10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
o	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 0-16244

VEECO INSTRUMENTS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	11-2989601
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
100 Sunnyside Boulevard, Suite B Woodbury, New York	11797
(Address of Principal Executive Offices)	(Zip Code)
Registrant’s telephone number, including area code: (516) 677-0200
Website: www.veeco.com

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 such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ý No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):  Yes ý No o

29,858,417 shares of common stock, $0.01 par value per share, were outstanding as of the close of business on April 26, 2005.

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (the “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 2 and 3 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors that may cause these differences include, but are not limited to:

•The cyclicality of the microelectronics industries we serve directly affects our business.

•We operate in a highly competitive industry characterized by rapid technological change.

•We depend on a limited number of customers that operate in highly concentrated industries.

•Our quarterly operating results fluctuate significantly.

•Our acquisition strategy subjects us to risks associated with evaluating and pursuing these opportunities and integrating these businesses.

•Our inability to attract, retain and motivate key employees could have a material adverse effect on our business.

•We are exposed to the risks of operating a global business.

•Our success depends on protection of our intellectual property rights. We may be subject to claims of intellectual property infringement by others.

•We face securities class action and shareholder derivative lawsuits which could result in substantial costs, diversion of management’s attention and resources and negative publicity.

•We rely on a limited number of suppliers.

•We may not obtain sufficient affordable funds to finance our future needs.

•We are subject to risks of non-compliance with environmental and safety regulations.

•We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our company by another company more difficult.

•The other matters discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this Report and in Veeco Instruments Inc. (the “Company’s”) Annual Report on Form 10-K for the year ended December 31, 2004.

Consequently, such forward-looking statements should be regarded solely as the Company’s current plans, estimates and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

Available Information

We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

Internet Address

We maintain a website where additional information concerning our business and various upcoming events can be found. The address of our website is www.veeco.com. We provide a link on our website, under Investors — Financial Info — SEC Filings, through which investors can access our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports. These filings are posted to our Internet site, as soon as reasonably practicable after we electronically file such material with the SEC.

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VEECO INSTRUMENTS INC.

INDEX

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004
	Condensed Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosure About Market Risk
Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings
Item 6.	Exhibits
SIGNATURES

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

	Three Months Ended March 31,
	2005			2004
Net sales	$	93,850		$	90,863
Cost of sales	56,318			54,065
Gross profit	37,532			36,798
Costs and expenses:
Selling, general and administrative expense	20,171			19,890
Research and development expense	14,824			14,027
Amortization expense	4,490			4,896
Other income, net	(98		)	(286		)
Total operating expenses	39,387			38,527
Operating loss	(1,855		)	(1,729		)
Interest expense, net	2,146			2,199
Loss before income taxes	(4,001		)	(3,928		)
Income tax expense (benefit)	701			(1,218		)
Net loss	$	(4,702	)	$	(2,710	)
Net loss per common share	$	(0.16	)	$	(0.09	)
Diluted net loss per common share	$	(0.16	)	$	(0.09	)
Weighted average shares outstanding	29,855			29,569
Diluted weighted average shares outstanding	29,855			29,569

See accompanying notes.

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Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)

	March 31, 2005		December 31, 2004
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	100,676	$	100,276
Accounts receivable, less allowance for doubtful accounts of $1,866 in 2005 and $2,420 in 2004	72,703		85,914
Inventories	106,150		110,643
Prepaid expenses and other current assets	7,603		9,039
Deferred income taxes	2,931		3,096
Total current assets	290,063		308,968
Property, plant and equipment at cost, less accumulated depreciation of $70,077 in 2005 and $67,565 in 2004	70,563		73,513
Goodwill	94,636		94,645
Purchased technology, less accumulated amortization of $42,476 in 2005 and $39,181 in 2004	65,292		68,587
Other intangible assets, less accumulated amortization of $20,897 in 2005 and $19,702 in 2004	24,398		25,007
Long-term investments	3,559		3,541
Other assets	3,159		2,652
Total assets	$	551,670	$	576,913
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	23,599	$	25,476
Accrued expenses	45,367		63,438
Deferred profit	2,289		1,196
Income taxes payable	1,532		1,702
Current portion of long-term debt	359		354
Total current liabilities	73,146		92,166
Long-term debt, net of current portion	229,489		229,581
Other non-current liabilities	2,824		2,814
Shareholders’ equity	246,211		252,352
Total liabilities and shareholders’ equity	$	551,670	$	576,913

See accompanying notes.

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Veeco Instruments Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Three Months Ended March 31,
	2005			2004
Operating Activities
Net loss	$	(4,702	)	$	(2,710	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	7,735			8,083
Deferred income taxes	52			(2,435		)
Other	3			(17		)
Changes in operating assets and liabilities:
Accounts receivable	11,408			(2,261		)
Inventories	5,372			(7,784		)
Accounts payable	(1,795		)	5,386
Accrued expenses, deferred profit and other current liabilities	(1,815		)	4,227
Other, net	(1,874		)	1,318
Net cash provided by operating activities	14,384			3,807
Investing Activities
Capital expenditures	(1,838		)	(1,408		)
Payment for net assets of businesses acquired	(15,038		)	—
Proceeds from sale of fixed assets	5			26
Proceeds from sale of assets held for sale	2,173			—
Net purchase of long-term investments	(18		)	(85		)
Net cash used in investing activities	(14,716		)	(1,467		)
Financing Activities
Proceeds from stock issuance	127			2,038
Repayment of long-term debt, net	(87		)	(82		)
Net cash provided by financing activities	40			1,956
Effect of exchange rates on cash and cash equivalents	692			705
Net change in cash and cash equivalents	400			5,001
Cash and cash equivalents at beginning of period	100,276			106,830
Cash and cash equivalents at end of period	$	100,676		$	111,831

Non-Cash Items

During the three months ended March 31, 2005 and 2004, the Company had non-cash items excluded from the Condensed Consolidated Statements of Cash Flows of approximately $1.5 million and $0.0 million respectively, which consisted of the transfer of property, plant and equipment to inventory.

See accompanying notes.

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VEECO INSTRUMENTS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the three months ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.   For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Net loss per common share is computed using the weighted average number of common shares outstanding during the period.  Diluted net loss per common share is computed using the weighted average number of common shares and common equivalent shares outstanding during the period.  The effect of approximately 197,000 and 755,000 common equivalent shares for the three months ended March 31, 2005 and 2004, respectively, and the assumed conversion of subordinated convertible debentures into approximately 5.7 million common equivalent shares is antidilutive for 2005 and 2004, and therefore not included in the diluted weighted average shares outstanding.

The Company accounts for its stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  No compensation expense is reflected in net loss, as all options granted under the stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions, under which compensation expense would be recognized as incurred, of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

	Three Months Ended March 31,
	2005			2004
	(In thousands, except per share amounts)
Net loss, as reported	$	(4,702	)	$	(2,710	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(4,042		)	(2,750		)
Pro forma net loss	$	(8,744	)	$	(5,460	)
Net loss per common share:
Net loss and diluted net loss per common share, as reported	$	(0.16	)	$	(0.09	)
Net loss and diluted net loss per common share, pro forma	$	(0.29	)	$	(0.19	)

Reclassifications

Certain amounts in the 2004 consolidated financial statements have been reclassified to conform to the 2005 presentation.

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Note 2—Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R) (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.  SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows.  Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. On April 14, 2005 the Securities and Exchange Commission extended the adoption date of SFAS No. 123(R) to no later than the beginning of the first fiscal year beginning after June 15, 2005.  Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS No. 123(R) as of January 1, 2006.

SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1.A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

2.A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company has not yet determined whether it will adopt SFAS No. 123(R) using the modified prospective method or the modified retrospective method.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on the consolidated results of operations, although it will have no impact on the Company’s overall consolidated financial position.  The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net loss and net loss per common share in Note 1 to Veeco’s Condensed Consolidated Financial Statements.  SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature.  This requirement will reduce consolidated net operating cash flows and increase consolidated net financing cash flows in periods after adoption.  While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the Company did not recognize an amount of consolidated operating cash flows for such excess tax deductions in 2005 or 2004.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs- an amendment to ARB No. 43, Chapter 4.  SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal,” as previously stated in ARB No. 43.  In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect that the adoption of this Statement will have a significant impact on the Company’s consolidated financial position or results of operations.

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Note 3—Balance Sheet Information

Inventories

Interim inventories have been determined by lower of cost (principally first-in, first-out) or market.  Inventories consist of:

	March 31, 2005		December 31, 2004
	(In thousands)
Raw materials	$	54,560	$	52,301
Work-in-progress	33,392		35,004
Finished goods	18,198		23,338
	$	106,150	$	110,643

Accrued Warranties

The Company estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized.  Factors that affect the Company’s warranty liability include product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period.  The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary.  Changes in the Company’s warranty liability during the period are as follows:

	Three Months Ended March 31,
	2005			2004
	(In thousands)
Balance as of January 1	$	6,771		$	3,904
Warranties issued during the period	1,693			1,349
Settlements made during the period	(1,973		)	(838		)
Balance as of March 31	$	6,491		$	4,415

Note 4—Segment Information

The Company currently manages, reviews operating results and assesses performance, as well as allocates resources, based upon three separate reporting segments. The first segment, called “ion beam and mechanical process equipment,” combines the etch, deposition and dicing and slicing products sold mostly to data storage customers. This segment includes the production facilities in Plainview, New York, Ft. Collins, Colorado and Camarillo and Ventura, California. The second segment, called “epitaxial process equipment,” includes the Molecular Beam Epitaxy and Metal Organic Chemical Vapor Deposition products primarily sold to high brightness light emitting diode and wireless telecommunications customers. This segment includes the production facilities in St. Paul, Minnesota and Somerset, New Jersey. The third segment, called “metrology” represents equipment that is used to provide critical surface measurements on products such as semiconductor devices and thin film magnetic heads and includes Veeco’s broad line of atomic force microscopes, optical interferometers and stylus profilers sold to semiconductor customers, data storage customers and thousands of research facilities and scientific centers. This segment includes the production facilities in Santa Barbara, California and Tucson, Arizona.

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The following represents the reportable product segments of the Company as of and for the three months ended March 31, 2005 and 2004, in thousands:

	Ion Beam and Mechanical Process Equipment			Epitaxial Process Equipment			Metrology		Unallocated Corporate Amount			Total
Three Months Ended March 31, 2005
Net sales	$	27,839		$	22,523		$	43,488	$	—		$	93,850
(Loss) income from operations before interest, taxes and amortization	(755		)	(1,947		)	7,762		(2,425		)	2,635
Total assets	170,495			135,750			134,014		111,411			551,670
Three Months Ended March 31, 2004
Net sales	35,348			13,957			41,558		—			90,863
Income (loss) from operations before interest, taxes and amortization	1,799			(2,813		)	6,062		(1,881		)	3,167
Total assets	$	186,283		$	122,982		$	130,083	$	166,777		$	606,125

Corporate total assets are comprised principally of cash at March 31, 2005 and cash and deferred tax assets at March 31, 2004.

The following table outlines the components of goodwill by business segment at March 31, 2005 and December 31, 2004 (in thousands):

	March 31, 2005		December 31, 2004
Ion Beam and Mechanical Process Equipment	$	27,276	$	27,276
Epitaxial Process Equipment	39,141		39,091
Metrology	28,219		28,278
Total	$	94,636	$	94,645

Note 5—Comprehensive Loss

The Company’s comprehensive loss is comprised of net loss, adjusted for foreign currency translation adjustments, the change in the fair value of forward currency contracts, and the change in the minimum pension liability.  The Company had no other sources affecting comprehensive loss.  The Company had total comprehensive loss of $6.3 million and $2.1 million for the three months ended March 31, 2005 and 2004, respectively.

Note 6—Restructuring

2004 Merger and Restructuring Charges

As a result of the acquisition of MTI and the resulting plan of consolidation of the two facilities in Ventura and Camarillo, California, certain long lived assets of Aii were classified as held for sale as of December 31, 2004. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, these long lived assets are measured at the lower of their carrying amount or fair value less cost to sell.  Fair value was determined by the Company based upon the actual sale proceeds, which were received in February 2005 and April 2005. Approximately $0.8 million and $2.2 million of fixed assets held for sale are included in prepaid expenses and other current assets in the accompanying Condensed Consolidated Balance Sheets at March 31, 2005 and December 31, 2004, respectively.

In conjunction with the plan announced by the Company in October 2004 to reduce employment levels by 10% in 2005, the Company recorded restructuring and other expenses of approximately $3.6 million in the fourth quarter of 2004. The $3.6 million charge consisted of $2.8 million of personnel severance costs and $0.8 million accrual for costs related to the internal investigation of improper accounting transactions at its TurboDisc business unit.

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The $2.8 million charge for personnel costs includes severance related costs for approximately 107 employees, which included management, administration and manufacturing employees located at the Company’s Plainview, New York and Camarillo, California ion beam and mechanical process equipment operations, the Somerset, New Jersey and St. Paul, Minnesota epitaxial process equipment operations, the Santa Barbara, California and Tucson, Arizona metrology facilities, the sales and service offices located in France, England and Singapore, and the corporate offices in Woodbury, New York. As of March 31, 2005, approximately $1.9 million has been paid and approximately $0.9 million remains accrued. The remainder is expected to be paid by the fourth quarter of 2005.

The $0.8 million charge for costs related to the internal investigation of improper accounting transactions at the Company’s TurboDisc business unit include accounting, legal and other auditing fees performed by external consultants who assisted with the investigation. As of March 31, 2005, $0.7 million remained accrued and will be paid by the second quarter of 2005.

A reconciliation of the liability for the restructuring and other charges during 2004 for severance and investigation costs is as follows (in millions):

	Ion Beam and Mechanical Process Equipment		Epitaxial Process Equipment		Metrology		Unallocated Corporate		Total
Charged to accrual	$	1.0	$	0.4	$	0.4	$	1.8	$	3.6
Cash payments during 2004	0.3		—		0.1		0.3		0.7
Cash payments during the three months ended March 31, 2005	0.4		0.3		0.3		0.3		1.3
Balance as of March 31, 2005	$	0.3	$	0.1	$	—	$	1.2	$	1.6

Note 7—Subsequent Events

On April 12, 2005, the Compensation Committee (the “Committee”) of the Company’s Board of Directors approved the acceleration of vesting of unvested, out-of-the-money stock options granted prior to September 1, 2004 under Veeco’s stock option plans.  An option was considered “out-of-the-money” if the option exercise price was greater than the closing price of Veeco’s common stock on the NASDAQ National Market on April 11, 2005 ($15.26), the last trading day before the Committee approved the acceleration.  As a result of this action, options to purchase approximately 2,549,000 shares of Veeco’s common stock became immediately exercisable, including options held by Veeco’s executive officers to purchase approximately 852,000 shares.  The weighted average exercise price of the options accelerated was $21.25.

The purpose of the accelerated vesting is to eliminate future compensation expense that Veeco would otherwise recognize in its statement of operations with respect to these accelerated options upon the adoption by Veeco of SFAS 123(R).  In addition, because many of these options have exercise prices significantly in excess of current market values, they were not providing an effective means of employee retention and incentive compensation.  The future compensation expense that will be avoided, based on Veeco’s implementation date for SFAS 123R of January 1, 2006, is approximately $8.4 million in 2006 and $3.9 million in 2007.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Executive Summary:

Veeco designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, semiconductor, high brightness light emitting diode (“HB-LED”) and wireless telecommunications industries. Veeco’s products also enable advancements in the growing field of nanoscience and other areas of scientific and industrial research. Our process equipment products precisely deposit or remove (etch) various materials in the manufacturing of advanced thin film magnetic heads (“TFMHs”) for the data storage industry and HB-LED and wireless telecommunications industries. The Company currently manages, reviews operating results and assesses performance, as well as allocates resources, based upon three separate reporting segments.  The first segment, called “ion beam and mechanical process equipment” combines the etch, deposition and dicing and slicing products sold mostly to data storage customers.  The second segment, called “epitaxial process equipment,” includes the Molecular Beam Epitaxy (“MBE”) and Metal Organic Chemical Vapor Deposition (“MOCVD”) products primarily sold to HB-LED and wireless telecommunications customers.  The third segment, “metrology”, represents equipment that is used to provide critical surface measurements on products such as semiconductor devices and TFMHs, and includes our broad line of atomic force microscopes (“AFMs”), optical interferometers and stylus profilers sold to semiconductor customers, data storage customers and thousands of research facilities and scientific centers. This equipment allows customers to monitor their products throughout the manufacturing process in order to improve yields, reduce costs and improve product quality. Our metrology solutions are also key research instruments used by many universities, scientific laboratories and industrial applications.

During the past several years, we have strengthened our product lines through strategic acquisitions.  In our metrology business, in June 2003, we purchased the atomic force microscope probe business from Nanodevices Inc. (“Nanodevices”) for approximately $6.0 million, including transaction costs, plus a potential future earn-out payment of up to $4.0 million based on the achievement of certain operating measures.  Through the end of the first quarter of 2005, the Company has made earn-out payments totaling $2.9 million relating to this acquisition.  In our epitaxial process equipment business, in November 2003, we purchased the TurboDisc business from Emcore Corporation (“Emcore”) for approximately $63.7 million, including transaction costs, plus a potential future earn-out payment of up to $20.0 million based on the achievement of certain operating measures.  Through the end of the first quarter of 2005, the Company has made earn-out payments totaling $13.1 million to Emcore. Also in November 2003, in our ion beam and mechanical process equipment business, we acquired the precision bar lapping company, Advanced Imaging, Inc. (“Aii”), for approximately $61.4 million, including transaction costs, plus a potential future earn-out payment of up to $9.0 million based on the achievement of certain operating measures.  To date, the operating measures which trigger the Aii earn-out have not been achieved.  Most recently, in our ion beam and mechanical process equipment business, Veeco expanded its TFMH “slider” technologies to include slicing and dicing processes, which are critical to controlling thin film head fly height, through the purchase of Manufacturing Technology, Inc. (“MTI”) for $9.5 million.  While we believe these acquisitions will be accretive to both sales and profits going forward, gross margin percentages have been historically lower in the process equipment product lines than in the metrology business.  Therefore, Veeco’s gross margin percentages have been adversely affected by lower concentration of metrology sales during 2004 and in early 2005.  Veeco implemented an active plan to improve the gross margins in its Process Equipment product lines during 2005.

We currently maintain manufacturing facilities in Arizona, California, Colorado, Minnesota, New Jersey and New York, with sales and service locations around the world.

Highlights of the First Quarter of 2005:

•Sales were $93.9 million, up 3% from $90.9 million in the first quarter of 2004.

•Orders were $98.9 million, down from $117.1 million in the first quarter of 2004.

•Net loss of $4.7 million, compared with a net loss of $2.7 million in the first quarter of 2004.

•Cash generation of $0.4 million, despite making earn-out payments totaling $15.0 million relating to acquisitions, compared with cash generation of $5.0 million in the first quarter of 2004.

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Current Business Conditions/Outlook:

In the first quarter of 2005, Veeco reported sales of $93.9 million, a 3% increase from the $90.9 million reported in the first quarter of 2004.  Revenues were down sequentially as anticipated from the $103.0 million reported in the fourth quarter of 2004.  Veeco’s first quarter 2005 bookings of $98.9 million reflected increased demand from our data storage customers who are currently investing in capacity expansions for consumer micro-drive applications and advanced development programs for next generation TFMHs.  Data storage orders increased 26% sequentially to $45.3 million – the highest quarterly level the Company has experienced in several years.

Veeco implemented an active plan to improve the Company’s profitability in 2005.  This plan is based both on headcount reductions which were taken in the fourth quarter of 2004, as well as a product mix expectation for 2005 revenues that should lead to increased gross margins.  The Company currently expects higher 2005 revenues in data storage products, lower 2005 revenues in epitaxial equipment products and stability in its metrology revenues as compared to 2004.  This revenue mix as well as other planned actions are expected to result in increased gross margins for each subsequent quarter of 2005 and for the year as a whole compared with 2004.

Technology changes are continuing in all of Veeco’s markets: the continued ramp of 80 GB hard drives in data storage and investments in next generation drives (120GB); the increased use of Veeco’s automated AFMs for sub 130 nanometer semiconductor applications; the opportunity for Veeco’s MOCVD and MBE systems to further penetrate the emerging HB-LED and wireless markets; and the continued funding of nanoscience research, which is one driver of Veeco’s scientific research business.  While Veeco’s customers remain cautious regarding capital spending, they are also placing orders for Veeco Process Equipment and Metrology products that enable their next generation products.  Veeco remains well positioned to provide leadership technologies for growth applications in semiconductor, data storage, HB-LED/wireless and scientific research.

Recent Events:

Internal Accounting Investigation; Restatement of 2004 Financial Results

On February 11, 2005, Veeco announced the postponement of the release of audited results for the fourth quarter and year ended December 31, 2004, pending completion of an internal investigation of improper accounting transactions at its TurboDisc business unit. Veeco acquired the assets of TurboDisc in November 2003. The investigation focused principally on the value of inventory, accounts payable and certain liabilities, as well as certain revenue transactions of TurboDisc. The investigation was commenced after Veeco’s internal audit staff and corporate financial management discovered improper accounting transactions in the course of a Veeco internal audit and transitioning the business to Veeco’s SAP accounting system during the fourth quarter of 2004. The Audit Committee of the Company’s Board of Directors supervised the accounting investigation and authorized Veeco’s outside counsel, Kaye Scholer LLP, to hire Jefferson Wells International to perform forensics and accounting reconstruction work as part of the investigation. The investigation has been completed. The investigation concluded that the improper accounting entries were made by a single individual at TurboDisc whose employment had been terminated prior to the commencement of the investigation, and that there was no evidence found of embezzlement or diversion of corporate assets.

The results of the investigation led to the restatement of financial statements previously issued for the first three quarterly periods of 2004 and related six and nine month periods ended June 30, 2004 and September 30, 2004. The cumulative restatement included a $10.2 million adjustment to pre-tax earnings, comprised of $8.1 million in adjustments relating to inventory, accruals and accounts payable and $2.1 million in adjustments relating to revenue recognition issues. Veeco has made a number of personnel changes to strengthen the management of the epitaxial process equipment group and the TurboDisc business unit since the discovery of the accounting issues that gave rise to the investigation, including the replacement of the General Manager of the epitaxial process equipment group, creation of the positions of General Manager of the TurboDisc business unit, General Manager of the St. Paul business unit, Group Controller of the epitaxial process equipment group and the appointment of a new controller of the TurboDisc business unit.

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Results of Operations:

Three Months Ended March 31, 2005 and 2004

The following tables show selected items of Veeco’s Consolidated Statements of Operations, percentages of sales and comparisons between the three months ended March 31, 2005 and 2004 and the analysis of sales and orders for the same periods between our segments, industries and regions (in thousands):

	Three Months ended March 31,										Dollar Inc/(Dec)
	2005					2004					Year to year
Net sales	$	93,850		100.0	%	$	90,863		100.0	%	$	2,987
Cost of sales	56,318			60.0		54,065			59.5		2,253
Gross profit	37,532			40.0		36,798			40.5		734
Operating expenses:
Selling, general and administrative expense	20,171			21.5		19,890			21.9		281
Research and development expense	14,824			15.8		14,027			15.4		797
Amortization expense	4,490			4.8		4,896			5.4		(406		)
Other income, net	(98		)	(0.1	)	(286		)	(0.3	)	188
Total operating expenses	39,387			42.0		38,527			42.4		860
Operating loss	(1,855		)	(2.0	)	(1,729		)	(1.9	)	(126		)
Interest expense, net	2,146			2.3		2,199			2.4		(53		)
Loss before income taxes	(4,001		)	(4.3	)	(3,928		)	(4.3	)	(73		)
Income tax expense (benefit)	701			0.7		(1,218		)	(1.3	)	1,919
Net loss	$	(4,702	)	(5.0	)%	$	(2,710	)	(3.0	)%	$	(1,992	)

	Sales									Orders									Book to Bill Ratio
	Three Months ended March 31,				Dollar and Percentage Inc/(Dec) Year to Year					Three Months ended March 31,				Dollar and Percentage Inc/(Dec) Year to Year
	2005		2004							2005		2004							2005	2004
Segment Analysis
Ion Beam and Mechanical Process Equipment	$	27,839	$	35,348	$	(7,509	)	(21.2	)%	$	41,797	$	47,268	$	(5,471	)	(11.6	)%	1.50	1.34
Epitaxial Process Equipment	22,523		13,957		8,566			61.4		13,628		37,900		(24,272		)	(64.0	)	0.61	2.72
Metrology	43,488		41,558		1,930			4.6		43,512		31,893		11,619			36.4		1.00	0.77
Total	$	93,850	$	90,863	$	2,987		3.3	%	$	98,937	$	117,061	$	(18,124	)	(15.5	)%	1.05	1.29
Industry Analysis
Data Storage	$	25,615	$	31,456	$	(5,841	)	(18.6	)%	$	45,303	$	44,948	$	355		0.8	%	1.77	1.43
HB-LED/wireless	22,304		17,030		5,274			31.0		13,967		38,981		(25,014		)	(64.2	)	0.63	2.29
Semiconductor	17,354		13,304		4,050			30.4		14,428		10,063		4,365			43.4		0.83	0.76
Research and Industrial	28,577		29,073		(496		)	(1.7	)	25,239		23,069		2,170			9.4		0.88	0.79
Total	$	93,850	$	90,863	2,987			3.3	%	$	98,937	$	117,061	$	(18,124	)	(15.5	)%	1.05	1.29
Regional Analysis
US	$	32,760	$	30,835	$	1,925		6.2	%	$	37,264	$	44,073	$	(6,809	)	(15.4	)%	1.14	1.43
Europe	21,194		13,521		7,673			56.7		9,974		12,807		(2,833		)	(22.1	)	0.47	0.95
Japan	14,215		19,136		(4,921		)	(25.7	)	17,351		16,525		826			5.0		1.22	0.86
Asia-Pacific	25,681		27,371		(1,690		)	(6.2	)	34,348		43,656		(9,308		)	(21.3	)	1.34	1.59
Total	$	93,850	$	90,863	$	2,987		3.3	%	$	98,937	$	117,061	$	(18,124	)	(15.5	)%	1.05	1.29

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Net sales of $93.9 million for the first quarter of 2005 were up $3.0 million or 3.3%, from the comparable 2004 period. By segment, ion beam and mechanical process equipment sales were down $7.5 million or 21.2%, while epitaxial process equipment sales were up $8.6 million or 61.4%, and metrology sales increased by $1.9 million or 4.6%. The decrease in ion beam and mechanical process equipment sales is principally attributable to decreases in the data storage market. The improvement in epitaxial process equipment sales is principally attributable to increases in the HB-LED/wireless market. The $1.9 million improvement in metrology sales is principally attributable to increased AFM sales to the semiconductor market. By region, sales in Europe improved by 56.7%, while sales in Japan declined by 25.7%. The Company believes that there will continue to be quarter-to-quarter variations in the geographic distribution of sales.

Orders of $98.9 million for the first quarter of 2005 decreased by $18.1 million, or 15.5%, from the comparable 2004 period. By segment, the 64.0% decrease in epitaxial process equipment orders was driven by a $22.8 million reduction in orders for MOCVD systems and an additional decrease in MBE orders of $1.5 million. The 11.6% reduction in ion beam and mechanical process equipment was due to decreased orders to data storage customers. The 36.4% increase in metrology orders was due to a $7.8 million increase in AFM and a $3.8 million increase in optical metrology products.

The Company’s book/bill ratio for the first quarter of 2005, which is calculated by dividing orders received in a given time period by revenue recognized in the same time period, was 1.05. During the quarter ended March 31, 2005, the Company experienced order cancellations of $3.0 million and the rescheduling of order delivery dates by customers. Due to changing business conditions and customer requirements, the Company may continue to experience cancellations and/or rescheduling of orders.

Gross profit for the quarter ended March 31, 2005, was 40.0%, as compared to 40.5% in the first quarter of 2004.  Gross profit in the first quarter of 2004, was reduced by $1.5 million due to the acquisitions of TurboDisc and Aii. This charge was the result of purchase accounting adjustments due to the required capitalization of profit in inventory and permanent elimination of certain deferred revenue. Excluding the impact of this purchase accounting adjustment, gross profit as a percentage of net sales for the first quarter of 2004 was 42.1%.  This decrease from 42.1% to 40.0% was primarily due to declines in the epitaxial process equipment gross margins resulting from warranty issues and competitive pricing pressure in the MOCVD products market and the tool mix in MBE product market revenues.  The ion beam and mechanical process equipment gross margins increased from 35.1% to 36.0% primarily due to favorable mix and cost cutting measures at the Plainview ion beam facility, partially offset by higher overhead costs from the newly acquired MTI business.  Metrology gross margins decreased slightly from 52.9% to 51.8% due to less favorable product mix.

Selling, general and administrative expenses were $20.2 million, or 21.5% of sales, in the first quarter of 2005, compared with $19.9 million, or 21.9% in the first quarter of 2004. The $0.3 million increase is primarily attributable to higher administrative expenses related to the addition of senior level managers in the epitaxial process equipment group.

Research and development expense totaled $14.8 million in the first quarter of 2004, an increase of $0.8 million from the first quarter of 2004, due to increased spending in the epitaxial and ion beam and mechanical process equipment segments of approximately $1.0 million, partially offset by reductions of $0.2 million in metrology. As a percentage of sales, research and development increased in the first quarter of 2005 to 15.8% from 15.4% for the first quarter of 2004.

Amortization expense totaled $4.5 million in the first quarter of 2005 versus $4.9 million in the first quarter of 2004, due to reductions in amortization expense for intangibles that were fully amortized during 2004 partially offset by approximately $0.4 million of additional amortization expense related to the MTI acquisition.

Other income, net, of $0.1 million for the first quarter of 2005 primarily consisted of rental income for subleased facility space, compared to $0.3 million in the first quarter of 2004, which was principally due to foreign exchange gains.

Net interest expense in the first quarter of 2005 was $2.1 million compared to $2.2 million in the first quarter of 2004.

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Income taxes for the quarter ended March 31, 2005, consisted of a foreign income tax provision of $0.7 million, as compared with a benefit of $1.2 million, or 31.0% of loss before income taxes in 2004.  For the year ended December 31, 2004, in accordance with the provisions of Statement of Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes,  the Company recorded a charge of approximately $54.0 million to establish a valuation allowance against the balance of its domestic net deferred tax assets, which consist of net operating loss and tax credit carryforwards, as well as temporary deductible differences.   For the quarter ended March 31, 2005, the Company incurred a domestic net loss and, accordingly, established a valuation allowance to offset the domestic deferred tax asset.  If the Company is able to realize part or all of the deferred tax assets in future periods, it will reduce its provision for income taxes with a release of the valuation allowance in an amount that corresponds with the income tax liability generated.

Liquidity and Capital Resources

The Company had a net increase in cash of $0.4 million for the three months ended March 31, 2005. Cash provided by operations was $14.4 million for this period, as compared to cash provided by operations of $3.8 million for the comparable 2004 period. Net loss adjusted for non-cash items provided operating cash flows of $3.1 million for the three months ended March 31, 2005, compared to $2.9 million for the comparable 2004 period. Included in the net cash provided by operations for the three months ended March 31, 2005 was a decrease in net operating assets and liabilities of $11.3 million. Accounts receivable for the three months ended March 31, 2005, decreased by $11.4 million, primarily as a result of lower sales volumes and favorable timing of collections in Japan and Asia-Pacific.  During the three months ended March 31, 2005, inventories decreased by approximately $5.4 million, principally due to an inventory reduction in the epitaxial process equipment business from the shipment of tools and a reduction of purchases during the first quarter of 2005.  During the three months ended March 31, 2005, accounts payable decreased by $1.8 million due to the timing of payment of certain invoices. Accrued expenses and other current liabilities decreased $1.8 million during the three months ended March 31, 2005, due to $5.2 million total reductions in payroll, restructuring, warranty and other accruals, partially offset by $3.4 million in increases for the required semi-annual interest payment of the subordinated notes and deferred gross profit.

Cash used in investing activities of $14.7 million for the three months ended March 31, 2005, resulted from aggregate earn-out payments of $15.0 million to Emcore, the former owner of TurboDisc, and to the previous shareholders of Nanodevices, and capital expenditures of $1.8 million, partially offset by $2.2 million in proceeds from the sale of assets held for sale.

The Company believes that existing cash balances together with cash generated from operations and amounts available under the Company’s $50.0 million revolving credit facility will be sufficient to meet the Company’s projected working capital and other cash flow requirements for the next twelve months, as well as the Company’s contractual obligations, over the next three years. The Company believes it will be able to meet its obligation to repay the outstanding $220 million subordinated notes that mature on December 21, 2008, through a combination of conversion of the notes outstanding, refinancing, cash generated from operations and/or other means.

The Company is potentially liable for payment of earn-out features to the former owners of the businesses acquired in 2003 based on revenue targets achieved by the acquired businesses.  The maximum remaining amounts of these contingent liabilities is $9.0 million to the former shareholders of Aii over a two-year period, $1.1 million to Nanodevices, over a two-year period and $6.9 million to Emcore Corporation, the former owner of TurboDisc, over a one-year period.  Any amounts payable are to be paid during the first quarter of 2006 and 2007 to the former owners of Aii and Nanodevices and during the first quarter of 2006 to Emcore.  These payments are based on a set percentage of revenues in excess of certain targets for the preceding fiscal year.  Therefore, it is not possible to calculate the amounts, if any, that may be due for each year.

On March 15, 2005, the Company terminated its $100.0 million revolving credit facility which had been established on April 19, 2001 and entered into a new revolving credit facility which provides for borrowings of up to $50.0 million (the “Facility”). The Facility’s annual interest rate is a floating rate equal to the prime rate of the agent bank plus  ¹¤₄% and in the event the Company’s ratio of debt to cash flow is below a defined amount, is adjustable to a minimum rate equal to the prime rate. A LIBOR based interest rate option is also provided. The Facility has a term of three years and borrowings under the Facility may be used for general corporate purposes, including working capital and acquisitions. The Facility contains certain restrictive covenants, which among other requirements, impose limitations with respect to the incurrence of indebtedness, the payment of dividends, long-term leases, investments, mergers, acquisitions, consolidations and sales of assets. The Company is required to satisfy certain financial tests under the Facility and substantially all of the assets of the Company and its material domestic subsidiaries, other than real estate, have been pledged to secure the Company’s obligations under the Facility. As of March 31, 2005, no borrowings were outstanding under the Facility.

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Application of Critical Accounting Policies

General:  Veeco’s discussion and analysis of its financial condition and results of operations are based upon Veeco’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Veeco to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, inventories, intangible assets and other long lived assets, income taxes, warranty obligations, restructuring costs and contingent litigation. Management bases its 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 that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company considers certain accounting policies related to revenue recognition, the valuation of inventories, the impairment of goodwill and indefinite-lived intangible assets, warranty costs, the impairment of long lived assets and the accounting for deferred taxes to be critical policies due to the estimation processes involved in each.

Revenue Recognition:  The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, which superseded the earlier related guidance in SAB No. 101, Revenue Recognition in Financial Statements. Certain of our product sales are accounted for as multiple-element arrangements in accordance with EITF 00-21, Revenue Arrangements with Multiple Deliverables. A multiple-element arrangement is a transaction which may involve the delivery or performance of multiple products, services, or rights to use assets, and performance may occur at different points in time or over different periods of time. The Company recognizes revenue when persuasive evidence of an arrangement exists, the seller’s price is fixed or determinable and collectibility is reasonably assured. For products produced according to the Company’s published specifications, where no installation is required or installation is deemed perfunctory and no substantive customer acceptance provisions exist, revenue is recognized when title passes to the customer, generally upon shipment. For products produced according to a particular customer’s specifications, revenue is recognized when the product has been tested and it has been demonstrated that it meets the customer’s specifications and title passes to the customer. The amount of revenue recorded is reduced by the amount of any customer retention (generally 10% to 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. Installation is not deemed to be essential to the functionality of the equipment since installation does not involve significant changes to the features or capabilities of the equipment or building complex interfaces and connections. In addition, the equipment could be installed by the customer or other vendors and generally the cost of installation approximates only 1% to 2% of the sales value of the related equipment. For new products, new applications of existing products, or for products with substantive customer acceptance provisions where performance cannot be fully assessed prior to meeting customer specifications at the customer site, revenue is recognized upon completion of installation and receipt of final customer acceptance. Since title to goods generally passes to the customer upon shipment and 80% to 90% of the contract amount becomes payable at that time, inventory is relieved and accounts receivable is recorded for the amount billed at the time of shipment. The profit on the amount billed for these transactions is deferred and recorded as deferred profit in the accompanying balance sheets. At March 31, 2005 and December 31, 2004, $2.3 million and $1.2 million, respectively, are recorded in deferred profit. Service and maintenance contract revenues are recorded as deferred revenue, which is included in other accrued expenses, and recognized as revenue on a straight-line basis over the service period of the related contract.

Inventory Valuation:  Inventories are stated at the lower of cost (principally first-in, first-out method) or market. Management evaluates the need to record adjustments for impairment of inventory on a quarterly basis. The Company’s policy is to assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts. Obsolete inventory or inventory in excess of management’s estimated usage for the next 18 to 24 month’s requirements is written-down to its estimated market value, if less than its cost. Inherent in the estimates of market value are management’s estimates related to Veeco’s future manufacturing schedules, customer demand, technological and/or market obsolescence, possible alternative uses and ultimate realization of excess inventory.

Goodwill and Indefinite-Lived Intangible Asset Impairment: The Company has significant intangible assets related to goodwill and other acquired intangibles. In assessing the recoverability of the Company’s goodwill and other indefinite-lived intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If it is determined that impairment indicators are present and that the assets will not be fully recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Changes in strategy and/or market conditions could significantly impact these assumptions, and thus Veeco may be required to record impairment charges for the assets not previously recorded.

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Long Lived Asset Impairment:  The carrying values of long-lived assets are periodically reviewed to determine if any impairment indicators are present. If it is determined that such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining depreciation period, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profit, adverse legal or regulatory developments, and a material decrease in the fair value of some or all of the assets. Assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of the cash flows generated by other asset groups. Assumptions utilized by management in reviewing for impairment of long-lived assets could be effected by changes in strategy and/or market conditions which may require Veeco to record additional impairment charges for these assets, as well as impairment charges on other long-lived assets not previously recorded.

Warranty Costs:  The Company estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. The Company’s warranty obligation is affected by product failure rates, material usage and labor costs incurred in correcting product failures during the warranty period. As the Company’s customer engineers and process support engineers are highly trained and deployed globally, labor availability is a significant factor in determining labor costs. The quantity and availability of critical replacement parts is another significant factor in estimating warranty costs. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from the Company’s estimates, revisions to the estimated warranty liability would be required.

Deferred Tax Valuation Allowance:  As part of the process of preparing Veeco’s Consolidated Financial Statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves estimating the actual current tax expense, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within Veeco’s condensed consolidated balance sheet. The carrying value of deferred tax assets is adjusted by a valuation allowance to recognize the extent to which the future tax benefits will be recognized on a more likely than not basis. Our net deferred tax assets consist primarily of net operating loss and tax credit carryforwards, and timing differences between the book and tax treatment of inventory and other asset valuations. Realization of these net deferred tax assets is dependent upon our ability to generate future taxable income.

We record valuation allowances in order to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors, including the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. Under SFAS No. 109, factors such as current and previous operating losses are given significantly greater weight than the outlook for future profitability in determining the deferred tax asset carrying value.

For the year ended December 31, 2004, the Company recorded a charge of approximately $54.0 million to establish a valuation allowance against the balance of its domestic net deferred tax assets, which consist of net operating loss and tax credit carryforwards, as well as temporary deductible differences. The valuation allowance was calculated in accordance with the provisions of SFAS No. 109, which places primary importance on the Company’s historical results of operations. Although the Company’s results in prior years were significantly affected by restructuring and other charges, the Company’s historical losses and losses incurred during 2004 represented negative evidence sufficient to require a full valuation allowance under the provisions of SFAS No. 109. If the Company is able to realize part or all of the deferred tax assets in future periods, it will reduce its provision for income taxes with a release of the valuation allowance in an amount that corresponds with the income tax liability generated.

At March 31, 2005, we have foreign deferred tax assets, net of valuation allowances, of $2.9 million. We believe it is more likely than not that we will be able to realize these assets through the reduction of future taxable income.

Other Recent Accounting Pronouncements: On December 16, 2004, the Financial Accounting Standards Board  issued SFAS  No. 123(R) (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS No. 123(R) must be adopted no later than the beginning of the first fiscal year beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS No. 123(R) on January 1, 2006.

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SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1.A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

2.A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company has not yet determined whether it will adopt SFAS No. 123(R) using the modified prospective method or the modified retrospective method.

As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on consolidated results of operations, although it will have no impact on the Company’s overall consolidated financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net loss and net loss per common share in Note 1 to Veeco’s Condensed Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce consolidated net operating cash flows and increase consolidated net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the Company did not recognize an amount of consolidated operating cash flows for such excess tax deductions in 2005 or 2004.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Veeco’s net sales to foreign customers represented approximately 65.1% of Veeco’s total net sales for the three months ended March 31, 2005, and 66.1% for the comparable 2004 period. The Company expects that net sales to foreign customers will continue to represent a large percentage of Veeco’s total net sales. Veeco’s net sales denominated in foreign currencies represented approximately 21.4% of Veeco’s total net sales for the three months ended March 31, 2005, and 24.0% for the comparable 2004 period. The aggregate foreign currency exchange gain included in determining the consolidated results of operations was approximately $0.0 and $0.1 million, net of approximately $0.0 and $0.2 million of hedging gains on forward exchange contracts, for the three months ended March 31, 2005 and 2004, respectively. Veeco is exposed to financial market risks, including changes in foreign currency exchange rates. The changes in currency exchange rates that have the largest impact on translating Veeco’s international operating profit are the Japanese Yen and the Euro. Veeco uses derivative financial instruments to mitigate these risks. Veeco does not use derivative financial instruments for speculative or trading purposes. The Company enters into monthly forward contracts to reduce the effect of fluctuating foreign currencies on short-term foreign currency-denominated intercompany transactions and other known currency exposures. The average notional amount of such contracts was approximately $3.6 million for the three months ended March 31, 2005. As of March 31, 2005, the Company had entered into forward contracts for the month of April for the notional amount of approximately $18.7 million, which approximates the fair market value on March 31, 2005.

Item 4. Controls and Procedures.

The Company’s senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.                The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings.

Subsequent to that evaluation there have been no significant changes in our internal controls or other factors that could significantly affect these controls after such evaluation.

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Part II. OTHER INFORMATION

Item 1.  Legal Proceedings.

On February 11, 2005, the Company issued a press release announcing, among other things (a) the postponement of the release of its financial results for the fourth quarter and full year ended December 31, 2004 pending completion of an internal investigation of improper accounting transactions at its TurboDisc business unit and (b) Veeco’s expectation that this investigation would  lead to adjustments requiring the restatement of the Company’s financial statements previously issued for the three quarterly periods and nine months ended September 30, 2004.

Following the February 11 announcement, ten putative class action shareholder lawsuits were filed in federal court in the Southern District of New York and in the Eastern District of New York asserting claims for violation of federal securities laws on behalf of persons who acquired the Company’s securities during the period beginning November 3, 2003 or April 26, 2004 and ending February 10, 2005. The lawsuits name Veeco, its Chairman and Chief Executive Officer, and its Executive Vice President and Chief Financial Officer as defendants, and seek unspecified damages. The lawsuits allege claims against all defendants for violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and claims against the individual defendants for violations of Section 20(b) of the Exchange Act. Although these proceedings are in the preliminary stages, the Company expects that these lawsuits will be consolidated into a single action in which an amended and consolidated complaint will be filed.  Although the Company believes these lawsuits are without merit and intends to defend vigorously against the claims the lawsuits could result in substantial costs, divert management’s attention and resources from our operations and negatively affect our public image and reputation.

In addition, during March 2005, three shareholder derivative lawsuits were filed in federal court in the Eastern District of New York against the Company’s directors and certain of its officers for breaches of fiduciary duties relating to the improper accounting transactions at the TurboDisc business unit. Each of these lawsuits is a shareholder derivative action that purports to assert claims on behalf of the Company, but as to which no demand was made on the Board of Directors and no decision had been made on whether the Company can or should pursue such claims.  In addition, the Company has received a letter on behalf of a shareholder demanding that the Company commence legal action against its directors and certain of its officers for these same matters.  The letter states that, if the Board does not commence such an action within a reasonable period of time, the shareholder will commence a derivative action on the Company’s behalf.  These lawsuits seek damages allegedly sustained by the Company and the return of all bonuses, restricted stock, stock options and other incentive compensation.  An unfavorable outcome or prolonged litigation in these matters could materially harm the Company’s business.

The Company is involved in various other legal proceedings arising in the normal course of its business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

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Item 6. Exhibits.

Exhibits

Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.

Number	Description	Incorporated by Reference to the Following Document:
10.1	Credit Agreement, dated as of March 15, 2005, among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named therein.	*
10.2	Security Agreement, dated as of March 15, 2005, among Veeco Instruments Inc., the subsidiaries of Veeco named therein and HSBC Bank USA, National Association, as administrative agent.	*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 29, 2005

Veeco Instruments Inc.
By:	/s/ EDWARD H. BRAUN
	Edward H. Braun Chairman and Chief Executive Officer
By:	/s/ JOHN F. REIN, JR.
	John F. Rein, Jr. Executive Vice President, Chief Financial Officer and Secretary

23

INDEX TO EXHIBITS

Unless otherwise indicated, each of the following exhibits has been previously filed with the Securities and Exchange Commission by the Company under File No. 0-16244.

Number	Description	Incorporated by Reference to the Following Document:
10.1	Credit Agreement, dated as of March 15, 2005, among Veeco Instruments Inc., HSBC Bank USA, National Association, as administrative agent, and the lenders named therein.	*
10.2	Security Agreement, dated as of March 15, 2005, among Veeco Instruments Inc., the subsidiaries of Veeco named therein and HSBC Bank USA, National Association, as administrative agent.	*
31.1	Certification of Chief Executive Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a — 14(a) or Rule 15d — 14(a) of the Securities Exchange Act of 1934.	*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

*Filed herewith

24

EX-10.1

Exhibit 10.1

CREDIT AGREEMENT

Dated as of March 15, 2005

by and among

VEECO INSTRUMENTS INC.

and

HSBC BANK USA, NATIONAL ASSOCIATION

as Administrative Agent,

and

THE LENDERS PARTY HERETO

Lead Arranger:

HSBC BANK USA, NATIONAL ASSOCIATION

TABLE OF CONTENTS

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01.	Definitions
SECTION 1.02.	Terms Generally
SECTION 1.03.	Currency Equivalents Generally
ARTICLE II LOANS
SECTION 2.01.	Revolving Credit Loans
SECTION 2.02.	Revolving Credit Note
SECTION 2.03.	Letters of Credit.
SECTION 2.04.	Swingline Loans
ARTICLE III PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT; FEES AND PAYMENTS
SECTION 3.01.	Interest Rate; Continuation and Conversion of Loans
SECTION 3.02.	Use of Proceeds.
SECTION 3.03.	Prepayments
SECTION 3.04.	Fees.
SECTION 3.05.	Inability to Determine Interest Rate.
SECTION 3.06.	Illegality.
SECTION 3.07.	Increased Costs
SECTION 3.08.	Indemnity.
SECTION 3.09.	Mitigation, Obligations; Replacement of Lenders.
SECTION 3.10.	Taxes
SECTION 3.11.	Pro Rata Treatment and Payments
SECTION 3.12.	Funding and Disbursement of Loans
SECTION 3.13.	Judgment Currency.
SECTION 3.14.	Foreign Exchange Indemnity.
SECTION 3.15.	Further Modifications.
ARTICLE IV REPRESENTATIONS AND WARRANTIES

i

SECTION 4.01.	Organization, Powers.
SECTION 4.02.	Authorization of Borrowing, Enforceable Obligations
SECTION 4.03.	Financial Condition.
SECTION 4.04.	Taxes.
SECTION 4.05.	Title to Properties
SECTION 4.06.	Litigation
SECTION 4.07.	Agreements.
SECTION 4.08.	Compliance with ERISA.
SECTION 4.09.	Federal Reserve Regulations; Use of Proceeds.
SECTION 4.10.	Approval
SECTION 4.11.	Subsidiaries and Affiliates.
SECTION 4.12.	Hazardous Materials
SECTION 4.13.	Investment Company Act
SECTION 4.14.	No Default
SECTION 4.15.	Credit Arrangements.
SECTION 4.16.	Permits and Licenses.
SECTION 4.17.	Compliance with Law.
SECTION 4.18.	Disclosure.
SECTION 4.19.	Labor Disputes and Acts of God.
SECTION 4.20.	Pledge Agreements.
ARTICLE V CONDITIONS OF LENDING
SECTION 5.01.	Conditions to Initial Extension of Credit
SECTION 5.02.	Conditions to Extensions of Credit
ARTICLE VI AFFIRMATIVE COVENANTS
SECTION 6.01.	Existence, Properties, Insurance
SECTION 6.02.	Payment of Indebtedness and Taxes.
SECTION 6.03.	Financial Statements, Reports, etc.
SECTION 6.04.	Books and Records; Access to Premises
SECTION 6.05.	Notice of Adverse Change
SECTION 6.06.	Notice of Default
SECTION 6.07.	Notice of Litigation and Investigations

ii

SECTION 6.08.	Notice of Default in Other Agreements.
SECTION 6.09.	Notice of ERISA Event
SECTION 6.10.	Notice of Environmental Law Violations.
SECTION 6.11.	Compliance with Applicable Laws
SECTION 6.12.	Additional Subsidiaries.
SECTION 6.13.	Environmental Laws.
SECTION 6.14.	Non-Material Subsidiaries.
ARTICLE VII NEGATIVE COVENANTS
SECTION 7.01.	Indebtedness
SECTION 7.02.	Liens
SECTION 7.03.	Guaranties
SECTION 7.04.	Sale of Assets.
SECTION 7.05.	Sales of Receivables.
SECTION 7.06.	Loans and Investments.
SECTION 7.07.	Nature of Business.
SECTION 7.08.	Sale and Leaseback.
SECTION 7.09.	Federal Reserve Regulations
SECTION 7.10.	Accounting Policies and Procedures
SECTION 7.11.	Hazardous Materials
SECTION 7.12.	Limitations on Fundamental Changes, Limitations on Consideration; Amendments of Organizational Documents.
SECTION 7.13.	Financial Condition Covenants.
SECTION 7.14.	Subordinated Debt.
SECTION 7.15.	Dividends
SECTION 7.16.	Transactions with Affiliates
SECTION 7.17.	Negative Pledge
ARTICLE VIII EVENTS OF DEFAULT
SECTION 8.01.	Events of Default
ARTICLE IX THE ADMINISTRATIVE AGENT
SECTION 9.01.	Appointment, Powers and Immunities

iii

SECTION 9.02.	Reliance by Administrative Agent.
SECTION 9.03.	Events of Default
SECTION 9.04.	Rights as a Lender
SECTION 9.05.	Indemnification
SECTION 9.06.	Non-Reliance on Administrative Agent and Other Lenders
SECTION 9.07.	Failure to Act
SECTION 9.08.	Resignation of the Administrative Agent
SECTION 9.09.	Sharing of Collateral and Payments
ARTICLE X MISCELLANEOUS
SECTION 10.01.	Notices
SECTION 10.02.	Effectiveness; Survival; Integration
SECTION 10.03.	Expenses
SECTION 10.04.	Amendments and Waivers
SECTION 10.05.	Successors and Assigns; Participations
SECTION 10.06.	No Waiver; Cumulative Remedies
SECTION 10.07.	APPLICABLE LAW
SECTION 10.08.	SUBMISSION TO JURISDICTION
SECTION 10.09.	Severability
SECTION 10.10.	Right of Setoff
SECTION 10.11.	Confidentiality
SECTION 10.12.	Headings
SECTION 10.13.	Construction
SECTION 10.14.	Counterparts
SECTION 10.15.	Special Provisions with Respect to Subordinated Notes
SECTION 10.16.	US Patriot Act

iv

SCHEDULES
Schedule 1.01(a)	-	Guarantors
Schedule 1.01(b)	-	Existing Mortgage Debt
Schedule 4.06	-	Litigation
Schedule 4.11	-	Subsidiaries and Affiliates
Schedule 4.15	-	Credit Arrangements
Schedule 5.01(j)	-	Adverse Changes
Schedule 6.01	-	Exceptions to Existence
Schedule 7.01	-	Permitted Indebtedness (existing after closing)
Schedule 7.02	-	Existing Liens
Schedule 7.03	-	Existing Guarantees
Schedule 7.12	-	Permitted Acquisitions
EXHIBITS
Exhibit A	-	Form of Revolving Credit Note
Exhibit B	-	Form of Swingline Note
Exhibit C	-	Form of Guaranty
Exhibit D	-	Form of Security Agreement
Exhibit E-1	-	Form of Company Pledge Agreement
Exhibit E-2	-	Form of Guarantor Pledge Agreement
Exhibit F	-	Form of Assignment and Acceptance Agreement
Exhibit G	-	Form of Opinion of Counsel
Exhibit H	-	Form of U.S. Tax Compliance Certificate

v

CREDIT AGREEMENT dated as of March 15, 2005, by and among VEECO INSTRUMENTS INC., a Delaware corporation (the “Company”), the LENDERS which from time to time are parties to this Agreement (individually, a “Lender” and, collectively, the “Lenders”) and HSBC BANK USA, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States of America, as Administrative Agent (the “Administrative Agent”).

RECITALS

The Company has requested the Lenders to extend credit from time to time and the Lenders are willing to extend such credit to the Company, subject to the terms and conditions hereinafter set forth.

Accordingly, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01.            Definitions.  As used herein, the following terms shall have the following meanings:

“Additional Lender” shall mean any financial institution which becomes a Lender hereunder pursuant to Section 10.05(c) hereof.

“Administrative Agent” or “Agent” shall mean HSBC Bank USA, National Association in its capacity as Administrative Agent for the Lenders under this Agreement or its successor Administrative Agent permitted pursuant to Section 9.08 hereof.

“Affiliate” shall mean, with respect to a specified Person, another Person which, directly or indirectly, controls or is controlled by or is under common control with such specified Person.  For the purpose of this definition, “control” of a Person shall mean the power, direct or indirect,  to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise; provided that, in any event, any Person who owns directly or indirectly 25% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 25% or more of the partnership or other ownership interests of any Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person.

“Aggregate Letters of Credit Outstandings” shall mean, on the  date of determination, the sum of (a) the aggregate maximum stated amount at such time which is available or available in the future to be drawn under all outstanding Letters of Credit and (b) the aggregate amount of all payments on account of drawings under Letters of Credit made by the Issuing Lender on behalf of the Lenders under any Letter of Credit that has not been reimbursed by the Company.

“Aggregate Outstandings” shall mean, on the date of determination, the sum of (a) the Aggregate Letters of Credit Outstandings at such time, (b) the aggregate outstanding principal amount of all Revolving Credit Loans at such time, and (c) the aggregate outstanding principal amount of all Swingline Loans at such time.

“Agreement” shall mean this Credit Agreement, dated as of March 15, 2005, as it may hereafter

H-1

be amended, restated, supplemented or otherwise modified from time to time.

“Applicable Currency” shall mean, as to any particular payment or Loan, Dollars or the other Approved Currency in which it is denominated or is payable.

“Applicable Currency Equivalent” shall mean, with respect to an amount denominated in Dollars which is to be converted to any other Applicable Currency, the amount of such Applicable Currency required to purchase such amount of Dollars at the Relevant Exchange Rate.

“Applicable Offshore Time” shall mean, with respect to borrowings and payments in Approved Currencies other than Dollars, the local times in the country of settlement for such Approved Currencies as specified from time to time by the Administrative Agent to the parties hereto.

“Applicable Rate” shall mean (a) with respect to each Eurocurrency Loan, the percentage set forth below under the heading “Eurocurrency Margin” opposite the applicable ratio of Consolidated Senior Funded Debt to Consolidated EBITA (the “Applicable Ratio”), (b) with respect to each Prime Rate Loan, the percentage set forth below under the heading “Prime Rate Margin” opposite the Applicable Ratio and (c) with respect to the Commitment Fee payable pursuant to Section 3.04(a) of this Agreement, the percentage set forth below under the heading “Commitment Fee Rate” opposite the Applicable Ratio:

Consolidated Senior Funded Debt to Consolidated EBITA	Eurocurrency Margin (360 day basis)		Prime Rate Margin (360 day basis)		Commitment Fee Rate
Less than 2.00:1:00	1.50	%	-0-	%	0.30	%
Greater than or equal to 2.00:1.00	2.00	%	0.25	%	0.375	%

Notwithstanding the foregoing, during the period commencing on the Closing Date and ending on March 30, 2006, (a) the Applicable Rate with respect to each Eurocurrency Loan shall be 2.00% per annum, (b) the Applicable Rate with respect to each Prime Rate Loan shall be 0.25% per annum and (c) the Applicable Rate with respect to the Commitment Fee payable pursuant to Section 3.04(a) hereof shall be .375% per annum. The Applicable Rate will be set or reset quarterly with respect to each Loan and the Commitment Fee on the first Business Day of the fiscal quarter of the Company that commences after the date on which the financial statements referred to in Section 6.03(a) or Section 6.03(b) hereof (i.e., the Applicable Rate to be set on April 1, 2006 shall be determined based upon the financial statements of the Company for the fiscal year ended December 31, 2005), as the case may be, are required to be delivered to the Administrative Agent, and shall (a) apply to all Eurocurrency Loans and Prime Rate Loans outstanding on such date or to be made on or after such date and (b) be used to calculate the Commitment Fee as described in Section 3.04(a) hereof on or after such date, and, in the case of each of (a) and (b), until, but not including, the next date on which the Applicable Rate is reset in accordance with the provisions hereof; provided, however, that (A) if any financial statements are not received by the Administrative Agent within the time period relating to such financial statements as provided in Section 6.03(a) or Section 6.03(b) hereof, as the case may be, the Applicable Rate used to calculate the Commitment Fee as described in Section 3.04(a) hereof and the Applicable Rate with respect to all Eurocurrency Loans and Prime Rate Loans outstanding on such date or to be made on or after the date the Applicable Rate should have been reset in accordance with the foregoing provisions (i.e., assuming timely delivery of the requisite financial statements), until the day which is the first Business Day of the fiscal quarter of the Company which commences following the receipt by the Administrative Agent of such

H-2

financial statements, will be set based on an Applicable Ratio of equal to or greater than 2.00:1.00 and (B) if Consolidated EBITA at the end of any fiscal quarter, with respect to the four fiscal quarters then ending, is less than $25,000,000, the Applicable Rate used to calculate the Commitment Fee as described in Section 3.04(a) hereof, and with respect to all Eurocurrency Loans and Prime Rate Loans outstanding on such date or to be made on or after such date will be set based on an Applicable Ratio of equal to or greater than 2.00:1.00 which Applicable Rate shall remain in effect until the day which is the first Business Day of the fiscal quarter of the Company which commences following the receipt by the Administrative Agent of financial statements indicating that Consolidated EBITA, with respect to the four fiscal quarter then ending, is greater than or equal to $25,000,000; and further provided, however, that the Administrative Agent and the Lenders shall not in any way be deemed to have waived any Event of Default or any of their remedies hereunder (including, without limitation, remedies provided in Article VIII hereof) in connection with the provisions of the foregoing proviso. During the occurrence and continuance of an Event of Default, no downward adjustment, and only upward adjustments, shall be made to the Applicable Rate.

“Approved Currencies” shall mean Dollars, British pounds sterling, Japanese yen, and the Euro, and, with the consent of each of the Lenders, any other currencies which are freely transferable and convertible into Dollars and in which dealings in deposits are carried out in the London interbank market.

“Assignment and Acceptance Agreement” shall mean an Assignment and Acceptance Agreement entered into by a Lender and an assignee and accepted by the Administrative Agent and, so long as no Event of Default shall have occurred and be continuing, the Company (such consent not to be unreasonably withheld or delayed), in the form attached hereto as Exhibit F or any other form approved by the Administrative Agent.

“Auditor” shall have the meaning specified in Section 6.03(a) hereof.

“Borrowing Date” shall mean, with respect to any Loan or Letter of Credit, the date specified in any notice given pursuant to Section 2.01(b) and Section 2.03(a) hereof on which such Loan or Letter of Credit is requested by the Company.

“Business Day” shall mean any day not a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close, and

(a)if the applicable Business Day relates to any Eurocurrency Loan denominated in Dollars, means such a day on which dealings are carried on in the applicable offshore Dollar interbank market;

(b)if the applicable Business Day relates to an Obligation denominated in the Euro, any such day which is (i) for payments or purchases of the Euro, a TARGET Business Day, and (ii) for all other purposes, including the giving and receiving of notices hereunder, a TARGET Business Day on which banks are generally open for business in London, Frankfurt and in any other principal financial center as the Administrative Agent may from time to time determine for this purpose; and

(c)if the applicable Business Day relates to an Obligation denominated in any other Applicable Currency other than Dollars, a day on which commercial banks are open for foreign exchange business in London, England, and on which dealings in the relevant Applicable Currency are carried on in the applicable offshore foreign exchange interbank market in which disbursements of or payment in such Applicable Currency will be made or received hereunder.

H-3

A “TARGET Business Day” is a day when TARGET (Trans-European Automated Real-time Gross settlement Express Transfer system), or any successor thereto, is scheduled to be open for business.

“Capital Lease” shall mean, with respect to any Person, as of the date of determination, any lease the obligations of which are required to be capitalized on a balance sheet of such Person in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Cash Collateral” shall mean a deposit by the Company made in immediately available funds to a cash collateral account at the Administrative Agent and the taking of all action required to provide the Administrative Agent, for the ratable benefit of the Lenders, a first priority perfected security interest in such deposit.

“Change of Control” shall mean any event or condition which results in any Person or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended), other than a Person or group that is actively involved in the day to day management of the Company on the Closing Date, (i) having acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company (or other securities convertible into such securities) representing 40% or more of the combined voting power of all securities of the Company entitled to vote in the election of directors of the Company; or (ii) obtaining the power (whether or not exercised) to elect a majority of the Company’s directors.

“Chief Financial Officer” shall mean the Chief Financial Officer of the Company or, in the event no such officership exists, the principal financial officer or principal accounting officer of the Company.

“Closing Date” shall mean March 15, 2005.

“Code” shall mean the Internal Revenue Code of 1986, and the regulations promulgated thereunder, each as amended from time to time.

“Commercial Letter of Credit” shall mean any sight letter of credit issued for the account of a Person for the purpose of providing the primary payment mechanism in connection with the purchase of materials, goods, or services by such Person.

“Commitment Fee” shall have the meaning specified in Section 3.04(a) hereof.

“Commitment Proportion” shall mean, with respect to each Lender at the time of determination, the ratio, expressed as a percentage, which (a) such Lender’s Revolving Credit Commitments bear to the Total Commitment or (b) if the Revolving Credit Commitments have expired or have been terminated, the principal balance of the Revolving Credit Loans held by such Lender at such time bear to the principal balance of the Revolving Credit Loans outstanding at such time.

“Commitments” shall mean, collectively, the Revolving Credit Commitments and the Swingline Commitments.

“Company” shall have the meaning set forth in the preamble hereto.

H-4

“Consolidated Capital Expenditures” shall mean, for any period, to the extent capitalized, the sum of all expenditures by the Company and its Subsidiaries on a consolidated basis, in respect of the purchase or acquisition of any fixed or capital assets, including, without limitation, obligations under Capital Leases, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Current Liabilities” shall mean, on the date of determination, all liabilities of the Company and its Subsidiaries, which would be classified as current liabilities on a consolidated balance sheet of the Company and its Subsidiaries, as determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis, provided that there shall be excluded from the calculation of current liabilities, 80% of “Deferred Gross Profit arising from SAB 101” as reflected on the most recent consolidated balance sheet of the Company and its Subsidiaries delivered to the Lenders pursuant to the terms of this Agreement.

“Consolidated EBITA” shall mean, for the Company and its Subsidiaries for any period, Consolidated EBITDA for such period minus depreciation expenses for such period, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.  All of the foregoing categories shall be calculated with respect to the Company and its Subsidiaries on a consolidated basis and shall be calculated (without duplication) over the four fiscal quarters ending on or most recently ended prior to the date of calculation thereof.  Notwithstanding anything to the contrary herein, for purposes of determining compliance with the financial covenants set forth herein and in determining whether an acquisition shall be a Permitted Acquisition only, but not for purposes of calculating the Applicable Rate, Consolidated EBITA shall include the EBITA of any entity acquired in a Permitted Acquisition, which shall be calculated on a pro forma basis with respect to periods prior to consummation of such Permitted Acquisition.

“Consolidated EBITDA” shall mean, for any Person for any period, the Consolidated Net Income (Net Loss) of such Person and its Subsidiaries for such period before provision for federal and state income taxes, minus the sum of (a) Consolidated Interest Income and (b) all extraordinary gains, plus the sum, without duplication, of (a) one-time non-cash charges related to (i) write-downs of intangible assets (including the value of in-process research and development related to a Permitted Acquisition and (ii) to the extent included in Consolidated Net Income before provision for federal and state income taxes, write-downs of, or reserves for, deferred tax assets, (b) Consolidated Interest Expense, (c) depreciation and amortization expenses, (d) non-cash non-recurring charges incurred in connection with accounting for stock-based compensation expense and changes to Statements of Financial Accounting Standards, (e) non-cash restructuring charges (but excluding any accrual or reserve for future cash expenditures, such as severance charges) recorded in the fiscal quarter ended December 31, 2004 and (f) non-recurring legal, accounting and other professional fees and expenses in connection with the TurboDisc Investigation recorded or to be recorded in the fiscal period ended December 31, 2004 through fiscal quarter ending June 30, 2005, all determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.  All of the foregoing categories shall be calculated with respect to such Person and its Subsidiaries on a consolidated basis and shall be calculated (without duplication) over the four fiscal quarters ending on or most recently ended prior to the date of calculation thereof.

“Consolidated EBITDAR” shall mean, for the Company and its Subsidiaries for any period, Consolidated EBITDA plus rent expense, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.  All of the foregoing categories shall be calculated with respect to the Company and its Subsidiaries on a consolidated basis and shall be calculated (without duplication) over the four fiscal quarters ending on or most recently ended prior to the date of calculation thereof.

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“Consolidated EBT” shall mean, for the Company and its Subsidiaries for any period, Consolidated EBITA for such period plus Consolidated Interest Income minus Consolidated Interest Expense and amortization expenses for such period, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.  All of the foregoing categories shall be calculated with respect to the Company and its Subsidiaries on a consolidated basis.

“Consolidated Fixed Charge Coverage Ratio” shall mean, the ratio of (a) the sum of (i) Consolidated EBITDAR minus (ii) Consolidated Net Unfunded Capital Expenditures during the four fiscal quarters ending on or most recently ended prior to the date of determination, minus (iii) income taxes paid to any government or governmental instrumentality by the Company or any of its Subsidiaries during the four fiscal quarters ending on or most recently ended prior to the date of determination to (b) the sum of (i) Consolidated Interest Expense plus (ii) rent expense for the four fiscal quarters ending on or most recently ended prior to the date of determination, plus (iii) the aggregate amount of all scheduled payments due during the next succeeding four fiscal quarters on Indebtedness for borrowed money, including, without limitation, Subordinated Debt minus (iv) at any time following the second anniversary of the Closing Date, an amount equal to 75% of the aggregate outstanding principal amount of all Revolving Credit Loans and Swingline Loans at such time.

“Consolidated Interest Expense” shall mean for any Person, on the date of determination, the sum of all interest expense on Indebtedness of such Person and its Subsidiaries, on a consolidated basis, during the four fiscal quarters ending on or most recently ended prior to the date of calculation thereof, as determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis, and shall not include, in any event, Consolidated Interest Income.

“Consolidated Interest Income” shall mean for any Person, on the date of determination, the sum of all interest income of such Person and its Subsidiaries, on a consolidated basis, during the four fiscal quarters ending on or most recently ended prior to the date of calculation thereof, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Net Income (Net Loss)” shall mean for any Person, for any period, the net income (or net loss) of such Person and its Subsidiaries on a consolidated basis for such period determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Net Unfunded Capital Expenditures” shall mean, for the Company and its Subsidiaries, Consolidated Unfunded Capital Expenditures less the net proceeds, not in excess of $5,000,000, from the sale of fixed or capital assets realized by the Company and its Subsidiaries on a consolidated basis during the preceding four fiscal quarters.

“Consolidated Quick Assets” shall mean, on the date of determination, the sum of all cash, Marketable Securities, and accounts receivable of the Company and its Subsidiaries which have not been assigned, transferred, restricted, sold or subject to any Lien, except Liens in favor of the Administrative Agent for the benefit of the Lenders in accordance with this Agreement, all as calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Quick Ratio” shall mean, on the date of determination, the ratio of (a) Consolidated Quick Assets to (b) the sum, without duplication, of Consolidated Current Liabilities and 75% of the Aggregate Outstandings.  In addition, for purposes of calculating the Consolidated Quick

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Ratio, if, as of the date of determination, Consolidated EBITA on a rolling four-quarters basis is less than $20,000,000, then accounts receivable of the Company and its Subsidiaries on a consolidated basis shall be excluded from Consolidated Quick Assets to the extent such accounts receivable exceed 50% of Consolidated Quick Assets.

“Consolidated Senior Funded Debt” shall mean, on the date of determination, the sum of all Indebtedness for borrowed money of the Company and its Subsidiaries (including, without limitation, the current portion of Subordinated Indebtedness), determined on a consolidated basis and including the current portion thereof and the Aggregate Letters of Credit Outstanding, but excluding the long term portion of the Existing Mortgage Debt and the long-term portion of Subordinated Indebtedness, all as determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Total Assets” shall mean, at any time, the total assets of the Company and its Subsidiaries, as would be set forth or reflected on a consolidated balance sheet of the Company and its Subsidiaries, prepared in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Total Revenues” shall mean, at any time, the total revenues of the Company and its Subsidiaries, as would be set forth or reflected on a consolidated balance sheet of the Company and its Subsidiaries, prepared in accordance with Generally Accepted Accounting Principles applied on a consistent basis.

“Consolidated Unfunded Capital Expenditures” shall mean those Consolidated Capital Expenditures of the Company and its Subsidiaries not funded by Indebtedness; provided that, for purposes of this definition only, “Indebtedness” shall not include Indebtedness arising under this Agreement.

“Default” shall mean any condition or event which upon notice, lapse of time or both would constitute an Event of Default.

“Determination Date” shall have the meaning specified in Section 4.03 hereof.

“Dollar” and the symbol “$” shall mean lawful currency of the United States of America.

“Dollar Equivalent Amount” shall mean, (a) in relation to any amount denominated in Dollars, the amount thereof at such time, and (b) in relation to any amount denominated in any Applicable Currency other than Dollars, the amount in Dollars which such amount would equal when converted at the Exchange Rate then in effect.

“Domestic Subsidiary” shall mean any Subsidiary of the Company organized under the laws of any state of the United States of America.

“Eligible Investments” shall mean (a) direct obligations of the United States of America or any governmental agency thereof which are fully guaranteed or insured by the United States of America; (b) Dollar denominated certificates of time deposit issued by any bank organized and existing under the laws of the United States or any state thereof and having aggregate capital and surplus in excess of $500,000,000 or by any Lender; (c) money market mutual funds having assets in excess of $2,000,000,000; (d) money market mutual funds having assets in excess of $500,000,000 managed by a Lender or an Affiliate of a Lender; (e) commercial paper rated not less than P-1 or A-1 or their equivalent

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by Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group, respectively; (f) tax exempt securities of a U.S. issuer rated A or better by Standard & Poor’s Ratings Group or rated A-2 or better by Moody’s Investors Service, Inc.; (g) cash; (h) asset-backed securities, mortgage-backed securities and auction-rate securities rated AAA (or its equivalent) by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (i) bonds issued by corporations organized under the laws of any state of the United States rated A (or its equivalent) or better by  Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; and (j) short-term investments by any Non-Domestic Subsidiary made in the ordinary course of its business and in accordance with the Company’s guidelines and procedures provided that the aggregate amount of such investments by the Non-Domestic Subsidiaries shall not exceed the lesser of (1) $25,000,000 or (2) fifty percent (50%) of the aggregate amount of Eligible Investments.

“EMU Legislation” shall mean legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.

“Environmental Law” shall mean any applicable law, ordinance, rule, regulation, or policy having the force of law of any Governmental Authority relating to pollution or protection of the environment or to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and the rules and regulations promulgated pursuant thereto.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” shall mean each person (as defined in Section 3(9) of ERISA) which together with the Company or any Affiliate of the Company would be deemed to be a member of the same “controlled group” within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“Euro” shall mean the single currency of Participating Member States.

“Eurocurrency Base Rate” shall mean, for any Interest Period with respect to a Eurocurrency Loan, the rate of interest determined by the Administrative Agent as the rate for deposits in the Applicable Currency for a period equal to such Interest Period which appears on Telerate Page 3740 or 3750 as of 11:00 a.m. (London time) on the day which is two Business Days prior to the commencement of such Interest Period.  (For purposes hereof, “Telerate Page 3740 or 3750” means the display designated as “3740” or “3750” by Bridge Information Systems, Inc. (formerly known as Dow Jones Market Service) or any replacement page thereof.)  If the Administrative Agent is unable to obtain any quotation as provided above, the Eurocurrency Base Rate shall be the rate of interest per annum determined by the Administrative Agent to be the rate at which deposits in the Applicable Currency in the approximate amount of the amount of the Eurocurrency Loan to be made or continued as, or converted into, a Eurocurrency Loan and having a maturity comparable to such Interest Period would be offered by four major banks selected by the Administrative Agent in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

The principal London office of each of the four major banks will be requested to provide a quotation of its Applicable Currency deposit offered rate.  If at least two such quotations are provided, the

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Eurocurrency Base Rate for that date will be the arithmetic mean of the quotations.  If fewer than two quotations are provided as requested, it will be deemed that the Eurocurrency Base Rate cannot be determined.

“Eurocurrency Loans” shall mean Loans at such time as they are made and/or being maintained at a rate of interest based upon Reserve Adjusted Eurocurrency Rate.

“Eurocurrency Reserve Requirement” shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves, under any regulations of the Board of Governors of the Federal Reserve System or any other governmental authority having jurisdiction with respect thereto) as from time to time in effect, dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “eurocurrency liabilities” in Regulation D) maintained by any Lender.

“Eurocurrency Sublimit” shall mean $25,000,000.

“Event of Default” shall have the meaning set forth in Article VIII hereof.

“Exchange Rate” shall mean, with respect to any currency (the “first currency”) on any date, the rate at which such currency may be exchanged into another currency (the “second currency”), as set forth on such date on the relevant Reuters currency page at or about 11:00 a.m. London time on such date. In the event that such rate does not appear on any Reuters currency page, the “Exchange Rate” shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Company or, in the absence of such agreement, such “Exchange Rate” shall instead be the Administrative Agent’s spot rate of exchange in the interbank market where its foreign currency exchange operations in respect of such first currency are then being conducted, at or about 10:00 a.m., local time, at such date for the purchase of the second currency with such first currency, for delivery two Business Days later provided, that if at the time of any such determination, no such spot rate can reasonably be quoted, the Administrative Agent may use any reasonable method as it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error (without prejudice to the determination of the reasonableness of such method).

“Existing Indebtedness” shall mean all Indebtedness and other obligations of the Company arising pursuant to that certain Credit Agreement dated as of April 19, 2001, among the Company, the lenders party thereto, Fleet National Bank, as Administrative Agent, JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank), as Syndication Agent and HSBC Bank USA, National Association, as Documentation Agent, as such agreement has been amended, modified and supplemented from time to time.

“Existing Mortgage Debt” shall mean Indebtedness secured by real property, as described on Schedule 1.01(b) hereto.

“Federal Funds Rate” shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal fund brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the

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day of such transactions received by the Administrative Agent from three Federal fund brokers of recognized standing selected by the Administrative Agent.

“First-Tier Subsidiary” shall mean, with respect to any Person, a Subsidiary of such Person that is directly owned by such Person.

“Foreign Pledge Agreements” shall mean such pledge agreements or other documents, as may be required in order to grant to the Administrative Agent (for the benefit of the Lenders) a security interest in 65% of the issued and outstanding shares of stock or other ownership interest of any Non-Domestic Subsidiary.

“Generally Accepted Accounting Principles” shall mean those generally accepted accounting principles in the United States of America, as in effect from time to time.

“Governmental Authority” shall mean any nation or government, any state, province, city or municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign.

“Guarantors” shall mean, collectively, those Material Domestic Subsidiaries set forth on Schedule 1.01(a) hereto and each other Material Domestic Subsidiary which, from time to time hereafter, is required to execute a Guaranty in accordance with Section 6.12 hereof; provided such Subsidiary’s status as a Guarantor shall be effective as of the date of such execution.

“Guaranty” shall mean the Guaranty in the form attached hereto as Exhibit C to be executed and delivered by each Guarantor on the Closing Date and thereafter by any Material Domestic Subsidiary required to deliver a Guaranty pursuant to Section 6.12 hereof, as any such Guaranty may hereafter be amended, restated, supplemented or otherwise modified from time to time.

“Hazardous Materials” shall mean any explosives, radioactive materials, or other materials, wastes, substances, or chemicals regulated as toxic or hazardous or as a pollutant, contaminant or waste under any applicable Environmental Law.

“Hedging Agreement” shall mean any interest rate swap, collar, cap, floor, option or forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of the Company and any confirming letter executed pursuant to such agreement, all as amended, supplemented, restated or otherwise modified from time to time.

“Indebtedness” shall mean, without duplication, as to any Person, (a) indebtedness for borrowed money; (b) indebtedness for the deferred purchase price of property or services; (c) indebtedness evidenced by bonds, debentures, notes or other similar instruments; (d) obligations and liabilities secured by a Lien upon property owned by such Person, whether or not owing by such Person and even though such Person has not assumed or become liable for the payment thereof; (e) obligations or liabilities created or arising under any conditional sales contract or other title retention agreement with respect to property used and/or acquired by such Person; (f) the capitalized portion of obligations of such Person as lessee under Capital Leases; (g) net liabilities of such Person under Hedging Agreements and foreign currency exchange agreements, as calculated in accordance with accepted practice; (h) all obligations, contingent or otherwise of such Person as an account party or applicant in respect of letters of credit created for the account or upon the application of such Person; and (i) obligations and liabilities of the

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types described in clause (a) through (h) above, directly or indirectly, guaranteed by such Person.

“Indenture” shall mean the Indenture, dated December 21, 2001 by and between the Company and the trustee named therein providing for issuance of the Subordinated Notes.

“Interest Payment Date” shall mean (a) as to any Prime Rate Loan, the last day of each calendar month during the term hereof and the date on which such Prime Rate Loan is converted to a Eurocurrency Loan; (b) as to any Eurocurrency Loan, the last day of the Interest Period applicable thereto and, if such Interest Period exceeds three months, the date that falls three months after the beginning of such Interest Period; and (c) as to any Loan, the date such Loan is paid in full or in part, to the extent of such payment.

“Interest Period” shall mean with respect to any Eurocurrency Loan:

(a)initially, the period commencing on the date such Eurocurrency Loan is made and ending one, two, three or six months thereafter, as selected by the Company in its notice of borrowing or in its notice of conversion from a Prime Rate Loan, in each case in accordance with the terms of Articles II and III hereof; and

(b)thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurocurrency Loan and ending one, two, three or six months thereafter, as selected by the Company by irrevocable written notice to the Administrative Agent not later than the Applicable Offshore Time, four Business Days prior to the last day of the then current Interest Period with respect to a Eurocurrency Loan which is denominated in an Approved Currency other than Dollars, or 11:00 a.m. (New York, New York time) three Business Days prior to the last day of the then current Interest Period with respect to a Eurocurrency Loan which is denominated in Dollars, and the Administrative Agent shall promptly notify each of the Lenders of such notice; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following:

(i)if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless 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 immediately preceding Business Day;

(ii)if the Company shall fail to give notice as provided in clause (b) above, the Company shall be deemed to have requested conversion of the affected Eurocurrency Loan to a Prime Rate Loan on the last day of the then current Interest Period with respect thereto;

(iii)any Interest Period 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 a calendar month; and

(iv)no more than ten (10) Interest Periods may exist at any one time.

“Issuing Lender” shall mean the Person which is the Administrative Agent, in its capacity as the issuer of Letters of Credit hereunder or its successor Issuing Lender permitted pursuant to Section 2.03(e) hereof.  The Issuing Lender may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Lender, in which case the term “Issuing Lenders” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

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“Lead Arranger” shall mean HSBC Bank USA, National Association.

“Lenders” shall have the meaning set forth in the preamble hereto and shall include the Swingline Lender and the Issuing Lender.

“Lending Office” shall mean, for each Lender, the office specified under such Lender’s name on the signature pages hereof with respect to each Type of Loan, or such other office as such Lender may designate in writing from time to time to the Company and the Administrative Agent with respect to such Type of Loan.

“Letter of Credit” shall mean any commercial or standby letter of credit issued by the Issuing Lender for the account of the Company pursuant to the terms of this Agreement.

“Letter of Credit Agreement” shall mean the Issuing Lender’s applicable form of Application for Letter of Credit, as in effect at the time that a request is made for a Letter of Credit.  If there are any conflicts between the provisions of any Letter of Credit Agreement and this Agreement, the provisions of this Agreement shall govern.

“Lien” shall mean any mortgage, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other titleretention agreement, any Capital Lease and any financing lease having substantially the same economic effect as any of the foregoing).

“Loans” shall mean, collectively, the Revolving Credit Loans and the Swingline Loans.

“Loan Documents” shall mean, collectively, this Agreement, the Notes, the Guaranties, the Security Agreement, the Hedging Agreements (but only to the extent that such Hedging Agreements are between the Company and a Lender and relate to the Company’s hedging of interest rate exposure under this Agreement), the Pledge Agreements, and each other agreement executed in connection with the transactions contemplated hereby or thereby, as each of the same may hereafter be amended, restated, supplemented or otherwise modified from time to time.

“Marketable Securities” shall mean those securities described in the definition of “Eligible Investments”, that are classified as current assets, as would be set forth or reflected on a consolidated balance sheet of the Company and its Subsidiaries, prepared in accordance with Generally Accepted Accounting Principles applied on a consistent basis, provided that, for purposes of determining Consolidated Quick Assets, those securities described in clause (j) of the definition of “Eligible Investments” shall not exceed 20% of the aggregate amount of Marketable Securities, at any time.

“Material Adverse Effect” shall mean a material adverse effect upon (a) the business, operations, property or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole or (b) the ability of the Company or any Guarantor to perform in any material respect any obligations under any Loan Document to which it is a party.

“Material Domestic Subsidiary” shall mean a Material Subsidiary which is a Domestic Subsidiary.

“Material Non-Domestic Subsidiary” shall mean a Material Subsidiary which is a Non-Domestic Subsidiary.

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“Material Subsidiary” shall mean any Subsidiary of the Company which has assets constituting at least five percent (5%) of Consolidated Total Assets or has revenues consisting of at least five percent (5%) of Consolidated Total Revenues, as reflected on the most recent financial statements delivered pursuant to Section 6.03(a) or (b) hereof.

“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in Section 4001(a)(3) of ERISA), which is covered by Title IV of ERISA.

“Non-Domestic Subsidiary” shall mean any Subsidiary of the Company which is not a Domestic Subsidiary.

“Non-Material Domestic Subsidiary” shall mean any Non-Material Subsidiary which is a Domestic Subsidiary.

“Non-Material Subsidiary” shall mean any Subsidiary of the Company which is not a Material Subsidiary.

“Non-Excluded Taxes” shall have the meaning set forth in Section 3.10(a) hereof.

“Notes” shall mean, collectively, the Revolving Credit Notes and the Swingline Note.

“Obligations” shall mean all obligations, liabilities and indebtedness of the Company and any of its Subsidiaries to the Lenders, the Issuing Lender and the Administrative Agent, whether now existing or hereafter created, absolute or contingent, direct or indirect, due or not, whether created directly or acquired by assignment or otherwise, arising under this Agreement, the Notes or any other Loan Document including, without limitation, all obligations, liabilities and indebtedness of the Company with respect to the principal of and interest on the Loans (including any interest that accrues after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), reimbursement of Letters of Credit, obligations under any Hedging Agreement relating to the Indebtedness of the Company arising under this Agreement, and all fees, costs, expenses and indemnity obligations of the Company and any of its Subsidiaries hereunder or under any other Loan Document (including all fees and expenses of the Administrative Agent and any Lender incurred pursuant to this Agreement or any other Loan Document).

“Participant” shall have the meaning set forth in Section 10.05(b) hereof.

“Participating Member States” shall mean each country which from time to time becomes a Participating Member State as described in EMU Legislation.

“Payment Office” shall mean (a) in the case of payments in Dollars, the Administrative Agent’s office located at 534 Broad Hollow Road, Melville, New York 11747 or such other office as the Administrative Agent may designate from time to time in writing and (b) in the case of payments in any Approved Currency other than Dollars, such address as the Administrative Agent may, from time to time, specify.

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section

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4002 of ERISA, or any successor thereto.

“Permitted Acquisition” shall mean any acquisition (whether by merger or otherwise) by the Company or any Subsidiary of the Company of more than 50% of the outstanding capital stock, membership interests, partnership interests or other similar ownership interests of a Person which is engaged in a line of business similar to the business (or reasonable extensions thereof) of the Company or such Subsidiary or the purchase of all or substantially all of the assets owned by such Person or the purchase of a division, business unit or product line of a Person; provided (a) the Administrative Agent shall have received, within ten (10) Business Days of the closing of such Permitted Acquisition, (i) with respect to a Person which constitutes a Material Domestic Subsidiary, to the extent not previously received, duly executed amendments with respect to the Guaranty and the Security Agreement, pursuant to which such Subsidiary becomes a “Guarantor” and “Grantor” under the Guaranty and the Security Agreement, respectively, and (ii) with respect to a Person which constitutes a Material Non-Domestic Subsidiary, to the extent not previously received, a duly executed Pledge Agreement by the parent of such Material Non-Domestic Subsidiary, to the extent such documents are required to be delivered pursuant to Section 6.12 hereof; (b) the Administrative Agent shall have received evidence reasonably satisfactory to it that the shares or other interests in the Person, or the assets of the Person, which is the subject of the Permitted Acquisition are, or will be promptly following the closing of such Permitted Acquisition, free and clear of all Liens, except Permitted Liens, including, without limitation, with respect to the acquisition of shares or other equity interests, free of any restrictions on transfer other than restrictions applicable to the sale of securities under federal and state securities laws and regulations generally; (c) the Administrative Agent shall have received (i) within ten (10) Business Days following the closing of such Permitted Acquisition, if the Permitted Acquisition Purchase Price is less than $15,000,000, and (ii) not less than five (5) Business Days preceding the closing of such Permitted Acquisition, if the Permitted Acquisition Purchase Price is greater than or equal to $15,000,000, the documentation governing the proposed acquisition, including, without limitation, the purchase agreement with respect thereto, together with such other additional documentation or information with respect to the proposed acquisition as the Administrative Agent may reasonably require; (d) no Default or Event of Default shall have occurred and be continuing immediately prior to or would occur after giving effect to the acquisition on a pro forma basis and the Administrative Agent shall have received projections and pro forma financial statements showing that no Default or Event of Default shall have occurred after giving effect to such acquisition; (e) the acquisition has either (i) been approved by the Board of Directors or other governing body of the Person which is the subject of the acquisition or (ii) been recommended for approval by the Board of Directors or other governing body of such Person to the shareholders or other members of such Person and subsequently approved by the shareholders or such members if shareholder or such member approval is required under applicable law or the by-laws, certificate of incorporation or other governing instruments of such Person; (f) prior to the closing of any such acquisition, the Company shall have delivered evidence to the Administrative Agent (with sufficient copies for each of the Lenders)  that, on a pro forma basis, (i) the Company will be in compliance with the financial condition covenants of Section 7.13 hereof upon completion of such acquisition and (ii) the ratio of Consolidated Senior Funded Debt to Consolidated EBITA will not exceed 2.00:1.00 upon completion of such acquisition; (g) in the case of an acquisition of a Non-Domestic Subsidiary, the business to be acquired shall be acquired by the Company, a Guarantor or a Material Non-Domestic Subsidiary; (h) the aggregate Permitted Acquisition Purchase Price (excluding consideration consisting of the Company’s common stock) paid in connection with all Permitted Acquisitions, collectively, during each rolling twelve (12) month period shall not exceed an amount equal to the product of three (3) times Consolidated EBITA for the trailing four fiscal quarters, provided, that, the Permitted Acquisition Purchase Price for any single Permitted Acquisition shall not exceed $20,000,000 if the business which is the subject of such Permitted Acquisition has a negative Consolidated EBITDA or if Consolidated EBITDA cannot be reasonably determined by the Company or

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such Person; and (i) the Company and its Subsidiaries shall not close more than four (4) Permitted Acquisitions in any rolling twelve (12) month period.

“Permitted Acquisition Purchase Price” shall mean, with respect to any Permitted Acquisition, collectively, without duplication, (a) all cash paid by the Company or any of its Subsidiaries in connection with such Permitted Acquisition, including transaction costs, fees and other expenses incurred by the Company or such Subsidiary in connection with such Permitted Acquisition, (b) all Indebtedness created, and all Indebtedness assumed, by the Company or any of its Subsidiaries in connection with such Permitted Acquisition, including, without limitation, the maximum amount of any purchase price to be paid pursuant to any “earn out” provision contained in the applicable purchase agreements related to such Permitted Acquisition, (c) the value of all capital stock issued by the Company or any of its Subsidiaries in connection with such Permitted Acquisition, and (d) the deferred portion of the purchase price or any other costs paid by the Company or any of its Subsidiaries in connection with such Permitted Acquisition, including, but not limited to, consulting agreements and non-compete agreements.  For purposes of this definition, if any “earn out” provision in any purchase agreement for any Permitted Acquisition does not provide for a maximum payment, the amount to be calculated pursuant to subsection (b) of this definition with respect to the maximum amount of any purchase price to be paid pursuant to any “earn out” provision, shall be determined by the Administrative Agent, on a reasonable basis, on the basis of the projections provided to the Administrative Agent.

“Permitted Equity Investment” shall mean any acquisition (other than a Permitted Acquisition) by the Company or any Subsidiary of the Company of the capital stock, membership interests, partnership interests or other similar interests of a Person, including any investment in a joint venture, provided that such acquisition does not result in the Company or such Subsidiary having the right to vote a majority of the outstanding capital stock or other ownership interests of such Person.

“Permitted Equity Investment Costs” shall mean, as of any date of determination, the aggregate amount of cash and other property invested by the Company or any Subsidiary in a Person, and/or loans made by the Company or any Subsidiary to such Person, in connection with all Permitted Equity Investments; provided, however, that the value of any property so invested by the Company or any Subsidiary shall be equal to the fair market value of such property as of the date of such investment and such value shall not be adjusted to give effect to the loss in value of any Permitted Equity Investment.

“Permitted Liens” shall mean the Liens specified in clauses (a) through (n) of Section 7.02 hereof.

“Person” shall mean any natural person, corporation, limited liability company, limited liability partnership, business trust, joint venture, association, company, partnership, unincorporated trade or business enterprise or Governmental Authority.

“Plan” shall mean any Multiemployer Plan or Single-Employer Plan, defined in and subject to Section 4001 of ERISA, which covers, or at any time during the five calendar years preceding the date of this Agreement covered, employees of the Company, any Guarantor or an ERISA Affiliate on account of such employees’ employment by the Company, any Guarantor or an ERISA Affiliate, provided that such term shall not include any Plan terminated prior to the date hereof and with respect to which the Company, such Guarantor or such ERISA Affiliate could not incur any material liability with respect thereto.

“Pledge Agreements” shall mean, collectively, (a) with respect to the Company, the Pledge

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Agreement in the form attached hereto as Exhibit E-1, to be executed and delivered by the Company on the Closing Date pursuant to Section 5.01 hereof and, thereafter, by the Company as required pursuant to Section 6.12 hereof, (b) with respect to any Domestic Subsidiary, as applicable, the Pledge Agreement in the form attached hereto as Exhibit E-2, to be executed and delivered by any Domestic Subsidiary which is the direct holder of capital stock of any Material Non-Domestic Subsidiary, who is required to execute the same pursuant to Section 6.12 hereof, and (c) the Foreign Pledge Agreements, as each of the same may hereafter be amended, restated, supplemented or otherwise modified, from time to time.

“Prime Rate” shall mean the rate per annum announced by the Person which is the Administrative Agent from time to time as its prime rate in effect at its principal office, each change in the Prime Rate shall be effective on the date such change is announced to become effective without notice or demand of any kind.  The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate charged by the Person which is the Administrative Agent to any customer.

“Prime Rate Loan” shall mean Loans at such time as they are being made and/or maintained at a rate of interest based upon the Prime Rate.

“Purchasing Lender” shall have the meaning set forth in Section 10.05(c) hereof.

“Register” shall have the meaning set forth in Section 10.05(d) hereof.

“Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time.

“Relevant Exchange Rate” shall mean, with respect to any Eurocurrency Loan denominated in any Approved Currency other than Dollars, the Exchange Rate for the purchase of Dollars with such Approved Currency in effect on the date which is two Business Days prior to the later of (a) the date on which such Loan was first made, or (b) the date on which such Loan was continued, if applicable, pursuant to the terms of this Agreement.

“Reportable Event” shall mean an event described in Section 4043(c) of ERISA with respect to a Plan as to which the 30 day notice requirement has not been waived by the PBGC.

“Required Lenders” shall mean Lenders owed at least 67% of the sum of the aggregate unpaid principal amount of the Revolving Credit Loans or, if no Revolving Credit Loans are outstanding, Lenders having at least 67% of the Total Commitment.

“Reserve Adjusted Eurocurrency Rate” shall mean, with respect to the Interest Period for each Eurocurrency Loan, the rate per annum (rounded upwards to the next higher 1/16th of one percent) equal to the following:

Eurocurrency Base Rate

1.00 - - Eurocurrency Reserve Requirement

“Revolving Credit Commitment” shall mean, with respect to each Lender at any time, the obligation of such Lender to make Revolving Credit Loans to the Company and to acquire participations in Letters of Credit in an aggregate amount not to exceed (i) with respect to a Lender party to this Agreement on the Closing Date, the amount set forth opposite such Lender’s name on the signature pages hereof under the caption Revolving Credit Commitment, as such amounts may be reduced or increased in

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accordance with the terms of this Agreement or in any Assignment and Acceptance Agreement executed by such Lender or, (ii) with respect to an Additional Lender, in an aggregate amount not to exceed the amount set forth in the Assignment and Acceptance Agreement pursuant to which such Additional Lender became a Lender, in each case, as such amounts may be reduced or increased in accordance with any Assignment and Acceptance Agreement executed by such Additional Lender.

“Revolving Credit Commitment Period” shall mean the period from and including the Closing Date to, but not including, the Revolving Credit Commitment Termination Date or such earlier date as the Revolving Credit Commitments shall terminate as provided herein.

“Revolving Credit Commitment Termination Date” shall mean March 14, 2008.

“Revolving Credit Loans” shall have the meaning set forth in Section 2.01(a) hereof.

“Revolving Credit Notes” shall have the meaning set forth in Section 2.02 hereof.

“Security Agreement” shall mean the Security Agreement in the form attached hereto as Exhibit D, to be executed and delivered by the Company and the Guarantors on the Closing Date, as the same may hereafter be amended, restated, supplemented or otherwise modified  from time to time.

“Single-Employer Plan” shall mean a Plan that is a “single-employer plan” (as such term is defined in Section 4001(a)(15) of ERISA), which is covered by Title IV of ERISA.

“Solvent” shall mean with respect to any Person as of the date of determination thereof that (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise,” as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature, in each case after giving effect to any right of indemnification and contribution of such Person from or to any Affiliate.

“Standby LC Disbursement” shall mean a payment made by the Issuing Lender pursuant to a Standby Letter of Credit.

“Standby LC Exposure” shall mean, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Standby Letters of Credit at such time, and (b) the aggregate amount of all Standby LC Disbursements that have not yet been reimbursed by or on behalf of the Company at such time.

“Standby LC Margin” shall mean the percentage indicated as the “Eurocurrency Margin” with respect to Eurocurrency Loans as set forth and determined in accordance with the definition of “Applicable Rate”.

“Standby Letter of Credit” shall mean any letter of credit issued to support an obligation of a Person and which may be drawn on only upon the failure of such Person to perform such obligation or other contingency.

“Subordinated Debt” or “Subordinated Indebtedness” shall mean all debt which is subordinated in

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right of payment to the prior final payment in full of the obligations of the Company and/or of its Subsidiaries to the Lenders hereunder and under any other Loan Document on subordination terms satisfactory to and approved in writing by the Required Lenders (not to be unreasonably withheld or delayed).

“Subordinated Notes” shall mean up to $220,000,000 of 4-1/8% Convertible Subordinated Notes due 2008 issued by the Company as described in the Indenture.

“Subsidiary” shall mean, with respect to any Person, any corporation, association or other business entity 50% or more of the voting stock or other ownership interests (including, without limitation, membership interests in a limited liability company) of which is, at the time, owned or controlled, directly or indirectly, by such Person or one or more of its Subsidiaries or a combination thereof.

“Swingline Commitment” shall mean the obligation of the Swingline Lender to make Swingline Loans to the Company in an aggregate amount not to exceed $2,000,000 at any time outstanding.

“Swingline Lender” shall mean the Person which is the Administrative Agent, in its capacity as lender of Swingline Loans.

“Swingline Loan” shall have the meaning set forth in Section 2.04(a) hereof.

“Swingline Note” shall have the meaning set forth in Section 2.04(e) hereof.

“Total Commitment” shall mean, at any time, the aggregate of the Revolving Credit Commitments in effect at such time which shall be $50,000,000.

“TurboDisc Investigation” shall mean the investigation by the Company, its counsel and other agents, into improper accounting procedures at its TurboDisc business unit.

“Type” shall mean as to any Loan its status as a Prime Rate Loan or a Eurocurrency Loan.

“UCP” shall mean the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500 or any successor publication thereof.

“Unfunded Current Liability” of any Plan shall mean the amount, if any, by which the present value of the accrued benefits under such Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.

SECTION 1.02.Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter.  Except as otherwise herein specifically provided, each accounting term used herein shall have the meaning given to it under Generally Accepted Accounting Principles. The term “including” shall not be limited or exclusive, unless specifically indicated to the contrary.  The word “will” shall be construed to have the same meaning in effect as the word “shall”.  The words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto and any amendments thereof, all of which are by this reference incorporated into this Agreement.

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SECTION 1.03.Currency Equivalents Generally.  Except to the extent expressly provided otherwise herein (including for purposes of any denomination of any Eurocurrency Loan not denominated in Dollars into a Loan in Dollars but not for purposes of the preparation of any financial statements delivered pursuant hereto or any exchange rate determinations expressly required to be done using a different method), the equivalent in any Approved Currency (or any other currency) of an amount in Dollars, and the equivalent in Dollars of any amount in any Approved Currency (or any other currency), shall be determined at the Exchange Rate.

ARTICLE II
LOANS

SECTION 2.01.Revolving Credit Loans.

(a)Subject to the terms and conditions, and relying upon the representations and warranties, set forth herein, each Lender severally agrees to make loans (individually a “Revolving Credit Loan” and, collectively, the “Revolving Credit Loans”) in Dollars or any other Approved Currency to the Company from time to time during the Revolving Credit Commitment Period up to, but not exceeding, at any one time outstanding the aggregate Dollar Equivalent Amount of its Revolving Credit Commitment; provided, however, that no Revolving Credit Loan shall be made if, after giving effect to such Revolving Credit Loan, the Dollar Equivalent Amount of the Aggregate Outstandings would exceed the Total Commitment or the Dollar Equivalent Amount of all Eurocurrency Loans denominated in a currency other than Dollars would exceed the Eurocurrency Sublimit.  During the Revolving Credit Commitment Period, the Company may from time to time borrow, repay and reborrow Revolving Credit Loans on or after the date hereof and prior to the Revolving Credit Commitment Termination Date, subject to the terms, provisions and limitations set forth herein.  The Revolving Credit Loans may be (i) Eurocurrency Loans, (ii) Prime Rate Loans or (iii) a combination thereof, provided that all Loans in Approved Currencies other than Dollars shall be Eurocurrency Loans.

(b)The Company shall give the Administrative Agent irrevocable written notice (or telephonic notice promptly confirmed in writing) not later than: (i) the Applicable Offshore Time, four Business Days prior to the date of each proposed Eurocurrency Loan under this Section 2.01 denominated in any Approved Currency other than Dollars, (ii) 11:00 a.m. (New York, New York time) three Business Days prior to the date of each proposed Eurocurrency Loan under this Section 2.01 denominated in Dollars, or (iii) prior to 11:00 a.m. (New York, New York  time) on the date of each proposed Prime Rate Loan under this Section 2.01, provided that no Eurocurrency Loan shall be made less than one month prior to the Revolving Credit Commitment Termination Date.  Such notice shall be irrevocable and shall specify (i) the amount and Type of the proposed borrowing, (ii) the proposed Borrowing Date, and (iii) if a Eurocurrency Loan, the initial Interest Period and the proposed currency thereof which shall be an Approved Currency.  Upon receipt of such notice from the Company, the Administrative Agent shall promptly notify each Lender of such request, and shall promptly thereafter, upon determination thereof, notify each Lender of the amount of such Lenders’ Commitment Proportion of such requested Loan and, if a Eurocurrency Loan denominated in an Approved Currency other than Dollars, the Dollar Equivalent Amount thereof and the applicable Exchange Rate used by the Administrative Agent to determine such Dollar Equivalent Amount.  Except for borrowings which utilize the full remaining amount of the Total Commitment, each borrowing of a Prime Rate Loan (other than a Swingline Loan) shall be in an amount not less than $1,000,000 or, if greater, whole multiples of $1,000,000 in excess thereof.  Each borrowing of a Eurocurrency Loan shall be in an amount not less than $2,000,000 (or the Applicable Currency Equivalent thereof) or whole multiples of $1,000,000 (or the Applicable Currency Equivalent thereof) in excess thereof.  Funding of all Revolving Credit Loans shall be made in accordance with Section 3.12 of

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this Agreement.

(c)The Company shall have the right, upon not less than five Business Days’ prior written notice to the Administrative Agent, to terminate the Total Commitment or from time to time to permanently reduce the amount of the Total Commitment; provided, however, that no such termination or reduction shall be permitted if, after giving effect thereto and to any payments of the Revolving Credit Loans and the Swingline Loans made on the effective date thereof, the Dollar Equivalent Amount of the Aggregate Outstandings would exceed the Total Commitment as then reduced; provided, further, that any such termination or reduction requiring prepayment of any Eurocurrency Loan shall be made only on the last day of the Interest Period with respect thereto or on the date of payment in full of all amounts owing pursuant to Section 3.08 hereof as a result of such termination or reduction. The Administrative Agent shall promptly notify each Lender of each notice from the Company to terminate or permanently reduce the amount of the Total Commitment pursuant to this Section 2.01(c).  Any such reduction shall be in the amount of $5,000,000 or whole multiples of $1,000,000 in excess thereof, and shall reduce permanently the amount of the Total Commitment then in effect.  The Total Commitment, once reduced or terminated, may not be reinstated except in the Lenders’ sole discretion and subject to receipt of such credit approval and other authorizations that the Lenders may require.

(d)The several agreements of the Lenders to make Revolving Credit Loans pursuant to this Section 2.01 shall automatically terminate on the Revolving Credit Commitment Termination Date.  Upon such termination, the Company shall immediately repay in full the principal amount of the Revolving Credit Loans then outstanding, together with all accrued interest thereon and all other amounts due and payable hereunder.

SECTION 2.02.Revolving Credit Note.   The Revolving Credit Loans made by each Lender shall be evidenced by a promissory note of the Company (individually a “Revolving Credit Note” and, collectively, the “Revolving Credit Notes”), substantially in the form attached hereto as Exhibit A, each appropriately completed, duly executed and delivered on behalf of the Company and payable to the order of such Lender in a principal amount equal to the Revolving Credit Commitment of such Lender.  Each Revolving Credit Note shall (a) be dated the Closing Date, (b) be stated to mature on the Revolving Credit Commitment Termination Date, and (c) bear interest from the date of the first Revolving Credit Loan until paid in full on the unpaid principal amount thereof from time to time outstanding as provided in Section 3.01 hereof.  Each Lender is authorized to record the date, Type and amount of each Revolving Credit Loan, the Applicable Currency thereof, and the date and amount of each payment or prepayment of principal of each Revolving Credit Loan in such Lender’s records or on the grid schedule annexed to such Lender’s Revolving Credit Note; provided, however, that the failure of a Lender to set forth each such Revolving Credit Loan, payment and other information shall not in any manner affect the obligation of the Company to repay each Revolving Credit Loan made by such Lender in accordance with the terms of its Revolving Credit Note and this Agreement.  The Revolving Credit Note, the grid schedule and the books and records of each Lender shall constitute presumptive evidence of the information so recorded absent demonstrable error.

SECTION 2.03.Letters of Credit.

(a)Generally.  Subject to the terms and conditions set forth in this Agreement, upon the written request of the Company in accordance herewith, the Issuing Lender shall issue Letters of Credit at any time during the Revolving Credit Commitment Period with pro rata participation by all of the Lenders in accordance with their respective Commitment Proportions.  Notwithstanding the foregoing, no Letter of Credit shall be issued if, after giving effect to the same, the Dollar Equivalent

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Amount of the Aggregate Outstandings would exceed the Total Commitment or Aggregate Letters of Credit Outstanding would exceed $20,000,000.  Furthermore, no Letter of Credit shall be issued without the consent of the Required Lenders during the occurrence and continuance of an Event of Default.  Each request for issuance of a Letter of Credit shall be in writing and shall be received by the Issuing Lender by no later than 12:00 noon (New York, New York time) on the day which is at least two Business Days prior to the proposed date of issuance.  Such issuance shall occur by no later than 5:00 p.m. on the proposed date of issuance (assuming proper prior notice as aforesaid).  Subject to the terms and conditions contained herein, the expiry date, the type of Letter of Credit (i.e., Commercial Letter of Credit or Standby Letter of Credit) and the amount and beneficiary of the Letters of Credit will be as designated by the Company.  The Issuing Lender shall promptly notify the Administrative Agent and the Lenders of the issuance of any Letter of Credit and of the amounts of all Letters of Credit issued hereunder and of any extension, reduction, termination or amendment of any Letter of Credit.  Each Letter of Credit issued by the Issuing Lender hereunder shall be denominated in Dollars and shall identify: (i) the dates of issuance and expiry of such Letter of Credit, (ii) the amount of such Letter of Credit (which shall be a sum certain), (iii) the beneficiary of such Letter of Credit, and (iv) the drafts and other documents necessary to be presented to the Issuing Lender upon drawing thereunder.  In no event shall any Letter of Credit expire (or by its terms be required to be renewed to a date) after the Revolving Credit Commitment Termination Date. The Issuing Lender will not issue a Letter of Credit hereunder which expires after the earlier to occur of (1) one (1) year from the date of issuance of such Letter of Credit  (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (2) the Revolving Credit Commitment Termination Date.  The Company agrees to execute and deliver to the Issuing Lender such further documents and instruments in connection with any Letter of Credit issued hereunder (including without limitation, applications therefor) as the Issuing Lender in accordance with its customary practices may reasonably request.

(b)Drawings Under Letters of Credit.  The Company hereby absolutely and unconditionally promises to pay the Issuing Lender not later than 2:00 p.m. (New York, New York time) the amount of each drawing under a Letter of Credit if the Company receives notice of such drawing prior to 10:00 a.m. (New York, New York time) on the date of such drawing, or if such notice has not been received by the Company prior to such time on such date, then not later than 12:00 noon (New York, New York time) on the Business Day immediately following the day that the Company receives such notice; provided, however, (i) if any drawing was in an amount not less than $1,000,000, the Company may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.01 hereof that such payment be financed with a Revolving Credit Loan which is a Prime Rate Loan  in an equivalent amount, and, to the extent so financed, the Company’s obligation to make such payment shall be discharged and replaced by such a Prime Rate Loan and (ii) if such drawing or payment was in an amount  less than $1,000,000, the Company may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.04 hereof that such payment be financed with a Swingline Loan in an equivalent amount and, to the extent so financed, the Company’s obligation to make such payment shall be discharged and replaced by such Swingline Loan.   Such request shall be made by the Company on the date of receipt of notice from the Issuing Lender of a drawing under a Letter of Credit as applicable.  The Issuing Lender shall notify the Administrative Agent and each Lender of such request in accordance with Section 2.01 hereof.  If the Company fails to make such payment when due, the Issuing Lender shall notify each Lender of the amount of the drawing under the applicable Letter of Credit.  Each Lender agrees that on the first Business Day after receipt of such notice, it will immediately make available by no later than 12:00 noon (New York, New York time), to the Issuing Lender at the Payment Office by payment in Dollars and in immediately available funds, its Commitment Proportion of such drawing, provided (i) each Lender’s obligation shall be reduced by its Commitment Proportion of any reimbursement by the Company in respect of any such drawing pursuant to this Section 2.03 and (ii) no

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Lender shall be required to make payments to the Issuing Lender with respect to a drawing or payment which the Company reimbursed with the proceeds of a Revolving Credit Loan, as contemplated above, if such Lender fully funded its Commitment Proportion of such Revolving Credit Loan in accordance with Section 3.12 hereof.  Any payment made by a Lender pursuant to this Section 2.03(b) to reimburse the Issuing Lender for any drawing under a Letter of Credit (other than a Prime Rate Loan or a Swingline Loan as contemplated above) shall not constitute a Revolving Credit Loan or a Swingline Loan and shall not relieve the Company of its obligation to reimburse the Issuing Lender for such drawing or payment.  Each drawing under a Letter of Credit which is not paid on the date such drawing is made shall accrue interest, for each day from and including the date of such drawing to but excluding the date that the Company reimburses the Issuing Lender in full for such drawing at the rate per annum then applicable to Prime Rate Loans; provided, however, that if the Company fails to reimburse such drawing when due pursuant to this paragraph (b), then the Company shall pay to the Issuing Lender interest on the amount of such drawing at the rate per annum set forth in Section 3.01(c) hereof.  Interest accruing pursuant to the preceding sentence shall be for the account of the Issuing Lender, except that interest accrued on and after the date of payment by any Lender pursuant to this Section 2.03(b) to reimburse the Issuing Lender shall be for the account of such Lender to the extent of such payment.  The Issuing Lender shall promptly notify the Administrative Agent (which shall notify each Lender) of each drawing under a Letter of Credit.

(c)Letter of Credit Obligations Absolute.

(i)The obligation of the Company to reimburse the Issuing Lender as provided hereunder in respect of drawings under Letters of Credit shall rank pari passu with the obligation of the Company to repay the Revolving Credit Loans hereunder, and shall be absolute and unconditional under any and all circumstances subject to subsection (ii) below.  Without limiting the generality of the foregoing, the obligation of the Company to reimburse the Issuing Lender in respect of drawings under Letters of Credit shall not be subject to any defense based on the non-application or misapplication by the beneficiary of the proceeds of any such drawing or the legality, validity, regularity or enforceability of the Letters of Credit or any related document, even though such document shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company, the beneficiary of any Letter of Credit, or any financial institution or other party to which any Letter of Credit may be transferred.  The Issuing Lender may accept or pay any draft presented to it under any Letter of Credit regardless of when drawn or made and whether or not negotiated, if such draft, accompanying certificate or documents and any transmittal advice are presented or negotiated on or before the expiry date of such Letter of Credit or any renewal or extension thereof then in effect, and is in substantial compliance with the terms and conditions of such Letter of Credit.  Furthermore, neither the Issuing Lender nor any of its correspondents nor any Lender shall be responsible, as to any document presented under a Letter of Credit which appears to be regular on its face, and appears on its face to be in substantial compliance with the terms of such Letter of Credit, for the validity or sufficiency of any signature or endorsement, for delay in giving any notice or failure of any instrument to bear adequate reference to any Letter of Credit, or for failure of any Person to note the amount of any draft on the reverse of any Letter of Credit.  The Issuing Lender shall have the right, in its sole discretion, to decline to accept any documents and to decline to make payment under any Letter of Credit if the documents presented are not in strict compliance with the terms of such Letter of Credit.

(ii)Any action, inaction or omission on the part of the Issuing Lender or any of its correspondents under or in connection with any Letter of Credit or the related instruments, documents or property, if in good faith and in conformity with such laws, regulations or customs as are applicable, shall be binding upon the Company and shall not place the Issuing Lender or any of its

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correspondents or any Lender under any liability to the Company in the absence of (x) gross negligence or willful misconduct by the Issuing Lender or its correspondents or (y) the failure by the Issuing Lender to pay under a Letter of Credit after presentation of a draft and documents strictly complying with such Letter of Credit unless the Issuing Lender is prohibited from making such payment pursuant to a court order.  The Issuing Lender’s rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise created or arising, whether by statute or rule of law or contract.  All Letters of Credit issued hereunder will, except to the extent otherwise expressly provided hereunder, be governed by the UCP to the extent applicable and not inconsistent with the laws of the State of New York.

(d)Obligations of Lenders in Respect of Letters of Credit.   Each Lender acknowledges that each Letter of Credit issued by the Issuing Lender pursuant to this Agreement is issued on behalf of and with the ratable participation of all of the Lenders (i.e., in accordance with their respective Commitment Proportions), and each Lender agrees to make the payments required by subsection (b) above and agrees to be responsible for its pro rata share of all liabilities incurred by the Issuing Lender with respect to each Letter of Credit issued, established, opened or extended by the Issuing Lender pursuant to this Agreement for the account of the Company hereunder.  Each Lender agrees with the Issuing Lender and the other Lenders that its obligation to make the payments required by subsection (b) above shall not be affected in any way by any circumstances (other than the gross negligence or willful misconduct of the Issuing Lender) occurring before or after the making of any payment by the Issuing Lender pursuant to any Letter of Credit, including, without limitation: (i) any modification or amendment of, or any consent, waiver, release or forbearance with respect to, any of the terms of this Agreement or any other instrument or document referred to herein; (ii) the existence of any Default or Event of Default; or (iii) any change of any kind whatsoever in the financial position or credit worthiness of the Company.

(e)Replacement of the Issuing Lender.  The Issuing Lender may be replaced at any time by written agreement among the Company, the Administrative Agent, the replaced Issuing Lender and the successor Issuing Lender.  The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Lender.  At the time any such replacement shall become effective, the Company shall pay all unpaid fees accrued for the account of the replaced Issuing Lender pursuant to Section 3.04 hereof.  From and after the effective date of any such replacement, (i) the successor Issuing Lender shall have all the rights and obligations of the Issuing Lender under this Agreement with respect to Letters of Credit to be issued thereafter, and (ii) references herein to the term “Issuing Lender” shall be deemed to refer to such successor or to any previous Issuing Lender, or to such successor and all previous Issuing Lenders, as the context shall require.  After the replacement of an Issuing Lender hereunder, the replaced Issuing Lender shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Lender under this Agreement with respect to Letters of Credit issued prior to such replacement, but shall not be required to issue additional Letters of Credit.

SECTION 2.04.Swingline Loans.

(a)Subject to the terms and conditions, and relying upon the representations and warranties, set forth herein, the Swingline Lender agrees to make loans in Dollars (individually a “Swingline Loan” and, collectively, the “Swingline Loans”) to the Company from time to time during the Revolving Credit Commitment Period up to, but not exceeding, at any one time outstanding the Swingline Commitment; provided, however, that no Swingline Loan shall be made if, after giving effect to such Swingline Loan, the Dollar Equivalent Amount of the Aggregate Outstandings would exceed the Total Commitment; and provided further that no Swingline Loan shall be made without the consent of the

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Required Lenders during the occurrence and continuance of an Event of Default.  The proceeds from Swingline Loans may not be used to repay outstanding Revolving Credit Loans.  During the Revolving Credit Commitment Period, the Company may from time to time borrow, repay and reborrow Swingline Loans on or after the date hereof and prior to the Revolving Credit Commitment Termination Date, subject to the terms, provisions and limitations set forth herein.  Each Swingline Loan shall be a Prime Rate Loan.

(b)The Company shall give the Administrative Agent irrevocable written notice (or telephonic notice promptly confirmed in writing) not later than 2:00 p.m. (New York, New York time) on the date of each proposed Swingline Loan under this Section 2.04.  Such notice shall be irrevocable and shall specify (i) the amount of the proposed borrowing, and (ii) the proposed Borrowing Date.  Upon receipt of such notice from the Company, the Administrative Agent shall promptly notify the Swingline Lender and each Lender thereof.  Each borrowing of a Swingline Loan shall be in an amount not less than $100,000 or, if greater, whole multiples of $100,000 in excess thereof.  The Swingline Lender shall make each Swingline Loan available to the Company by means of a credit to the operating account of the Company with the Swingline Lender (or, in the case of a Swingline Loan made to finance or reimburse a Letter of Credit drawing in accordance with Section 2.04(b) hereof, by remittance to the Issuing Lender) by 4:00 p.m. (New York, New York time) on the requested date of such Swingline Loan.

(c)So long as no Default or Event of Default has occurred and is continuing, the Company may repay Swingline Loans with the proceeds of a Revolving Credit Loan.  Each Swingline Loan shall be payable on demand.  The Swingline Lender may, at any time, require the Lenders to acquire participations with respect to all or a portion of the Swingline Loans outstanding.  If (i) the Company desires to repay such Swingline Loan with the proceeds of a Revolving Credit Loan or (ii) the Swingline Lender desires to have the Lenders acquire participations, the Swingline Lender shall, by written notice given to the Administrative Agent not later than 10:00 a.m. (New York, New York time) on any Business Day, require the Lenders to acquire participations on such Business Day with respect to all or a portion of the Swingline Loans outstanding.  Such notice shall specify the aggregate amount of Swingline Loans which will become Revolving Credit Loans.  Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender’s Commitment Proportion of such Swingline Loan or Loans.  Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Commitment Proportion of such Swingline Loan or Loans.  Each Lender acknowledges and agrees that its obligation to acquire a  participation in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.  Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 3.12 hereof with respect to Loans made by such Lender, and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders.  The Administrative Agent shall notify the Company of any participation in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender.  Any amounts received by the Swingline Lender from the Company (or other party on behalf of the Company) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of a participation therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear.   The purchase of a participation in a Swingline Loan pursuant to

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this paragraph (c) shall not relieve the Company of any default in the payment thereof.

(d)The agreement of the Swingline Lender to make Swingline Loans pursuant to this Section 2.04 shall automatically terminate on the Revolving Credit Commitment Termination Date.  Upon such termination, the Company shall immediately repay the Swingline Lender or the Administrative Agent (for the benefit of the applicable Lenders), as applicable, in full the principal amount of the Swingline Loans then outstanding, together with all accrued interest thereon and all other amounts due and payable hereunder.

(e)The Swingline Loans made by the Swingline Lender shall be evidenced by a promissory note of the Company (the “Swingline Note”), substantially in the form attached hereto as Exhibit B, appropriately completed, duly executed and delivered on behalf of the Company and payable to the order of the Swingline Lender in a principal amount equal to the Swingline Commitment.  The Swingline Note shall (a) be dated the Closing Date, (b) be stated to mature on the Revolving Credit Commitment Termination Date, and (c) bear interest from the date thereof until paid in full on the unpaid principal amount thereof from time to time outstanding as provided in Section 3.01 hereof.  The Swingline Lender is authorized to record the date and amount of each Swingline Loan and the date and amount of each payment or prepayment of principal of each Swingline Loan in the Swingline Lender’s records or on the grid schedule annexed to the Swingline Note; provided, however, that the failure of the Swingline Lender to set forth each such Swingline Loan, payment and other information shall not in any manner affect the obligation of the Company to repay each Swingline Loan made by the Swingline Lender in accordance with the terms of the Swingline Note and this Agreement.  The Swingline Note, the grid schedule and the books and records of the Swingline Lender shall constitute presumptive evidence of the information so recorded absent demonstrable error.

ARTICLE III
PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT;
FEES AND PAYMENTS

SECTION 3.01.Interest Rate; Continuation and Conversion of Loans,

(a)Each Prime Rate Loan  shall bear interest for the period from the date thereof on the unpaid principal amount thereof at a fluctuating rate per annum equal to the Prime Rate plus the Applicable Rate.

(b)Each Eurocurrency Loan shall bear interest for the Interest Period applicable thereto on the unpaid principal amount thereof at a rate per annum equal to the Reserve Adjusted Eurocurrency Rate determined for each Interest Period thereof in accordance with the terms hereof plus the Applicable Rate.

(c)Upon the occurrence and during the continuance of an Event of Default the outstanding principal amount of the Loans shall, at the option of the Required Lenders, bear interest payable on demand at a rate of interest (i) with respect to payments of principal, 2% per annum plus the interest rate otherwise then in effect and (ii) with respect to payments of any other amount, 2% per annum plus the rate that would be applicable to Prime Rate Loans, from time to time.

(d)If the Company shall default in the payment of the principal or interest on any portion of any Loan or any other amount becoming due hereunder, whether with respect to the reimbursement of drawings under Letters of Credit, interest, fees, expenses or otherwise, the Company

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shall on demand from time to time pay interest on such defaulted amount accruing from the date of such default (without reference to any period of grace) up to and including the date of actual payment (after as well as before judgment) at a rate of two (2%) percent per annum plus the interest rate otherwise then in effect, or if no interest rate is in effect, two (2%) percent per annum plus the Prime Rate.

(e)The Company may elect from time to time to convert outstanding Revolving Credit Loans from Eurocurrency Loans denominated in Dollars to Prime Rate Loans by giving the Administrative Agent  irrevocable written notice of such election not later than 11:00 a.m. (New York, New York time) three Business Day prior to the effective date of such election, provided that any such conversion of Eurocurrency Loans shall only be made on the last day of an Interest Period with respect thereto or upon the date of payment in full of any amounts owing pursuant to Section 3.08 hereof as a result of such conversion.  Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof.  The Company may elect from time to time to convert outstanding Revolving Credit Loans from Prime Rate Loans to Eurocurrency Loans by giving the Administrative Agent irrevocable written notice of such election not later than (i) the Applicable Offshore Time, four Business Days prior to the date of the proposed conversion if the conversion is to a Eurocurrency Loan denominated in any Approved Currency other than Dollars, or (ii) 11:00 a.m. (New York, New York time) three Business Days prior to the date of the proposed conversion if the conversion is to a Eurocurrency Loan denominated in Dollars.  Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof.  All or any part of outstanding Prime Rate Loans (other than Swingline Loans) may be converted as provided herein, provided that each conversion shall be in the principal amount of $2,000,000 (or the Applicable Currency Equivalent thereof) or whole multiples of $1,000,000 (or the Applicable Currency Equivalent thereof) in excess thereof; and further provided that no Default or Event of Default shall have occurred and be continuing.  Any conversion to or from Eurocurrency Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurocurrency Loans having the same Interest Period and denominated in the same currency shall not be less than $2,000,000 (or the Applicable Currency Equivalent thereof).

(f)Any Eurocurrency Loan in a minimum principal amount of $2,000,000 (or the Applicable Currency Equivalent thereof) may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in the definition of Interest Period.  If the Company shall not have so notified the Administrative Agent of its intention to continue such Loan, upon the expiration of such Interest Period for (i) any Eurocurrency Loan denominated in Dollars, or any portion thereof, such Loan or portion thereof shall be automatically converted to a Prime Rate Loan, except to the extent that such Loan shall have been repaid hereunder or shall be required to be repaid hereunder, or (ii) any Eurocurrency Loan denominated in an Approved Currency other than Dollars, or any portion thereof, such Loan or portion thereof shall be required to be repaid.  Notwithstanding anything to the contrary, no Eurocurrency Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Prime Rate Loan, if such Eurocurrency Loan is denominated in Dollars or repaid in full, if such Eurocurrency Loan is denominated in an Approved Currency other than Dollars, on the last day of the Interest Period in effect when the Administrative Agent is notified, or otherwise has actual knowledge, of such Default or Event of Default.

(g)If the Company shall fail to select the duration of any Interest Period for any Eurocurrency Loan in accordance with the definition of “Interest Period” set forth in Section 1.01 hereof, the Company shall be deemed to have selected an Interest Period of one month.

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(h)No Revolving Credit Loan may be converted to or continued as a Eurocurrency Loan (i) with an Interest Period that extends beyond the Revolving Credit Commitment Termination Date, or (ii)  less than one month before the Revolving Credit Commitment Termination Date.   In addition, except as otherwise provided in Sections 3.01(e) and 3.06  hereof or in the definition of “Interest Period” in Section 1.01 hereof, no Loan in one Approved Currency may be converted to a Loan in another Approved Currency.

(i)Anything in this Agreement or in any Note to the contrary notwithstanding, the obligation of the Company to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be paid to a Lender to the extent that the charging or receipt thereof would not be permissible under the law or laws applicable to such Lender limiting the rates of interest that may be charged or collected by such Lender.  In each such event payments of interest required to be paid to such Lender shall be calculated at the highest rate permitted by applicable law until such time as the rates of interest required hereunder may lawfully be charged and collected by such Lender.  If the provisions of this Agreement or any Note would at any time otherwise require payment by the Company to any Lender of any amount of interest in excess of the maximum amount then permitted by applicable law, the interest payments to such Lender shall be reduced to the extent necessary so that such Lender shall not receive interest in excess of such maximum amount.

(j)Interest on each Loan shall be payable in arrears on each applicable Interest Payment Date and shall be calculated on the basis of a year of 360 days and shall be payable for the actual days elapsed.  Any rate of interest on the Loans or other Obligations which is computed on the basis of the Prime Rate shall change when and as the Prime Rate changes in accordance with the definition thereof.  Each determination by the Administrative Agent of an interest rate or fee hereunder shall, absent demonstrable error, be conclusive and binding for all purposes.

SECTION 3.02.Use of Proceeds.  The proceeds of the Revolving Credit Loans shall be used (a) to pay the Existing Indebtedness, (b) to finance Permitted Acquisitions, (c) for general working capital and other corporate purposes and (d) to finance up to $25,000,000 of repurchases by the Company of the Subordinated Notes.  The Swingline Loans shall be used by the Company for general working capital and other corporate purposes.  Letters of Credit shall be issued by the Issuing Lender for the account of the Company and shall be issued for purposes in connection with, and in the ordinary course of, the business of the Company or the Guarantors consistent with historical purposes of standby and commercial letters of credit issued for the account of the Company prior to the date hereof.

SECTION 3.03.Prepayments.

(a)Voluntary.  The Company may, at any time and from time to time, prepay the then outstanding Loans (including, without limitation, Swingline Loans), in whole or in part, without premium or penalty, except as provided in Section 3.08 hereof, upon written notice to the Administrative Agent (or telephonic notice promptly confirmed in writing) not later than 11:00 a.m. (New York, New York time) three Business Days before the date of prepayment with respect to prepayments of Eurocurrency Loans, or 11:00 a.m. (New York, New York time) on the day of prepayment with respect to Prime Rate Loans.  Each notice shall be irrevocable and shall specify the date and amount of prepayment and whether such prepayment is of Eurocurrency Loans or Prime Rate Loans or a combination thereof, and if a combination thereof, the amount of prepayment allocable to each.  Upon receipt of such notice to repay Revolving Credit Loans, the Administrative Agent shall promptly notify each Lender thereof.  If such notice is given, the Company shall make such prepayment, and the amount specified in such notice shall be due and payable, on the date specified therein.  Each partial prepayment pursuant to this Section 

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3.03 shall be in a principal amount of (i) $1,000,000 (or the Applicable Currency Equivalent thereof), or whole multiples of $1,000,000 (or the Applicable Currency Equivalent thereof) in excess thereof with respect to Eurocurrency Loans, and (ii) $500,000 or whole multiples of $100,000 in excess thereof with respect to Prime Rate Loans.

(b)Mandatory.  To the extent that (i) the Dollar Equivalent Amount of the Aggregate Outstandings exceeds the Total Commitment or (ii) the Dollar Equivalent Amount of all Obligations denominated in Approved Currencies other than Dollars exceeds the Eurocurrency Sublimit due to a change in applicable Exchange Rates, then the Company shall immediately prepay the Revolving Credit Loans to the extent necessary to cause compliance after repayment in full of the Loans with each of the foregoing.  To the extent that such prepayments are insufficient to cause such compliance, the Company shall pledge to the Administrative Agent, for the ratable benefit of the Lenders, Cash Collateral in an amount equal to the amount of such short-fall, which Cash Collateral shall secure the reimbursement obligations of the Company to the Issuing Lender with respect to Letters of Credit.  All such prepayments shall be applied, first, to Prime Rate Loans outstanding and second, to Eurocurrency Loans outstanding, in such order as the Administrative Agent shall determine in its sole and absolute discretion.

All prepayments shall be accompanied by accrued interest on the principal amount being prepaid to the date of prepayment.

SECTION 3.04.Fees.

(a)The Company agrees to pay to the Administrative Agent for the account of, and pro rata distribution to, each Lender a commitment fee (the “Commitment Fee”) on the average daily unused portion of the Total Commitment (without giving effect to any Swingline Loans then outstanding) from the date of this Agreement until the Revolving Credit Commitment Termination Date at a rate per annum equal to the Applicable Rate, based on a year of 360 days, payable in arrears on the last day of March, June, September, and December of each year commencing March 31, 2005, on the Revolving Credit Commitment Termination Date and on each date the Revolving Credit Commitment is permanently reduced in whole or in part.

(b)The Company agrees to pay to the Administrative Agent for the account of, and pro rata distribution to, each Lender a closing fee equal to 0.30% of such Lender’s Revolving Credit Commitment on the Closing Date.

(c)The Company shall pay to the Administrative Agent for the account of, and pro rata distribution to, the Lenders a commission with respect to the Lenders’ participation in Standby Letters of Credit equal to the Standby LC Margin multiplied by the average daily amount of the Standby LC Exposure during the period from and including the Closing Date to but excluding the later of (a) the Revolving Credit Commitment Termination Date and (b) the date on which such Lender ceases to have any Standby LC Exposure.   Such commissions with respect to Standby Letters of Credit shall be payable in arrears on the last Business Day of March, June, September and December of each year, commencing March 31, 2005; provided that all such fees shall be payable on the date on which the Total Commitment terminates and any such fees accruing after the date on which the Total Commitment terminates shall be payable on demand.  All commissions with respect to Standby Letters of Credit shall be computed on the basis of a year of three hundred sixty (360) days and shall be payable for the actual number of days elapsed.

(d)The Company shall pay to the Administrative Agent for the account of, and pro rata

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distribution to each Lender, a payment fee equal to 0.25% of the amount paid on each Commercial Letter of Credit payable on the date of payment of such amount by the Issuing Lender.

(e)In addition, the Company shall pay to the Issuing Lender for its own account, upon issuance of any Letter of Credit hereunder, a fronting fee equal to the greater of (i) 0.125% of the face amount of each Letter of Credit issued hereunder, and (ii) $250.  In addition, the Company shall pay to the Issuing Lender, upon its demand and for its own account, the customary fees charged by the Issuing Lender with respect to the processing and administration of Letters of Credit (including, without limitation, amendments to Letters of Credit).

(f)In addition, the Company agrees to pay to the Administrative Agent and the Lead Arranger for the Administrative Agent’s and the Lead Arranger’s own account, such agency, arrangement and other fees as agreed to between the Administrative Agent, the Lead Arranger and the Company.

SECTION 3.05.Inability to Determine Interest Rate.      In the event that the Administrative Agent shall have determined in good faith (which determination shall be conclusive and binding upon the Company, absent demonstrable error) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Reserve Adjusted Eurocurrency Rate applicable pursuant to Section 3.01(b) hereof for any requested Interest Period with respect to (a) the making of a Eurocurrency Loan, (b) a Eurocurrency Loan that will result from the requested conversion of a Prime Rate Loan  into a Eurocurrency Loan, or (c) the continuation of a Eurocurrency Loan beyond the expiration of the then current Interest Period with respect thereto, the Administrative Agent shall forthwith give notice by telephone of such determination, promptly confirmed in writing, to the Company and each Lender.  Until the Administrative Agent notifies the Company and the Lenders that the circumstances giving rise to the suspension described herein no longer exist, the Company shall not have the right to request or continue a Eurocurrency Loan or to convert a Prime Rate Loan  to a Eurocurrency Loan.

SECTION 3.06.Illegality.     Notwithstanding any other provisions herein, if any introduction of or change in, after the date hereof, any law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurocurrency Loans or if any Lender determines that it is unable to make a Eurocurrency Loan in any Approved Currency because such Approved Currency is unavailable as contemplated by this Agreement, such Lender shall forthwith give notice by telephone of such circumstances, promptly confirmed in writing, to the Administrative Agent, which notice the Administrative Agent shall promptly transmit to the Company and the other Lenders and, subject to the provisions of Section 3.09 hereof, (a) the commitment of such Lender to make and to allow conversion to or continuations of Eurocurrency Loans or of Eurocurrency Loans in such Approved Currency, as the case may be, shall forthwith be cancelled for the duration of such illegality, and (b) the Revolving Credit Loans then outstanding as Eurocurrency Loans, if any, shall be converted automatically to Prime Rate Loans on the next succeeding last day of each Interest Period applicable to such Eurocurrency Loans or within such earlier period as may be required by law.  The Company shall pay to such Lender, upon demand, any additional amounts required to be paid pursuant to Section 3.08 hereof.

SECTION 3.07.Increased Costs.

(a)In the event that any introduction of or change in, after the date hereof, any applicable law, regulation, treaty, order, or directive, or in the interpretation or application thereof (including, without limitation, any request, guideline or policy, whether or not having the force of law, of

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or from any central bank or other governmental authority, agency or instrumentality and including, without limitation, Regulation D), by any authority charged with the administration or interpretation thereof shall occur, which:

(i)shall subject any Lender or the Issuing Lender to any Non-Excluded Taxes; or

(ii)shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement (whether or not having the force of law) against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of any Lender or the Issuing Lender; or

(iii)shall impose on any Lender or the Issuing Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender or the Issuing Lender  of making, renewing or maintaining or participating in advances or extensions of credit hereunder or to reduce any amount receivable hereunder, in each case by an amount which such Lender or the Issuing Lender deems reasonably material, then, in any such case, subject to the provisions of Section 3.10 hereof, the Company shall pay such Lender or the Issuing Lender, such additional amount or amounts as such Lender or the Issuing Lender shall have determined in good faith will compensate such Lender for such increased costs or reduction.

(b)If any Lender or the Issuing Lender shall have determined that the adoption of, or any change in, any applicable law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender or the Issuing Lender (or any lending office of any Lender or the Issuing Lender which funds Loans hereunder) or any Lender’s or the Issuing Lender’s holding company, with any request, guideline or directive regarding capital adequacy (whether or not having the force of the law) of any such authority, central bank or comparable agency, in each case adopted after the Closing Date, has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Lender’s capital or on the capital of such Lender’s or the Issuing Lender’s holding company as a consequence of its obligations hereunder to a level below that which such Lender or the Issuing Lender (or such holding company) could have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or the Issuing Lender’s policies and the policies of such Lender’s or the Issuing Lender’s holding company with respect to capital adequacy) by an amount deemed by such Lender or the Issuing Lender to be material, then from time to time, the Company shall pay to such Lender or the Issuing Lender the additional amount or amounts as
such Lender or the Issuing Lender shall have determined will compensate such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company for such reduction.

(c)A certificate of a Lender setting forth the amount or amounts payable pursuant to Sections 3.07(a) and 3.07(b) hereof shall be conclusive and binding on the Company absent demonstrable error.  The Company shall pay such Lender or the Issuing Lender the amount shown as due on any such certificate within fifteen days after receipt thereof.

(d)In the event any Lender or the Issuing Lender shall be entitled to compensation pursuant to Section 3.07(a) or Section 3.07(b) hereof, it shall promptly notify the Administrative Agent and the Company of the event by reason of which it has become so entitled; provided, however, no failure on the part of any Lender or the Issuing Lender to demand compensation under clause (a) or clause (b) 

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above on one occasion shall constitute a waiver of its right to demand compensation on any other occasion.

SECTION 3.08.Indemnity.   The Company agrees to indemnify each Lender and to hold each Lender harmless from any loss, cost or expense which such Lender may sustain or incur, including, without limitation, interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain Eurocurrency Loans hereunder, as a consequence of (a) default by the Company in payment of the principal amount of or interest on any Eurocurrency Loan, (b) default by the Company to accept or make a borrowing of a Eurocurrency Loan or a conversion into or continuation of a Eurocurrency Loan after the Company has requested such borrowing, conversion or continuation, (c) default by the Company in making any prepayment of any Eurocurrency Loan after the Company gives a notice in accordance with Section 3.03 hereof and/or (d) the making of any payment or prepayment (whether mandatory or optional) of a Eurocurrency Loan or the making of any conversion of a Eurocurrency Loan to a Prime Rate Loan  on a day which is not the last day of the applicable Interest Period with respect thereto.  A certificate of a Lender setting forth such amounts shall be conclusive and binding on the Company absent demonstrable error.  The Company shall pay such Lender the amount shown as due on any certificate within fifteen days after receipt thereof.

SECTION 3.09.Mitigation, Obligations; Replacement of Lenders.

(a)Each Lender agrees to use reasonable efforts to designate an alternate Lending Office with respect to any Type of Loan affected by the events or circumstances described in Section 3.05, Section 3.06, Section 3.07 or Section 3.10 hereof to avoid or minimize the Company’s liability thereunder; provided, however, that such efforts shall not cause the imposition on such Lender of any additional cost or legal, regulatory or administrative burdens deemed by such Lender, in its sole discretion, to be material.

(b)If any Lender is affected by the events or circumstances described in Section 3.05, 3.06, 3.07 or 3.10 hereof and requests additional compensation pursuant to the terms of this Agreement, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (and in accordance with the restrictions set forth in Section 10.05 hereof), all its interests, rights, and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if such Lender accepts such assignment); provided, that (i) the Company shall have received the prior written consent of the Administrative Agent (and if a Commitment is being assigned, the Issuing Lender and the Swingline Lender), which consent shall not be unreasonably withheld or delayed, (ii) such Lender shall have received payment of an amount equal to the outstanding principal amount of its Loans and participation in Swingline Loans and Letters of Credit, accrued interest thereon, accrued fees and other amounts payable to it hereunder from the assignee (to the extent of the outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation pursuant to Section 3.05, 3.06 or 3.07 hereof or payments required to be made pursuant to Section 3.10 hereof, such assignment will result in a reduction of such compensation or payments.  A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegations cease to apply.

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SECTION 3.10.Taxes.

(a)Except as set forth in clause (d) below or as required by law, all payments made by the Company under this Agreement shall be made free and clear of, and without reduction for or on account of, any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding (i) income, branch profits and franchise taxes (imposed in lieu of income taxes) imposed on the Administrative Agent, the Issuing Lender or a Lender as a result of a present, former or future connection between the jurisdiction of the government or the taxing authority imposing such tax and the Administrative Agent, the Issuing Lender or a Lender or the lending office of the Administrative Agent, the Issuing Lender or a Lender (excluding a connection arising solely from the Administrative Agent, the Issuing Lender or a Lender having executed this Agreement, the Notes or the other Loan Documents) or any political subdivision or taxing authority thereof or therein, and (ii) taxes (including withholding taxes) imposed by reason of the failure of the Administrative Agent, the Issuing Lender or a Lender, if organized outside of the United States, to comply with Section 3.10(c) hereof (or the inaccuracy at any time of the certificates, documents or other evidence delivered thereunder) (such non-excluded taxes being called “Non-Excluded Taxes”).  If any Non-Excluded Taxes are required to be withheld from any amounts payable to the Administrative Agent, the Issuing Lender or any Lender hereunder, or under the Notes, the amount so payable to the Administrative Agent, the Issuing Lender or such Lender shall be increased to the extent necessary to yield to the Administrative Agent, the Issuing Lender or such Lender (after payment of all Non-Excluded Taxes, and free and clear of all liability in respect of such Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes provided, however, that the Company shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender’s failure to comply with the requirements of Section 3.09 hereof, (ii) that are United States withholding taxes imposed (or branch profits taxes imposed in lieu thereof) on amounts payable to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender’s assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Company with respect to such Non-Excluded Taxes pursuant to this Section 3.10(a), or (iii) that are imposed as a result of any event occurring after such Lender becomes a Lender other than a change in law or regulation or the introduction of any law or regulation or a change in interpretation or administration of any law. Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter, the Company shall send to the Administrative Agent for its own account or for the account of the Issuing Lender or such Lender, as the case may be, a certified copy of an original official receipt showing payment thereof.  If the Company fails to pay Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Company shall indemnify the Administrative Agent, the Issuing Lender and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent, the Issuing Lender or such Lender as a result of any such failure together with any expenses payable by the Administrative Agent, the Issuing Lender or such Lender in connection therewith; provided that the Administrative Agent, Issuing Lender or such Lender has provided the Company with notice thereof as required by Section 10.01 hereof, accompanied by a demand for payment.

(b)If a Lender or the Administrative Agent becomes aware that it is entitled to claim a refund from a governmental authority in respect of any Non-Excluded Taxes as to which it has been indemnified by the Company or with respect to which the Company has paid additional amounts pursuant to this Section 3.10, it promptly shall notify the Company in writing of the availability of such refund claim and shall make a timely claim to such taxation authority for such refund at the Company’s expense.  If a Lender or the Administrative Agent receives a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) or a permanent net tax benefit in respect of any Non-Excluded Taxes

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as to which it has been indemnified by the Company or with respect to which the Company has paid additional amounts pursuant to this Section 3.10, it shall within 30 days from the date of such receipt pay over the amount of such refund or permanent net tax benefit to the Company, net of all reasonable out-of-pocket expenses of such Lender or the Administrative Agent and without interest (other than interest paid by the relevant taxation authority with respect to such refund); provided that the Company, upon the request of such Lender or the Administrative Agent, agrees to repay the amount paid over to the Company (plus penalties, interest or other reasonable charges) to such Lender or the Administrative Agent  in the event such Lender or the Administrative Agent is required to repay such refund to such taxation authority or loses such net tax benefit.

(c)On or before the date on which it becomes a party to this Agreement, each Lender that is not organized under the laws of the United States or a state thereof agrees that it will deliver to the Company and the Administrative Agent, as applicable: (i) two duly completed copies of United States Internal Revenue Service Form W-8BEN, or successor applicable form, certifying in each case under an applicable treaty that such Lender is entitled to receive all payments under this Agreement without deduction or withholding of any United States federal income taxes, (ii) two duly completed copies of United States Internal Revenue Service Form W-8ECI, or successor applicable form, or (iii) two duly completed copies of United States Internal Revenue Service Form W-8BEN, or successor applicable form, and a statement in the form of Exhibit H hereto.  Each Lender which delivers to the Company and the Administrative Agent a Form W-8BEN or W-8ECI pursuant to the preceding sentence further undertakes to deliver to the Administrative Agent two further copies of the said statement and Form W-8BEN or W-8ECI, or successor applicable forms, and, if applicable, the statement, or other manner of certification, as the case may be, on or before the date that any such statement or form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent statement or form previously delivered by it to the Administrative Agent, and such extensions or renewals thereof as may be requested by the Administrative Agent, certifying that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes. Each Lender shall promptly notify the Company and the Administrative Agent at any time it determines that it is no longer in a position to provide any previously delivered above-mentioned form or statement (or successor thereto) to the Company and the Administrative Agent.

(d)For any period with respect to which a Lender required to do so has failed to provide the Company with the appropriate form described in Section 3.10(c) above (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under Section 3.10(c) above), such Lender shall not be entitled to indemnification under this Section 3.10  with respect to Non-Excluded Taxes imposed by reason of such failure; provided, however, that should a Lender become subject to Non-Excluded Taxes because of its failure to deliver a form required hereunder, the Company shall take such steps as such Lender reasonably shall request to assist such Lender in recovering such Non-Excluded Taxes.

SECTION 3.11.Pro Rata Treatment and Payments.  Each borrowing by the Company from the Lenders, each conversion of a Revolving Credit Loan pursuant to Section 3.01(d) hereof or continuation of a Revolving Credit Loan pursuant to Section 3.01(e) hereof, each payment by the Company on account of any fee (other than with respect to fees which are expressly payable to the Administrative Agent or the Issuing Lender for its own account), and any reduction of the Commitments of the Lenders hereunder shall be made pro rata according to the respective relevant Commitment Proportions of the Lenders.  Each payment (including each prepayment) by the Company on account of principal of and interest on each Loan shall be made in the Applicable Currency in which such Loan is denominated and shall be made pro rata according to the respective outstanding principal amounts of such

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Loans held by each Lender.  Except as otherwise provided in Section 2.04 hereof, all payments by the Company on account of principal of and interest on any Swingline Loan shall be made to the Swingline Lender at its office specified on its signature page hereof in Dollars in immediately available funds.  All payments (including prepayments) to be made by the Company on account of principal, interest, fees and reimbursement obligations shall be made without set-off or counterclaim and, with respect to payments of the Loans, shall be made to the Administrative Agent, for the account of the Lenders (except as specified above), at the Payment Office, in Dollars or the other Applicable Currency, in immediately available funds.  The Administrative Agent shall distribute such payments with respect to Loans to the Lenders promptly upon receipt in like funds by wire transfer of each Lender’s portion of such payment to such Lender for the account of its Lending Office.  The Administrative Agent may, in its sole discretion, directly charge principal and interest payments due in respect of the Loans to the Company’s accounts at the Payment Office or any other office of the Administrative Agent.  The Issuing Lender may, in its sole discretion, directly charge reimbursement obligations with respect to Letters of Credit to the Company’s accounts at any office of the Issuing Lender.  Except as otherwise provided in the definition of “Interest Period”, if any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

SECTION 3.12.Funding and Disbursement of Loans.

(a)Each Lender shall make each Revolving Credit Loan denominated in Dollars to be made by it hereunder, at the Payment Office for the account of such office and the Administrative Agent, on the applicable Borrowing Date, in immediately available funds, by 2:00 p.m. (New York, New York time).  Each Lender shall make each Revolving Credit Loan denominated in an Approved Currency other than Dollars to be made by it hereunder, at the Payment Office for the account of such office and the Administrative Agent, on the applicable Borrowing Date, in immediately available funds, by the Applicable Offshore Time. Unless any applicable condition specified in Article V hereof has not been satisfied, the amount so received by the Administrative Agent will be made available to the Company at such Payment Office by crediting the account of the Company with such amount and in like funds as received by the Administrative Agent; provided, however, that if the proceeds of any Revolving Credit Loan or Swingline Loan or any portion thereof are to be used to prepay outstanding Revolving Credit Loans, Swingline Loans or Letter of Credit obligations, then the Administrative Agent shall apply such proceeds for such purpose to the extent necessary and credit the balance, if any, to the Company’s account.

(b)Unless the Administrative Agent shall have been notified in writing by any Lender prior to a proposed Borrowing Date that such Lender will not make the amount which would constitute its Commitment Proportion of the borrowing on such Borrowing Date available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such Borrowing Date, and the Administrative Agent may, in reliance upon such assumption, make available to the Company a corresponding amount.  If such amount is not made available to the Administrative Agent until a date after such Borrowing Date, such Lender shall pay to the Administrative Agent on demand interest on such Lender’s Commitment Proportion of such borrowing at a rate equal to the greater of (i) the daily average Federal Funds Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation during such period, from and including such Borrowing Date to the date on which such Lender’s Commitment Proportion of such borrowing shall have become immediately available to the Administrative Agent.  A certificate of the Administrative Agent submitted to any Lender with respect to any amounts due pursuant to this Section 3.12(b) shall be conclusive absent demonstrable error.  Nothing

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herein shall be deemed to relieve any Lender from its obligations to fulfill its commitment hereunder or to prejudice any right which the Company may have against any Lender as a result of any default by such Lender hereunder.

SECTION 3.13.Judgment Currency.  The currency in which each Loan made hereunder is denominated and the place of payment designated therefor is of the essence.  The payment obligation of the Company hereunder in any designated currency and designated place of payment shall not be discharged by an amount paid in another currency or in another place, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to the currency in which such Loan is denominated and transfer to the designated place of payment under normal banking procedures does not yield the amount owing hereunder at the designated place of payment.  In the event that any payment by the Company, whether pursuant to a judgment or otherwise, upon such conversion and transfer, does not result in payment of such amount in the currency in which such Loan is denominated at the designated place of payment, the Administrative Agent on behalf of the Lenders shall be entitled to demand immediate payment of, and shall have a separate cause of action against the Company for, the additional amount necessary to yield the amount of such currency owing hereunder.

SECTION 3.14.Foreign Exchange Indemnity.  If any sum due from the Company or any Guarantor under this Agreement or any order or judgment given or made in relation hereto has to be converted from the currency (the “first currency”) in which the same is payable hereunder or under such order or judgment into another currency (the “second currency”) for the purpose of (a) making or filing a claim or proof against the Company or any Guarantor with any Governmental Authority or in any court or tribunal or (b) enforcing any order or judgment given or made in relation hereto, the Company or any Guarantor, as the case may be, shall indemnify and hold harmless each of the Persons to whom such sum is due from and against any loss actually suffered as a result of any discrepancy between (i) the rate of exchange used to convert the amount in question from the first currency into the second currency, and (ii) the rate or rates of exchange at which such Person, acting in good faith, purchased the first currency with the second currency after receipt of a sum paid to it in the second currency in satisfaction, in whole or in part, of any such order, judgment, claim or proof.  The foregoing indemnity shall constitute a separate obligation of the Company or any Guarantor distinct from its other obligations hereunder and shall survive the giving or making of any judgment or order in relation to all or any of such other obligations.

SECTION 3.15.Further Modifications.  The Administrative Agent may, from time to time, further modify the terms of, and practices contemplated by, this Agreement with respect to the Euro to the extent the Administrative Agent determines, in its reasonable discretion, that such modifications are necessary or convenient to reflect new laws, regulations, customs, or practices developed in connection with the Euro.  The Administrative Agent may effect such modifications, and this Agreement shall be deemed so amended, without the consent of the Company or the Lenders to the extent such modifications are not materially disadvantageous to the Company and the Lenders, upon notice thereto.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES

In order to induce the Lenders to enter into this Agreement and to make the Loans and other extensions of credit herein provided for, the Company represents and warrants to the Administrative Agent and each Lender that:

SECTION 4.01.Organization, Powers.  The Company and each Guarantor (a) is a

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corporation, limited liability company, partnership or other legal entity (as indicated on Schedule 4.11 hereto) duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its formation, (b) has the corporate, limited liability company, partnership or such other power and authority to own its properties and to carry on its business as being conducted, (c) is duly qualified to do business in every jurisdiction wherein the conduct of its business or the ownership of its properties are such as to require such qualification except those jurisdictions in which the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (d) has the corporate, limited liability company, partnership or other power to execute, deliver and perform each of the Loan Documents to which it is a party, including, without limitation, with respect to the Company, the power to obtain extensions of credit hereunder and to execute and deliver the Notes.  Each other Subsidiary of the Company which is not a Guarantor (a) is a corporation, limited liability company, partnership or other legal entity (as indicated on Schedule 4.11 hereto) duly organized or formed, as applicable, validly existing and,  in good standing under the laws of the jurisdiction of its formation, (b) has the corporate, limited liability company, partnership or other legal power and authority to own or lease its properties and to carry on its business as being conducted on the Closing Date and, (c) is duly qualified to do business in every jurisdiction wherein the conduct of its business or the ownership of its properties are such as to require such qualification, except in those jurisdictions where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect.

SECTION 4.02.Authorization of Borrowing, Enforceable Obligations.      The execution, delivery and performance by the Company of this Agreement, and the other Loan Documents to which it is a party, the borrowings and the other extensions of credit to the Company hereunder, and the execution, delivery and performance by each Guarantor of the Loan Documents to which such Guarantor is a party, (a) have been duly authorized by all requisite corporate, limited partnership or limited liability company action, (b) will not violate or require any consent (other than consents as have been made or obtained and which are in full force and effect) under (i) any provision of law applicable to the Company or any Guarantor, any applicable rule or regulation of any Governmental Authority, or the Certificate of Incorporation or By-laws of the Company or the Certificate of Incorporation, By-Laws, or other organizational documents, as applicable, of any Guarantor or (ii) any order of any court or other Governmental Authority binding on the Company or any Guarantor, (c) will not be in conflict with, result in a breach of or constitute (with due notice and/or lapse of time) a default under, any indenture, agreement or other instrument to which the Company or any Guarantor is a party, or by which the Company or any Guarantor or any of its property is bound, which conflict, breach or default could reasonably be expected to have a Material Adverse Effect, or result in the creation or imposition of any Lien of any nature whatsoever upon any of the property or assets of the Company or any Guarantor other than as contemplated by this Agreement or the other Loan Documents.  This Agreement and each other Loan Document to which the Company or any Guarantor is a party constitutes a legal, valid and binding obligation of the Company and such Guarantor, as the case may be, enforceable against the Company and each such Guarantor, as the case may be, in accordance with its terms except to the extent that enforcement may be limited by applicable bankruptcy, reorganization, moratorium, insolvency and similar laws affecting creditors’ rights generally or by equitable principles of general application, regardless of whether considered in a proceeding in equity or at law.

SECTION 4.03.Financial Condition.

(a)The Company has heretofore furnished to each Lender the audited consolidated balance sheets, statements of income, retained earnings and cash flow of the Company and its  Subsidiaries, audited by Ernst & Young LLP, independent certified public accountants, as of and for the fiscal year ended December 31, 2003.  Such financial statements were prepared in conformity with

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Generally Accepted Accounting Principles, applied on a consistent basis, and fairly present the consolidated financial condition and consolidated results of operations of the Company and its Subsidiaries as of the date of such financial statements and for the periods to which they relate and since December 31, 2003 (the “Determination Date”), no Material Adverse Effect has occurred, except as set forth on Schedule 5.01(j).  Other than obligations and liabilities arising in the ordinary course of business since the Determination Date, there are no obligations or liabilities contingent or otherwise, of the Company or any of its Subsidiaries which are not reflected or disclosed on such audited statements other than obligations or liabilities of the Company and its Subsidiaries which are not required to be so disclosed.  Notwithstanding anything to the contrary herein, on the date of delivery of any financial statements pursuant to Section 6.03(a) hereof, the Determination Date shall be deemed to be the date of the prior year’s audited financial statements.

(b)Each of the Company and each Guarantor is Solvent.

SECTION 4.04.Taxes.  Each of the Company and each Subsidiary of the Company has filed or has caused to be filed all tax returns (foreign, federal, state and local) required to be filed (including, without limitation, with respect to payroll and sales taxes) and each of the Company and each Subsidiary of the Company has paid all taxes (including, without limitation, all payroll and sales taxes), assessments and governmental charges and levies shown thereon to be due, including interest and penalties except (a) where the failure to file such tax returns or pay such taxes, charges or levies could not reasonably be expected to have a Material Adverse Effect and (b) taxes, assessments and governmental charges and levies being contested in good faith by appropriate proceedings and with respect to which adequate reserves in conformity with Generally Accepted Accounting Principles applied on a consistent basis shall have been provided on the books of the Company and its Subsidiaries.

SECTION 4.05.Title to Properties.  Each of the Company and each Subsidiary of the Company has good title to its respective properties and assets reflected on the financial statements referred to in Section 4.03 hereof, except for such properties and assets as have been disposed of since the date of such financial statements as no longer used or useful in the conduct of their respective businesses or as have been disposed of in the ordinary course of business or as permitted pursuant to Section 7.04(b) hereof, and all such properties and assets are free and clear of all Liens other than Permitted Liens.

SECTION 4.06.Litigation.  (a) Except as set forth on Schedule 4.06, there are no actions, suits or proceedings (whether or not purportedly on behalf of the Company or any Subsidiary of the Company) pending or, to the knowledge of the Company, threatened against or affecting the Company or any such Subsidiary at law or in equity or before or by any Governmental Authority, which involve any of the transactions contemplated herein or which could reasonably be expected to result in a Material Adverse Effect; and (b) neither the Company nor any Subsidiary of the Company is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any Governmental Authority which could reasonably be expected to result in a Material Adverse Effect.

SECTION 4.07.Agreements.  Neither the Company nor any Subsidiary of the Company is a party to any agreement, indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any judgment, order, writ, injunction, decree or regulation which could reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any Subsidiary of the Company is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default could reasonably be expected to have a Material Adverse Effect.

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SECTION 4.08.Compliance with ERISA.  Each Plan is in compliance in all material respects with ERISA; no Plan is insolvent or in reorganization (as defined in Section 4241 of ERISA), no Plan has an Unfunded Current Liability which could reasonably be expected to have a Material Adverse Effect or to result in the imposition of any Lien, and no Plan has an accumulated or waived funding deficiency within the meaning of Section 412 of the Code; neither the Company nor any ERISA Affiliate has incurred any material liability to or on account of a Plan pursuant to Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or reasonably expects to incur any material liability under any of the foregoing Sections on account of the prior termination of participation in or contributions to any such Plan; no proceedings have been instituted to terminate any Plan which could reasonably be expected to have a Material Adverse Effect or to result in the imposition of any Lien; no condition exists which could reasonably be expected to present a risk to the Company or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; and no lien imposed under the Code or ERISA on the assets of the Company or any of its ERISA Affiliates exists or to the knowledge of the Company is likely to arise on account of any Plan.

SECTION 4.09.Federal Reserve Regulations; Use of Proceeds.

(a)Neither the Company nor any Subsidiary of the Company is engaged principally in, nor has as one of its important activities, the business of extending, maintaining or arranging credit for the purpose of purchasing or carrying any “margin stock” (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States, as amended from time to time).

(b)No part of the proceeds of any Loan and no other extension of credit hereunder will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or to carry margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock, or to refund indebtedness originally incurred for such purposes, or (ii) for any purpose which violates or is inconsistent with the provisions of Regulation T, U, or X of the Board of Governors of the Federal Reserve System.

(c)The proceeds of each Loan, and each other extension of credit hereunder, shall be used solely for the purposes permitted under Section 3.02 hereof.

SECTION 4.10.Approvals.  No registration with or consent or approval of, or other action by, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance of this Agreement by the Company or any Guarantor, or with the execution, delivery and performance of other Loan Documents to which it is a party or, with respect to the Company, the borrowings and each other extension of credit hereunder other than registrations, consents and approvals received prior to the date hereof and disclosed to the Lenders and which are in full force and effect or such registrations, consents and approvals required pursuant to Section 5.01 hereof.

SECTION 4.11.Subsidiaries and Affiliates.  Attached hereto as Schedule 4.11 is a correct and complete list of each of the Company’s Subsidiaries and Affiliates as of the Closing Date showing as to each (a) Subsidiary, its name, the jurisdiction of its incorporation or formation, its shareholders or other owners of an interest in each Subsidiary and the number of outstanding shares or other ownership interest owned by each shareholder or other owner of an interest and (b) Affiliate in which the Company or any of its Subsidiaries owns an interest, the number of shares or other ownership interests of such Affiliate owned directly or indirectly by the Company.

SECTION 4.12.Hazardous Materials.   The Company and each Subsidiary are in

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compliance in all material respects with all applicable Environmental Laws and neither the Company nor any Subsidiary has used Hazardous Materials on, from, or affecting any property now owned or occupied or hereafter owned or occupied by the Company or any such Subsidiary in any manner which violates any applicable Environmental Law. To the best actual knowledge of any officer of the Company, no prior owner of any such property or any tenant, subtenant, prior tenant or prior subtenant has used Hazardous Materials on, from, or affecting such property in any manner which violates, in any material respect, any applicable Environmental Law.

SECTION 4.13.Investment Company Act.  Neither the Company nor any Subsidiary of the Company is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

SECTION 4.14.No Default.  No Default or Event of Default has occurred and is continuing.

SECTION 4.15.Credit Arrangements.  Schedule 4.15 attached hereto is a complete and correct list of all credit agreements, indentures, purchase agreements (other than purchase orders), guaranties, Capital Leases and other investments, agreements and arrangements in effect on the Closing Date providing for or relating to extensions of credit to the Company or any Subsidiaries of the Company, or any of them (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which the Company or any Subsidiaries of the Company, or any of them, are in any manner directly or contingently obligated to make aggregate payments of $1,000,000 or more; and the maximum principal or face amounts of the credit in question, outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule 4.15.

SECTION 4.16.Permits and Licenses.  Each of the Company and each Subsidiary of the Company has all permits, licenses, certifications, authorizations and approvals required for it lawfully to own and operate their respective businesses except those the failure of which to have could not reasonably be expected to have a Material Adverse Effect.

SECTION 4.17.Compliance with Law.   The Company and each Subsidiary of the Company are each in compliance with all laws, rules, regulations, orders and decrees which are applicable to the Company or any such Subsidiary, or to any of their respective properties, which the failure to comply with could reasonably be expected to have a Material Adverse Effect.

SECTION 4.18.Disclosure.  Neither this Agreement, any other Loan Document, nor any other document, certificate or written statement furnished to the Administrative Agent, the Issuing Lender, or any Lender by or on behalf of the Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which they were made.

SECTION 4.19.Labor Disputes and Acts of God.  Neither the business nor the properties of the Company or any Subsidiary of the Company are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), which could reasonably be expected to have a Material Adverse Effect.

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SECTION 4.20.Pledge Agreements.  Each Pledge Agreement executed by the Company and the Guarantors shall constitute a valid and continuing lien on and security interest in the Pledged Interests (as defined in such Pledge Agreement) referred to in such Pledge Agreement to the extent provided therein and under applicable law in favor of the Administrative Agent for the ratable benefit of the Lenders, prior to all Liens, other than Permitted Liens.

ARTICLE V
CONDITIONS OF LENDING

SECTION 5.01.Conditions to Initial Extension of Credit.  The obligation of each Lender to make its initial Loan hereunder, and the obligation of the Issuing Lender to issue the initial Letter of Credit, are subject to the following conditions precedent:

(a)Notes.  On or prior to the Closing Date, the Administrative Agent shall have received (i) for the account of each Lender (other than the Issuing Lender and the Swingline Lender), a Revolving Credit Note and (ii) for the account of the Swingline Lender, a Swingline Note, each duly executed by the Company.

(b)Guaranties.  On or prior to the Closing Date, the Administrative Agent shall have received, with a counterpart for each Lender, a Guaranty duly executed by each Guarantor.

(c)Pledge Agreements.  On or prior to the Closing Date, the Administrative Agent shall have received the Pledge Agreements duly executed by the Company and Guarantors, as applicable, together with all stock certificates, if any, evidencing the shares pledged under the Pledge Agreements and undated stock powers duly executed in blank by the Company or the Guarantors and UCC-1 financing statements required pursuant to the Pledge Agreements, as appropriate.

(d)Opinion of Counsel.  On or prior to the Closing Date, the Administrative Agent shall have received a written opinion of Kaye Scholer, LLP substantially in the form of Exhibit G attached hereto.

(e)Supporting Documents.  On or prior to the Closing Date, the Administrative Agent shall have received (i) a certificate of good standing for the Company and each Guarantor from the secretary of state of the states of their organizational jurisdiction dated as of a recent date; (ii) copies of the Certificate of Incorporation and By-laws or other organization documents, as applicable of the Company and each Guarantor, certified by the Secretary or an Assistant Secretary of such entity; and (iii) a certificate of the Secretary or an Assistant Secretary of the Company and each Guarantor dated the Closing Date and certifying:  (x) that neither the Certificates of Incorporation, the By-laws nor any other applicable organizational documents of the Company or any Guarantor has been amended since the date of their certification (or if there has been any such amendment, attaching a certified copy thereof); (y) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of the Company and by the board of directors or other governing body or Persons of each Guarantor authorizing the execution, delivery and performance of each Loan Document to which it is a party; and (z) the incumbency and specimen signature of each officer of the Company and of each officer or other authorized Person of each Guarantor executing each Loan Document to which the Company or any Guarantor is a party and a certification by another officer of the Company and each Guarantor as to the incumbency and signature of the Secretary or Assistant Secretary of the Company and each Guarantor.

(f)Insurance.  On or prior to the Closing Date, the Administrative Agent shall have

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received a certificate or certificates of insurance from an independent insurance broker or brokers or other evidence confirming the insurance required to be maintained by the Company and its Domestic Subsidiaries pursuant to Section 6.01 hereof.

(g)Fees and Expenses.  On or prior to the Closing Date, the Lenders shall have received all fees that may be payable to them pursuant to this Agreement and reimbursement of expenses in accordance with Section 10.03(b) hereof.

(h)No Litigation.  Except as set forth on Schedule 4.06, there shall exist no action, suit, investigation, litigation or proceeding affecting the Company or any of its Subsidiaries pending or, to the knowledge of the Company, threatened before any court, governmental agency or arbiter that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(i)Consents and Approvals.  All governmental and third party consents and approvals necessary in connection with the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Required Lenders) and shall remain in effect, and no law or regulation shall be applicable in the reasonable judgment of the Required Lenders that imposes materially adverse conditions upon the transactions contemplated hereby.

(j)No Material Adverse Effect.   Except as set forth on Schedule 5.01(j) attached hereto, there shall not have occurred any Material Adverse Effect in the business, operations, properties or condition (financial or otherwise) of the Company and its Subsidiaries or the Company and the Guarantors, taken as a whole, since December 31, 2003.

(k)Existing Indebtedness.  The Administrative Agent shall have received concurrently with the extension of the initial Loans described herein evidence that the Existing Indebtedness has been paid in full and that the agreements giving rise to such Existing Indebtedness have been terminated.

(l)Other Information, Documentation.  The Administrative Agent and the Lenders shall have received such other and further information and documentation as any of them may reasonably require.

(m)Completion of Proceedings.  All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents, shall be reasonably satisfactory in form and substance to the Administrative Agent, the Lenders and their counsel.

SECTION 5.02.Conditions to Extensions of Credit.  The obligation of each Lender to make each Loan hereunder and the obligation of the Issuing Lender to issue, amend, renew or extend any Letter of Credit, including, without limitation, the initial Loan and initial Letter of Credit, are further subject to the following conditions precedent:

(a)Representations and Warranties.  The representations and warranties by the Company and each Guarantor pursuant to this Agreement and the other Loan Documents to which each is a party shall be true and correct in all material respects on and as of the Borrowing Date or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, with the same effect as though such representations and warranties had been made on and as of such date unless such

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representation is as of a specific date, in which case, as of such date.

(b)No Default.  No Default or Event of Default shall have occurred and be continuing on the Borrowing Date or on the date of issuance, amendment, renewal or extension of a Letter of Credit or will result after giving effect to the Loan requested or the requested issuance, amendment, renewal or extension of a Letter of Credit.

(c)Letter of Credit Documentation.  With respect to the issuance, amendment, renewal or extension of any Letter of Credit, the Issuing Lender shall have received the documents and instruments requested by the Issuing Lender in accordance with the last sentence of Section 2.03(a) hereof.

Each borrowing hereunder and each issuance, amendment, renewal or extension of a Letter of Credit shall constitute a representation and warranty of the Company that the statements contained in clauses (a), (b), and (c) of this Section 5.02 are true and correct on and as of the Borrowing Date or as of the date of issuance, amendment, renewal or extension of a Letter of Credit, as applicable, as though such representation and warranty had been made on and as of such date.

ARTICLE VI
AFFIRMATIVE COVENANTS

The Company covenants and agrees with the Lenders that so long as the Commitments remain in effect, or any of the principal of or interest on the Notes or any other Obligations hereunder shall be unpaid it will, and will cause each of its Subsidiaries to:

SECTION 6.01.Existence, Properties, Insurance.  Except to the extent permitted by Section 7.12 hereof, do or cause to be done all things necessary to preserve and keep in full force and effect its corporate, partnership, limited liability company, or other form of organization, as applicable (except as set forth on Schedule 6.01 hereto), existence (other than as expressly permitted herein) and comply, in all material respects, with all laws applicable to it; at all times maintain, preserve, protect or renew all trade names, patents, trademarks and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect and preserve all of its property, in each case, material to its business and keep the same in good repair, working order and condition (normal wear and tear excepted) and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted in the ordinary course at all times in the manner and custom of similar businesses; at all times, preserve and maintain in full force and effect all rights (including governmental rights), privileges, qualifications, permits, licenses and franchises necessary for the normal conduct of its business; and at all times maintain insurance covering its assets and its business with financially sound and reputable insurance companies or associations in such amounts and against such risks (including, without limitation, hazard, business interruption, public liability and product liability) as are usually carried by companies engaged in the same or similar business.

SECTION 6.02.Payment of Indebtedness and Taxes. (a) Pay all material indebtedness and obligations, now existing or hereafter arising, as and when due and payable except where (i) the validity, amount, or timing thereof is being contested in good faith and by appropriate proceedings, which proceedings shall include good faith negotiations, and (ii) the Company or any Subsidiary of the Company has set aside on its books adequate reserves with respect thereto in accordance with Generally

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Accepted Accounting Principles, and (iii) the failure to make such payment pending such contest could not reasonably be expected to have a Material Adverse Effect, and (b) pay and discharge or cause to be paid and discharged promptly all taxes, assessments and government charges or levies imposed upon it or upon its income and profits, or upon any of its property, real, personal or mixed, or upon any part thereof, as and when due and payable, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might become a lien or charge upon such properties or any part thereof, except where the failure to make such payment could not reasonably be expected to have a Material Adverse Effect; provided, however, that neither the Company nor any Subsidiary of the Company shall be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings, and the Company or such Subsidiary, as the case may be, shall have set aside on its books adequate reserves determined in accordance with Generally Accepted Accounting Principles with respect to any such tax, assessment, charge, levy or claim so contested; further, provided that, subject to the foregoing proviso, the Company and each Subsidiary of the Company will pay or cause to be paid all such taxes, assessments, charges, levies or claims upon the commencement of proceedings to foreclose any lien which has attached as security therefor.

SECTION 6.03.Financial Statements, Reports, etc.  Furnish to the Administrative Agent (with sufficient copies for each Lender):

(a)within ninety (90) days of the end of each fiscal year of the Company, or such earlier date on which the following is required to be filed with the Securities and Exchange Commission, audited consolidated financial statements of the Company and its Subsidiaries which shall include consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, together with consolidated income statements and statements of cash flows for the Company and its Subsidiaries for such fiscal year and as of and for the prior fiscal year, all prepared in accordance with Generally Accepted Accounting Principles and accompanied by an opinion thereon of Ernst & Young, LLP or other nationally recognized independent certified public accountants reasonably acceptable to the Lenders (the “Auditor”) which opinion shall not include a going concern or like qualification or exception or a qualification or exception as to the scope of the audit (except with respect to any newly acquired Subsidiary), together with the corresponding consolidating balance sheets of the Company and its Subsidiaries and the consolidating statements of income for the Company and its Subsidiaries, all prepared under the supervision of the Chief Financial Officer of the Company in accordance with Generally Accepted Accounting Principles;

(b)within forty-five (45) days after the end of each of the first, second and third fiscal quarters of each fiscal year of the Company, unaudited consolidated and consolidating financial statements of the Company and its Subsidiaries, which shall include unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of each such quarter, together with consolidated and consolidating income statements and consolidated statements of cash flows of the Company and its Subsidiaries for each such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, all in reasonable detail stating in comparative form the respective figures for the corresponding date and period in the previous fiscal year, all prepared by or under the supervision of the Chief Financial Officer of the Company in accordance with Generally Accepted Accounting Principles (subject to year-end adjustments and except for the absence of notes thereto);

(c)(i) a certificate prepared and signed by the Auditor with each delivery required by clause (a), and (ii) a certificate prepared and signed by the Chief Financial Officer with each delivery

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required by clauses (a) and (b), stating whether the Auditor or Chief Financial Officer, as the case may be, shall have obtained knowledge of any Default or Event of Default, together with a certificate of the Chief Financial Officer of the Company demonstrating that as of the last day of the relevant fiscal year or quarter, as applicable, the Company was in compliance with the financial condition covenants set forth in Section 7.13 hereof, provided that the certificate described in subclause (i) above for the fiscal year ended December 31, 2004 shall be delivered by no later than March 31, 2005;

(d)together with delivery of the statements referred to in clause (a) above, a copy of  the management letter, if any, prepared by the Auditor, or if such management letter has not been received by the Company as of such date, promptly upon receipt thereof;

(e)together with delivery of the statements referred to in clauses (a) and (b) above, a certificate of the Chief Financial Officer indicating the “book-to-bill” ratio at the end of such fiscal quarter;

(f)promptly after filing thereof, copies of all financial statements and material reports that the Company sends to its shareholders, and copies of all regular, periodic and special financial information, proxy materials, reports and other information which the Company shall file with the Securities and Exchange Commission;

(g)promptly after submission to any government or regulatory agency, all documents and information (including Forms 8-K) furnished to such government or regulatory agency other than such documents and information prepared in the normal course of business and which could not reasonably be expected to result in a Material Adverse Effect, provided that if such documents and information are available on or through the Company’s website, the Company may comply with this clause (g) by delivering a notice to the Lenders setting forth a written reference to such documents and information to be found on or through such website;

(h)promptly upon execution thereof, copies of any amendments or modifications to the Indenture;

(i)promptly upon completion thereof, copies of the restated unaudited consolidated and consolidating financial statements of the Company and its Subsidiaries, including unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries, for the fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, together with consolidated and consolidating income statements and consolidated statements of cash flows of the Company and its Subsidiaries for each such quarter; and

(j)promptly, from time to time, such other information regarding the operations, business affairs and condition (financial or otherwise) of the Company or any Subsidiary of the Company as any Lender may reasonably request.

SECTION 6.04.Books and Records; Access to Premises.

(a)Maintain adequate records and proper books of record and account in which full, true and correct entries will be made in a manner to enable the preparation of financial statements in accordance with Generally Accepted Accounting Principles, and which shall reflect all material financial transactions of the Company and each of its Subsidiaries and material matters involving the assets and business of the Company and such Subsidiaries.

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(b)At any time during normal business hours (and upon reasonable advance notice so long as no Default or Event of Default has occurred and is then continuing), permit the Administrative Agent or any Lender or any agents or representatives thereof to examine and make copies of and abstracts from the books and records of such information which the Administrative Agent or any Lender reasonably deems necessary or desirable (including, without limitation, the financial records of the Company and its Subsidiaries) and to visit the properties of the Company or any of its Subsidiaries and to discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with any of their respective executive officers or the Company’s independent accountants, provided that the costs thereof shall be for the account of the Lenders so long as no Default or Event of Default shall have occurred and is then continuing.  The Lenders shall use reasonable efforts to coordinate any such examinations, copying, visits or discussions.

SECTION 6.05.Notice of Adverse Change.  Promptly notify the Administrative Agent (and the Administrative Agent shall promptly notify each Lender) in writing of (a) any change in the business or the operations of the Company or its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, and (b) any information which indicates that any financial statements which are the subject of any representation contained in this Agreement, or which are furnished to the Administrative Agent or the Lenders pursuant to this Agreement, fail to present fairly, as of the date thereof and for the period covered thereby, the financial condition and results of operations purported to be presented therein, disclosing the nature thereof.

SECTION 6.06.Notice of Default.  Promptly notify the Administrative Agent (and the Administrative Agent shall promptly notify each Lender) of any Default or Event of Default which shall have occurred or the occurrence or existence of any event or circumstance that in the reasonable judgment of the Company is likely to become a Default or Event of Default, which notice shall include a written statement as to such occurrence, specifying the nature thereof and the action (if any) which is proposed to be taken with respect thereto.

SECTION 6.07.Notice of Litigation and Investigations.  Promptly notify the Administrative Agent (and the Administrative Agent shall promptly notify each Lender) of any action,
suit, investigation or proceeding at law or in equity or by or before any governmental instrumentality or other agency which could reasonably be expected to have a Material Adverse Effect.

SECTION 6.08.Notice of Default in Other Agreements.  Promptly notify the Administrative Agent (and the Administrative Agent shall promptly notify each Lender) of any default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which the Company or any Subsidiary of the Company is a party which default could reasonably be expected to have a Material Adverse Effect.

SECTION 6.09.Notice of ERISA Event.  Promptly, and in any event within ten (10) days, after the Company or any Guarantor knows any of the following, deliver to the Administrative Agent (and the Administrative Agent shall promptly notify each Lender) a certificate of the Chief Financial Officer of the Company setting forth details as to the occurrence and the action, if any, which the Company, any Guarantor or any ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Company, such Guarantor, such ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator, with respect thereto:  that a Reportable Event has occurred with respect to a Plan, that an accumulated funding deficiency (as defined in Section 412 of the Code) has been incurred or an application may be or has been made to the Secretary of the

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Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Single-Employer Plan, that a Plan has been terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, that one or more Single-Employer Plans have an Unfunded Current Liability in excess of $1,000,000 in the aggregate, that involuntary proceedings may be or have been instituted to terminate a Plan, that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan, or that the Company, any Guarantoror any ERISA Affiliate will incur any liability (including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA.  Upon request of any Lender, the Company will deliver to each Lender a complete copy of the annual report (Form 5500) filed for each Single-Employer Plan.

SECTION 6.10.Notice of Environmental Law Violations.  Promptly notify the Administrative Agent (and the Administrative Agent shall promptly notify each Lender) of the receipt of any notice of an action, suit, or proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending against the Company or any Subsidiary of the Company relating to any alleged violation of any Environmental Law which could reasonably be expected to have a Material Adverse Effect.

SECTION 6.11.Compliance with Applicable Laws.  Comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, the breach of which could reasonably be expected to have a Material Adverse Effect, including, without limitation, the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.

SECTION 6.12.Additional Subsidiaries.  Give the Administrative Agent prompt written notice of the creation, establishment or acquisition, in any manner, of any Material Subsidiary not existing on the Closing Date.  Subject to the last sentence of this Section 6.12, the Company or a Material Domestic Subsidiary, as appropriate, (a) shall execute a Pledge Agreement, in the form of Exhibit E-1 or E-2 hereto (or such other agreement as shall be required by the Administrative Agent), as applicable, with respect to (i) all of the shares of capital stock or other ownership interest of each Subsidiary which is or becomes a Material Domestic Subsidiary and (ii) not more than 65% of the capital stock of each First-Tier Subsidiary of such Person which is or becomes a Material Non-Domestic Subsidiary, (b) shall cause each Subsidiary of such Person which is a Material Domestic Subsidiary to execute amendments with respect to the Guaranty and the Security Agreement, pursuant to which such Subsidiary becomes a “Guarantor” and “Grantor” under the Guaranty and the Security Agreement, respectively, (c) shall deliver an opinion of counsel, (i) simultaneously with the delivery of any Pledge Agreement executed pursuant to clause (a)(i) above and (ii) within 60 days of the delivery of any Pledge Agreement executed pursuant to clause (a)(ii) above, that such Pledge Agreement is valid and enforceable in the jurisdiction of formation of such Material Domestic Subsidiary and Material Non-Domestic Subsidiary, as the case may be, provided that if such opinion, in connection with the delivery of any Pledge Agreement executed pursuant to clause (a)(ii) above, cannot be provided, the Company or such Material Non-Domestic Subsidiary, as appropriate, shall execute any additional documents that may be required in order to perfect the lien granted by such Pledge Agreement in such jurisdiction and to enable such counsel to deliver an acceptable opinion with respect thereto and (d) with respect to the pledge of capital stock or other ownership interest of any Material Domestic Subsidiary that is a “certificated security” within the meaning of Section 8-102(a)(4) of the Uniform Commercial Code, deliver certificates and powers with respect to such interests duly endorsed in blank, and, in the event of uncertificated interests, to the extent the Administrative Agent’s Lien therein is not already perfected by the filing of the UCC-1 financing

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statements referred to in Section 5.01(c) hereof, additional UCC-1 financing statements; in the case of both (a), (b) and (d), within ten (10) Business Days after the creation, establishment or acquisition of such Material Subsidiary and in connection therewith shall deliver or cause to be delivered such proof of corporate action, incumbency of officers and other documents as are consistent with those delivered as to each Subsidiary pursuant to Section 5.01 hereof on the Closing Date, or as the Administrative Agent may request, each in form and substance satisfactory to the Administrative Agent.  In no event shall the Company be required to pledge any of the assets of a Subsidiary of the Company that is a controlled foreign corporation, as defined in Section 957(a) of the Code, including, but not limited to the stock of any Subsidiary of the Company held directly or indirectly by any such Subsidiary.

SECTION 6.13.Environmental Laws.  Comply in all material respects with the requirements of all applicable Environmental Laws, provide to the Lenders all documentation in connection with such compliance that any of the Lenders may reasonably request, and defend, indemnify, and hold harmless the Administrative Agent and each Lender and their respective employees, agents, officers, and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature, known or unknown, contingent or otherwise, arising out of, or in any way related to, (a) the presence, disposal, or release of any Hazardous Materials on any property at any time owned or occupied by the Company or any Subsidiary of the Company, (b) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials, (c) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, and/or (d) any violation of applicable Environmental Laws, including, without limitation, reasonable attorney and consultant fees, investigation and laboratory fees, court costs, and litigation expenses.

SECTION 6.14.Non-Material Subsidiaries.  In the event that the assets or revenues of the Non-Material Subsidiaries, taken as a whole, shall, at any time, exceed ten percent (10%) of Consolidated Total Assets or Consolidated Total Revenues, then, at such time one or more Non-Material Subsidiaries, as selected by the Company, shall be deemed Material Subsidiaries so that the Non-Material Subsidiaries, taken as a whole, shall no longer, account for more than ten percent of Consolidated Total Assets or Consolidated Total Revenues.  In the event that any Non-Material Subsidiary shall be deemed a Material Subsidiary, such Subsidiary or such Subsidiary’s parent shall comply with the relevant provisions of Section 6.12 hereof.

ARTICLE VII
NEGATIVE COVENANTS

The Company covenants and agrees with the Lenders that so long as the Commitments remain in effect or any of the principal of or interest on any Note or any other Obligations hereunder shall be unpaid, it will not, and will not cause or permit any of itsSubsidiaries, directly or indirectly, to:

SECTION 7.01.Indebtedness.  Incur, create, assume or suffer to exist or otherwise become liable in respect of any Indebtedness, other than:

(a)Indebtedness incurred prior to the date hereof as described in Schedule 7.01 attached hereto and any refinancing of such Indebtedness, provided that the aggregate principal amount of such Indebtedness is not increased (unless such increase is otherwise permitted under Sections 7.01(b) through 7.01(h) hereof;

(b)Indebtedness to the Lenders under this Agreement, the Notes or any other Loan

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Document;

(c)Indebtedness for trade payables incurred in the ordinary course of business; provided such payables shall be paid or discharged when due;

(d)Indebtedness consisting of guarantees permitted pursuant to Section 7.03 hereof;

(e)Subordinated Indebtedness, including without limitation, indebtedness evidenced by the Subordinated Notes, provided that such Subordinated Indebtedness shall not exceed $300,000,000, in the aggregate, and provided further, that no Default or Event of Default shall have occurred and be continuing at the time of incurrence thereof or would occur after giving effect to the incurrence of such Subordinated Indebtedness;

(f)Indebtedness secured by purchase money liens as permitted under Section 7.02(i) hereof and Indebtedness arising under Capital Leases; provided that the aggregate amount of such Indebtedness shall not exceed $15,000,000 during any fiscal year of the Company, or $30,000,000 at any one time outstanding, and, further, provided no Default or Event of Default shall have occurred and be continuing at the time of incurrence thereof or would occur after giving effect to the incurrence of such Indebtedness;

(g)Indebtedness with respect to Hedging Agreements entered into by the Company, provided that the aggregate net liabilities under all Hedging Agreements shall not exceed $5,000,000 at the time of incurrence thereof, and provided further, that such Hedging Agreements shall be entered into only in the ordinary course of its business and not for speculative purposes;

(h)Indebtedness arising under or with respect to foreign exchange contracts entered into by the Company or any of its Subsidiaries in the ordinary course of its business and not for speculative purposes for the purchase or sale of foreign currency and with respect to which the net daily settlement amount of any particular date, shall not exceed $25,000,000, in the aggregate;

(i)Indebtedness for taxes, assessments or other governmental charges or levies not yet delinquent or which are being contested in good faith by appropriate proceedings; provided, however, that adequate reserves with respect thereto are maintained on the books of the Company or any Subsidiary of the Company in accordance with Generally Accepted Accounting Principles;

(j)Indebtedness owing by (i) the Company to any of its Material Subsidiaries or (ii) any Material Subsidiary of the Company to the Company or any other Material Subsidiary of the Company;

(k)Indebtedness owing by (i) the Company to any of its Non-Material Subsidiaries or (ii) any Non-Material Subsidiary of the Company to the Company or any other Non-Material Subsidiary of the Company, provided such Indebtedness shall not exceed $25,000,000, in the aggregate;

(l)unsecured Indebtedness of Non-Domestic Subsidiaries incurred in connection with performance standby letters of credit, bank guarantees, bonds or similar arrangements, incurred in the ordinary course of its business, the Dollar Equivalent Amount of which shall not exceed $10,000,000 at any time;

(m)Indebtedness assumed in connection with any Permitted Acquisition, provided

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that such Indebtedness is secured only by those liens permitted under Section 7.02(h) hereof,

(n)additional Indebtedness assumed in connection with any Permitted Acquisition (not described in Section 7.01(l) or (n) hereof), not to exceed $5,000,000, in the aggregate, provided that such Indebtedness is unsecured and shall be terminated within six months after the closing date of such Permitted Acquisition and, provided further that, no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to the incurrence of such Indebtedness;

(o)additional Indebtedness incurred in connection with any Permitted Acquisition (not described in Section 7.01(l) or (m) hereof), not to exceed $5,000,000, in the aggregate, provided that such Indebtedness is unsecured and shall solely consist of promissory notes issued by the Company or the Subsidiary of the Company, as applicable, in favor of the seller with respect to such Permitted Acquisition and, provided further that, no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to the incurrence of such Indebtedness; and

(p)additional unsecured Indebtedness of the Company and its Subsidiaries (not described in Section 7.01 (a) through (n) hereof), not to exceed $5,000,000, in the aggregate.

SECTION 7.02.Liens.     Incur, create, make, assume or suffer to exist any Lien on any of their respective properties or assets, now or hereafter owned, other than:

(a)Liens existing on the date hereof (which are not described in Sections 7.02(b) through 7.02(i) hereof) as set forth on Schedule 7.02 attached hereto, securing Indebtedness outstanding on such date or incurred in connection with the extension, renewal or refinancing of the Indebtedness secured by such existing Liens; provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase;

(b)Liens securing Indebtedness described in Section 7.01(i) hereof, provided that no notice of lien has been filed or recorded under the Code;

(c)carriers’, warehousemens’, mechanics’, suppliers’ or other like Liens arising in the ordinary course of business and not overdue for a period of more than sixty (60) days 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;

(d)Liens incurred or deposits to secure (i) the non-delinquent performance of tenders, bids, trade contracts (other than for borrowed money), leases and statutory obligations, (ii) contingent obligations on surety, performance and appeal bonds, and (iii) other non-delinquent obligations of similar nature; in each case, incurred in the ordinary course of business;

(e)any attachment, judgment or similar Lien arising in connection with any court or governmental proceeding, provided that the execution or other enforcement of such Lien is effectively stayed within thirty (30) days, provided, further that an Event of Default shall not be deemed to occur solely by reason of the continuance of such Liens beyond such thirty (30) day period so long as the aggregate amount secured by all such continuing Liens does not exceed $500,000;

(f)easements, rights of way, restrictions and other similar charges or encumbrances incurred in the ordinary course of business which, in the aggregate, do not interfere in any material

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respect with the occupation, use and enjoyment by the Company or any Subsidiary of the Company of the

property or assets encumbered thereby in the normal course of their respective business or materially impair the value of the property subject thereto;

(g)deposits or pledges required in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security laws;

(h)Liens upon assets acquired in Permitted Acquisitions, provided that such Liens encumber only (i) specific equipment or real property; or (ii) other assets acquired in such Permitted Acquisition, provided that Liens on such other assets do not secure more than $5,000,000 of Indebtedness in the aggregate and provided further that such Liens on such other assets are released within six months after the closing date of such Permitted Acquisition;

(i)purchase money Liens on any property acquired or held by the Company or its Subsidiaries in the ordinary course of business, securing Indebtedness permitted pursuant to Section 7.01(f) hereof; provided in each case (i) no Default or Event of Default shall have occurred and be continuing at the time such Lien is created or shall occur after giving effect to such Lien, (ii) such purchase money lien does not secure more than 100% of the purchase price of, and encumbers only, the property acquired, and (iii) such purchase money Lien does not secure any Indebtedness other than in respect of the purchase price of the asset acquired;

(j)Liens arising in connection with Capital Leases permitted under Section 7.01(f) hereof; provided, that no such Lien shall extend to or cover any assets other than the assets subject to such Capital Lease;

(k)Liens arising from precautionary Uniform Commercial Code financing statements filed solely for notice purposes in respect of operating leases, consignments and similar arrangements entered into by the Company or any of its Subsidiaries in the ordinary course of business;

(l)statutory and common law landlord’s liens under leases;

(m)Liens in favor of banks or other depository institutions upon property or assets arising under the common law or pursuant to contractual rights of set off; and

(n)Liens granted to the Administrative Agent for the benefit of the Lenders pursuant to the Security Agreement.

SECTION 7.03.Guaranties.Guarantee, endorse, become surety for, or otherwise in any way become or be responsible for the Indebtedness or obligations of any Person, whether by agreement to maintain working capital or equity capital or otherwise maintain the net worth or solvency of any Person or by agreement to purchase the Indebtedness of any other Person, or agreement for the furnishing of funds, directly or indirectly, through the purchase of goods, supplies or services for the purpose of discharging the Indebtedness of any other Person or otherwise, or enter into or be a party to any contract for the purchase of merchandise, materials, supplies or other property if such contract provides that payment for such merchandise, materials, supplies or other property shall be made regardless of whether delivery of such merchandise, supplies or other property is ever made or tendered except:

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(a)guaranties executed or committed prior to the date hereof as described on Schedule 7.03 attached hereto including any renewals or extension thereof provided that such renewals or extension do not increase the maximum exposure pursuant to the guaranty (unless such increase is permitted by Section 7.03(d) hereof);

(b)endorsements of negotiable instruments for collection or deposit in the ordinary course of business;

(c)guaranties of any Indebtedness under this Agreement or any other Loan Document; and

(d)guaranties by the Company of any Indebtedness permitted pursuant to Section 7.01 hereof of any Subsidiary of the Company or guaranties by any Subsidiary of the Company of such Indebtedness of the Company or any other Subsidiary.

SECTION 7.04.Sale of Assets.  Sell, lease, transfer or otherwise dispose of their respective properties and assets, whether or not pursuant to an order of a federal agency or commission, except for (a) the sale of inventory disposed of in the ordinary course of business, or (b)  so long as no Event of Default shall have occurred and is continuing or could occur as a result thereof, (i) the sale or other disposition of properties or assets no longer used or useful in the conduct of their respective businesses, and (ii) the sale or disposition of assets in arms length transactions provided that the net proceeds of any such sale shall not exceed $5,000,000, in any fiscal year, or $10,000,000, in the aggregate.

SECTION 7.05.Sales of Receivables.  Sell, transfer, discount or otherwise dispose of notes, accounts receivable or other obligations owing to the Company or any Subsidiary of the Company, with or without recourse, except for collection in the ordinary course of business.

SECTION 7.06.Loans and Investments.  Make or commit to make any advance, loan, extension of credit or capital contribution to, or purchase or hold beneficially any stock or other securities, or evidence of Indebtedness, of, purchase or acquire all or a substantial part of the assets of, or make or permit to exist any interest whatsoever in, any other Person except for (a) Eligible Investments; (b) trade credit to customers, provided that such credit is extended in the ordinary course of the business of the Company or such Subsidiary or if such credit is not extended in the ordinary course, such credit does not exceed $5,000,000, in the aggregate, at any time; (c) so long as no Default or Event of Default shall have occurred and is then continuing, Permitted Equity Investments by the Company or any Subsidiary of the Company in any Person which is not a Subsidiary of the Company and loans by the Company or any Subsidiary to such Person in connection with such Permitted Equity Investment, provided that such non-subsidiary entities are engaged in a business which is related to the business of the Company, and provided further that aggregate Permitted Equity Investment Costs incurred in connection with all Permitted Equity Investments shall not be in excess of $12,000,000; (d) Permitted Acquisitions by the Company and any of its Subsidiaries; (e) distributions received by the Company solely as a result of the involuntary conversion of a contractual right to a stock or other investment; (f) investments, loans or advances by the Company in any of its Subsidiaries or by any Subsidiary of the Company in the Company or in any other Subsidiary of the Company; and (g) so long as no Default or Event of Default shall have occurred and is then continuing or would result therefrom, the repurchase by the Company of up to $25,000,000, in the aggregate, of outstanding Subordinated Notes.

SECTION 7.07.Nature of Business.   Fail to carry on its business in substantially the

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same manner and in substantially the same fields as such business is carried on and maintained as of the Closing Date.

SECTION 7.08.Sale and Leaseback.  Enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any property, whether real or personal, used or useful in its business, whether now owned or hereafter acquired, if at the time of such sale or disposition it intends to lease or otherwise acquire the right to use or possess (except by purchase) such property or like property for a substantially similar purpose.

SECTION 7.09.Federal Reserve Regulations.  Permit any Loan or the proceeds of any Loan or any other extension of credit hereunder to be used for any purpose which violates or is inconsistent with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

SECTION 7.10.Accounting Policies and Procedures.  Permit any change in the accounting policies and procedures of the Company or any of its Subsidiaries, including a change in fiscal year, provided, however, that any policy or procedure required to be changed by the Financial Accounting Standards Board (or other board or committee thereof) in order to comply with Generally Accepted Accounting Principles may be so changed; provided further, that any changes to the accounting practices and procedures of a Subsidiary acquired in a Permitted Acquisition shall be permitted only to the extent necessary or appropriate to conform the accounting practices and procedures of such Subsidiary with those of the Company and its other Subsidiaries.

SECTION 7.11.Hazardous Materials.  Cause or permit any of its properties or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose of, transfer, produce or process Hazardous Materials, except in compliance in all material respects, with all applicable federal, state and local laws or regulations, or cause or permit, as a result of any intentional or negligent act or omission on the part of the Company or any of its Subsidiaries, a release of Hazardous Materials onto such property or asset or onto any other property, except in compliance in all material respects with such laws and regulations.

SECTION 7.12.Limitations on Fundamental Changes, Limitations on Consideration; Amendments of Organizational Documents.   Except as permitted by Section 7.04 hereof, (a) merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now or hereafter acquired) to, any Person, or (b) except with respect to a Permitted Acquisition, and except as set forth on Schedule 7.12 hereto, merge or consolidate with or acquire all of the stock or all or substantially all of the assets or the business of any Person or liquidate, wind up or dissolve or suffer any liquidation or dissolution, or (c) enter into or agree to any amendment, modification or waiver of any term or condition of its respective organizational documents which would adversely affect the rights and remedies of the Administrative Agent or the Lenders or would otherwise have a Material Adverse Effect.  Notwithstanding the foregoing, (a) any Domestic Subsidiary may merge with and  into the Company or any Domestic Subsidiary, (b) any Non-Domestic Subsidiary may merge with and into another Non-Domestic Subsidiary, provided, that no Non-Domestic Subsidiary with respect to which the Administrative Agent has received a pledge of stock shall merge with and into another Non-Domestic Subsidiary if 65% of the shares or other ownership interests of the surviving Subsidiary cannot be pledged to the Administrative Agent for the benefit of the Lenders.

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SECTION 7.13.Financial Condition Covenants.

(a)Consolidated Senior Funded Debt to Consolidated EBITA.  Commencing with the fiscal year ended December 31, 2004, permit the ratio of Consolidated Senior Funded Debt to Consolidated EBITA to be greater than 3.00:1.00.

(b)Consolidated Quick Ratio.  Commencing with the fiscal year ended December 31, 2004, permit the Consolidated Quick Ratio to be less than 1.00:1.00 at any time.

(c)Consolidated Fixed Charge Coverage Ratio.  Commencing with the fiscal year ended December 31, 2005, permit the Consolidated Fixed Charge Coverage Ratio to be less than 1.50:1.00.

(d)Consolidated EBT. (i) Commencing with the fiscal quarter ending September 30, 2005 (with respect to the two fiscal quarters then ending), permit Consolidated EBT to be less than $0, for any two consecutive fiscal quarters, on an aggregate basis, or (ii) commencing with the fiscal quarter ending March 31, 2005, permit Consolidated EBT to be less than negative $4,000,000, in any one fiscal quarter.

(e)Consolidated EBITDA.  Permit Consolidated EBITDA for the fiscal year ended December 31, 2004 to be less than $23,000,000.

Compliance with all of the financial covenants in this Section 7.13 may be determined by reference to the consolidated financial statements of the Company delivered to the Administrative Agent in accordance with Section 6.03 hereof.  All financial covenants will be applicable at all times and tested quarterly, as of the last day of each fiscal quarter.

SECTION 7.14.Subordinated Debt.  (a) Except as permitted in Section 7.06(g) hereof, directly or indirectly prepay, defease, purchase or redeem any Subordinated Debt, or (b) amend, supplement or otherwise modify any of the provisions governing such subordination in any way which would materially affect the interests of the Lenders, without the prior written consent of the Required Lenders.

SECTION 7.15.Dividends.  Declare any cash dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of stock of the Company whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, securities or property or in obligations of the Company or in any combination thereof, or permit any Affiliate to make any payment on account of, or purchase or otherwise acquire, any shares of any class of the stock of the Company from any Person, except for (a) so long as no Default or Event of Default shall have occurred and is then continuing or could occur as a result thereof, repurchase by the Company of its common stock and dividends and distributions by the Company to its shareholders provided that the aggregate amount of such permitted repurchases and dividends and distributions does not exceed $10,000,000, in the aggregate, during the term of this Agreement and (b) dividends or distributions paid by any Subsidiary of the Company to its immediate parent.

SECTION 7.16.Transactions with Affiliates.  Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Company’s or any of its Subsidiaries’ business and upon fair and reasonable terms no less favorable to the Company

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or such Subsidiary than they would obtain in a comparable arms-length transaction with a Person not an Affiliate.

SECTION 7.17.Negative Pledge.  Enter into any agreement with any Person other than the Lenders pursuant to this Agreement or any of the other Loan Documents which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon its property, assets or revenues, whether now owned or hereafter acquired, except to the extent that any such agreement relates only to specific property that is the subject of a Permitted Lien.

SECTION 7.18.Indenture.   Amend or modify any of the provisions of the Indenture without the prior consent of the Required Lenders other than amendments or modifications which do not adversely affect the Lenders.

ARTICLE VIII
EVENTS OF DEFAULT

SECTION 8.01.Events of Default.  In the case of the happening of any of the following events (each an “Event of Default”):

(a)failure to pay (i) the principal of any Loan or any reimbursement obligations with respect to a drawing under any Letter of Credit as and when due and payable, or (ii) interest on any Loan or any fees or other amounts under this Agreement, as and when due and payable and, in the case of subclause (ii) only, such failure shall continue unremedied for a period of two (2) Business Days;

(b)any representation or warranty made or deemed made in this Agreement or any other Loan Document shall prove to be false or misleading in any material respect when made or given or when deemed made or given;

(c)any report, certificate, financial statement or other instrument furnished in connection with this Agreement or any other Loan Document or the extensions of credit hereunder, shall prove to be false or misleading in any material respect when furnished, made or given or when deemed made or given;

(d)default shall be made in the due observance or performance of any covenant, condition or agreement of the Company or any Subsidiary of the Company to be performed (i) pursuant to Article 6 of this Agreement (other than Section 6.03(a), (b), (c), or (d), Section 6.04(b) and Section 6.06 hereof) and, in the case of this subclause (i) only, such default shall continue unremedied for a period of thirty (30) consecutive days or (ii) pursuant to any other provision of this Agreement or any other Loan Document that is not specifically addressed in Sections 8.01(a), (b), (c) or (d)(i) hereof;

(e)default in the performance or compliance in respect of any agreement or condition relating to any Indebtedness of the Company or any Guarantor in excess of $5,000,000 individually or in the aggregate (other than the Notes), if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder or obligee thereof (or a trustee on behalf of such holder or obligee) to cause such Indebtedness to become due prior to the stated maturity thereof, or any such Indebtedness shall not be paid when due (beyond any applicable grace period);

(f)the Company or any Material Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal

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or state bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the employment of a receiver, trustee, custodian, sequestrator or similar official for the Company or any Material Subsidiary or for a substantial part of its property; (iv) file an answer admitting the material allegations of a petition filed against it in such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take corporate action for the purpose of effecting any of the foregoing; or the Company or any Material Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due;

(g)an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Material Subsidiary or of a substantial part of their respective property, under Title 11 of the United States Code or any other federal or state bankruptcy, insolvency or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Company or any Subsidiary of the Company or for a substantial part of their property, or (iii) the winding-up or liquidation of the Company or any Material Subsidiary and such proceeding or petition shall continue undismissed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for sixty (60) days;

(h)one or more orders, judgments or decrees for the payment of money in excess of $5,000,000 in the aggregate shall be rendered against the Company or any Subsidiary of the Company which is not covered by insurance and the same shall not have been paid in accordance with such judgment, order or decree or settlement and either (i) an enforcement proceeding shall have been commenced by any creditor upon such judgment, order or decree, or (ii) there shall have been a period of sixty (60) days during which a stay of enforcement of such judgment, order or decree, by reason of pending appeal or otherwise, was not in effect;

(i)any Plan shall fail to maintain the minimum funding standard required under Section 412 of the Code for any Plan year or part thereof or a waiver of such standard or extension of any amortization period is applied for or granted under Section 412 of the Code, any Plan is terminated by the Company, any Subsidiary of the Company or any ERISA Affiliate or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a Reportable Event shall have occurred with respect to a Plan or the Company, any Subsidiary of the Company, or any ERISA Affiliate shall have incurred a liability to or on account of a Plan under Section 515, 4062, 4063, 4201 or 4204 of ERISA, and there shall result from any such event or events the imposition of a lien upon the assets of the Company or any Subsidiary of the Company, the granting of a security interest on such assets, or a liability to the PBGC or a Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the Code, and in each case, such event or condition, together with all such events or conditions, if any, could reasonably be expected to result in liability of the Company and the Subsidiaries of the Company in an aggregate amount exceeding $1,000,000;

(j)            any material provision of any Loan Document shall for any reason cease to be in full force and effect in accordance with its terms or the Company or any Guarantor shall so assert in writing;

(k)a Change of Control shall have occurred;

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(l)the Company shall designate any Indebtedness other than Indebtedness arising under the Credit Agreement as “Designated Senior Indebtedness” (as that term is defined in the Indenture) without the prior written approval of the Required Lenders; or

(m)an Event of Default (as defined in the Indenture) shall have occurred and be continuing;

then, at any time thereafter during the continuance of any such event, the Administrative Agent may, and, upon the request of the Required Lenders, shall, by written or telephonic notice to the Company, take either or both of the following actions, at the same or different times, (a) terminate the Commitments and (b) declare (i) the Notes, both as to principal and interest, (ii) an amount equal to the Aggregate Letters of Credit Outstanding and (iii) all other Obligations, to be forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Notes to the contrary notwithstanding; provided, however, that if an event specified in Section 8.01(f) or (g) hereof shall have occurred, the Commitments shall automatically terminate and interest, principal and amounts referred to in the preceding clauses (i), (ii) and (iii) shall be immediately due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived, anything contained herein or in the Notes to the contrary notwithstanding.  With respect to all Letters of Credit that shall not have expired or presentment for honor shall not have occurred, the Company shall provide the Administrative Agent with Cash Collateral in an amount equal to the aggregate undrawn amount of such Letters of Credit.  Such Cash Collateral shall be applied by the Administrative Agent to reimburse Issuing Lender for drawings under Letters of Credit for which the Issuing Lender has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Company at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other Obligations, with any amount remaining after such satisfactions to be returned to the Company or paid to such other party as may legally be entitled to the same.

ARTICLE IX
THE ADMINISTRATIVE AGENT

SECTION 9.01.Appointment, Powers and Immunities.  Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents together with such other powers as are reasonably incidental thereto.  The Administrative Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents and shall not be a trustee for any Lender, nor is the Administrative Agent acting in a fiduciary capacity of any kind under this Agreement or the other Loan Documents or in respect thereof or in respect of any Lender.  The Administrative Agent shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or the other Loan Documents, in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or the other Loan Documents, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents or any other document referred to or provided for herein or therein or for the collectibility of the Loans or for the validity or effectiveness of any assignment, mortgage, pledge, security agreement, financing statement, document or instrument, or for the filing, recording, re-filing, continuing or re-recording of any thereof or for any failure by the Company or any Guarantor to perform any of its obligations hereunder or under the other Loan Documents.  The Administrative Agent may take all actions by itself and/or it may employ agents and attorneys-in-fact, and shall not be responsible to any Lender, except as to money or the securities received by it or its authorized agents, for the negligence or

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misconduct of itself or its employees or of any such agents or attorneys-in-fact, if such agents or attorneys-in-fact are selected by it with reasonable care.  Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under the other Loan Documents or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct.

SECTION 9.02.Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability to any Lender for relying upon, any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent.  As to any matters not expressly provided for by this Agreement or the other Loan Documents, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or under the other Loan Documents in accordance with instructions signed by the Required Lenders, or such other number of Lenders as is specified in Section 10.04 hereof, and such instructions of the Required Lenders or other number of Lenders as aforesaid and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders.

SECTION 9.03.Events of Default.  The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or Event of Default (other than the non-payment of principal of or interest on the Loans, of amounts payable in respect of draws under Letters of Credit, or of fees to the extent the same are required to be paid to the Administrative Agent for the account of the Lenders), unless the Administrative Agent has received notice from a Lender or the Company specifying such Default or Event of Default and stating that such notice is a “Notice of Default”.  In the event that the Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, the Administrative Agent shall give prompt notice thereof to the Lenders.  The Administrative Agent shall (subject to Section 9.07 hereof) take such action with respect to such Default or Event of Default as shall be directed by the Required Lenders, except as otherwise provided in Section 10.04 hereof; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but is not obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders.

SECTION 9.04.Rights as a Lender.  With respect to its Commitment and the Loans made by it, the Person which is the Administrative Agent, in its capacity as a Lender hereunder, shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include each entity which is the Administrative Agent in its individual capacity.  The Person which is the Administrative Agent and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company or its Affiliates, as if it were not acting as the Administrative Agent, and, except to the extent otherwise herein specifically set forth, the Administrative Agent may accept fees and other consideration from the Company or its Affiliates, for services in connection with this Agreement or any of the other Loan Documents or otherwise without having to account for the same to the Lenders.

SECTION 9.05.Indemnification.  The Lenders shall indemnify the Administrative Agent (to the extent not reimbursed by the Company under Section 10.03 hereof), ratably in accordance with the aggregate outstanding principal amount of the Loans made by the Lenders (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities,

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obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in its capacity as the Administrative Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby and thereby (including, without limitation, the costs and expenses which the Company is obligated to pay under Section 10.03 hereof or under the applicable provisions of any other Loan Document) or the enforcement of any of the terms hereof or of any other Loan Document, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent.

SECTION 9.06.Non-Reliance on Administrative Agent and Other Lenders.  Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or under the other Loan Documents.  The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Company of this Agreement or the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Company.  Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder or under the other Loan Documents, or furnished to the Administrative Agent with counterparts or copies for the Lenders, the Administrative Agent shall not have any duty or ability to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company, which may come into the possession of  the Administrative Agent or any of its Affiliates.

SECTION 9.07.Failure to Act.  Except for action expressly required of the Administrative Agent hereunder or under any other Loan Documents, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder or thereunder unless it shall be indemnified to its satisfaction by the Lenders against any and all liability (except gross negligence and willful misconduct) and expense which may be incurred by it by reason of taking or continuing to take any such action.

SECTION 9.08.Resignation of the Administrative Agent.  Subject to the appointment and acceptance of a successor Administrative Agent as provided in this Section 9.08, the Administrative Agent may resign at any time by notifying the Lenders and the Company.  Upon any such resignation, the Required Lenders shall have the right,  with the approval of the Company provided no Default or Event of Default shall have occurred and then be continuing, such approval not to be unreasonably withheld, delayed or conditioned, to appoint a successor to the Administrative Agent.  If no successor shall have been so appointed by the Required Lenders (with the approval of the Company) and shall have accepted such appointment within 30 days after the resigning Administrative Agent gives notice of its resignation, then the resigning Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank of similar standing with an office in New York, New York, or an Affiliate of any such bank.  Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Administrative Agent, and the resigning Administrative Agent shall be discharged from its duties and obligations hereunder as of such date.  The fees payable by the Company to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor.  After the Administrative Agent’s resignation

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hereunder, the provisions of this Article and Section 10.03 hereof shall continue in effect for the benefit of such resigning Administrative Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent.

SECTION 9.09.Sharing of Collateral and Payments.  In the event that at any time any Lender shall obtain payment in respect of the Obligations, or receive any collateral in respect thereof, whether voluntarily or involuntarily, through the exercise of a right of banker’s lien, set-off or counterclaim against the Company or otherwise, which results in it receiving more than its pro rata share of the aggregate payments with respect to all of the Obligations (other than any payment expressly provided hereunder to be distributed on other than a pro rata basis), then such Lender  shall be deemed to have simultaneously purchased from the other Lenders a share in their Obligations so that the amount of the Obligations held by each of the Lenders shall be pro rata;  provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from the Lender which received the proportionate over-payment, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.  The Company agrees, to the extent it may do so under applicable law, that each Lender so purchasing a portion of another Lender’s Loan or participation in any Letter of Credit may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion.

ARTICLE X
MISCELLANEOUS

SECTION 10.01.Notices.  All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including telecopy), and unless otherwise expressly provided herein, shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered by hand to such party or one Business Day after being sent by overnight mail to the address set forth below, or, in the case of telecopy notice, when acknowledged as received, or if sent by registered or certified mail, three (3) Business Days after the day on which mailed in the United States, addressed to such party at such address:

(a)if to the Administrative Agent, at:

HSBC Bank USA, National Association

534 Broad Hollow Road

Melville, New York 11747

Attention:Christopher J. Mendelsohn or Relationship Manager - Veeco
Instruments Inc.

Telecopy:(631) 752-4340

With a copy to:

Farrell Fritz, P.C.

EAB Plaza, West Tower

Uniondale, New York 11556

Attention:Robert C. Creighton, Esq.

Telecopy:(516) 227-0777

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(b)if to the Company, at:

Veeco Instruments Inc.

100 Sunnyside Boulevard, Suite B

Woodbury, New York  11797

Attention:Chief Financial Officer

Telecopy:(516) 677-0380

With a copy to:

Veeco Instruments Inc.

100 Sunnyside Boulevard, Suite B

Woodbury, New York  11797

Attention:General Counsel

Telecopy:(516) 714-1208

(c)if to any Lender, to its address set forth in the signature page of this Agreement and to the person so designated

- and -

(d)as to each such party at such other address as such party shall have designated, (i) if such party is a Lender, by written notice to the Administrative Agent and the Company, (ii) if such party is the Company, by written notice to the Administrative Agent and each Lender, and (iii) if such party is the Administrative Agent, by written notice to the Company and each Lender, in each case delivered in accordance with the provisions of this Section 10.01.

SECTION 10.02.Effectiveness; Survival; Integration.  This Agreement shall become effective on the date on which all parties hereto shall have signed a counterpart copy hereof and shall have delivered the same to the Administrative Agent.  All representations and warranties made herein and in the other Loan Documents and in the certificates delivered pursuant hereto or thereto shall survive the making by the Lenders of the Loans and the issuance by the Issuing Lender of Letters of Credit, in each case, as herein contemplated and the execution and delivery to the Lenders of the Notes evidencing the Loans and shall continue in full force and effect so long as the Obligations hereunder are outstanding and unpaid and the Commitments are in effect.  The obligations of the Company pursuant to Section 3.07, Section 3.08, Section 3.10, Section 3.13, Section 3.14, Section 6.13, and Section 10.03 hereof shall, notwithstanding anything herein to the contrary,  survive termination of this Agreement and payment of the Obligations.  This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.

SECTION 10.03.Expenses.  The Company agrees (a) to indemnify, defend and hold harmless the Administrative Agent, the Issuing Lender and each Lender and their respective officers, directors, employees, and affiliates (each, an “indemnified person”) from and against any and all losses, claims, damages, liabilities or judgments to which any such indemnified Person may be subject and arising out of or in connection with the Loan Documents, the financings contemplated hereby, the use of any proceeds of such financings or any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any of such indemnified persons is a party thereto, and to reimburse each of

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such indemnified persons upon demand for any reasonable  legal or other expenses incurred in connection with the investigation or defending any of the foregoing; provided that the foregoing indemnity will not, as to any indemnified person, apply to losses, claims, damages, liabilities, judgments or related expenses to the extent arising from the willful misconduct or gross negligence of such indemnified person, (b) to pay or reimburse the Administrative Agent for all its out-of-pocket costs and reasonable expenses incurred in connection with the preparation and execution of and any amendment, supplement or modification to this Agreement, the Notes any other Loan Documents, and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including without limitation, the reasonable fees and disbursements of Farrell Fritz, P.C., counsel to the Administrative Agent, and (c) to pay or reimburse each Lender and the Administrative Agent for all their costs and expenses incurred in connection with the enforcement and preservation of any rights under this Agreement, the Notes and the other Loan Documents, including, without limitation, the reasonable fees and disbursements of counsel (including, without limitation, in-house counsel) to the Administrative Agent and to the several Lenders, including all such out-of-pocket expenses incurred during any work-out, restructuring or negotiations in respect of the Obligations.

SECTION 10.04.Amendments and Waivers.  With the written consent of the Required Lenders, the Administrative Agent and the Company may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the Notes or any of the other Loan Documents or changing in any manner the rights of the Lenders or of the Company hereunder or thereunder, and with the written consent of the Required Lenders, the Administrative Agent on behalf of the Lenders may execute and deliver to the Company a written instrument waiving, on such terms and conditions as the Administrative Agent or the Required Lenders may specify in such instrument, any of the requirements of this Agreement or the Notes or any of the other Loan Documents or any Default or Event of Default; provided, however, that no such waiver and no such amendment, or supplement or modification shall (a) extend the maturity of any Note or any installment thereof or the Revolving Credit Commitment Termination Date; (b) reduce the rate or extend the time of payment of interest on any Note or any fees payable to the Lenders hereunder; (c) reduce the principal amount of any Note or the amount of any reimbursement due in respect of any Letter of Credit; (d) amend, modify or waive any provision of this Section 10.04; (e) reduce the percentage specified in the definition of Required Lenders or amend or modify any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination granting consent hereunder; (f) consent to the assignment or transfer by the Company of any of its rights or obligations under this Agreement; (g) except as expressly permitted pursuant to this Agreement or any other Loan Document release any collateral security granted to the Administrative Agent, if any; (h) release any Guarantor from its Guaranty, or limit any Guarantor’s liability with respect to its Guaranty, except with respect to the release of any Guarantor which subsequently becomes a Non-Material Subsidiary; or (i) increase the amount of the Total Commitment; or (j) permit any Letter of Credit issued hereunder to expire on or after the Revolving Credit Commitment Termination Date, in each case specified in clauses (a) through (j) above without the written consent of all the Lenders; and provided, further, that no such waiver and no such amendment, supplement or modification shall (i) amend, modify, supplement or waive any provision of Article IX hereof with respect to the Administrative Agent without the written consent of the Administrative Agent or (ii) increase the amount of any Lender’s Commitment without the written consent of such Lender.  Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Company, the Lenders, the Administrative Agent and all future holders of the Notes.

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SECTION 10.05.Successors and Assigns; Participations.

(a)This Agreement shall be binding upon and inure to the benefit of the Company, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement or any other Loan Document without the prior written consent of each Lender (and any such assignment or transfer without such consent shall be null and void).

(b)Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other financial institutions (“Participants”) participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender or any other interest of such Lender hereunder.  In the event of any such sale by a Lender of participating interests to a Participant, such Lender’s obligations under this Agreement to the other parties under this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Company and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  The Company agrees that each Participant shall be entitled to the benefits of Sections 3.07, 3.08, 3.10, 3.13 and 3.14 hereof with respect to its participation in the Commitments and in the Loans and Letters of Credit outstanding from time to time; provided, however, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred.  No Participant shall have the right to consent to any amendment to, or waiver of, any provision of this Agreement, except the transferor Lender may provide in its agreement with the Participant that such Lender will not, without the consent of the Participant, agree to any amendment or waiver described in clause (a) through clause (k) of Section 10.04 hereof.

(c)Subject to the last sentence of this paragraph (c) any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Lender or any domestic banking affiliate thereof, and, with the consent of the Administrative Agent, and, so long as no Default or Event of Default shall have occurred and be continuing, the Company (which in each case shall not be unreasonably withheld, delayed or conditioned), to one or more additional banks or financial institutions (“Purchasing Lenders”) all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment and Acceptance Agreement, executed by such Purchasing Lender, such transferor Lender and the Administrative Agent (and, in the case of an Assignment and Acceptance Agreement relating to a Purchasing Lender that is not then a Lender or a domestic banking affiliate thereof, also executed by the Company), and delivered to the Administrative Agent for its acceptance.  Upon such execution, delivery and acceptance from and after the effective date specified in such Assignment and Acceptance Agreement, (i) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance Agreement, have the rights and obligations of a Lender hereunder with Commitments as set forth therein and (ii) the transferor Lender thereunder shall, to the extent provided in such Assignment and Acceptance Agreement, be released from its obligations under this Agreement arising after such transfer  (and, in the case of an Assignment and Acceptance Agreement covering all or the remaining portion of a transferor Lender’s rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto except as to Sections 3.07, 3.08, 3.10 and 10.03 hereof for the period prior to the effective date).  Such Assignment and Acceptance Agreement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Proportions arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under or in respect of this Agreement and the Notes.  On or prior to the effective date specified in such Assignment and Acceptance Agreement, the

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Company, at its own expense, shall execute and deliver to the Administrative Agent, in exchange for the surrendered Note, a new Revolving Credit Note to the order of such Purchasing Lender in an amount equal to each Commitments assumed by it pursuant to such Assignment and Acceptance Agreement and, if the transferor Lender has retained any Commitment hereunder, a new Revolving Credit Note to the order of the transferor Lender in an amount equal to such Commitment retained by it hereunder.  Such new Notes shall be in a principal amount equal to the principal amount of such surrendered Notes, shall be dated the effective date specified in the Assignment and Acceptance Agreement and shall otherwise be in the form of the Notes replaced thereby.  The Notes surrendered by the transferor Lender shall be returned by the Administrative Agent to the Company marked “cancelled”.  Anything in this Section 10.05 to the contrary notwithstanding, no transfer to a Purchasing Lender shall be made pursuant to this paragraph (c) if (x) such transfer by any one transferor Lender to any one Purchasing Lender (other than a Purchasing Lender which is a Lender hereunder prior to such transfer) is in respect of less than $10,000,000 of the Commitments of such transferor Lender or (y) if less than all of the Commitment of such transferor Lender is transferred, after giving effect to such transfer the amount held by any transferor Lender would be less than $10,000,000.

(d)The Administrative Agent, on behalf of the Company, shall maintain at its address referred to in Section 10.01 hereof a copy of each Assignment and Acceptance Agreement delivered to it and a register (the “Register”) for the recordation of the names and addresses of the Lenders and the commitments of, and principal amount of the Loans owing to, each Lender from time to time.  The entries in the Register shall be conclusive, in the absence of demonstrable error and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loans recorded therein for all purposes of this Agreement.  The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(e)Upon its receipt of an Assignment and Acceptance Agreement executed by a transferor Lender and a Purchasing Lender (and, in the case of a Purchasing Lender that is not then a Lender or an Affiliate thereof, by the Company) together with payment by the Purchasing Lender to the Administrative Agent of a registration and processing fee of $3,500 if the Purchasing Lender is not a Lender prior to the execution of an Assignment and Acceptance Agreement and $2,500 if the Purchasing Lender is a Lender prior to the execution of an Assignment and Acceptance Agreement, the Administrative Agent shall (i) accept such Assignment and Acceptance Agreement, (ii) record the information contained therein in the Register, and (iii) give prompt notice of such acceptance and recordation to the Lenders and the Company.

(f)The Company authorizes each Lender to disclose to any Participant or Purchasing Lender (each, a “Transferee”) and any prospective Transferee any and all financial information in such Lender’s possession concerning the Company and its Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by the Company in connection with such Lender’s credit evaluation of the Company and its Subsidiaries prior to entering into this Agreement.

(g)If, pursuant to this Section 10.05, any interest in this Agreement, a participation agreement, or any Note is transferred to any transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Lender (for the benefit of the transferor Lender, the Administrative Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Administrative Agent, the

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Company, or the transferor Lender with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to furnish to the Administrative Agent, the transferor Lender and the Company the documentation required of Lenders under Section 3.10(c) hereof, and (iii) to agree (for the benefit of the Administrative Agent, the transferor Lender and the Company) to provide the Administrative Agent, the transferor Lender and the Company such additional documentation required by Lenders in the future under Section 3.10(c) hereof.

(h)Any Lender may at any time pledge or assign or grant a security interest in all or any part of its rights under this Agreement and the other Loan Documents, including any portion of its Notes, to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341, provided that no such assignment shall release the transferor Lender from its Commitments or its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party to this Agreement.

SECTION 10.06.No Waiver; Cumulative Remedies.  Neither any failure nor any delay on the part of any Lender, the Issuing Lender or the Administrative Agent in exercising any right, power or privilege hereunder or under any Note or any other Loan Document shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege.  The rights, remedies, powers and privileges herein provided or provided in the other Loan Documents are cumulative and not exclusive of any rights, remedies powers and privileges provided by law.

SECTION 10.07.APPLICABLE LAW.  THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.

SECTION 10.08.SUBMISSION TO JURISDICTION; JURY WAIVER.  THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH FEDERAL OR STATE COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR THEREIN OR THE SUBJECT MATTER HEREOF OR THEREOF MAY NOT BE LITIGATED IN OR BY SUCH FEDERAL OR STATE COURTS.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES NOT TO (i) SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR

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JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT OR (ii) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM IS A COMPULSORY OR MANDATORY COUNTERCLAIM UNDER APPLICABLE LAWS GOVERNING CIVIL PROCEDURE.  THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK.  EACH PARTY HERETO KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES TO THE EXTENT PERMITTED BY APPLICABLE LAW THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING THERETO, AND AGREES THAT NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.  EXCEPT AS PROHIBITED BY LAW, THE COMPANY HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.  THE COMPANY CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE ADMINISTRATIVE AGENT, THE ISSUING LENDER OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THEY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER.  THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE LENDERS TO ENTER INTO THIS AGREEMENT AND TO MAKE THE LOANS AND OTHER EXTENSIONS OF CREDIT.

SECTION 10.09.Severability.  In case any one or more of the provisions contained in this Agreement, any Note or any other Loan Document should be invalid, illegal or unenforceable in any respect in any jurisdiction, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby in such jurisdiction nor shall such invalidity, illegality or unenforceability invalidate such affected provision in any other jurisdiction.

SECTION 10.10.Right of Setoff.  The Company and the Guarantors hereby grant to the Administrative Agent, the Issuing Lender, each Lender and each Affiliate of each Lender, a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Administrative Agent, the Issuing Lender and each Lender, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Administrative Agent, the Issuing Lender, any Lender or any Affiliate of such Lender and their respective successors or assigns or in transit to any of them.  At any time, without demand or notice (any such notice being expressly waived by the Company), the Administrative Agent, the Issuing Lender, each Lender and each Affiliate of

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each Lender may set off the same or any part thereof and apply the same to any liability or obligation of the Company or any Guarantor even though unmatured and regardless of the adequacy of any other collateral securing this Agreement.  ANY AND ALL RIGHTS TO REQUIRE THE ADMINISTRATIVE AGENT, THE ISSUING LENDER, EACH LENDER OR ANY AFFILIATE OF EACH LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THIS AGREEMENT, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE COMPANY OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

SECTION 10.11.Confidentiality.   Each of the Administrative Agent and each Lender agrees to keep confidential all non-public information, materials and documents furnished by the Company to the Administrative Agent and the Lenders pursuant to this Agreement (the “Confidential Information”).  Notwithstanding the foregoing, such party shall be permitted to disclose Confidential Information (a) to such of its officers, directors, employees, agents, representatives and professional advisors in any of the transactions contemplated by, or the administration of, this Agreement; (b) to the extent such Confidential Information (i) becomes publicly available other than as a result of a breach of this Section 10.11 by the disclosing party, or (ii) becomes available to such party on a non-confidential basis from a source other than the Company or its Subsidiaries which to such party’s knowledge is not prohibited from disclosing such Confidential Information to such party by a contractual or other legal obligation; (c) to the extent the Company or any of its Subsidiaries shall have consented to such disclosure in writing; or (d) to any prospective transferee or participant in connection with any contemplated transfer of the Notes or any interest therein provided such transferee or participant agrees to treat the Confidential Information in a manner consistent with this Section 10.11.  Nothing herein shall prohibit the disclosure of Confidential Information required in connection with any litigation or where such disclosure is required pursuant to applicable laws, regulations, court order or similar legal process or requested by any governmental agency or authority; provided, however, in the event that such party is requested or required by law to disclose any of the Confidential Information, such party shall provide the Company with written notice, unless notice is prohibited by law, of any such request or requirement so that the Company may seek a protective order or other appropriate remedy; provided that no such notification shall be required in respect of any disclosure to regulatory authorities having jurisdiction over such party.

SECTION 10.12.Headings.  Section headings used herein are for convenience of reference only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.

SECTION 10.13.Construction.  This Agreement is the result of negotiations between, and has been reviewed by, the Company, the Administrative Agent, the Lenders and their respective counsel.  Accordingly, this Agreement shall be deemed to be the product of each party hereto, and no ambiguity shall be construed in favor of or against either the Company, the Administrative Agent, or any Lender.

SECTION 10.14.Counterparts.  This Agreement may be executed in two or more

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counterparts, each of which shall constitute an original, but all of which, taken together, shall constitute one and the same instrument.

SECTION 10.15.Special Provisions with Respect to Subordinated Notes.   The parties acknowledge and agree that the indebtedness of the Company to the Lenders hereunder shall constitute “Designated Senior Indebtedness” for purposes of the Indenture.

SECTION 10.16.US Patriot Act.  Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies the Company that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Company, which information includes the name and address of the Company and other information that will allow such Lender to identify the Company in accordance with the Act.  The Company will provide such information and take such actions as are reasonably requested by the Administrative Agent or any Lender in order to assist such party in maintaining compliance with the Act.

[next page is signature page]

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IN WITNESS WHEREOF, the Company, the Administrative Agent and the Lenders have caused this Agreement to be duly executed by their duly authorized officers, as of the day and year first above written.

VEECO INSTRUMENTS INC.
By:	/s/ John F. Rein, Jr.
Name:		John F. Rein, Jr.
Title:		Executive Vice President/Chief Financial Officer

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Revolving Credit	HSBC BANK USA, NATIONAL
Commitment: $25,000,000	ASSOCIATION, as Administrative Agent, as a Lender, as Swingline Lender and as Issuing Lender

By:	/s/ Christopher Mendelsohn
Name:		Christopher Mendelsohn
Title:		First Vice President

 Lending Office for Prime Rate Loans:

HSBC Bank USA, National Association

Special Lending Dept., 26^th Floor

1 HSBC Center

Buffalo, New York 14203

Lending Office for Eurocurrency Loans:

HSBC Bank USA, National Association

Special Lending Dept., 26^th Floor

1 HSBC Center

Buffalo, New York 14203

Address for Notices:

HSBC Bank USA, National Association

534 Broad Hollow Road

Melville, New York 11747

Attention:Relationship Manager -

Veeco Instruments Inc.

 Telecopy:(631) 752-4340

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Revolving Credit	THE BANK OF NEW YORK, as a Lender
Commitment: $15,000,000

By:	/s/ William Ewing
Name:		William Ewing
Title:		Vice President

 Lending Office for Prime Rate Loans:

The Bank of New York

1401 Franklin Avenue

Garden City, New York 11530

Attention: Scott Kolark

Lending Office for Eurocurrency Loans:

The Bank of New York

1401 Franklin Avenue

Garden City, New York 11530

Attention: Scott Kolark

Address for Notices:

The Bank of New York

1401 Franklin Avenue

Garden City, New York 11530

Attention:Anita Schmidt, Relationship
Manager - Veeco Instruments Inc.

 Telecopy:(516) 294-2055

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Revolving Credit	NORTH FORK BANK, as a Lender
Commitment: $10,000,000

By:	/s/ Robert J. Milas
Name:		Robert J. Milas
Title:		Vice President

Lending Office for Prime Rate Loans:

North Fork Bank

275 Broad Hollow Road

Melville, New York 11747

Attention:Laura Lowy, Vice President

Telecopy No.:(631) 844-1459

Lending Office for Eurocurrency Loans:

North Fork Bank

275 Broad Hollow Road

Melville, New York 11747

Attention:Laura Lowy, Vice President

Telecopy No.:(631) 844-1459

Address for Notices:

North Fork Bank

275 Broad Hollow Road

Melville, New York 11747

Attention:Kevin M. Brown, Senior

Vice President

Telecopy No.:(631) 501-4840

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EX-10.2

Exhibit 10.2

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of March 15, 2005, by and among each of the entities identified on the signature page hereto under the heading “Grantor” (each a “Grantor” and, collectively, the “Grantors”) and HSBC BANK USA, NATIONAL ASSOCIATION, as Administrative Agent for the ratable benefit of the Lenders from time to time party to the Credit Agreement referred to below (in such capacity, the “Secured Party”).

RECITALS

A.Veeco Instruments Inc., a Delaware corporation (the “Company”), HSBC Bank USA, National Association, as Administrative Agent, and the Lenders party thereto have entered into a Credit Agreement, dated as of the date hereof (as the same may be hereafter amended, modified, restated or supplemented from time to time, the “Credit Agreement”) pursuant to which the Company will receive loans and other financial accommodations from the Lenders and will incur Obligations (as hereinafter defined).

B.To induce the Credit Parties to extend credit to the Company on and after the date hereof as provided in the Credit Agreement, each Grantor desires to grant the Credit Parties security and assurance in order to secure the payment and performance of all Obligations and to that effect to grant the Secured Party for the ratable benefit of the Credit Parties a first priority perfected security interest in its assets and, in connection therewith, to execute and deliver this Agreement.

Accordingly, the parties hereto hereby agree as follows:

DEFINITIONS

(a)Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Uniform Commercial Code as in effect in the State of New York (the “UCC”).

(b)Capitalized terms used herein and not otherwise defined shall have the following meanings:

“Agreement”:  this Agreement and shall include all amendments, modifications and supplements hereto and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative.

“Business Day”: the meaning assigned to such term in the Credit Agreement.

“Collateral”: the following property of each Grantor, wherever located, and whether now owned or hereafter acquired or arising:

(i)Accounts;

(ii)Chattel paper, including Electronic Chattel Paper;

(iii)Goods, including all Inventory and Equipment and any accessions thereto, subject to the exception set forth below;

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(iv)Instruments, including Promissory Notes;

(v)Investment Property;

(vi)Documents;

(vii)Deposit Accounts;

(viii)Commercial Tort Claims, if any, identified on Schedule A annexed hereto;

(ix)Letter-of-Credit Rights;

(x)General Intangibles, including Payment Intangibles and Software;

(xi)Supporting Obligations;

(xii)to the extent not listed above, all other personal property; and

(xiii)to the extent not listed above as original collateral, proceeds and products of the foregoing.

Notwithstanding anything to the contrary herein, the term “Collateral” shall not include,  and no Grantor shall be deemed to have granted a security interest in any of such Grantor’s rights or interests (a) in any lease, license, contract, property rights or agreement to which any Grantor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of any Grantor therein or (ii) in a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than to the extent that any provision prohibiting such Grantor from granting a security interest in its rights and interests thereunder in favor of the Secured Party would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, further, that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in (i) or (ii) above; or (b) any Equipment financed by a Grantor with purchase money Debt or Capital Leases permitted under the Credit Agreement, provided that such exclusion shall only apply to the extent such Grantor is prohibited from granting a security interest under the terms of such Debt or Capital Lease and only so long as such Debt remains outstanding or Capital Lease remains in existence.

“Credit Party”: collectively, the Administrative Agent, the Issuing Lender and each of the Lenders.

“Default”: the meaning assigned to such term in the Credit Agreement.

“Event of Default”: the meaning assigned to such term in the Credit Agreement.

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“Liens”: the meaning assigned to such term in the Credit Agreement.

“Loan Documents”: the meaning assigned to such term in the Credit Agreement.

“Loans”: the meaning assigned to such term in the Credit Agreement.

“Obligations”: the meaning assigned to such term in the Credit Agreement.

“Person”: the meaning assigned to such term in the Credit Agreement.

(c)Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter.  Except as otherwise herein specifically provided, each accounting term used herein shall have the meaning given to it under Generally Accepted Accounting Principles.  The term “including” shall not be limited or exclusive, unless specifically indicated to the contrary.  The word “will” shall be construed to have the same meaning in effect as the word “shall”.  The words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, all of which are by this reference incorporated into this Agreement.

I.SECURITY

SECTION 1.01.  Grant of Security.  As security for the Obligations, each Grantor hereby transfers, assigns and grants to the Secured Party for the ratable benefit of the Credit Parties a security interest in the Collateral.

SECTION 1.02.  Release and Satisfaction.  Upon the termination of this Agreement and the indefeasible payment in full of the Obligations (other than those which by their terms survive the termination of this Agreement), the Secured Party shall deliver to each Grantor, upon request therefor and at such Grantor’s expense, releases and satisfactions of all financing statements, notices of assignment and other registrations of security.

II.REPRESENTATIONS AND WARRANTIES

SECTION 2.01.  Representations and Warranties With Respect to Security.  Each Grantor hereby represents and warrants to the Secured Party for the ratable benefit of the Credit Parties as follows:

(a)Name.  Each Grantor’s exact legal name, state of incorporation or organization and organizational number is set forth on Schedule A annexed hereto.

(b)Ownership of Collateral.  Each Grantor owns all of its personal property and assets, including, without limitation, the Collateral, free and clear of all Liens, other than the Liens permitted under Section 7.02 of the Credit Agreement.

(c)Trademarks, Patents and Copyrights.  Annexed hereto as Schedule A is a complete list of all patents, trademarks, copyrights, applications therefor, and other similar General Intangibles which each Grantor (i) owns or has the right to use as of the date of this Agreement and (ii) are material to the continued operation of such Grantor’s business.  To the knowledge of each Grantor, except as described in item “(a)” of Schedule 4.06 to the Credit Agreement, (x) there are no assertions or claims challenging the validity of any of the foregoing, (y) the business of such Grantor as now conducted does not conflict

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with any patents, patent rights, licenses, trademarks, trademark rights, trade names, trade name rights or copyrights of others, and (z) there is no infringement of any General Intangible of any Grantor.

(d)Accounts.  Annexed hereto as Schedule A is a list identifying the chief executive office or principal place of business of each Grantor and all addresses at which each Grantor maintains books or records relating to its Accounts as of the date of this Agreement.

(e)Inventory.  Annexed hereto as Schedule A is a list identifying all addresses where each Grantor maintains its Inventory as of the date of this Agreement.  No Grantor’s Inventory is currently maintained or will be maintained with any bailee that issues negotiable warehouse receipts or other negotiable instruments therefor.

(f)Equipment.  Annexed hereto as Schedule A is a list identifying all the addresses where the Equipment of each Grantor is located as of the date hereof.

(g)Trade Names.  Except as set forth on Schedule A annexed hereto, each Grantor has not done during the five years prior to this Agreement, and does not currently do, business under fictitious business names or trade names. No Grantor has been known under any other name during such five year period.

(h)Acquired Collateral.   Except as set forth on Schedule A annexed hereto, the Collateral has been acquired or originated by each Grantor in the ordinary course of such Grantor’s business and was not acquired pursuant to any acquisition of all or a portion of the business of any Person whether by merger, acquisition of assets or otherwise.

(i)Third Party Locations.  Except as set forth on Schedule A annexed hereto, no Collateral is in the possession of, or under the control of, any Person other than a Grantor or the Secured Party.

(j)Commercial Tort Claims.  Except to the extent identified under the definition of Collateral above, no Grantor holds any Commercial Tort Claim, except as described in item “(a)” of Schedule 4.06 to the Credit Agreement.

(k)Enforceability of Security Interests.  Upon the execution of this Agreement by each Grantor and the filing of financing statements properly describing the Collateral and identifying such Grantor and the Secured Party in the applicable jurisdiction required pursuant to the UCC, security interests and liens granted to the Secured Party under Section 1.01 hereof shall constitute valid, perfected and first priority security interests and liens in and to the Collateral of such Grantor, to the extent such liens can be perfected by filing under the UCC, and subject to the Liens permitted pursuant to Section 7.02 of the Credit Agreement, in each case enforceable against all third parties and securing the payment of the Obligations, except to the extent that enforcement may be limited by applicable bankruptcy, reorganization, moratorium, insolvency and similar laws affecting creditors’ rights generally or by equitable principles of general application, regardless of whether considered in a proceeding in equity or at law.

III.COVENANTS OF GRANTORS

SECTION 3.01.  Records; Location of Collateral.  So long as a Grantor shall have any Obligation to the Secured Party, (a) such Grantor shall not change the jurisdiction of its incorporation or organization or move its chief executive office, principal place of business or office at which is kept its books and records (including computer printouts and programs) from the locations existing on the date hereof and listed on Schedule A annexed hereto; (b) except as the same may be otherwise permitted

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hereunder or under the Credit Agreement, a Grantor shall not move any of the Collateral to any location other than those locations existing on the date hereof and listed on Schedule A annexed hereto; or (c) except as the same may be otherwise permitted hereunder or under the Credit Agreement, a Grantor shall not change its corporate name in any respect, unless, in each case of clauses (a), (b) and (c) above, (i) a Grantor shall have given the Secured Party ten (10) Business Days’ prior written notice of its intention to do so, identifying the new location and providing such other information as the Secured Party deems necessary, and (ii) a Grantor shall have delivered to the Secured Party such documentation, in form and substance satisfactory to the Secured Party and as required by the Secured Party, to preserve the Secured Party’s security interest in the Collateral.

SECTION 3.02.  Commercial Tort Claims.   Each Grantor shall promptly notify the Secured Party upon obtaining any material Commercial Tort Claim after the date hereof against any third party and, upon reasonable request of the Secured Party, shall promptly enter into an amendment to this Agreement and do such other acts or things as may be reasonably requested by the Secured Party to give the Secured Party a first priority perfected security interest in any such Commercial Tort Claim.

SECTION 3.03.  Other Collateral.   Each Grantor shall promptly notify the Secured Party upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights, Electronic Chattel Paper, Documents or Instruments.

SECTION 3.04.  Further Actions.

(a)Promissory Notes and Tangible Chattel Paper.  At the request of the Secured Party, at any time following the occurrence and during the continuance of an Event of Default, if any Grantor shall at any time hold or acquire any Promissory Notes or Tangible Chattel Paper, such Grantor shall forthwith endorse, assign or deliver the same to the Secured Party accompanied by instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify.

(b)Deposit Accounts.  At the request of the Secured Party, each Grantor will cause each depository bank where such Grantor maintains a Deposit Account to execute an agreement pursuant to which the depository bank agrees to comply, without the further consent of such Grantor, at any time, with instructions from the Secured Party to such depository bank directing the disposition of funds from time to time credited to such deposit account or agree to the Secured Party becoming the customer of the depository bank with respect to such deposit accounts, with such Grantor being permitted, only with the consent of the Secured Party, to exercise rights to withdraw funds from such deposit account. The Secured Party shall not require any such agreement or give any such instructions or withhold any withdrawal rights from such Grantor, unless an Event of Default has occurred and is continuing.

(c)Investment Property.  If any Grantor shall at any time hold or acquire any Certificated Securities, such Grantor shall forthwith endorse, sign and deliver the same to the Secured Party accompanied by such instruments of transfer assignment duly executed in blank as Secured Party may from time to time specify.  If any security, now or hereafter acquired by any Grantor, is uncertificated and is issued to the Grantor or its nominee directly by the issuer thereof, such Grantor shall immediately notify the Secured Party thereof and at the Secured Party’s request and option, pursuant to an agreement in form and substance satisfactory to the Secured Party either (a) cause the issuer to agree to comply without further consent of such Grantor or such nominee, at any time with instructions from the Secured Party as to such Securities or (b) arrange for the Secured Party to become the registered owner of the Securities.  If any Securities, whether certificated or uncertificated or other Investment Property now or hereafter acquired by the Grantor are held by any Grantor or its nominee through a Securities Intermediary or Commodity Intermediary, the Grantor shall immediately notify the Secured Party thereof and at the Secured Party’s request and option, pursuant to an agreement in form and substance

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satisfactory to the Secured Party either (i) cause such Securities Intermediary or Commodity Intermediary, as the case may be, to agree to comply, in each case, without further consent of such Grantor or such nominee, at any time with Entitlement Orders or other instructions from the Secured Party to such Securities Intermediary as to such Securities or other Investment Property, or to apply any value distributed on account of any Commodity Contract as directed by the Secured Party to such Commodity Intermediary or (ii) in the case of Financial Assets or other Investment Property held through a Securities Intermediary, arrange for this Secured Party to become the Entitlement Holder with respect to such Investment Property, with such Grantor being permitted, only with the consent of the Secured Party, to exercise rights to withdraw or otherwise deal with such Investment Property.  The Secured Party shall not require that any Guarantor notify the Secured Party of the existence of Securities or deliver such Securities to the Secured Party or give any such Entitlement Order or instructions or directions to any such issuers, Securities Intermediary or Commodity Intermediary and shall not withhold its consent to the exercise of any withdrawal or dealing rights by the Grantor, unless an Event of Default has occurred and is continuing.

(d)Collateral in the Possession of Third Parties.   If any Collateral is at any time in the possession of any person or entity other than a Grantor or the Secured Party (a “Third Party”), the Grantor shall promptly notify the Secured Party thereof, and at the Secured Party’s request and option, shall promptly obtain an acknowledgment from the Third Party, in form and substance satisfactory to the Secured Party that the Third Party holds such collateral for the benefit of the Secured Party and such Third Party’s agreement to comply, without further consent of the Grantor, at any time with the instructions of the Secured Party as to such Collateral, provided that the Grantors shall only be required to comply with the foregoing provision, as it may respect Inventory, if more than twenty five percent (25%) of the Inventory, in the aggregate, is at any time in the possession of Third Parties or if more than five percent (5%) of the Collateral, in the aggregate, is at any time in the possession or any one Third Party, and then the Grantors shall only be required to an acknowledgment from such Third Party(ies).  The Secured Party agrees with the Grantor that the Secured Party shall not give any such instructions unless an Event of Default has occurred and is continuing.

(e)Electronic Chattel Paper.  At the request of the Secured Party, at any time following the occurrence and during the continuance of an Event of Default, if any Grantor at any time holds or acquires an interest in any Electronic Chattel Paper, such Grantor shall promptly notify the Secured Party thereof and, at the request and option of the Secured Party, shall take such action as the Secured Party may reasonably request to vest in the Secured Party control under Section 9-105 of the UCC of such Electronic Chattel Paper.

(f)Letter-of-Credit Rights. At the request of the Secured Party, at any time following the occurrence and during the continuance of an Event of Default, if any Grantor is at any time the beneficiary under a Letter of Credit, such Grantor shall promptly notify the Secured Party thereof and, at the request and option of the Secured Party, such Grantor shall, pursuant to an arrangement in form and substance satisfactory to the Secured Party, either (i) arrange for the Issuer and any confirmed or other nominated person of such Letter of Credit to consent to an assignment to the Secured Party of the proceeds of the Letter of Credit or (ii) arrange for the Secured Party to become the transferee beneficiary of the Letter of Credit, with the Secured Party agreeing in each case that the proceeds of the Letter of Credit are to be applied to satisfaction of the Obligations in such order as the Secured Party may determine.

(g)Commercial Tort Claims.  At the request of the Secured Party, at any time following the occurrence and during the continuance of an Event of Default, if any Grantor shall at any time hold or acquire a Commercial Tort Claim, such Grantor shall immediately notify the Secured Party in a writing signed by the Grantor of the particulars thereof and grant to the Secured Party in such writing a security

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interest therein and all proceeds thereof, all upon the terms of this Agreement with such writing to be in form and substance satisfactory to the Secured Party.

(h)General. Each Grantor further agrees, upon the request of the Secured Party and at the Secured Party’s option, to take  any and all other actions as the Secured Party may determine to be necessary or useful for the attachment, perfection and first priority of, and the ability of the Secured Party to enforce, the Secured Party’s security interest in any and all of the Collateral, including without limitation, (i) executing and delivering (to the extent that such Grantor’s signature thereon is required therefore) and filing financing statements and amendments relating thereto under the UCC, including, without limitation, the filing of financing statements describing the Collateral described herein, (ii) causing the Secured Party’s name to be noted as Secured Party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or the ability of the Secured Party to enforce, the Secured Party’s security interest in such Collateral, (iii) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Secured Party to enforce the Secured Party’s security interest in such Collateral, (iv) obtaining governmental and other third party waivers, consents and approvals in form and substance satisfactory to the Secured Party, including, without limitation, any consent of any licensor, lessor or other persons obligated on Collateral and (v) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the Secured Party.  Each Grantor further authorizes the Secured Party to file initial financing statements describing the Collateral, and any amendments thereto.

SECTION 3.05.  Insurance and Assessments.  In the event any Grantor shall fail to purchase or maintain insurance, or pay any tax, assessment, government charge or levy, except as the same may be otherwise permitted hereunder or under the Credit Agreement, or in the event that any lien, encumbrance or security interest prohibited hereby shall not be paid in full or discharged, or in the event such Grantor shall fail to perform or comply with any other covenant, promise or obligation to the Secured Party hereunder, or under the Credit Agreement or any other Loan Document, the Secured Party may, but shall not be required to, perform, pay, satisfy, discharge or bond the same for the account of such Grantor, and all money so paid by the Secured Party, including reasonable attorney’s fees, shall be deemed to be Obligations.

SECTION 3.06.  Inspection.  Subject to Section 6.04(b) of the Credit Agreement, upon reasonable notice to a Grantor, the Secured Party may, during such Grantor’s normal business hours, examine and inspect any Collateral and may examine, inspect and copy all books and records with respect thereto or relevant to the Obligations.

SECTION 3.07.  Personal Property.   The Collateral shall remain personal property at all times.   No Grantor shall affix any of the Collateral to real property in any manner which would change its nature from that of personal property to real property or to a fixture.

SECTION 3.08.  Indemnification.  Each Grantor agrees to indemnify the Secured Party and hold it harmless from and against any and all injuries, claims, damages, judgments, liabilities, costs and expenses (including, without limitation, reasonable fees and disbursements of counsel), charges and encumbrances which may be incurred by or asserted against the Secured Party in connection with or arising out of any assertion, declaration or defense of the Secured Party’s rights or security interest under the provisions of this Agreement or any other Loan Document, permitting it to collect, settle or adjust Accounts or to deal with account debtors in any way or in connection with the realization, repossession, safeguarding, insuring or other protection of the Collateral or in connection with the collecting, perfecting or protecting the Secured Party’s liens and security interests hereunder or under any other Loan

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Document, except to the extent caused by the gross negligence or willful misconduct of the Secured Party, any Credit Party, or any of their respective representatives.

IV.POWER OF ATTORNEY; NOTICES

SECTION 4.01.  Power of Attorney.   Each Grantor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of such Grantor or in the Secured Party’s own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or useful to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby give said attorneys the power and right, on behalf of the Grantor, without notice to or assent by the Grantor, to (a) upon the occurrence and during the continuance of an Event of Default, endorse the names of such Grantor on any checks, notes, drafts or other forms of payment or security that may come into the possession of the Secured Party or any affiliate of the Secured Party, to sign the Grantor’s name on invoices or bills-of-lading, drafts against customers, notices of assignment, verifications and schedules, (b) upon the occurrence and during the continuance of an Event of Default, sell, transfer, pledge, make any arrangement with respect to or otherwise dispose of or deal with any of the Collateral consistent with the UCC and (c) do acts and things which the Secured Party deems necessary or useful to protect, preserve or realize upon the Collateral and the Secured Party’s security interest therein.  The powers granted herein, being coupled with an interest, are irrevocable until all of the Obligations are indefeasibly paid in full and this Agreement is terminated.  The powers conferred on the Secured Party hereunder are solely to protect its and the Credit Parties’ interests in the Collateral and shall not impose any duty upon it to exercise any such powers.  Neither the Secured Party nor any attorney-in-fact shall be liable for any act or omission, error in judgment or mistake of law provided the same is not the result of gross negligence or willful misconduct.

SECTION 4.02.  Notices. Upon the occurrence of an Event of Default, the Secured Party may notify account debtors and other persons obligated on any of the Collateral that the Collateral have been assigned to the Secured Party or of its security interest therein and to direct such account debtors and other persons obligated on any of the Collateral to make payment of all amounts due or to become due to a Grantor directly to the Secured Party and upon such notification and at such Grantor’s expense to enforce collection of any such Collateral, and to adjust, compromise or settle for cash, credit or otherwise upon any terms the amount of payment thereof.  The Secured Party may, at any time following the occurrence of an Event of Default, notify the Postal Service authorities to change the address of delivery of mail to an address designated by the Secured Party.   After making of such a request or the giving of any such notification, each Grantor shall hold any proceeds of collection of accounts, Chattel Paper, general intangibles, instruments and other Collateral received by it as trustee for the Secured Party and the Credit Parties without commingling the same with any other property or asset of such Grantor and shall turn the same over to the Secured Party in the identical form received, together with any necessary endorsements or assignments.  The Secured Party shall apply the proceeds of collection of such Collateral received by the Secured Party to the Obligations, in such order as the Secured Party, in its sole discretion, shall determine, such proceeds to be immediately credited after final payment in cash or other immediately available funds of the items giving rise to them.

V.  REMEDIES OF SECURED PARTY

SECTION 5.01.  Enforcement.  Upon the occurrence of an Event of Default, the Secured Party shall have, in addition to all of its other rights under this Agreement and the other Loan Documents by operation of law or otherwise (which rights shall be cumulative), all of the rights and remedies of a secured party under the UCC and shall have the right, to the extent permitted by law, without charge, to

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enter any Grantor’s premises, and until it completes the enforcement of its rights in the Collateral subject to its security interest hereunder and the sale or other disposition of any property subject thereto, take possession of such premises without charge, rent or payment therefor (through self help without judicial process and without having first given notice or obtained an order of any court), or place custodians in control thereof, remain on such premises and use the same for the purpose of completing any work in progress, preparing any Collateral for disposition, and disposition of or collecting any Collateral.  Without limiting the foregoing, upon the occurrence of an Event of Default, the Secured Party may, without demand, advertising or notice, all of which such Grantor hereby waives (except as the same may be required by law), sell, lease, license or otherwise dispose of and grant options to a third party to purchase, lease, license or otherwise dispose of any and all Collateral held by it or for its account at any time or times in one or more public or private sales or other dispositions, for cash, on credit or otherwise, at such prices and upon such terms as the Secured  Party, in its sole discretion, deems advisable.  At any such sale the Collateral or any portion thereof may be sold in one lot as an entirety or in separate parcels as the Secured Party in its sole discretion deems advisable.  Each Grantor agrees that if notice of sale shall be required by law such requirement shall be met if such notice is mailed, postage prepaid, to such Grantor at its address set forth in Section 6.04 below or such other address as it may have, in writing, provided to the Secured Party, at least ten (10) days before the time of such sale or disposition.  The Secured Party may postpone or adjourn any sale of any Collateral from time to time by an announcement at the time and place of the sale to be so postponed or adjourned, without being required to give a new notice of sale.  Notice of any public sale shall be sufficient if it describes the security of the Collateral to be sold in general terms, stating the amounts thereof, the nature of the business in which such Collateral was created and the location and nature of the properties covered by the other security interests or mortgages and the prior liens thereof.  The Secured Party may be the purchaser at any such sale if it is public, free from any right of redemption, which such Grantor also waives, and payment may be made, in whole or in part, in respect of such purchase price by the application of the Obligations by the Secured Party.  Each Grantor with respect to its property constituting such Collateral, shall be obligated for, and the proceeds of sale shall be applied first to, the costs of taking, assembling, finishing, collecting, refurbishing, storing, guarding, insuring, preparing for sale, and selling the Collateral, including the fees and disbursements of attorneys, auctioneers, appraisers and accountants employed by the Secured Party.  Proceeds shall then be applied to the payment, in whatever order the Secured Party may elect, of all of the Obligations.  The Secured Party shall return any excess to such Grantor or to whomever may be fully entitled to receive the same or as a court of competent jurisdiction may direct.  In the event that the proceeds of any sale or other disposition of the Collateral are insufficient to pay in full the Obligations, such Grantor shall remain liable for any deficiency.

SECTION 5.02.  Standards for Exercising Rights and Remedies.  To the extent that applicable law imposes duties on the Secured Party to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is not commercially unreasonable for the Secured Party (a) to fail to incur expenses reasonably deemed significant by the Secured Party to prepare Collateral for disposition or otherwise to fail to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to fail to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same business each Grantor, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of

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Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the Secured Party and the Credit Parties against risk of loss, collection or disposition of Collateral or to provide to the Secured Party and the Credit Parties a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Secured Party, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Secured Party in the collection or disposition of any of the Collateral.  Each Grantor  acknowledges that the purpose of this Section 5.02 is to provide non-exhaustive indications of what actions or omissions by the Secured Party would fulfill the Secured Party’s duties under the UCC or the Uniform Commercial Code as in effect in other relevant jurisdiction in the Secured Party’s exercise of remedies against the Collateral and that other actions or omissions by the Secured Party shall not be deemed to fail to fulfill such duties solely on account of not being indicated in this Section 5.02.  Without limitation upon the foregoing, nothing contained in this Section 5.02 shall be construed to grant any rights to each Grantor or to impose any duties on the Secured Party or any Credit Party that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section 5.02.

SECTION 5.03.  Waiver.  Each Grantor waives any right, to the extent applicable law permits, to receive prior notice of, or a judicial or other hearing with respect to, any action or prejudgment remedy or proceeding by the Secured Party to take possession, exercise control over, or dispose of any item of the Collateral in any instance (regardless of where such Collateral may be located) where such action is permitted under the terms of this Agreement or any other Loan Document, or by applicable law, or of the time, place or terms of sale in connection with the exercise of the Secured Party’s rights hereunder and such Grantor also waives, to the extent permitted by law, any bond, security or sureties required by any statute, rule or otherwise by law as an incident to any taking of possession by the Secured Party of property subject to the Secured Party’s Lien.  Each Grantor further waives any damages (direct, consequential or otherwise) occasioned by the enforcement of the Secured Party’s rights under this Agreement and any other Loan Document including the taking of possession of any Collateral all to the extent that such waiver is permitted by law and to the extent that such damages are not caused by the Secured Party’s gross negligence or willful misconduct.  These waivers and all other waivers provided for in this Agreement and any other Loan Documents have been negotiated by the parties and each Grantor acknowledges that it has been represented by counsel of its own choice and has consulted such counsel with respect to its rights hereunder.

SECTION 5.04.  Other Rights.  Each Grantor agrees that the Secured Party shall not have any obligation to preserve rights to any Collateral against prior parties or to proceed first against any Collateral or to marshall any Collateral of any kind for the benefit of any other creditors of such Grantor or any other Person.  The Secured Party is hereby granted, to the extent that such Grantor is permitted to grant a license or right of use, a license or other right to use, without charge, labels, patents, copyrights, rights of use, of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature of such Grantor as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral, in accordance with the provision of this Section V, and such Grantor’s rights under all licenses and any franchise, sales or distribution agreements shall inure to the Secured Party’s benefit.

SECTION 5.05.  Expenses. Each Grantor agrees that it shall pay on demand therefor all costs and expenses incurred in amending, implementing, perfecting, collecting, defending, declaring and enforcing the Secured Party’s rights and security interests in the Collateral hereunder or under the Credit Agreement or any other Loan Document or other instrument or agreement delivered in connection herewith or therewith, including, but not limited to, searches and filings, and the Secured Party’s

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reasonable attorneys’ fees (regardless of whether any litigation is commenced, whether a default is declared hereunder, and regardless of tribunal or jurisdiction).

VI.  GENERAL PROVISIONS

SECTION 6.01.  Termination.  This Agreement shall remain in full force and effect until all the Obligations shall have been indefeasibly fully paid and satisfied (other than those which by their terms survive termination of this Agreement) and the Credit Agreement shall have expired or been terminated and, until such time, the Secured Party shall retain all security in and title to all existing and future Collateral held by it hereunder.

SECTION 6.02.  Remedies Cumulative.  The Secured Party’s rights and remedies under this Agreement shall be cumulative and non-exclusive of any other rights or remedies which it may have under the Credit Agreement, any other Loan Document or any other agreement or instrument, by operation of law or otherwise and may be exercised alternatively, successively or concurrently as the Secured Party may deem expedient.

SECTION 6.03.  Binding Effect.  This Agreement is entered into for the benefit of the parties hereto and their successors and assigns.  It shall be binding upon and shall inure to the benefit of the said parties, their successors and assigns.  No Grantor shall assign or transfer any of its rights or obligations hereunder without the prior written consent of the Secured Party and any attempted assignment shall be null and void.

SECTION 6.04.  Notices.  Wherever this Agreement provides for notice to any party (except as expressly provided to the contrary), it shall be in writing and given in the manner specified in Section 10.01 of the Credit Agreement.  Such notices to each Grantor shall be delivered to the address for notices set forth on Schedule A annexed hereto.

SECTION 6.05.  Waiver.  No delay or failure on the part of the Secured Party in exercising any right, privilege, remedy or option hereunder shall operate as a waiver of such or any other right, privilege, remedy or option, and no waiver shall be valid unless in writing and signed by an officer of the Secured Party (acting with the requisite consent of the Lenders as provided in the Credit Agreement) and only to the extent therein set forth.

SECTION 6.06.  Modifications and Amendments.  This Agreement and the other agreements to which it refers constitute the complete agreement between the parties with respect to the subject matter hereof and may not be changed, modified, waived, amended or terminated orally, but only by a writing signed by the party to be charged.

SECTION 6.07.  Several Agreements.   This Agreement shall constitute the several obligations and agreements of each Grantor and may be amended, restated, supplemented or otherwise modified from time to time, with respect to any Grantor without the consent or approval of any other Grantor, and no such amendment, restatement, supplement or  modification shall be deemed to amend, restate, supplement or modify the obligations of any other Grantor hereunder.

SECTION 6.08.  Survival of Representations and Warranties.  The representations and warranties of each Grantor made or deemed made herein shall survive the execution and delivery of this Agreement.

SECTION 6.09.  Severability.    Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, in such jurisdiction, be ineffective to the extent of such invalidity,

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illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 6.10.  Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OR CHOICE OF LAWS.  EACH GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.  TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR AGREES (i) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (ii) NOT TO ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING.  EACH GRANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK.  EACH GRANTOR AND THE SECURED PARTY EACH IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

SECTION 6.11.  Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which taken together shall constitute one and the same agreement.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

12

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

HSBC BANK USA, NATIONAL ASSOCIATION, as Administrative Agent
By:	/s/ Christopher Mendelsohn
Name:		Christopher Mendelsohn
Title:		First Vice President

GRANTORS:

VEECO INSTRUMENTS INC.

VEECO COMPOUND SEMICONDUCTOR INC.

By:

/s/ John F. Rein, Jr.

By:

/s/ John F. Rein, Jr.

Name:

John F. Rein, Jr.

Name:

John F. Rein, Jr.

Title:

Executive Vice President/Chief Financial Officer

Title:

Vice President

VEECO METROLOGY, LLC

VEECO ION BEAM EQUIPMENT INC.

By:

Veeco Instruments Inc., its Sole Member

By:

/s/ John F. Rein, Jr.

By:

/s/ John F. Rein, Jr.

Name:

John F. Rein, Jr.

Name:

John F. Rein, Jr.

Title:

Executive Vice President/Chief Financial Officer

Title:

Vice President

VEECO SLIDER PROCESS EQUIPMENT INC.

VEECO TUCSON INC.

By:

/s/ John F. Rein, Jr.

By:

/s/ John F. Rein, Jr.

Name:

John F. Rein, Jr.

Name:

John F. Rein, Jr.

Title:

Vice President

Title:

Vice President

13

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO
RULE 13a – 14(a) or Rule 15d – 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

I, Edward H. Braun, Chairman and Chief Executive Officer of Veeco Instruments Inc., certify that:

1.I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2005 of Veeco Instruments Inc.;

2.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;

3.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;

4.The registrant’s other certifying officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) 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)Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers 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.

/s/ EDWARD H. BRAUN

Edward H. Braun

Chairman and Chief Executive Officer
Veeco Instruments Inc.

April 29, 2005

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO
RULE 13a – 14(a) or Rule 15d – 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

I, John F. Rein, Jr., Executive Vice President, Chief Financial Officer and Secretary of Veeco Instruments Inc., certify that:

1.I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2005 of Veeco Instruments Inc.;

2.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;

3.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;

4.The registrant’s other certifying officers 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) 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)Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)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

(d)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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers 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.

/s/ JOHN F. REIN, JR.

John F. Rein, Jr.

Executive Vice President, Chief Financial Officer and Secretary
Veeco Instruments Inc.

April 29, 2005

EX-32.1

Exhibit 32.1

CERTIFICATION 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 of Veeco Instruments Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward H. Braun, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ EDWARD H. BRAUN

Edward H. Braun

Chairman and Chief Executive Officer
Veeco Instruments Inc.

April 29, 2005

A signed original of this written statement required by Section 906 has been provided to Veeco Instruments Inc. and will be retained by Veeco Instruments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION 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 of Veeco Instruments Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John F. Rein, Jr., Executive Vice President, Chief Financial Officer, and Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ JOHN F. REIN, JR.

John F. Rein, Jr.

Executive Vice President, Chief Financial Officer
and Secretary
Veeco Instruments Inc.

April 29, 2005

A signed original of this written statement required by Section 906 has been provided to Veeco Instruments Inc. and will be retained by Veeco Instruments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.