate Loans, the duration of the requested Interest Period.

If, upon the expiration of any Interest Period applicable to LIBOR Loans, the Company has failed to select timely a new Interest Period to be applicable to such LIBOR Loans, as the case may be, or if any Default or Event of Default then exists, then the Company shall be deemed to have elected to convert such LIBOR Loans into Prime Rate Loans effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied.

Unless the Bank otherwise consent, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as a LIBOR Loan.

Unless the Bank otherwise consents, after giving effect to any conversion or continuation of Loans, there may not be more than five (5) different Interest Periods in effect.

2.05 Voluntary Termination or Reduction of the Commitment.

The Company may, upon five Business Days prior notice to the Bank, terminate the Commitment, or permanently reduce the Commitment by an aggregate minimum amount of $1,000,000 or any multiple of $100,000 in excess thereof (or of the balance of the Commitment, if less); unless, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the then Effective Amount of the Loans and the L/C Obligations would exceed the Commitment then in effect. Once reduced in accordance with this Section 2.05, the Commitment (and, to the extent reduced in accordance with the provisions hereof, the L/C Commitment) may not be increased. All accrued commitment fees to the effective date of any reduction or termination of the Commitment shall be paid on the effective date of such reduction or termination. Any notice of a reduction of the Commitment shall specify to what extent if any to which to such reduction shall be applied to reduce the L/C Commitment. Any termination of the entire Commitment shall also terminate the entire L/C Commitment.

2.06 Optional Prepayments.

Subject to Section 4.04, the Company may, at any time or from time to time, upon irrevocable notice received by the Bank, in the case of LIBOR Loans, not less than three Business Days prior to the requested prepayment date, and, in the case of Prime Rate Loans, on the Business Day prior to the requested prepayment date, prepay the Loans, in whole or in part, in minimum amounts of (a) $100,000 or any multiple of $100,000 in excess thereof in the case of Prime Rate Loans and (b) $500,000 or any multiple of $100,000 in excess thereof in the case of LIBOR Loans. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. If any such notice is given by the Company, then the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section&n bsp;4.04.

2.07 Cash Collateralization; Mandatory Prepayments.

Subject to Section 4.04, if, on any date, the Effective Amount of all Loans and L/C Obligations together exceeds the Commitment, then the Company shall immediately, and without notice or demand, prepay the outstanding principal amount of the Loans or repay all unreimbursed drawings under all Letters of Credit (including L/C Borrowings) in an amount equal to such excess.

No later than forty-five days after the Bank has received notice of a Change of Control pursuant to Section 7.03 (or upon and at any time after the occurrence of any Change of Control if the Company is in default of its obligation to deliver such a notice), the Bank may by notice to such effect to the Company: (i) declare the Commitment to be terminated, whereupon the Commitment shall automatically terminate; and (ii) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, or demand that the Company Cash Collateralize the L/C Obligations to the extent of outstanding and wholly or partially undrawn Letters of Credit, whereupon the Company shall so Cash Collateralize the L/ C Obligations; and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable without presentment, demand or protest, all of which are hereby expressly waived by the Company.

Any prepayments pursuant to this Section 2.07 shall be applied first to any Prime Rate Loans then outstanding and then to outstanding LIBOR Loans with the shortest Interest Periods then remaining. All payments of Loans and L/C Borrowings pursuant to this Section 2.07 shall be made together with interest accrued to the date of such payment on the principal amount repaid, together with any amounts payable under Section 4.04; provided that, if any such prepayment would cause the Company to incur Obligations pursuant to Section 4.04 with respect to LIBOR Loans, the Company may Cash Collateralize such LIBOR Loans until the last day of the Interest Period related thereto, at which time such Cash Collateral shall be applied by the Bank to repay such Loans.

2.08 Repayment.

The Company shall repay the Bank on the Revolving Termination Date the aggregate principal amount of all Loans outstanding on such date.

2.09 Interest.

Subject to the Company's right to convert to other Types of Loans under Section 2.04): (i) each Prime Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Prime Rate minus one percent (1.00%) per annum; and (ii) each LIBOR Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to LIBOR plus seven-eighths of one percent (0.875%) per annum.

Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Bank.

Notwithstanding subsection (a) of this Section, while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding two percent (2.00%) per annum to the rate otherwise then in effect for such Loans and, in the case of Obligations not Loans, at a rate per annum equal to the Prime Rate plus one percent (1.00%) per annum; provided that, on and after the expiration of any Interest Period applicable to any LIBOR Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Prime Rate plus one percent (1.00%) per annum. All such interest shall be payable upon demand.

Notwithstanding anything to the contrary contained herein, the obligations of the Company to the Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the Bank would be contrary to the provisions of any law applicable to the Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by the Bank, and, in such event, the Company shall pay the Bank interest at the highest rate permitted by applicable law.

2.10 Commitment Fee.

The Company shall pay to the Bank a commitment fee on the average daily unused portion of the Commitment, computed on a monthly basis in arrears on the last Business Day of each calendar month based upon the daily utilization for that month as calculated by the Bank, equal to such unused portion as so calculated multiplied by the Applicable Commitment Fee Percentage for such period. Such commitment fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable monthly in arrears on the last Business Day of each month commencing on August 31, 2003 through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of the Commitment hereunder, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following monthly payment being calculated on the ba sis of the period from such reduction or termination date to such monthly payment date. The commitment fees provided in this Section shall accrue at all times after the Closing Date, including at any time during which one or more conditions in Article 5 are not met, and are non-refundable.

2.11 Computation of Fees and Interest.

All computations of interest for Prime Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360 day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof.

Each determination of an interest rate by the Bank shall be conclusive and binding on the Company in the absence of manifest error.

2.12 Payments by the Company.

All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Bank at the Bank's Payment Office, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (San Francisco time) on the date specified herein. Any payment received by the Bank later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue.

Subject to the provisions set forth in the definition of "Interest Period" contained herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

ARTICLE 3

THE LETTERS OF CREDIT

3.01 The Letter of Credit Subfacility.

On the terms and conditions set forth herein and from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, the Bank agrees (i) to issue Letters of Credit for the account of the Company, and to amend or renew Letters of Credit previously issued by it, in accordance with Sections 3.02(c) and 3.02(d) in an aggregate amount not to exceed the L/C Commitment, and (ii) to honor drafts under the Letters of Credit; provided that the Bank shall not be obligated to Issue any Letter of Credit if, as of the date of and after giving effect to the Issuance of such Letter of Credit (the "Issuance Date"), (A) the Effective Amount of all L/C Obligations exceeds (or would exceed) the L/C Commitment or (B) the Effective Amount of all L/C Obligations and Loans together exceeds (or would exceed) the Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Lett ers of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed.

The Bank is under no obligation to Issue any Letter of Credit if:

(i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Bank shall prohibit, or request that the Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Bank in good faith deems material to it;

(ii) the Bank has received written notice from the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article 5 is not then satisfied;

(iii) the expiry date of any requested Letter of Credit is (A) more than 360 days after the date of Issuance, or (B) more than 200 days after the Revolving Termination Date, unless the Bank has approved such expiry date in writing;

(iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Bank; or

(v) any standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person or for the purpose of supporting any debt for borrowed money.

3.02 Issuance, Amendment and Renewal of Letters of Credit.

Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Bank at least three Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be in the form of an L/C Application and shall specify in form and detail satisfactory to the Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Bank may reasonably require.

Unless the issuance, amendment or renewal of any Letter of Credit is not then permitted under Section 3.01(a)(ii) as a result of the limitations set forth in clauses (A) or (B) thereof or under Section 3.01(b), or one or more conditions specified in Article 5 are not then satisfied, then, subject to the terms and conditions hereof, the Bank shall, on the requested Issue date, Issue a Letter of Credit for the account of the Company in accordance with the Bank's usual and customary business practices.

From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Bank will, upon the written request of the Company received by the Bank at least four Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Bank may reasonably require. The Bank shall be under no obligation to amend any Letter of Credit if: (A) the Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms o f this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit.

From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Bank shall, upon the written request of the Company received by the Bank at least four Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of notification of renewal, be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as the Bank may require. The Bank shall be under no obligation to renew any Letter of Credit if: (A) the Bank would have no obligation at such ti me to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit provides that it shall be automatically renewed unless the beneficiary thereof receives notice from the Bank that such Letter of Credit will not be renewed, and if at the time of renewal the Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 3.02(d) upon the request of the Company but the Bank shall not have received an L/C Amendment Application from the Company with respect to such renewal or any other written direction by the Company with respect thereto, the Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the Company hereby authorizes such renewal, and, accordingly, the Bank shall be deemed to have received an L/C Amendment Application from the C ompany requesting such renewal.

The Bank may, at its election, deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than 200 days after the Revolving Termination Date.

This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit).

3.03 Drawings and Reimbursements.

In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Bank will promptly notify the Company. The Company shall reimburse the Bank prior to 10:00 a.m. (San Francisco time), on each date that any amount is paid by the Bank under any Letter of Credit (each such date, an "Honor Date"), in an amount equal to the amount so paid by the Bank. In the event the Company fails to reimburse the Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the Company will be deemed to have requested that Prime Rate Loans be made by the Bank to be disbursed on the Honor Date in respect of such Letter of Credit, subject to the amount of the unutilized portion of the Commitment and subject to the conditions set forth in Section 5.02. Solely for the purposes of making such Prime Rate Loans, the minimum amount limitations set forth in Section 2.03 shall not be applica ble. Any notice given by the Bank pursuant to this Section 3.03(c) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

With respect to any unreimbursed drawing that is not converted into Loans consisting of Prime Rate Loans to the Company in whole or in part, because of the Company's failure to satisfy the conditions set forth in Section 5.02 or for any other reason, the Company shall be deemed to have incurred from the Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Prime Rate plus one and one-half percent (1.50%) per annum.

3.04 Role of the Bank.

The Bank and the Company agree that, in paying any drawing under a Letter of Credit, the Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. The Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided that this assumption is not intended to, and shall not, preclude the Company from pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Indemnified Person nor any Indemnified Person's correspondents, participants or assignees, shall be liable or responsible for any of the matters described in subsections (a) through (h) of Section 3.05; provided that the Company may have a claim against the Bank, and the Bank may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Bank's willful misconduct or gross negligence or the Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (a) the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (b) the Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

3.05 Obligations Absolute.

The obligations of the Company under this Agreement and any L/C-Related Document to reimburse the Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following:

any lack of validity or enforceability of this Agreement, any L/C-Related Document or other Credit Document;

any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents;

the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction;

any draft, demand, certificate or other document presented under any 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 any Letter of Credit;

any payment by the Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding;

any exchange, release or non perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit;

any misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or

any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company.

3.06 Cash Collateralization Obligations.

Upon (a) the request of the Bank (i) if the Bank has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder and (ii) if, as of the Revolving Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (b) the occurrence of the circumstances described in Section 2.07 requiring the Company to Cash Collateralize Letters of Credit, then, the Company shall immediately Cash Collateralize or cause to be Cash Collateralized the L/C Obligations in an amount equal to such L/C Obligations. Such amount, when received by the Bank, shall be held by the Bank and maintained in a blocked deposit account or deposit accounts at the Bank, as Cash Collateral for reimbursement obligations of the Company in respect of the L/C Obligations and for the other Obligations. The Company hereby grants to the Bank a security interest in all such cash , deposit accounts and deposit account balances. Amounts held in such account(s) shall be applied by the Bank to the payment and reimbursement of the Bank in full for all L/C Obligations, and the unused portion thereof after all Letters of Credit have expired or been fully drawn upon, if any, shall be applied to repay other Obligations of the Company hereunder. The Company shall execute such further agreements, documents, instruments or financing statements as the Bank reasonably deems necessary in connection with the foregoing.

3.07 Letter of Credit Fees.

The Company shall pay to the Bank fees and charges in respect of the Issuance, presentation, amendment, renewal and processing of any Letter of Credit hereunder in the amount(s) and at the time(s) specified on Schedule 3.07(a). All fees and charges payable under this Section 3.07 shall be nonrefundable.

3.08 Uniform Customs and Practice.

The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit.

ARTICLE 4

TAXES, YIELD PROTECTION AND ILLEGALITY

4.01 Taxes.

Any and all payments by the Company to the Bank under this Agreement and any other Credit Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes.

If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to the Bank, then:

(i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), the Bank receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made;

(ii) the Company shall make such deductions and withholdings;

(iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv) the Company shall also pay to the Bank, at the time interest is paid, Further Taxes in the amount that the Bank specifies is necessary to preserve the after-tax yield that the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

The Company agrees to indemnify and hold harmless the Bank for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the Bank specifies is necessary to preserve the after-tax yield that the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor.

Within thirty days after the date of any payment by the Company of Taxes, Other Taxes or Further Taxes, the Company shall furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank.

If the Company is required to pay any amount to the Bank pursuant to subsection (b) or (c) of this Section, then the Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole and absolute judgment of the Bank is not otherwise disadvantageous to the Bank.

4.02 Illegality.

If the Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for the Bank or its Applicable Lending Office to make LIBOR Loans, then, on notice thereof by the Bank to the Company, any obligation of the Bank to make LIBOR Loans shall be suspended until the Bank notifies the Company that the circumstances giving rise to such determination no longer exist.

If the Bank determines that it is unlawful to maintain any LIBOR Loan, the Company shall, upon its receipt of notice of such fact and demand from the Bank, prepay in full all LIBOR Loans then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such LIBOR Loans. If the Company is required to so prepay any LIBOR Loan, then, concurrently with such prepayment, the Company shall borrow from the Bank, in the amount of such repayment, a Prime Rate Loan.

If the obligation of the Bank to make or maintain LIBOR Loans has been so terminated or suspended, the Company may elect, by giving notice to the Bank that all Loans which would otherwise be made by the Bank as LIBOR Loans shall be instead Prime Rate Loans.

4.03 Increased Costs and Reduction of Return.

If the Bank shall determine that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR) in or in the interpretation of any law or regulation after the Closing Date or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority after the Closing Date (whether or not having the force of law), there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining any LIBOR Loans, then the Company shall be liable for, and shall from time to time, not later than thirty days following demand therefor by the Bank, pay to the Bank such additional amounts as are sufficient to compensate the Bank for such increased costs.

If the Bank shall have reasonably determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy and the Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of the Commitment, loans, credits or obligations under this Agreement, then, upon demand of the Bank to the Company, the Company shall immediately pay to the Bank, not later than thirty days following demand therefor, additional amounts sufficient to compensate the Bank for such increase.

4.04 Funding Losses.

The Company shall reimburse the Bank and hold the Bank harmless from any actual loss or expense which the Bank may sustain or incur as a consequence of:

the failure of the Company to make on a timely basis any payment of principal of any LIBOR Loan (including after any acceleration thereof);

the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation;

the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.06;

the prepayment (including pursuant to Section 2.07) or other payment (including after acceleration thereof) of any LIBOR Loan on a day that is not the last day of the relevant Interest Period; or

the conversion of any LIBOR Loan to a Prime Rate Loan on a day that is not the last day of the relevant Interest Period;

including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Bank under this Section and under Section 4.03(a), each LIBOR Loan made by the Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Base LIBOR used in determining the LIBOR for such LIBOR Loan by a matching deposit or other borrowing in the inter-bank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Loan is in fact so funded.

4.05 Inability to Determine Rates.

If the Bank determines that for any reason adequate and reasonable means do not exist for determining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan, or that the LIBOR applicable pursuant to Section 2.09(a) for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to the Bank of funding such Loan, then the Bank will promptly so notify the Company. Thereafter, the obligation of the Bank to make or maintain LIBOR Loans hereunder shall be suspended until the Bank revokes such notice in writing. Upon receipt of such notice, the Company may revoke without further obligation or penalty any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Bank shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Prime Rate Loans instead of LIBOR Loans.

4.06 Reserves on LIBOR Loans.

The Company shall pay to the Bank, as long as the Bank shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including eurocurrency funds or deposits (currently known as Eurocurrency Liabilities), additional costs on the unpaid principal amount of each LIBOR Loan equal to the actual costs of such reserves allocated to such Loan by the Bank (as determined by the Bank in good faith, which determination shall be prima facie evidence of such amounts), payable on each date on which interest is payable on such Loan, provided that the Company shall have received at least fifteen days prior written notice of such additional costs from the Bank. If the Bank fails to give notice fifteen days prior to the relevant Interest Payment Date, such additional interest shall be payable fifteen days from receipt of such notice.

4.07 Certificates of the Bank.

If the Bank claims reimbursement or compensation under this Article 4, it shall deliver to the Company a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be prima facie evidence of the amounts stated therein.

4.08 Survival.

The agreements and obligations of the Company in this Article 4 shall survive the payment of all other Obligations.

ARTICLE 5

CONDITIONS PRECEDENT

5.01 Conditions of Effectiveness of Agreement.

The effectiveness of this Agreement is subject to satisfaction or waiver of the condition that the Bank shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Bank and its counsel:

Credit Agreement; Notes. This Agreement and, if requested by the Bank, the Notes, each executed by each party thereto;

Resolutions; Incumbency.

(i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Company's Secretary or an Assistant Secretary; and

(ii) A certificate of the Secretary or Assistant Secretary of the Company, certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform this Agreement and all other Credit Documents to be delivered by it hereunder;

Organization Documents; Good Standing. Each of the following documents:

(i) the certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and

(ii) a good standing certificate from the Secretary of State (or similar, applicable Governmental Authority) as of a recent date;

Payment of Fees. The Company shall have paid all costs (including Attorney Costs subject to Section 10.04(a)), accrued and unpaid fees and expenses incurred by the Bank prior to the Closing Date; and

Other Documents. Such other approvals, opinions, documents or materials as the Bank may reasonably request.

5.02 Conditions to All Credit Extensions.

The obligation of the Bank to make any Credit Extension (including its initial Credit Extension) or to continue/convert any Loan is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date:

Documentation. The Bank shall have received, in respect of any Borrowing, a completed and duly executed Notice of Borrowing or Notice of Conversion/Continuation (as applicable) and, in respect of any Issuance of any Letter of Credit, a completed and duly executed L/C Application or L/C Amendment Application (as applicable);

Continuation of Representations and Warranties. The representations and warranties in Article 6 shall be true and correct on and as of such Borrowing Date, Conversion/Continuation Date or Issuance Date with the same effect as if made on and as of such Borrowing Date, Conversion/Continuation Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date);

No Existing Default. No Default or Event of Default shall exist or shall result from such Credit Extension or continuation or conversion; and

No Material Adverse Effect. There shall not have occurred a Material Adverse Effect.

Each Notice of Borrowing, Notice of Conversion/Continuation, L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice, L/C Application or L/C Amendment (as applicable) and as of each Borrowing Date, Conversion/Continuation Date or Issuance Date (as applicable) that the conditions contained in this Section 5.02 are satisfied.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES

The Company represents and warrants to the Bank that:

6.01 Corporate Existence and Power.

The Company and each of its Material Subsidiaries:

is a corporation or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation;

has the power and authority and all governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business as presently conducted except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect and (ii) to execute, deliver, and perform its obligations under the Credit Documents to which each is a party;

is duly qualified as a foreign corporation, partnership or limited liability company and is licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification or license, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect; and

is in compliance with all Requirements of Law except to the extent to which the failure to comply could not reasonably be expected to have a Material Adverse Effect.

6.02 Corporate Authorization; No Contravention.

The execution, delivery and performance by the Company of this Agreement and each other Credit Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not and will not:

contravene the terms of any of the Company's Organization Documents;

conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its Property is subject; or

violate any Requirement of Law.

6.03 Governmental Authorization.

No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of the Agreement or any other Credit Document to which the Company is a party.

6.04 Binding Effect.

This Agreement and each other Credit Document to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability.

6.05 Litigation.

Except as specifically disclosed in Schedule 6.05, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, any of its Subsidiaries or any of their respective Properties which:

purport to affect or pertain to this Agreement or any other Credit Document, or any of the transactions contemplated hereby or thereby; or

if determined adversely to the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Credit Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided.

6.06 ERISA Compliance.

Except as specifically disclosed on Schedule 6.06:

As of the Closing Date, each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state law except to the extent to which the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Plan which is intended to qualify under subsection 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. As of the Closing Date, the Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

As of the Closing Date: (i) there are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect; and (ii) there has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.

As of the Closing Date, (i) no ERISA Event has occurred or is reasonably expected to occur; and (ii) no event or circumstance has occurred or exists that, if such event or circumstance had occurred or arisen after the Closing Date, would create an Event of Default under Section 9.01(h).

6.07 Use of Proceeds; Margin Regulations.

The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 7.11 and Section 8.07. Neither the Company nor any of its Subsidiaries is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.

6.08 Title to Properties.

The Company and each of its Subsidiaries have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the Ordinary Course of Business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As of the Closing Date, the Properties of the Company and its Subsidiaries are subject to no Liens other than Permitted Liens.

6.09 Taxes.

The Company and each of its Subsidiaries have filed all federal and other material tax returns and reports required to be filed, and have paid all federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any of its Subsidiaries that would, if made, have a Material Adverse Effect.

6.10 Financial Condition.

The audited consolidated financial statements of the Company and its Subsidiaries dated March 31, 2003, and the related consolidated statements of income or operations, shareholders' equity and cash flows, for the fiscal year ended in March, 2003:

(i) were prepared in accordance with GAAP;

(ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and

(iii) except as specifically disclosed in Schedule 6.10, show all material indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date hereof, including liabilities for taxes, material commitments and Contingent Obligations required to be disclosed in accordance with GAAP.

Since March 31, 2003, there has been no Material Adverse Effect.

6.11 Environmental Matters.

The Company conducts in the Ordinary Course of Business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties and the business, operations and properties of its Subsidiaries, and, as a result thereof, the Company has reasonably concluded that, except as specifically disclosed in Schedule 6.11, such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. In that regard, the on-going operations of the Company and each of its Subsidiaries comply in all respects with all Environmental Laws, except to the extent that the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

6.12 Regulated Entities.

None of the Company, any Person controlling the Company, or any Subsidiary of the Company is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other federal or state statute or regulation limiting its ability to incur Indebtedness.

6.13 No Burdensome Restrictions; Labor Relations.

Neither the Company nor any of its Subsidiaries is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect.

There are no strikes, lockouts or other labor disputes against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of them before any Governmental Authority which, in the case of any of the foregoing, could reasonably be expected to have a Material Adverse Effect.

6.14 Solvency.

The Company is Solvent and as of the Closing Date: (a) the Company does not intend to, and does not believe that it will, incur debts beyond the Company's ability to pay as such debts mature, and (b) the Company is not about to engage in a transaction, after giving effect to which the Company's remaining property would constitute unreasonably small capital for the business conducted or transactions engaged by the Company.

6.15 Copyrights, Patents, Trademarks and Licenses, etc.

Except as specifically disclosed on Schedule 6.15, the Company and each of its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person, except where such conflict could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary of the Company infringes upon any rights held by any other Person, except where such infringement could not reasonably be expected to have a Material Adverse Effect. Except as specifically disclosed in Schedule 6.05, no claim or litigation regarding any of the for egoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the best knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect.

6.16 Subsidiaries.

As of the Closing Date, the Company does not have any Subsidiaries other than those specifically disclosed in part (a) of Schedule 6.16 hereto, which shows the form of organization and ownership of each such Person and has no equity investments in any other Person constituting in excess of 5% of the outstanding equity of such Person other than those specifically disclosed in part (b) of Schedule 6.16. As of the Closing Date, the Material Subsidiaries of the Company are as listed in part (c) of Schedule 6.16.

6.17 Insurance.

Except as specifically disclosed in Schedule 6.17, the respective Properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company or any of its Subsidiaries, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or any of its Subsidiaries operates.

6.18 Swap Obligations.

Neither the Company nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company and each of its Subsidiaries has voluntarily entered into each Swap Contract to which each such Person is a party based upon each such Person's own independent assessment of its consolidated assets, liabilities and commitments, in each case as an appropriate means of mitigating and managing risks associated with such matters, and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any such Swap Contract.

6.19 Full Disclosure.

To the best knowledge after due inquiry of any Responsible Officer, none of the representations or warranties made by the Company or any of its Subsidiaries in the Credit Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any of its Subsidiaries in connection with the Credit Documents (including any offering or disclosure materials delivered by or on behalf of the Company to the Bank prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. It is recognized by the Bank that projections and forecasts provided by or on behalf of the Company, although reflecting the Company's good faith pr ojections and forecasts based on methods and data which the Company believes to be reasonable and accurate, are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may (and are likely to) differ from the projected or forecasted results.

Intentionally Deleted

ARTICLE 7

AFFIRMATIVE COVENANTS

So long as any of the Obligations shall remain unpaid or unsatisfied, any Letter of Credit (other than a Letter of Credit that has been fully Cash Collateralized) shall remain outstanding or the Bank shall have any Commitment, the Company agrees as follows:

7.01 Financial Statements.

The Company shall deliver to the Bank:

(a) as soon as available, but not later than ninety days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of a nationally recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years, and together with SEC Form 10K for the Company. The Independent Auditor's opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any of its Subsidiaries' rec ords; and

(b) as soon as available, but not later than forty-five days after the end of each fiscal quarter of each year (other than the last fiscal quarter of each fiscal year), a copy for the immediately preceding fiscal quarter of the unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such quarter and the related consolidated and consolidating statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and its Subsidiaries, together with SEC Form 10Q for the Company.

7.02 Certificates; Other Information.

The Company shall furnish to the Bank:

concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a Compliance Certificate;

except for SEC Forms 10K and 10Q to be delivered pursuant to Sections 7.01(a), promptly, and in any event no later than 10 days after the same is made available to the Company's shareholders or is filed with the SEC, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodical or special reports that the Company or any Subsidiary of the Company may make to, or file with, the SEC;

upon the request from time to time of the Bank, the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Swap Contracts to which the Company or any of its Subsidiaries is party; and

promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary of the Company as the Bank may from time to time reasonably request.

7.03 Notices.

The Company shall promptly notify the Bank, promptly after any Responsible Officer becomes aware, of:

(i) (A) the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (B) the commencement of, or any material adverse development in, any litigation or proceeding affecting the Company or any Subsidiary of the Company in which the amount of damages claimed and not covered by insurance is $2,000,000 or more (or its equivalent in another currency or currencies); (C) the commencement of, or any material adverse development in, any litigation or proceeding affecting the Company or any Subsidiary of the Company which the Company would be required to report to the SEC pursuant to the Exchange Act, and in any event within ten days after reporting the same to the SEC, provided that the notice requirement with respect to this clause shall be satisfied if the Company furnishes the Bank with a copy of any such report made to the SEC; (D) any labor controversy resulting in or thr eatening to result in any strike, work stoppage, boycott, shutdown or other labor disruption against or involving the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect; (E) if the Company or any of its Subsidiaries shall at any time or from time to time execute an agreement for an Asset Sale where the aggregate amount of consideration to be paid has a value equal to or greater than $5,000,000, of such proposed Asset Sale (including the amount of the estimated Net Proceeds to be received by the Company or such Subsidiary in respect thereof);

(ii) any matter that has resulted or could reasonably result in a Material Adverse Effect, including: (A) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any of its Subsidiaries; (B) any dispute, litigation, investigation, proceeding or suspension between the Company or any of its Subsidiaries and any Governmental Authority; (C) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any of its Subsidiaries, including any of the foregoing involving any applicable Environmental Laws or Environmental Claims; or (D) the imposition of any fine or penalty by any Governmental Authority against or with respect to any facility or plants of the Company or any of its Subsidiaries;

(iii) the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event:

(A) an ERISA Event;

(B) an increase in the Unfunded Pension Liability of any Pension Plan, including as a result of the adoption of any amendment to a Plan subject to Section 412 of the Code, that could reasonably be likely to cause or result in an Event of Default under Section 9.01(h); or

(C) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate other than any such Plan in effect and receiving contributions as of the Closing Date.

(iv) any Acquisition, or incurring any Contractual Obligations with respect to any Acquisition, by the Company or any Subsidiary of the Company, if the aggregate cash and noncash consideration (including assumption of liabilities and including all Contingent Obligations) in connection with such Acquisition is (or could reasonably be expected to become) $10,000,000 or more; and

(v) any Change in Control or any event or circumstance that is reasonably likely to result in any Change in Control.

The Company shall promptly notify the Bank, not later than delivery of the next consolidated financial statements of the Company pursuant to Section 7.01 after the date of any such change, of any change in the accounting policies or financial reporting practices by the Company or any of its Subsidiaries, provided that this notice requirement shall be satisfied if the next consolidated financial statements of the Company delivered to the Bank following any such change (or the Compliance Certificate delivered pursuant to Section 7.02) describes any such change in reasonable detail.

Each notice under this Section 7.03 shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any of its affected Subsidiaries proposes to take with respect thereto and at what time. Each notice under Section 7.03(a)(i) shall describe with particularity any and all Sections, subsections, clauses or provisions of this Agreement or any other Credit Document that have been (or foreseeably will be) breached or violated.

7.04 Preservation of Existence, Rights, etc.

Except as otherwise permitted by Section 8.02, 8.03 or 8.05, the Company shall, and shall cause each of its Material Subsidiaries to:

preserve and maintain in full force and effect its corporate, partnership or limited liability company existence, as the case may be, and good standing under the laws of its state or jurisdiction of incorporation or organization;

use commercially reasonable efforts to preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business, the non-preservation of which could reasonably be expected to have a Material Adverse Effect; and

use commercially reasonable efforts to preserve or renew and maintain all of its registered patents, trademarks, trade names and service marks and other intellectual property assets, the non-preservation or non-maintenance of which could reasonably be expected to have a Material Adverse Effect.

7.05 Maintenance of Property.

The Company shall, and shall cause each of its Subsidiaries to, maintain and preserve all its Property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. In connection with the foregoing, the Company shall, and shall cause each of its Subsidiaries to, use a standard of care not less than that typical in the industry in the operation and maintenance of their respective facilities.

7.06 Insurance.

The Company shall, and shall cause each of its Subsidiaries to, maintain, with financially sound and reputable independent insurers, insurance with respect to its Property and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons.

7.07 Payment of Obligations.

The Company shall, and shall cause each of its Subsidiaries to, pay and discharge as the same shall become due and payable:

(a) all material tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary;

(b) all lawful material claims which, if unpaid, would by law become a Lien upon its Property, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary.

7.08 Compliance with Laws.

The Company shall, and shall cause each of its Subsidiaries to, comply in all respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business or properties (including the Federal Fair Labor Standards Act), unless such noncompliance is being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary with respect thereto, or such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

7.09 Inspection of Property and Books and Records.

The Company shall, and shall cause each of its Subsidiaries to, maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall, and shall cause each of its Subsidiaries to, permit representatives and independent contractors of the Bank to visit and inspect any of their respective Properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided that, when an Event of Default exists, the Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice; provided further that the Company and it Subsidiaries will not be required to disclose, permit the inspection, examination, copying or making of extracts of, or discuss, any document, any portion thereof, or any information in respect of which and to the extent that disclosure to the Bank is then prohibited by law or by an agreement binding on the Company or any of its Subsidiaries entered into by such Person in good faith and not for the specific purpose of evading the provisions of this Section or any other provision of this Agreement.

7.10 Environmental Laws.

Except as otherwise specifically disclosed to the Bank in writing prior to the Closing Date, the Company shall, and shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its Property in compliance with all Environmental Laws, except where such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

7.11 Use of Proceeds.

The Company shall use the proceeds of the Loans for working capital and other general corporate purposes, in each case not in contravention of any Requirement of Law or of any Credit Document; provided that the Company shall not directly or indirectly use the proceeds of the Loans for any Acquisition of any Person if such Acquisition has not been approved by the board of directors (or other body exercising similar authority) of such Person.

Intentionally Deleted.

7.12 Solvency.

The Company shall at all times be Solvent.

7.13 Internal Controls.

The Company will maintain reasonable internal controls and reporting systems designed to insure that a Responsible Officer will be promptly informed of all material financial, operational and compliance matters relevant to compliance with the provisions of the Credit Documents to which the Company is a party.

ARTICLE 8

NEGATIVE COVENANTS

So long as any of the Obligations shall remain unpaid or unsatisfied, any Letter of Credit (other than a Letter of Credit that has been fully Cash Collateralized) shall remain outstanding or the Bank shall have any Commitment, the Company agrees as follows:

8.01 Limitation on Liens.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"):

any Lien existing on Property of the Company or any of its Subsidiaries on the Closing Date and set forth on Schedule 8.01(a);

any Lien created under any Credit Document;

Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 7.07, provided that no notice of lien has been filed or recorded under the Code;

carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the Ordinary Course of Business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto;

Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the Ordinary Course of Business in connection with workers' compensation, unemployment insurance and other social security legislation;

Liens on the Property of the Company or any of its Subsidiaries securing (i) the nondelinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other nondelinquent obligations of a like nature; in each case, incurred in the Ordinary Course of Business; provided that all such Liens in the aggregate could not reasonably be expected to have a Material Adverse Effect;

Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $1,000,000;

easements, rights-of-way, restrictions and other similar encumbrances or title defects affecting real Property incurred in the Ordinary Course of Business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the Ordinary Course of Business of the Company and its Subsidiaries, taken as a whole;

Liens on Property of a Subsidiary of the Company existing at the time such Property (or such Subsidiary) was acquired by the Company or such Subsidiary of the Company and not incurred as a result of (or in connection with or in anticipation of) such acquisition; provided that such Liens do not extend to or cover any Property of the Company or any of its Subsidiaries other than the Property so acquired or the Property of such Subsidiary so acquired;

purchase money security interests on any Property acquired or held by the Company or any of its Subsidiaries in the Ordinary Course of Business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such Property; provided that (i) any such Lien attaches to such Property concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the Property so acquired in such transaction, (iii) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such Property plus reasonable fees and expenses incurred in connection therewith, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed, together with Indebtedness permitted under Section 8.05(c), $5,000,000;

Liens securing Capital Lease Obligations in respect of capital leases on assets subject to such leases, provided that such capital leases are otherwise permitted hereunder;

Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Company or any of its Subsidiaries to provide collateral to the depository institution; and

leases and subleases and licenses and sublicenses of Property of the Company and its Subsidiaries where the Company or a Subsidiary of the Company is the lessor or licensor (or sublessor or sublicensor) which, in the aggregate, do not materially interfere with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole, but excluding any sale-lease transaction;

Liens securing or constituting Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under this Section 8.01 and which is permitted to be refinanced under Section 8.05; provided that such Liens do not extend to or cover any Property of the Company or any of its Subsidiaries not so refinanced;

Liens on insurance policies and the proceeds thereof securing the financing of premiums owing by the Company or any of its Subsidiaries with respect thereto, not to exceed $250,000 in the aggregate principal amount outstanding at any time;

Liens in favor of customs and revenue authorities arising as a matter of law to secure any payment obligations of the Company and its Subsidiaries in respect of customs duties in connection with the importation of goods;

Liens securing the obligations of the Company or any of its Subsidiaries under documentary letters of credit permitted to be incurred under Section 8.05; provided that such Liens shall attach only to the goods covered by such letters of credit, the corresponding documents and the proceeds thereof;

Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of good entered into by the Company or any of its Subsidiaries in the Ordinary Course of Business; provided that all such Liens in the aggregate could not reasonably be expected to have a Material Adverse Effect;

Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of tenders, statutory obligations, surety, appeal, reclamation, performance or other similar bonds, leases (including Landlord's Liens), contracts and other similar bonds incurred in the Ordinary Course of Business (exclusive of obligations in respect of the payment of or for borrowed money); provided that all such Liens in the aggregate could not reasonably be expected to have a Material Adverse Effect;

Liens securing Indebtedness and Contingent Obligations of a Subsidiary of the Company incurred pursuant to and in compliance with clause (i) or (ii) of Section 8.05(g); and

Liens on funds and other Property of employees of the Company or any of its Subsidiaries which funds and Property are held and invested by the Company for the benefit of such employees for the purpose of deferred compensation.

8.02 Disposition of Assets.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any Property or enter into any agreement (other than an agreement expressly contingent on obtaining the consent of the Bank thereto) (collectively, "Transfers") to do any of the foregoing, except:

Transfers of inventory, or used, worn-out or surplus equipment, all in the Ordinary Course of Business;

the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and

Transfers of Property for Fair Market Value where the Net Proceeds thereof do not exceed $1,000,000 in the aggregate on a cumulative basis in each case in any fiscal year;

(i) Transfers from any Subsidiary of the Company to the Company, (ii) Transfers from any Subsidiary of the Company to any other Subsidiary of the Company and (iii) Transfers constituting Investments permitted by Sections 8.04(j), (m), (n), (o) or (p);

Transfers of equipment to Plamex, S.A., where the net book value of such equipment does not exceed $5,000,000 in the aggregate on a cumulative basis for any one fiscal year;

Transfers of existing raw materials, work in process and finished goods inventory from the Company to PBV; and

non-exclusive licensing (but exclusive as to region) of technology by the Company to PBV in connection with the research and development of related technology or the manufacture of inventory by PBV for sale to the Company and for sale to non-U.S. customers.

8.03 Consolidations and Mergers.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, merge, consolidate with or into any Person, except:

any Subsidiary of the Company may merge with (i) the Company, provided that the Company shall be the continuing or surviving entity, or (ii) any one or more Subsidiaries of the Company, provided that, if any such transaction shall be between a Subsidiary and a Wholly Owned Subsidiary of the Company, the Wholly Owned Subsidiary of the Company shall be the continuing or surviving corporation; and

mergers pursuant to Acquisitions permitted by Section 8.04.

8.04 Loans and Investments.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, purchase or acquire, or make any commitment therefor, any Capital Stock or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, or Joint Venture with, any Person, including any Affiliate of the Company or any of its Subsidiaries (together, "Investments"), except for (without duplication):

Investments existing on the Closing Date and listed on Schedule 8.04(a);

Investments in cash and Cash Equivalents and Investments in operating deposit accounts maintained in the Ordinary Course of Business for operating fund purposes;

Investments arising from transactions by the Company or any of its Subsidiaries with customers or suppliers in the Ordinary Course of Business, including Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customer or suppliers arising in the Ordinary Course of Business;

Investments accepted in connection with a Transfer permitted by and in accordance with the terms of Sections 8.02(c);

Investments consisting of (i) travel advances, employee relocation loans and other employee loans and advances in the Ordinary Course of Business, (ii) loans to employees, officers or directors relating to their purchase of equity securities of the Company or its Subsidiaries or (iii) other loans to officers and employees approved by the Board of Directors of the Company, provided that all of the foregoing do not exceed $5,000,000 in the aggregate at any one time outstanding;

notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers in the Ordinary Course of Business so long as such notes, prepaid royalties or other credit extensions are due within one year of the date of the acquisition thereof or cover no more than one year of obligations to such customers or suppliers (as applicable);

any Acquisition so long as: (i) such Acquisition is undertaken in accordance with all material applicable Requirements of Law; (ii) if any Person or business so acquired (the "Acquiree") is subject to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act, the prior, effective written consent of the board of directors or equivalent governing body of the Acquiree is obtained and delivered to the Bank; (iii) immediately after giving effect to any such Acquisition, there shall exist no Default or Event of Default; and (iv) in connection with any Acquisition of Hello Direct, Inc. or Clear Vox Communications, Inc., such Acquisition is on substantially the terms disclosed to the Bank in writing on or before November 19, 1999;

Investments constituting Permitted Swap Obligations or payments or advances under Swap Contracts relating to Permitted Swap Obligations;

Investments by Foreign Subsidiaries of the Company in the Ordinary Course of Business or required by local law or regulation;

Investments by the Company in Subsidiaries of the Company in an aggregate amount for all such Investments not to exceed $15,000,000 at any time outstanding; provided that, for purposes of calculating such amount (i) the aggregate amount of (A) all repayments of advances to, dividends paid to, and Investments made in, and the Fair Market Value of all Property that has been transferred to, pursuant to a Transfer permitted under Section 8.02, the Company by all such Subsidiaries and (B) mergers of Subsidiaries with the Company permitted under Section 8.03(a), shall be subtracted from the amount of such Investments to the extent the foregoing amounts have not been previously netted against such Investments and (ii) the aggregate amount of Guaranty Obligations made pursuant to Section 8.05(m) shall be added to the amount of such Investments;

Investments made by the Company for the benefit of employees of the Company or its Subsidiaries for the purposes of deferred compensation;

Investments by the Company in PBV in the form of prepayments to PBV for inventory to be purchased from PBV in an aggregate cumulative amount not to exceed $20,000,000;

Investments in the Company by Plantronics UK and Plantronics Germany, in each case in the form of intercompany loans from such Subsidiaries to the Company, in an aggregate cumulative amount not to exceed $11,000,000;

Investments by the Company or the Company's Wholly Owned Subsidiaries in Plantronics UK and Plantronics Germany, in each case in the form of intercompany loans or capital contributions from the Company or such Wholly Owned Subsidiaries, as the case may be, in an aggregate cumulative amount not to exceed $8,000,000;

Investments by the Company in PBV in the form of deferred payment obligations by PBV for the transfer of title by the Company to PBV of existing raw materials, work in process and finished goods inventory of the Company;

Joint Ventures in the Ordinary Course of Business (which shall include joint development agreements for the development of technology or products); and

other Investments (excluding Acquisitions) not otherwise permitted under this Section 8.04 not exceeding an amount equal to $10,000,000 plus 15% of consolidated cumulative net income of the Company for the period from and after April 1, 2003 (provided that, if such cumulative net income is negative in respect of such cumulative period, such net income shall be deemed to be zero), outstanding at any one time; provided that, at the time of any such Investment and at the time that the Company or any of its Subsidiaries incurs any Contractual Obligation with respect to any such Investment, no Default or Event of Default shall have occurred and be continuing or result therefrom.

8.05 Limitation on Indebtedness.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except (and without duplication):

Indebtedness incurred pursuant to the Credit Documents;

Indebtedness existing on the Closing Date and set forth on Schedule 8.05(b);

Indebtedness of Foreign Subsidiaries of the Company incurred for working capital purposes; provided that the aggregate outstanding principal amount of Indebtedness incurred under this subsection (c) at the time of the incurrence thereof shall not at any time exceed the lesser of (i) $5,000,000 or (ii) the sum of (A) 85% of the net book value of the accounts receivable of the Foreign Subsidiaries of the Company and (B) 50% of the net book value of the inventory of the Foreign Subsidiaries of the Company, in both cases calculated in accordance with GAAP at the time of each incurrence;

Indebtedness of the Company and its Subsidiaries if, at the time of and after giving pro forma effect to the incurrence of such Indebtedness (including the application of the proceeds thereof), the Consolidated Fixed Charge Coverage Ratio is equal to or greater than 3:00 to 1:00; provided that (i) in no event may the aggregate principal amount of Indebtedness incurred under this subsection (d) by Subsidiaries of the Company exceed $2,500,000 at any time outstanding and (ii) Indebtedness incurred by the Company under this subsection (d) shall not provide for any scheduled principal payment, mandatory redemption or amortization or sinking fund requirement prior to July 31, 2005;

(i) Purchase Money Indebtedness of the Company and its Subsidiaries and (ii) Indebtedness of the Company represented by trade letters of credit incurred in the Ordinary Course of Business, which are to be repaid in full not more than one year after which such Indebtedness is originally incurred, to finance the purchase of goods by the Company or a Subsidiary of the Company such that the aggregate principal amount at any time outstanding under this subsection (e) does not exceed $5,000,000;

Capital Lease Obligations of the Company and its Subsidiaries in an aggregate principal amount (determined in accordance with GAAP) not to exceed $2,500,000 at any time outstanding under this subsection (f);

(i) Indebtedness of a Domestic Subsidiary of the Company owed to the Company or any of its Wholly Owned Domestic Subsidiaries so long as, in the case of Indebtedness owed by a Subsidiary of the Company to the Company, such Indebtedness or Contingent Obligation is not subordinated in right of payment to any other Indebtedness of such Subsidiary, (ii) Indebtedness of a Subsidiary of the Company owed to the Company or a Subsidiary of the Company (other than Indebtedness governed by the immediately preceding clause (i) incurred pursuant to and in compliance with Section 8.04, and (iii) Subordinated Indebtedness owed to a Subsidiary of the Company; provided that in the case of the sale or disposition of the Capital Stock of any Subsidiary of the Company that is owed Indebtedness of the Company or another Subsidiary of the Company referred to in this subsection (h) such that is ceases to be a Subsidiary of the Company, such Indebtedness shall be deemed to have been incurred again and subject to this Section 8.05;

any replacements, renewals, refinancing and extensions of outstanding Indebtedness permitted by subsections (b), (c), (d) or (e) of this Section 8.05, provided that (i) any such replacement, renewal, refinancing or extension of Indebtedness shall not be incurred by a Subsidiary of the Company (except in the case of a replacement, renewal, refinancing or extension of Indebtedness of a Subsidiary of the Company referred to in subsection (c) of this Section 8.05) and (ii) any such replacement, renewal, refinancing or extension (A) shall not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being replaced, renewed, refinanced or extended and (B) shall not exceed the sum of (1) the principal amount (plus accrued interest and an amount equal to the required prepayment premium, if any) of the Indebtedness being replaced, renewed, refinanced or extended and (2 ) the reasonable fees and expenses of the Company or its Subsidiaries, as the case may be, incurred in connection with such replacement, renewal, refinancing or extension;

Permitted Swap Obligations of the Company or any Subsidiary of the Company; provided that (i) any Indebtedness to which the underlying Swap Contract relates bears interest at fluctuating interest rate and is otherwise permitted by this Section 8.05, (ii) the notional principal amount of any such underlying Swap Contract does not exceed the principal amount of the Indebtedness to which such underlying Swap Contract relates and (iii) the underlying Swap Contracts do not increase the Indebtedness of the Company and its Subsidiaries in the aggregate other than as a result of fluctuations in foreign currency exchange rates;

Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the Ordinary Course of Business, provided that such Indebtedness is extinguished within three Business Days of its incurrence;

(i) Guaranty Obligations of the Company with respect to Indebtedness of Foreign Subsidiaries of the Company permitted under Section 8.05(c) and (ii) Guaranty Obligations of any Subsidiary of the Company with respect to Indebtedness of the Company permitted under this Section 8.05;

endorsements for collection or deposit in the Ordinary Course of Business;

Guaranty Obligations of the Company with respect to Indebtedness of any Subsidiary of the Company to the extent permitted by Section 8.04(j);

Indebtedness of PBV to the Company incurred in connection with Investments permitted under Section 8.04(l) or 8.04(o);

Indebtedness of (i) the Company to Plantronics UK and Plantronics Germany incurred in connection with Investments permitted under Section 8.04(m), (ii) Plantronics UK in connection with Investments permitted under Section 8.04(n) and (iii) Plantronics Germany in connection with Investments permitted under Section 8.04(n); and

in addition to the items referred to in subsections (a) through (o) of this Section 8.05, Indebtedness of the Company and its Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding; provided that in no event shall the aggregate amount of Indebtedness and Contingent Obligations incurred by Subsidiaries under this subsection (p) exceed $2,000,000 at any one time outstanding.

8.06 Transactions with Affiliates.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, enter into any transaction with any Affiliate of the Company or any of its Subsidiaries, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary.

8.07 Use of Proceeds.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, use; (a) any portion of the proceeds of any Loan or Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock or (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock or (b) more than $35,000,000 of proceeds of Loans or Letters of Credit to pay cash dividends to its common stock shareholders or to repurchase or redeem its common stock, in each case to the extent permitted under Section 8.09(c)..

8.08 Operating Lease Obligations.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, create or suffer to exist any obligations under any operating leases, except for (and without duplication):

operating leases of the Company and its Subsidiaries in existence on the Closing Date and any renewal, extension or refinancing thereof;

operating leases entered into by the Company or any of its Subsidiaries after the Closing Date; provided that, immediately prior to giving effect to any such operating lease, the Property the subject of such operating lease was sold by the Company or any such Subsidiary to the lessor pursuant to a transaction otherwise permitted under Section 8.02; and

other operating leases entered into by the Company or any of its Subsidiaries after the Closing Date in the Ordinary Course of Business; provided that the aggregate annual rental payments for all such operating leases shall not exceed $3,000,000 for any fiscal year.

8.09 Restricted Payments.

The Company shall not, and shall not suffer or permit any of its Subsidiaries (other than its Wholly Owned Subsidiaries) to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities (other than to the Company or to any Wholly Owned Subsidiary of the Company) on account of any shares of any class of its Capital Stock, or purchase, redeem or otherwise acquire for value any shares of its Capital Stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that the Company may:

declare and make dividend payments or other distributions payable solely in its common stock;

purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; and

declare or pay cash dividends to its common stock shareholders or repurchase or redeem its common stock; provided that the aggregate amount of all such dividends declared or paid and common stock repurchased or redeemed (collectively, Distributions") in any four consecutive fiscal quarter period (including the quarter in which any such Distributions occurred) shall not exceed 50% of the amount of the cumulative consolidated net income of the Company and its Subsidiaries (net of cumulative losses) reported in the eight consecutive fiscal quarter period ending with the fiscal quarter immediately preceding the date as of which the applicable Distributions occurred;

purchase, redeem or otherwise acquire shares of its common stock pursuant to any agreement entered into between it, or any Subsidiary of the Company, and any officer, director employee or consultant to the Company or any of its Subsidiaries, entered into in the Ordinary Course of Business, in which the Company is obligated or has the option to repurchase from such officer, director, employee or consultant shares of common stock of the Company upon such Person's termination of employment or services with the Company or any such Subsidiary, not in excess of $250,000 in the aggregate; and

repay, convert, exchange or redeem any Indebtedness permitted under Section 8.05 which by its terms is convertible or exchangeable, or constitutes the right to purchase any shares of any class of Capital Stock.

8.10 ERISA.

The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan; (b) cause or permit any Plan which is qualified under subsection 401(a) of the Code to lose such qualification; or (c) fail to make all required contributions to any Plan subject to subsection 412 of the Code; but only to the extent that any such act or failure to act, separately or together with all other such acts or failures to act, in any of the foregoing subsections (a), (b) or (c) has resulted or could reasonably expected to result in liability of the Company in an aggregate amount in excess of $1,000,000; or (d) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

8.11 Net Funded Debt to EBITDA Ratio.

The Company shall not permit as of the last day of any fiscal quarter the Net Funded Debt to EBITDA Ratio to be greater than 1.25 to 1:00.

8.12 Interest Coverage Ratio.

The Company shall not permit the Interest Coverage Ratio as of the last day of any fiscal quarter to be less than 6:00 to 1:00.

8.13 Quick Ratio.

The Company shall not permit as of the last day of any fiscal quarter the Quick Ratio to be less than 1.00 to 1.00.

8.14 Change in Business.

The Company shall not, and shall not suffer or permit any of its subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof, except businesses contemplated by it has have been disclosed to the Bank in writing prior to the date hereof.

8.15 Accounting Changes.

The Company shall not, and shall not suffer or permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP, or change the fiscal year of the Company or any of its consolidated Subsidiaries, provided that the Company may change its fiscal year and the fiscal year of its consolidated Subsidiaries to a calendar year so long as it obtains any required consents of Governmental Authorities in connection therewith. Subsidiaries.

ARTICLE 9

EVENTS OF DEFAULT

9.01 Event of Default.

Any of the following shall constitute an event of default hereunder ("Event of Default"):

Non-Payment. The Company fails to pay: (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Advance; (ii) within three days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Credit Document; or (iii) any other amount payable hereunder or pursuant to any other Company Document after the same shall become due within thirty days of notice by the Bank to such effect; or

Representation or Warranty. Any representation or warranty by the Company or any of its Subsidiaries made or deemed made herein or in any other Credit Document, or which is contained in any certificate, document or financial or other statement by the Company or any of its Subsidiaries, or any Responsible Officer, furnished at any time under this Agreement or in or under any other Credit Document, is incorrect in any material respect on or as of the date made or deemed made; or

Specific Defaults. The Company fails to perform or observe any term, covenant or agreement contained in Sections 7.01, 7.02, 7.03, 7.11, 7.12 or 7.13 or in Article 8; or

Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Credit Document and such default shall continue unremedied for a period of thirty days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Bank; or

Cross-Default. The Company or any of its Subsidiaries (i) fails to make any payment in respect of any Indebtedness, having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $5,000,000, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or ho lders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity (or Indebtedness consisting of any Contingent Obligation to become payable or cash collateral in respect thereof to be demanded), and such failure shall not have been cured to the satisfaction of the Bank for a period of fifteen days after the earlier of (A) the date on which a Responsible Officer know of such default or (B) the date upon which written notice thereof is given to the Company by the Bank; or (iii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled prepayment) or cash collateralized, prior to the stated maturity thereof; or

Insolvency: Voluntary Proceedings. The Company or any of its Material Subsidiaries (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any formal action through its Board of Directors or through a Responsible Officer or comparable officer of such Material Subsidiary to effectuate or authorize any of the foregoing; or

Insolvency: Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Material Subsidiary of the Company, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any of its Material Subsidiaries' Properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within sixty days after commencement, filing or levy; (ii) the Company or any of its Material Subsidiaries admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any of its Material Subsidiaries acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidato r, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or

ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC; (ii) any Unfunded Pension Liability with respect to any or all Pension Plans shall exist; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan; but only to the extent that any of the foregoing, separately or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect; or

Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any of its Material Subsidiaries involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $1,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty consecutive days after the entry thereof; or

Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any of its Material Subsidiaries which does or could reasonably be expected to have a Material Adverse Effect, and there shall be any period of thirty consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or

Invalidity of Credit Documents. Any of the Credit Documents after delivery thereof shall for any reason by revoked or invalidated or otherwise case to be in full force and effect, or the Company shall contest in any manner the validity or enforceability thereof, or the Company shall deny that it has any further liability or obligation thereunder; or

Material Adverse Effect. There occurs a Material Adverse Effect.

9.02 Remedies.

If any Event of Default occurs, the Bank may:

declare the Commitment to be terminated, whereupon the Commitment shall automatically be terminated;

declare the unpaid principal amount of all outstanding Loans and L/C Advances, all interest accrued and unpaid thereon and all other Obligations to be immediately due and payable, whereupon such amount with respect to the Loans and the L/C Advances, all such accrued interest and all such other Obligations shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company;

demand that the Company Cash Collateralize the L/C Obligations to the extent of the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit); and

(i) notwithstanding anything to the contrary contained herein, without the consent of the Company, revoke all rights otherwise granted to the Company under Article 8 and (ii) exercise on behalf of itself and any Indemnified Person all rights and remedies available under the Credit Documents or applicable law;

provided that, upon the occurrence of any event specified in subsection (f) or (g) of Section 9.01 (in the case of clause (i) of subsection (g) upon the expiration of the sixty day period mentioned therein), the Commitment, and the obligation of the Bank to make Loans or L/C Advances and to Issue, amend or renew Letters of Credit, shall automatically terminate and the unpaid principal amount of all outstanding Loans and L/C Advances, all interest accrued and unpaid thereon and all other Obligations shall become and be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company.

9.03 Rights Not Exclusive.

The rights provided for in this Agreement and the other Credit Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising.

ARTICLE 10

GENERAL PROVISIONS

10.01 Amendments and Waivers.

Subject to Section 9.02, no amendment or waiver of any provision of this Agreement or any other Credit Document, and no consent with respect to any departure by the Company or any of its Subsidiaries therefrom, shall be effective unless the same shall be in writing and signed by the Bank and the Company, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given..

10.02 Notices.

All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company to the Bank by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 10.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 10.02; or, as directed to the Company or the Bank, to such other address as shall be designated by such party in a written notice to the other.

All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices to the Bank pursuant to Article 2 shall not be effective until actually received by the Bank.

Any agreement of the Bank herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Bank shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Bank shall not have any liability to the Company or any other Person on account of any action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Obligations shall not be affected in any way or to any extent by any failure by the Bank to receive written confirmation of any telephonic or facsimile notice or the receipt by the Bank of a confirmation which is at variance with the terms understood by the Bank to be contained in the telephonic or facsimile notice.

10.03 No Waiver; Cumulative Remedies.

No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

10.04 Costs and Expenses.

The Company shall:

whether or not the transactions contemplated hereby are consummated, pay or reimburse the Bank within five Business Days after demand for all costs and expenses incurred by the Bank in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Credit Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by the Bank with respect thereto; provided that, if the Closing Date occurs as provided in Section 5.01, then the actual Attorney Costs to be paid by the Company in connection with the development, preparation, execution and delivery of this Agreement and the other Credit Documents to be executed on or before the Closing Date shall be limited to $5,000; and

pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by it in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Credit Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding).

10.05 Indemnity.

General Indemnity. Whether or not the transactions contemplated hereby are consummated, the Company agrees to indemnify, defend and hold the Bank and each of its officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceedin g or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations.

Environmental Indemnity.

(i) The Company hereby agrees to indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs and the allocated cost of internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim arising out of or related to any Property of the Company or any of its Subsidiaries. No action taken by legal counsel chosen by the Bank in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall vitiate or any way impair the Company's obligation and duty hereunder to indemnify and hold harmless all Indemnified Persons.

(ii) In no event shall any site visit, observation, or testing by the Bank be deemed a representation or warranty that Hazardous Materials are or are not present in, on, or under the site, or that there has been or shall be compliance with any Environmental Law. Neither the Company nor any other Person is entitled to rely on any site visit, observation, or testing by the Bank. The Bank does not owe any duty of care to protect the Company or any other Person against, or to inform the Company or any other Person of, any Hazardous Materials or any other adverse condition affecting any site or Property. The Bank shall not be obligated to disclose to the Company or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by the Bank.

Survival; Defense. The obligations in this Section 10.05 shall survive payment of all other Obligations. At the election of any Indemnified Person, the Company shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's sole discretion, at the sole cost and expense of the Company.

10.06 Payments Set Aside.

To the extent that the Company makes a payment to the Bank, or the Bank exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement agreed to by the Bank in its sole discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred.

10.07 Successors and Assigns.

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Bank (which consent may be withheld for any reason).

10.08 Assignments, Participations, etc.

The Bank may at any time assign and delegate to one or more Eligible Assignees (each an "Assignee") all or any part of the Loans, the L/C Obligations, the Commitment and the other rights and obligations of the Bank hereunder, in a minimum amount of $5,000,000; provided that the Company may continue to deal solely and directly with the Bank in connection with the interest so assigned to an Assignee until written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company by the Bank and the Assignee.

The Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company or any of its Subsidiaries (a "Participant") participating interests in any Loans, L/C Obligations, the Commitment of the Bank and the other interests of the Bank hereunder and under the other Credit Documents; provided that the Bank shall not transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Credit Document, except to the extent such amendment, consent or waiver would (i) increase or extend the Commitment or subject to the Bank to any additional obligations; (ii) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due under any Credit Document; (iii) reduce the principal of, or the rate of interest specified herein on any Loan or L/C Advance or of any fees or other amounts payable under any Credit Document. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Credit Documents, and all amounts payable by the Company hereunder shall be determined as if the Bank had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as the Bank under this Agreement. The Company shall not be required to incur any expense in connection with any such participation.

Notwithstanding any other provision in this Agreement, the Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR '203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

10.09 Confidentiality.

The Bank agrees, and agrees to cause its Affiliates to, take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any of its Subsidiaries under this Agreement or any other Credit Document, and neither the Bank nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Credit Documents or in connection with other business now or hereafter existing or contemplated with the Company or any of its Subsidiaries; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company or its Subsidiaries, so long as such source is not bound by a confidentiality agreement with the Company or any of its S ubsidiaries known to the Bank; provided that the Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of the Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Bank or any of its Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Credit Document; (F) to the Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Bank hereunder; (H) as to the Bank or any of its Affiliates, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any of its Subsidiaries is a party or is deemed a party with the Bank or the Bank's Affiliates; and (I) to the Bank's Affiliates.

10.10 Set-off.

In addition to any rights and remedies of the Bank provided hereunder or at law, if an Event of Default exists or the Obligations have been accelerated, the Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Bank to or for the credit or the account of the Company against any and all Obligations now or hereafter existing, irrespective of whether or not the Bank shall have made demand under this Agreement or any Credit Document and although such Obligations may be contingent or unmatured. The Bank agrees to notify promptly the Company after any such set-off and application made by the Bank, provided that the failure to give such notice shall not affect the validity of such set-off and applicati on.

10.11 Counterparts.

This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument.

10.12 Severability.

The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

10.13 No Third Parties Benefited.

This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Bank and the Indemnified Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Credit Documents.

10.14 Governing Law; Jurisdiction.

THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF CALIFORNIA, PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

SUBJECT TO SECTION 10.15: (i) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT SOLELY IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND, BY EXECUTION AND DELIVERY HEREOF, EACH OF THE COMPANY AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS; (ii) EACH OF THE COMPANY AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE COMPANY AND THE BANK WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

10.15 Arbitration.

Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" means any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Credit Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Credit Documents, including any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Credit Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs a nd expenses incurred by such other party in compelling arbitration of any Dispute.

Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Credit Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having juri sdiction; provided that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. '91 or any similar applicable state law.

No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder.

Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided that all three arbitrators must actively participate in all hearings and deliberations.

Notwithstanding anything to the contrary contained herein, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of Calif ornia. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California.

Notwithstanding anything to the contrary contained herein, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A refere e with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Credit Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Credit Documents or any relationship between the parties.

10.16 Entire Agreement.

This Agreement, together with the other Credit Documents, embodies the entire agreement and understanding among the Company and the Bank and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. This Agreement amends, replaces and supersedes the Credit Agreement dated as of November 29, 1999, as amended from time to time.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in San Francisco, California by their proper and duly authorized officers as of the day and year first written above.

The Company:

PLANTRONICS, INC.,

a Delaware corporation

By: _________________________________

Name: _________________________________

Title: _________________________________

By: _________________________________

Name: _________________________________

Title: _________________________________

The Bank:

WELLS FARGO BANK, NATIONAL ASSOCIATION

By: _________________________________

Name: _________________________________

Title: _________________________________

EX-10.111 5 sch3_07.htm LETTER OF CREDIT FEES AND CHARGES
SCHEDULE 3.07

to Credit Agreement

Letter of Credit Fees and Charges

Import Letters of Credit

Timing of Payment

Issuance

1/10%; minimum $120

Up-front

Amendment to increase

1/10%; minimum $100

Upon advice

Amendment - no increase

$75

Upon advice

Negotiation

1/10%; minimum $100

Upon advice

Acceptance

2%; minimum $100

Upon advice

Transfer

1/4%; minimum $125

Upon advice

Assignment

1/8%; minimum $120

Upon advice

Discrepancy

$75

Upon advice

Air Way Bill

$100/month

Upon advice

Expiry/Amount Unused

$100

Upon advice

Cancellation

$100

Upon advice

Export Letters of Credit

Pre-Advice

$50

Upon advice

Advice

$90

Upon advice

Amendment

$75

Upon advice

Amendment - confirmed

1/10%; minimum $100

Upon advice

Negotiation

1/10%; minimum $100

Upon advice

Docs sent unexamined

$120

Upon advice

Acceptance

By arrangement; minimum $100

Upon advice

Reimbursement

$90

Upon advice

Deferred Payment/Confirm L/C

3%/annum; minimum

$100 Up-front

Deferred Payment/Unconfirmed L/C

$100

Upon advice

Discrepancy

$60

Upon advice

Transfer

1/4%; minimum $125

Upon advice

Assignment - Pay Proceeds

1/4%; minimum $125

Upon advice

Documentary Collections

Software

Free

N/A

Usance

$120

Upon advice

Sight draft

$85

Upon advice

Direct Collection Letter

$75

Upon advice

Export/Direct

$50

Upon advice

Amendment

$25 + Cable fees

Upon advice

Tracer

$25

Upon advice

Protest

$250 + Expenses

Upon advice

Activity fees (per letter of credit)

Cable/SWIFT

$30

Upon advice

Courier

$20 (or interoffice mail @ no cost)

Upon advice

Fed wire

$35 (no charge on incoming collections)

Upon advice

Tracer

$30

Upon advice

Standby Letters of Credit

Timing of Payment

Issuance

2%/annum

Up-front

Amendment to increase

1/10%; minimum $100

Upon advice

Amendment - no increase

$75

Upon advice

Negotiation

1/10%; minimum $100

Upon advice

Acceptance

2%; minimum $100

Upon advice

Transfer

1/4%; minimum $125

Upon advice

Assignment

1/8%; minimum $120

Upon advice

Discrepancy

$75

Upon advice

Air Way Bill

$100/month

Upon advice

Expiry/Amount Unused

$100

Upon advice

Cancellation

$100

Upon advice

EX-10.112 6 sch6_05.htm CERTAIN LITIGATION MATTERS
Schedule 6.05

To Credit Agreement

Certain Litigation Matters

We are presently engaged in a lawsuit filed in the Superior Court in Santa Clara County, California by GN Hello Direct, Inc., a former Plantronics retail catalog distributor that was acquired by our single largest competitor, GN Netcom. GN Hello Direct makes various claims associated with the termination of the distribution relationship between Plantronics and Hello Direct, including that Hello Direct has suffered approximately $11 million in damages as a result of that termination.

This case was tried in October 2002. We were granted summary adjudication on GN Hello Direct's breach of contract claims against us prior to trial. At trial, GN Hello Direct's claims against us for Interference with Prospective Economic Advantage were found by the jury to be without merit and a defense verdict was returned on our behalf. We were awarded approximately $0.8 million with 10% simple interest from March 15, 2001 for product sold by us to GN Hello Direct and for which GN Hello Direct had not paid us. On post trial motions both parties asked for a Judgment Not on the Verdict on the issue of the product sold by us to GN Hello Direct that was not paid for by GN Hello Direct. The court granted a new trial on this issue alone. In further post trial motions, we received awards of attorney's fees and costs of $1.67 million. GN Hello Direct has the right to appeal. We intend to defend any such appeal vigorously and to aggressively prosecute its claim for damages for pr oduct sold by us to Hello Direct but not paid for by them.*

We are also involved in various other legal actions arising in the normal course of our business. We believe that it is unlikely that any of these actions will have a material adverse impact on our operating results.* However, because of the inherent uncertainties of litigation, the outcome of any of these actions could be unfavorable and could have a material adverse effect on our financial condition or results of operations

EX-10.113 7 sch6_06.htm CERTAIN ERISA MATTERS
Schedule 6.06

To Credit Agreement

Certain ERISA Matters

None.

EX-10.114 8 sch6_10.htm CERTAIN PERMITTED LIABILITIES
Schedule 6.10

To Credit Agreement

Certain Permitted Liabilities

None.

EX-10.115 9 sch6_11.htm CERTAIN ENVIRONMENTAL MATTERS
Schedule 6.11

To Credit Agreement

Certain Environmental Matters

None.

EX-10.116 10 sch6_15.htm CERTAIN INTELLECTUAL PROPERTY MATTERS
Schedule 6.15

To Credit Agreement

Certain Intellectual Property Matters

None.

EX-10.117 11 sch6_16.htm SUBSIDIARIES AND MINORITY INTERESTS
Schedule 6.16

To Credit Agreement

Subsidiaries and Minority Interests

Company Name

Ameriphone, Inc.
Emtel, S.A.
Frederick Electronics Corporation
Pacific Plantronics, Inc.
Plamex, S.A. de C.V.
Plantronics A.G.
Plantronics Acoustics Italia, S.r.l.
Plantronics B.V.
Plantronics B.V. Sales
Plantronics Canada Limited
Plantronics e-Commerce, Inc.
Plantronics France S.A.R.L.
Plantronics Futurecomms, Inc.
Plantronics GmbH
Plantronics Holdings Limited
Plantronics International do Brasil, Ltda.
Plantronics Japan Ltd.
Plantronics Limited
Plantronics Nordic AB
Plantronics Pty. Ltd.
Plantronics Singapore Pte. Ltd.
Plantronics Spain, S.L.
Plantronics Telecomunicacoes Ltda

EX-10.118 12 sch6_17.htm CERTAIN INSURANCE MATTERS
Schedule 6.17

To Credit Agreement

Certain Insurance Matters

None.

EX-10.121 13 sch801a.htm CERTAIN PERMITTED LIENS
Schedule 8.01(a)

To Credit Agreement

Certain Permitted Liens

None.

EX-10.122 14 sch805b.htm CERTAIN PERMITTED INDEBTEDNESS
Schedule 8.05(b)

To Credit Agreement

Certain Permitted Indebtedness

None.

EX-10.123 15 sch1002.htm BANK'S PAYMENT OFFICE/LENDING OFFICE; NOTICE INFORMATION
SCHEDULE 10.02

to Credit Agreement

BANK'S PAYMENT AND LENDING OFFICES/NOTICE INFORMATION

Addresses for Notices:

If to the Company:

Plantronics, Inc.

345 Encinal Street

Santa Cruz, CA 95060

Attn: Jon Alvarado

Telephone: 831.458.4452

Telefacsimile: 831.423.4314

If to the Bank:

Wells Fargo Bank, National Association

Central Coast Regional Commercial Banking Office

65 West Alisal Street, 2^nd Floor

Salinas, CA 93901

Attn: Patrick Bishop

Telephone: 831.754-5078

Telefacsimile: 831.757.7345

Payment and Lending Offices of the Bank:
Payment Office:

Wells Fargo Bank, National Association

Commercial Loan Center

201 Third Street

San Francisco, CA 94103

Attn: Accounting

Telephone: 415.477.5464

Telefacsimile: 415.979.0579
Lending Offices:

Wells Fargo Bank, National Association

Central Coast Regional Commercial Banking Office

65 West Alisal Street, 2^nd Floor

Salinas, CA 93901

Attn: Patrick Bishop

Telephone: 831.754-5078

Telefacsimile: 831.757.7345

EX-10.131 16 exhibita.htm FORM OF COMPLIANCE CERTIFICATE
EXHIBIT A

to Credit Agreement

FORM OF

COMPLIANCE CERTIFICATE

Wells Fargo Bank, National Association

Reference: Plantronics, Inc.

Ladies and Gentlemen:

Reference is hereby made to the Credit Agreement, dated as of July 31, 2003 (as amended, the "Credit Agreement"), between Plantronics, Inc., a Delaware corporation (the "Company"), and Wells Fargo Bank, National Association (the "Bank"). The undersigned, as the chief financial officer of the Company, hereby certifies as follow with respect to the accounting period ending on [_________]. Each capitalized term used herein has the meaning ascribed thereto in the Credit Agreement unless otherwise defined herein.

1. I have reviewed the terms of the Credit Agreement, and I have made, or have cause to be made under my supervision, a detailed review of the transactions and conditions of the Company and its Subsidiaries during the period covered by the attached financial statements (the "Specified Financial Statements").

2. The examinations described in paragraph 1 hereof did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes an Event of Default or Default during or at the end of the period covered by the Specified Financial Statements or as of the date of this Compliance Certificate (this "Certificate"), except as set forth below:

[Describe here (or in a separate attachment to this Certificate) the exceptions, if any, to this paragraph 2 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Company has taken or has caused to be taken, is taking or is causing to be taken, or proposes to take or to cause to be taken with respect to each such condition or event:

3. As of the date of this Certificate, the Company is not in default under Section 8.11, 812 or 8.13, or under any other negative covenant set forth in Article 8 of the Credit Agreement. Please see worksheet attached hereto for calculations setting forth the Company's compliance with Sections 811, 8.12 and 8.13 of the Credit Agreement.

I hereby certify the foregoing information to be true and correct in all material respects and execute this Certificate this [____] day of [____________, _____].

PLANTRONICS, INC.,

a Delaware corporation

By: _________________________

Name: _________________________

Title: ___________________

Attachments: Specified Financial Statements

Worksheet

EX-10.132 17 exhibitb.htm FORM OF NOTE
EXHIBIT B
to Credit Agreement

FORM OF PROMISSORY NOTE

$[amount of the Bank's Commitment] July 31, 2003

FOR VALUE RECEIVED, the undersigned, PLANTRONICS, INC., a Delaware corporation (the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Bank") the principal sum of ______________________ DOLLARS ($______________) or, if less, the aggregate unpaid principal amount of all Loans made by the Lender to the Company pursuant to the Credit Agreement, dated as of July 31, 2003 (as amended, the "Credit Agreement"), between the Company and the Bank on the dates and in the amounts and as otherwise provided in the Credit Agreement. The Company further promises to pay interest on the unpaid principal amount of the Loans evidenced hereby from time to time at the rates, on the dates, and otherwise as provided in the Credit Agreement.

Both principal and interest are payable in lawful money of and from a source within the United States of America and in immediately available funds to the Bank as specified in the Credit Agreement.

The Bank is authorized to endorse the amount and the date on which each Loan is made, the Type of Loan and the maturity date therefor, and to record each payment of principal with respect thereto, on the schedules annexed hereto and made a part hereof, or on continuations thereof which may be attached hereto and shall be made a part hereof; provided that any failure to endorse or record such information on such schedule or continuation thereof shall not in any manner affect any obligation of the Company under the Credit Agreement and this promissory note (as amended, this "Note").

This Note is one of the Notes referred to in, is made pursuant to, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement provides, among other things, for acceleration (which in certain cases shall be automatic) of the maturity hereof upon the occurrence of certain stated events, and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company.

Advances under this Note, to the total principal sum stated above shall be made by the holder hereof as provided in the Credit Agreement. Any such advance shall be conclusively presumed (absent manifest error) to have been made to or for the benefit of the Company when the Bank believes in good faith that a Borrowing has been requested by a Person authorized by the Company to make such request or when such advance is deposited to the credit of any account of the Company with the Bank, regardless of the fact that Persons other than those authorized to request Borrowings may have authority to draw against such account.

Each capitalized term used and not otherwise defined herein has the meaning ascribed to such term in the Credit Agreement.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF CALIFORNIA, PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed by its authorized signatory as of the date first written above.

PLANTRONICS, INC.,

a Delaware corporation

By:
Name:
Title:

By:
Name:
Title:

EX-10.133 18 exhibitc.htm FORM OF NOTICE OF BORROWING
EXHIBIT C

to Credit Agreement

FORM OF NOTICE OF BORROWING

Date: ______________

Wells Fargo Bank, National Association

Reference: Plantronics, Inc.

Ladies and Gentlemen:

Reference is hereby made to the Credit Agreement, dated as of July 31, 2003 (as amended, the "Credit Agreement"), between Plantronics, Inc., a Delaware corporation (the "Company"), and Wells Fargo Bank, National Association (the "Bank"). The Company hereby gives you notice irrevocably, pursuant to Section 2.02 of the Credit Agreement, of the Borrowing specified herein:

1. The Business Day of the proposed Borrowing is , .

2. The aggregate amount of the proposed Borrowing is $ .

3. The proposed Borrowing is to be comprised of $ of [Prime Rate] [LIBOR] Loans.

4. The duration of the Interest Period for the LIBOR Loans included in the proposed Borrowing shall be [____ months].

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom:

(a) the representations and warranties of the Company contained in Article VI of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date);

(b) no Default or Event of Default has occurred and is continuing;

(c) the proposed Borrowing will not cause the Effective Amount of all Loans and L/C Obligations together to exceed the Commitment.

Each capitalized term used and not otherwise defined herein has the meaning ascribed to such term in the Credit Agreement.

PLANTRONICS, INC.,

a Delaware corporation

By:

Name:

Title:

By:

Name:

Title:
EX-10.134 19 exhibitd.htm FORM OF NOTICE OF CONVERSION/CONTINUATION
EXHIBIT D

to Credit Agreement

FORM

NOTICE OF CONVERSION/CONTINUATION

Date: ______________

Wells Fargo Bank, National Association

Reference: Plantronics, Inc.

Ladies and Gentlemen:

Reference is hereby made to the Credit Agreement, dated as of July 31, 2003 (as amended, the "Credit Agreement"), between Plantronics, Inc., a Delaware corporation (the "Company"), and Wells Fargo Bank, National Association (the "Bank"). The Company hereby gives you notice irrevocably, pursuant to Section 2.03 of the Credit Agreement, of the [conversion] [continuation] of the Loans specified herein, that:

1. The Conversion/Continuation Date, which is a Business Day, is __________, ____.

2. The aggregate amount of the Loans [converted] is $_________ or [continued] is $__________.

3. The Loans are to be [converted into] [continued as][Prime Rate Loans] [LIBOR Loans] .

4. [If applicable:] The duration of the Interest Period for the Loans included in the [conversion] [continuation] shall be [__________ months].

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the proposed Conversion/Continuation Date, before and after giving effect thereto and to the application of the proceeds therefrom:

(a) the representations and warranties of the Company contained in Article VI of the Credit Agreement are true and correct as though made on and as of such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true and correct as of such earlier date); and

(b) no Default or Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation].

Each capitalized term used and not otherwise defined herein shall have the meaning ascribed thereto in the Credit Agreement.

PLANTRONICS, INC.,

a Delaware corporation

By:

Name:

Title:

By:

Name:

Title:

EX-10.135 20 note.htm PROMISSORY NOTE
PROMISSORY NOTE

$75,000,000 July 31, 2003

FOR VALUE RECEIVED, the undersigned, PLANTRONICS, INC., a Delaware corporation (the "Company"), hereby promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Bank") the principal sum of SEVENTY-FIVE MILLION DOLLARS ($75,000,000) or, if less, the aggregate unpaid principal amount of all Loans made by the Lender to the Company pursuant to the Credit Agreement, dated as of July 31, 2003 (as amended, the "Credit Agreement"), between the Company and the Bank on the dates and in the amounts and as otherwise provided in the Credit Agreement. The Company further promises to pay interest on the unpaid principal amount of the Loans evidenced hereby from time to time at the rates, on the dates, and otherwise as provided in the Credit Agreement.

Both principal and interest are payable in lawful money of and from a source within the United States of America and in immediately available funds to the Bank as specified in the Credit Agreement.

The Bank is authorized to endorse the amount and the date on which each Loan is made, the Type of Loan and the maturity date therefor, and to record each payment of principal with respect thereto, on the schedules annexed hereto and made a part hereof, or on continuations thereof which may be attached hereto and shall be made a part hereof; provided that any failure to endorse or record such information on such schedule or continuation thereof shall not in any manner affect any obligation of the Company under the Credit Agreement and this promissory note (as amended, this "Note").

This Note is one of the Notes referred to in, is made pursuant to, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement provides, among other things, for acceleration (which in certain cases shall be automatic) of the maturity hereof upon the occurrence of certain stated events, and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified, in each case without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company.

Advances under this Note, to the total principal sum stated above shall be made by the holder hereof as provided in the Credit Agreement. Any such advance shall be conclusively presumed (absent manifest error) to have been made to or for the benefit of the Company when the Bank believes in good faith that a Borrowing has been requested by a Person authorized by the Company to make such request or when such advance is deposited to the credit of any account of the Company with the Bank, regardless of the fact that Persons other than those authorized to request Borrowings may have authority to draw against such account.

Each capitalized term used and not otherwise defined herein has the meaning ascribed to such term in the Credit Agreement.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF CALIFORNIA, PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

IN WITNESS WHEREOF, the undersigned has caused this Note to be duly executed by its authorized signatory as of the date first written above.

PLANTRONICS, INC.,

a Delaware corporation

By:

Name:

Title:

By:

Name:

Title:

EX-31.1 21 exh31ceo.htm SECTION 302 CEO CERTIFICATION Exhibit 31.1

Certification under Section 302 of the Sarbanes-Oxley Act of 2002

I, S. Kenneth Kannappan, certify that:

I have reviewed this quarterly report on Form 10-Q of Plantronics, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 7, 2003

/s/ S. Kenneth Kannappan
S. Kenneth Kannappan
President and Chief Executive Officer
EX-32.2 22 exh31cfo.htm SECTION 302 CFO CERTIFICATION Exhibit 31.2

I, Barbara V. Scherer, certify that:

I have reviewed this quarterly report on Form 10-Q of Plantronics, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 7, 2003

/s/ Barbara V. Scherer
Barbara V. Scherer
Senior Vice President - Finance and Administration and Chief Financial Officer
EX-32 23 exh32906.htm SECTION 906 CERTIFICATION OF CEO AND CFO
Certification of CEO and CFO Pursuant to

18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Plantronics, Inc. (the "Company") for the quarter ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Ken Kannappan, as Chief Executive Officer of the Company, and Barbara Scherer, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his and her knowledge, respectively, that:

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ken Kannappan

Name: Ken Kannappan

Title: Chief Executive Officer

Date: November 7, 2003

/s/ Barbara Scherer

Name: Barbara Scherer

Title: Chief Financial Officer

Date: November 7, 2003

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EX-99.1 CHARTER 24 char_703.htm AMENDED AUDIT COMMITTEE CHARTER

CHARTER FOR THE AUDIT COMMITTEE

OF THE BOARD OF DIRECTORS

OF

PLANTRONICS

(NYSE-Listed Company)
I. PURPOSE:

The purpose of the Audit Committee of the Board of Directors (the "Board") of Plantronics (the "Company") shall be to:

Oversee the accounting and financial reporting processes of the Company and audits of the financial statements of the Company;

Assist the Board in oversight and monitoring of (i) the integrity of the Company's financial statements, (ii) the Company's compliance with legal and regulatory requirements, (iii) the independent auditor's qualifications and independence, and (iv) the performance of the Company's internal audit function and of its independent auditor

Prepare the report that the rules of the Securities and Exchange Commission (the "SEC") require be included in the Company's annual proxy statement;

Provide the Company's Board with the results of its monitoring and recommendations derived therefrom;

Act as a Qualified Legal Compliance Committee ("QLCC"); and

Provide to the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters that require the attention of the Board.

The Audit Committee will undertake those specific duties and responsibilities listed below and such other duties as the Board of Directors may from time to time prescribe.
II. MEMBERSHIP:

The Audit Committee members will be appointed by, and will serve at the discretion of, the Board. The Audit Committee will consist of at least three members of the Board. Members of the Audit Committee must meet the following criteria (as well as any criteria required by the SEC):

Each member will be "independent", in accordance with the Corporate Governance Standards of the New York Stock Exchange and the rules of the SEC, as in effect from time to time;

Each member will be financially literate, as such qualification is interpreted by the Company's Board in its business judgment; and

It is the Committee's desire to have at least one member of the Audit Committee be a financial expert as defined by the SEC and NYSE.

The Chair of the Audit Committee must have accounting or related financial management expertise and may not be associated with a holder of 20% or more of the Company's voting stock.
III. DUTIES AND RESPONSIBILITIES:

The duties and responsibilities of the Audit Committee shall include:

Reviewing on a continuing basis the adequacy of the Company's system of internal controls, including meeting periodically with the Company's management and the independent auditors to review the adequacy of such controls and to review before release the disclosure regarding such system of internal controls required under SEC rules to be contained in the Company's periodic filings and the attestations or reports by the independent auditors relating to such disclosure;

Appointing, compensating and overseeing the work of the independent auditors (including resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

Pre-approving audit and non-audit services provided to the Company by the independent auditors (or subsequently approving non-audit services in those circumstances where a subsequent approval is necessary and permissible) and retaining and terminating the Company's independent auditors; in this regard, the Audit Committee shall have the sole authority to approve the hiring and firing of the independent auditors, all audit engagement fees and terms and all non-audit engagements, as may be permissible, with the independent auditors;

At least annually, obtaining and reviewing a report by the independent auditor describing: the audit firm's internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm.

Discussing the annual audited financial statements and quarterly unaudited financial statements with management and the independent auditors, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations," prior to filing the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, respectively, with the SEC;

Obtaining from management the status of earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, prior to public disclosure;

As appropriate, obtaining advice and assistance from outside legal, accounting or other advisors;

Discussing policies with respect to risk assessment and risk management, including the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures;

Reviewing with the independent auditors any audit problems or difficulties and management's response;

Setting clear hiring policies with respect to employees or former employees of the independent auditors;

Reporting regularly to the Board;

Reviewing the independent auditors' proposed audit scope, approach and independence;

Requesting from the independent auditors on a periodic basis a formal written statement delineating all relationships between the auditors and the Company, engaging in a dialogue with the auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditors, and recommending that the Board take appropriate action, if necessary, to ensure the independence of the outside auditors;

Directing the Company's independent auditors to review before filing with the SEC the Company's interim financial statements included in Quarterly Reports on Form 10-Q, using professional standards and procedures for conducting such reviews;

Discussing with the Company's independent auditors the matters required to be discussed by Statement on Accounting Standard No. 61, as it may be modified or supplemented;

Reviewing reports submitted to the audit committee by the independent auditors in accordance with the applicable SEC requirements;

Providing a report in the Company's proxy statement in accordance with the requirements of Item 306 of Regulation S-K and Item 7(e)(3) of Schedule 14A;

Reviewing the Audit Committee's own charter, structure, processes and membership requirements from time to time;

Overseeing compliance with the requirements of the SEC for disclosure of auditor's services and audit committee members, member qualifications and activities;

Reviewing, approving and monitoring the Company's code of ethics for its senior financial officers;

Establishing procedures for receiving, retaining and treating complaints received by the Company regarding accounting, internal accounting controls or auditing matters and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

Providing a report to the Board at least annually presenting its conclusions with respect to the independent auditors; and

Performing such other duties as may be requested by the Board.
IV. COMPENSATION:

Members of the Audit Committee shall receive such fees, if any, for their service as Audit Committee members as may be determined by the Board in its sole discretion. Such fees may include retainers, per meeting fees and special fees for service as Chair of the Audit Committee. Fees may be paid in such form of consideration as is determined by the Board, which may include cash, deferred payment, stock, stock options, phantom stock, and common stock equivalents.

Members of the Audit Committee may not receive any compensation from the Company except the fees that they receive for service as a director or Board Committee member.
V. VOTING:

Each member of the Audit Committee shall have one vote on any matter requiring action by the Audit Committee; provided, however, that any member who is associated with a holder of 20% or more of the Company's voting stock may not vote on any matters before the Audit Committee.
VI. MEETINGS:

The Committee shall meet at least six times annually, or more frequently as circumstances dictate. Two of the six meetings will be in conjunction with BOD meetings and all Committee members will be present in person to discuss Section III Items 1, 9, 13, 15, 17 & 19 in the first meeting and to discuss Section III Items 4, 9, 12, 14, 18, 20 & 22 in the second meeting. The remaining four meetings will be for the Committee to hold phone conferences with the independent accountants and management to review Section III Items 3, 5 6 & 8. As part of its job to foster open communication, the Committee should provide a channel of communication with management, internal audit, and the independent accountants, including separate meetings when appropriate.
VII. MINUTES:

The Audit Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board.
VIII. REPORTS:

Apart from the report prepared pursuant to Item 306 of Regulation S-K and Item 7(e) (3) of Schedule 14A, the Audit Committee will summarize its examinations and recommendations to the Board from time to time as may be appropriate, consistent with the Committee's charter. Such reports may be made orally or in writing.
IX. PERFORMANCE EVALUATION:

At least annually, the Board and the Audit Committee shall conduct a performance evaluation of the Audit Committee.
X. DELEGATION OF AUTHORITY:

Review and approve requests for any management consulting engagements to be performed by the independent accountants and be advised of any other study undertaken at the request of management that is beyond the scope of the audit engagement letter. The Committee has delegated the Chairman authority to pre-authorize up to $50K on services (both audit & non-audit) undertaken by independent accountants without getting full-Committee approval, provided such pre-approval is presented to the full Audit Committee at its next scheduled meeting. Should the full audit committee decide not to support the project, the balance of any work not performed may be cancelled.

XI. QUALIFIED LEGAL COMPLIANCE COMMITTEE

The Audit Committee of the Company is hereby designated by the Board of Directors as a "qualified legal compliance committee" within the meaning of 17 CFR Part 205.

PURPOSE: The Qualified Legal Compliance Committee ("QLCC") is created by the Board of Directors of the Company to review any report made directly, or otherwise made known, to the QLCC by attorneys employed or retained by the Company or its subsidiaries of a material violation of U.S. federal or state securities law, a material breach of fiduciary duty arising under U.S. federal or state law or a similar material violation of any U.S. federal or state law (a "material violation"), all in accordance with the provisions of 17 CFR Part 205, as amended from time to time ("Part 205").

MEMBERSHIP: The members of the Audit Committee shall constitute the QLCC. The Chairperson of the Audit Committee shall serve as the Chairperson of the QLCC. If for any reason, one or more Audit Committee members cannot serve on the QLCC, the QLCC shall at all times consist of at least one member of the Company's audit committee and two or more members of the Company's Board of Directors who are not employed, directly or indirectly, by the Company. The Nominating and Corporate Governance Committee shall recommend nominees for appointment to the QLCC annually and as vacancies or newly created positions occur. QLCC members shall be appointed by the Board and may be removed by the Board at any time. The Nominating and Corporate Governance Committee shall recommend to the Board, and the Board shall designate, the Chairman of the QLCC.

AUTHORITY AND RESPONSIBILITIES: In addition to any other responsibilities which may be assigned from time to time by the Board, the QLCC has the authority and responsibility for the following matters:

Receipt, Retention and Consideration of Reports

The QLCC shall adopt written procedures for the confidential receipt, retention and consideration of any report of evidence of a material violation under Part 205 (a "report").

Investigation of Reports

Upon receipt of a report, the QLCC shall:

inform the Company's chief legal officer ("CLO") and chief executive officer ("CEO") (or the equivalents thereof) of such report unless such notification would be futile; and

determine whether an investigation is necessary regarding any report of evidence of a material violation by the Company, its subsidiaries or any of their officers, directors, employees or agents.

If the QLCC determines an investigation is necessary or appropriate, the QLCC shall:

notify the audit committee or the full board of directors;

initiate an investigation, which may be conducted either by the CLO or by outside attorneys; and

retain such expert personnel as the committee deems necessary.

Making Recommendations for Adoption of Appropriate Response

At the conclusion of any such investigation the QLCC shall:

Recommend that the Company implement an appropriate response to the evidence of a material violation, which appropriate response may include:

a finding that no material violation has occurred, is ongoing or is about to occur;

the adoption of appropriate remedial measures, including appropriate steps or sanctions to stop any material violations that are ongoing, to prevent any material violation that has yet to occur, and to remedy or otherwise appropriately address any material violation that has already occurred and to minimize the likelihood of its recurrence; or

the retention or direction of an attorney to review the reported evidence of a material violation and either (i) the Company has substantially implemented any remedial recommendations made by such attorney after a reasonable investigation and evaluation of the reported evidence or (ii) the attorney advises the Company that such attorney may, consistent with his or her professional obligations, assert a colorable defense on behalf of the Company or its officers, directors, employees or agents, in any investigation or judicial or administrative proceeding relating to the reported evidence of a material violation; and

inform the CLO, the CEO and the Board of the results of any such investigation initiated by the QLCC and the appropriate remedial measures to be adopted.

Authority to Notify the SEC

The QLCC may take all other appropriate action, including the authority to notify the Securities and Exchange Commission, if the Company fails in any material respect to implement an appropriate response that the QLCC has recommended for adoption by the Company.

Reporting to the Board

The QLCC shall repot to the Board periodically, but no less frequently than once a year. This report will include a review of the report(s) received, the investigations conducted, conclusions reached and responses recommended by the QLCC and any other matters that the QLCC deems appropriate or is requested to be included by the Board.

At least annually, the QLCC shall evaluate its own performance and report to the Board on such evaluation.

At least annually, the QLCC shall review and assess the adequacy of this charter and recommend any proposed changes to the Nominating and Corporate Governance Committee.

PROCEDURES:

The QLCC may act only by majority vote.

The QLCC shall meet as often as it determines is appropriate to carry out its responsibilities under this charter. The Chairperson of the QLCC, in consultation with the other committee members, shall determine the frequency and length of the committee meetings and shall set meeting agendas consistent with this charter.

The QLCC is authorized (without seeking Board approval) to retain outside attorneys and other expert personnel to assist the QLCC as it deems necessary. The QLCC is authorized to obtain appropriate funding, as determined by the QLCC, for payment of compensation to such attorneys and other expert personnel and for ordinary administrative expenses of the QLCC that are necessary or appropriate for carrying out its duties.

The QLCC is authorized (without seeking Board approval) to access all books, records, facilities, personnel, agents and advisors of the Company as it deems necessary or appropriate to discharge is responsibilities under this charter.

ATTACHMENT A

Outline of Quarterly & Annual Report Reviews

Quarterly Report Reviews

Review of Quarterly Earnings via conference call occurs on the 2^nd Friday following quarter end (exception is the 4^th quarter of the year when the review occurs on the 3^rd Friday following quarter/year end).

The 10Q must be filed with the SEC within 45 days of the end of the quarter being reported. Draft copies of the 10Q will be sent to all Audit Committee members for review towards the end of the filing period. Committee members should contact the CFO (Barbara Scherer), the Corporate Controller (Brad Guenther), or the Director of Corporate Accounting, Planning & Reporting (Kathy Ovalle) within one week of receipt of draft copy with their comments and ultimately their approval.

Year-End Report Reviews

Review of the Proxy

Review of the 10K (must be filed with SEC within 90 days after year end)

Review of the Annual Report

Reviews of the above documents will occur by providing draft copies to the Audit Committee. Report drafts will be sent to the Audit Committee at the end of April or early May to meet the timing of the Annual Stockholders meeting. One week will be allowed for the Audit Committee to provide any feedback. Committee members should contact the CFO (Barbara Scherer), the Corporate Controller (Brad Guenther), or the Director of Corporate Accounting, Planning & Reporting (Kathy Ovalle) within one week of receipt of draft copy with their comments and ultimately their approval.

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Section		Page
ARTICLE 1		1
DEFINITIONS		1
1.01	Certain Defined Terms.	1
1.02	Other Interpretive Provisions.	19
1.03	Accounting Principles.	20
ARTICLE 2		20
THE CREDIT		20
2.01	The Revolving Credit.	20
2.02	Loan Accounts; Notes.	20
2.03	Procedure for Borrowing.	21
2.04	Conversion and Continuation Elections.	21
2.05	Voluntary Termination or Reduction of the Commitment.	23
2.06	Optional Prepayments.	23
2.07	Cash Collateralization; Mandatory Prepayments.	23
2.08	Repayment.	24
2.09	Interest.	24
2.1	Commitment Fee.	25
2.11	Computation of Fees and Interest.	25
2.12	Payments by the Company.	25
ARTICLE 3		26
THE LETTERS OF CREDIT		26
3.01	The Letter of Credit Subfacility.	26
3.02	Issuance, Amendment and Renewal of Letters of Credit.	27
3.03	Drawings and Reimbursements.	28
3.04	Role of the Bank.	28
3.05	Obligations Absolute.	29
3.06	Cash Collateralization Obligations.	30
3.07	Letter of Credit Fees.	30
3.08	Uniform Customs and Practice.	30
ARTICLE 4		30
TAXES, YIELD PROTECTION AND ILLEGALITY		30
4.01	Taxes.	30
4.02	Illegality.	31
4.03	Increased Costs and Reduction of Return.	32
4.04	Funding Losses.	32
4.05	Inability to Determine Rates.	33
4.06	Reserves on LIBOR Loans.	33
4.07	Certificates of the Bank.	34
4.08	Survival.	34
ARTICLE 5		34
CONDITIONS PRECEDENT		34
5.01	Conditions of Effectiveness of Agreement.	34
5.02	Conditions to All Credit Extensions.	35
ARTICLE 6		36
REPRESENTATIONS AND WARRANTIES		36
6.01	Corporate Existence and Power.	36
6.02	Corporate Authorization; No Contravention.	36
6.03	Governmental Authorization.	37
6.04	Binding Effect.	37
6.05	Litigation.	37
6.06	ERISA Compliance.	37
6.07	Use of Proceeds; Margin Regulations.	38
6.08	Title to Properties.	38
6.09	Taxes.	38
6.1	Financial Condition.	38
6.11	Environmental Matters.	39
6.12	Regulated Entities.	39
6.13	No Burdensome Restrictions; Labor Relations.	39
6.14	Solvency.	39
6.15	Copyrights, Patents, Trademarks and Licenses, etc.	40
6.16	Subsidiaries.	40
6.17	Insurance.	40
6.18	Swap Obligations.	40
6.19	Full Disclosure.	41
6.2	Intentionally Deleted.	41
6.21	Good Standing Certificates.	41
ARTICLE 7		41
AFFIRMATIVE COVENANTS		41
7.01	Financial Statements.	42
7.02	Certificates; Other Information.	42
7.03	Notices.	43
7.04	Preservation of Existence, Rights, etc.	44
7.05	Maintenance of Property.	44
7.06	Insurance.	45
7.07	Payment of Obligations.	45
7.08	Compliance with Laws.	45
7.09	Inspection of Property and Books and Records.	45
7.1	Environmental Laws.	46
7.11	Use of Proceeds.	46
7.12	Intentionally Deleted.	46
7.13	Solvency.	46
7.14	Internal Controls.	46
ARTICLE 8		47
NEGATIVE COVENANTS		47
8.01	Limitation on Liens.	47
8.02	Disposition of Assets.	49
8.03	Consolidations and Mergers.	50
8.04	Loans and Investments.	50
8.05	Limitation on Indebtedness.	52
8.06	Transactions with Affiliates.	54
8.07	Use of Proceeds.	54
8.08	Operating Lease Obligations.	54
8.09	Restricted Payments.	55
8.1	ERISA.	55
8.11	Net Funded Debt to EBITDA Ratio.	56
8.12	Interest Coverage Ratio.	56
8.13	Quick Ratio	56
8.14	Change in Business.	56
8.15	Accounting Changes.	56
ARTICLE 9		56
EVENTS OF DEFAULT		56
9.01	Event of Default.	56
9.02	Remedies.	58
9.03	Rights Not Exclusive.	59
ARTICLE 10		59
GENERAL PROVISIONS		59
10.01	Amendments and Waivers.	59
10.02	Notices.	60
10.03	No Waiver; Cumulative Remedies.	60
10.04	Costs and Expenses.	60
10.05	Indemnity.	61
10.06	Payments Set Aside.	62
10.07	Successors and Assigns.	62
10.08	Assignments, Participations, etc.	62
10.09	Confidentiality.	63
10.1	Set-off.	63
10.11	Counterparts.	64
10.12	Severability.	64
10.13	No Third Parties Benefited.	64
10.14	Governing Law; Jurisdiction.	64
10.15	Arbitration.	65
10.16	Entire Agreement.	67

Import Letters of Credit		Timing of Payment

Issuance	1/10%; minimum $120	Up-front
Amendment to increase	1/10%; minimum $100	Upon advice
Amendment - no increase	$75	Upon advice
Negotiation	1/10%; minimum $100	Upon advice
Acceptance	2%; minimum $100	Upon advice
Transfer	1/4%; minimum $125	Upon advice
Assignment	1/8%; minimum $120	Upon advice
Discrepancy	$75	Upon advice
Air Way Bill	$100/month	Upon advice
Expiry/Amount Unused	$100	Upon advice
Cancellation	$100	Upon advice

Export Letters of Credit
Pre-Advice	$50	Upon advice
Advice	$90	Upon advice
Amendment	$75	Upon advice
Amendment - confirmed	1/10%; minimum $100	Upon advice
Negotiation	1/10%; minimum $100	Upon advice
Docs sent unexamined	$120	Upon advice
Acceptance	By arrangement; minimum $100	Upon advice
Reimbursement	$90	Upon advice
Deferred Payment/Confirm L/C	3%/annum; minimum	$100 Up-front
Deferred Payment/Unconfirmed L/C	$100	Upon advice
Discrepancy	$60	Upon advice
Transfer	1/4%; minimum $125	Upon advice
Assignment - Pay Proceeds	1/4%; minimum $125	Upon advice

Documentary Collections
Software	Free	N/A
Usance	$120	Upon advice
Sight draft	$85	Upon advice
Direct Collection Letter	$75	Upon advice
Export/Direct	$50	Upon advice
Amendment	$25 + Cable fees	Upon advice
Tracer	$25	Upon advice
Protest	$250 + Expenses	Upon advice

Activity fees (per letter of credit)
Cable/SWIFT	$30	Upon advice
Courier	$20 (or interoffice mail @ no cost)	Upon advice
Fed wire	$35 (no charge on incoming collections)	Upon advice
Tracer	$30	Upon advice

Standby Letters of Credit		Timing of Payment
Issuance	2%/annum	Up-front
Amendment to increase	1/10%; minimum $100	Upon advice
Amendment - no increase	$75	Upon advice
Negotiation	1/10%; minimum $100	Upon advice
Acceptance	2%; minimum $100	Upon advice
Transfer	1/4%; minimum $125	Upon advice
Assignment	1/8%; minimum $120	Upon advice
Discrepancy	$75	Upon advice
Air Way Bill	$100/month	Upon advice
Expiry/Amount Unused	$100	Upon advice
Cancellation	$100	Upon advice