Exhibit 10.3

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of

the Commission pursuant to the Company’s application requesting confidential
treatment

under Rule 24b-2 of the Exchange Act.

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (as the same may be amended, supplemented,
restated or otherwise modified from time to time, the “Agreement”) is dated as
of October 2, 2007 by and among ALPHATEC HOLDINGS, INC., a Delaware corporation,
ALPHATEC SPINE, INC., a California corporation, NEXMED, INC., a California
corporation, and any additional Borrower that may hereafter be added to this
Agreement (each individually as a “Borrower” and collectively as “Borrowers”),
MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services
Inc., individually as a Lender, and as Administrative Agent, and the financial
institutions or other entities from time to time parties hereto, each as a
Lender.

RECITALS

Borrowers have requested that Lenders make available to Borrowers the financing
facilities as described herein. Lenders are willing to extend such credit to
Borrowers under the terms and conditions herein set forth.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained, Borrowers, Lenders and Administrative Agent
agree as follows:

ARTICLE 1 - DEFINITIONS

Section 1.1 Certain Defined Terms.

The following terms have the following meanings:

“Account Debtor” means “account debtor”, as defined in Article 9 of the UCC, and
any other obligor in respect of an Account.

“Accounts” means collectively (a) any right to payment of a monetary obligation,
whether or not earned by performance, (b) without duplication, any “account” (as
defined in the UCC), any accounts receivable (whether in the form of payments
for services rendered or goods sold, rents, license fees or otherwise), any
“health-care-insurance receivables” (as defined in the UCC), any “payment
intangibles” (as defined in the UCC) and all other rights to payment and/or
reimbursement of every kind and description, whether or not earned by
performance, (c) all accounts, “general intangibles” (as defined in the UCC),
Intellectual Property, rights, remedies, Guarantees, “supporting obligations”
(as defined in the UCC), “letter-of-credit rights” (as defined in the UCC) and
security interests in respect of the foregoing, all rights of enforcement and
collection, all books and records evidencing or related to the foregoing, and
all rights under the Financing Documents in respect of the foregoing, (d) all
information and data compiled or derived by any Borrower or to which any
Borrower is entitled in respect of or related to the foregoing, and (e) all
proceeds of any of the foregoing.

“Administrative Agent” means Merrill Lynch, in its capacity as administrative
agent for the Lenders hereunder, as such capacity is established in, and subject
to the provisions of, Article 11, and the successors of Merrill Lynch in such
capacity.

“Affiliate” means with respect to any Person (a) any Person that directly or
indirectly controls such Person, (b) any Person which is controlled by or is
under common control with such controlling Person, and (c) each of such Person’s
(other than, with respect to any Lender, any Lender’s) officers or directors (or
Persons functioning in substantially similar roles) and the spouses, parents,
descendants and siblings of such officers, directors or other Persons. As used
in this definition, the term “control” of a Person means the possession,
directly or indirectly, of the power to vote five percent (5%) or more of any
class of voting securities of such Person or 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.

 

1

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Anti-Terrorism Laws” means any Laws relating to terrorism or money laundering,
including Executive Order No. 13224 (effective September 24, 2001), the USA
PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the
Laws administered by OFAC.

“Bankruptcy Code” means Title 11 of the United States Code entitled
“Bankruptcy”, as the same may be amended, modified or supplemented from time to
time, and any successor statute thereto.

“Base Rate” means a rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to (a) the rate of interest which is identified and
normally published by Bloomberg Professional Service Page BBAM 1 as the offered
rate for loans in United States dollars for the period of one (1) month under
the caption British Bankers Association LIBOR Rates as of 11:00 a.m. (London
time) as adjusted on a daily basis and effective on the second full Business Day
after each such day (unless such date is not a Business Day, in which event the
next succeeding Business Day will be used); divided by (b) the sum of one minus
the daily average during the preceding month of the aggregate maximum reserve
requirement (expressed as a decimal) then imposed under Regulation D of the
Board of Governors of the Federal Reserve System (or any successor thereto) for
“Eurocurrency Liabilities” (as defined therein). If Bloomberg Professional
Service (or another nationally-recognized rate reporting source acceptable to
Administrative Agent) no longer reports the LIBOR or Administrative Agent
determines in good faith that the rate so reported no longer accurately reflects
the rate available to Administrative Agent in the London Interbank Market or if
such index no longer exists or if Page BBAM 1 no longer exists or accurately
reflects the rate available to Administrative Agent in the London Interbank
Market, Administrative Agent may select a comparable replacement index or
replacement page, as the case may be.

“Base Rate Margin” means 2.75% per annum with respect to the Revolving Loans and
other Obligations.

“Blocked Person” means any Person: (a) listed in the annex to, or is otherwise
subject to the provisions of, Executive Order No. 13224, (b) a Person owned or
controlled by, or acting for or on behalf of, any Person that is listed in the
annex to, or is otherwise subject to the provisions of, Executive Order
No. 13224, (c) a Person with which any Lender is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person
that commits, threatens or conspires to commit or supports “terrorism” as
defined in Executive Order No. 13224, or (e) a Person that is named a “specially
designated national” or “blocked person” on the most current list published by
OFAC or other similar list or is named as a “listed person” or “listed entity”
on other lists made under any Anti-Terrorism Law.

“Borrower” and “Borrowers” mean the entity(ies) described in the first paragraph
of this Agreement and each of their successors and permitted assigns.

“Borrower Representative” means Alphatec Spine, Inc., in its capacity as
Borrower Representative pursuant to the provisions of Section 2.9, or any
successor Borrower Representative selected by Borrowers and approved by
Administrative Agent.

“Borrowing Base” means:

(a) the product of (i) eighty five percent (85%) multiplied by (ii) the
aggregate net amount at such time of the Eligible Accounts; plus

(b) the product of (i) seventy five percent (75%) multiplied by (ii) the value
of the Eligible Inventory (valued at the lower of first-in-first-out cost or
market cost, and after factoring in all rebates, discounts and other incentives
or rewards associated with the purchase of the applicable Inventory); minus

(c) the amount of any reserves and/or adjustments provided for in this
Agreement;

provided, however, at no time shall the amount calculated pursuant to subsection
(b) of this definition exceed an amount equal to the Inventory Sublimit.

“Borrowing Base Certificate” means a certificate, duly executed by a Responsible
Officer of Borrower Representative, appropriately completed and substantially in
the form of Exhibit C hereto.

 

2

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Business Day” means any day except a Saturday, Sunday or other day on which
either the New York Stock Exchange is closed, or on which commercial banks in
Chicago and New York City are authorized by law to close.

“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C.A. § 9601 et seq., as the same may be amended
from time to time.

“Change in Control” means any of the following, (a) the shareholders of the
applicable Person approve (i) any consolidation or merger of the such Person
(x) where the shareholders of such Person, immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own, directly or indirectly, shares representing in the
aggregate more than 50% of the combined voting power of all the outstanding
securities of such Person issuing cash or securities in the consolidation or
merger (or of its ultimate parent corporation, if any) or (y) where the members
of the board of directors or similar governing board of such Person, immediately
prior to the consolidation or merger, would not, immediately after the
consolidation or merger, constitute more than 50% of the board of directors of
the corporation issuing cash or securities in the consolidation or merger (or of
its ultimate parent corporation, if any), (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the applicable Person or (iii) any plan or proposal for the
liquidation or dissolution of the applicable Person; or (b) any “person”, as
such term is used in Section 13(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (other than the applicable Person, any employee
benefit plan of applicable Person or any entity organized, appointed or
established by applicable Person for or pursuant to the terms of such plan),
together with all “affiliates” and “associates” (as such terms are defined in
Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial
owner” or “beneficial owners” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of securities of such Person representing
in the aggregate 50% or more of either (i) the then outstanding shares of the
common stock or other ownership interests of such Person or (ii) the combined
voting power of all then outstanding securities or other ownership interests of
such Person having the right under ordinary circumstances to vote in an election
of the board of directors or similar governing board of such Person (“Voting
Securities”) (in either such case, other than as a result of acquisitions of
such securities directly from such Person).

“Change in Ownership” means any of the following: (a) any change in the legal or
beneficial ownership of the capital stock, partnership interests or membership
interests, or in the capital structure, organizational documents or governing
documents, of the applicable Person; (b) any pledge, assignment or hypothecation
of or Lien or encumbrance on any of the legal or beneficial equity interests in
the applicable Person; (c) any change in the legal or beneficial ownership or
control of the outstanding voting equity interests of the applicable Person
necessary at all times to elect a majority of the board of directors (or similar
governing body) of each such Person and to direct the management policies and
decisions of such Person; or (d) the applicable Person shall cease to, directly
or indirectly, own and control one hundred percent (100%) of each class of the
outstanding equity interests of each Subsidiary of such Person.

“Closing Date” means the date of this Agreement.

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

“Collateral” means all property, now existing or hereafter acquired, mortgaged
or pledged to, or purported to be subjected to a Lien in favor of,
Administrative Agent, for the benefit of Administrative Agent and Lenders,
pursuant to this Agreement and the Security Documents, including, without
limitation, all of the property described in Schedule 9.1 hereto.

“Commitment Annex” means Annex A to this Agreement.

“Commitment Expiry Date” means three (3) years from the Closing Date.

“Compliance Certificate” means a certificate, duly executed by a Responsible
Officer of Borrower Representative, appropriately completed and substantially in
the form of Exhibit B hereto.

 

3

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Contingent Obligation” means, with respect to any Person, any direct or
indirect liability of such Person: (a) with respect to any Debt of another
Person (a “Third Party Obligation”) if the purpose or intent of such Person
incurring such liability, or the effect thereof, is to provide assurance to the
obligee of such Third Party Obligation that such Third Party Obligation will be
paid or discharged, or that any agreement relating thereto will be complied
with, or that any holder of such Third Party Obligation will be protected, in
whole or in part, against loss with respect thereto; (b) with respect to any
undrawn portion of any letter of credit issued for the account of such Person or
as to which such Person is otherwise liable for the reimbursement of any
drawing; (c) under any Swap Contract; (d) to make take-or-pay or similar
payments if required regardless of nonperformance by any other party or parties
to an agreement; or (e) for any obligations of another Person pursuant to any
Guarantee or pursuant to any agreement to purchase, repurchase or otherwise
acquire any obligation or any property constituting security therefor, to
provide funds for the payment or discharge of such obligation or to preserve the
solvency, financial condition or level of income of another Person. The amount
of any Contingent Obligation shall be equal to the amount of the obligation so
Guaranteed or otherwise supported or, if not a fixed and determinable amount,
the maximum amount so Guaranteed or otherwise supported.

“Controlled Group” means all members of any group of corporations and all
members of a group of trades or businesses (whether or not incorporated) under
common control which, together with any Borrower, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of
ERISA.

“Credit Exposure” means any period of time during which the Revolving Loan
Commitment is outstanding or any Loan, Reimbursement Obligation or other
Obligation remains unpaid or any Letter of Credit or Support Agreement remains
outstanding; provided, however, that no Credit Exposure shall be deemed to exist
solely due to the existence of contingent indemnification liability, absent the
assertion of a claim with respect thereto.

“Credit Party” means any Guarantor under a Guarantee of the Obligations or any
part thereof, any Borrower and any other Person (other than Administrative
Agent, a Lender or a participant of a Lender), whether now existing or hereafter
acquired or formed, that becomes obligated as a borrower, guarantor, surety,
indemnitor, pledgor, assignor or other obligor under any Financing Document; and
“Credit Parties” means all such Persons, collectively.

“Debt” of a Person means at any date, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person to pay the deferred purchase price of property or services, except
trade accounts payable arising and paid on a timely basis and in the Ordinary
Course of Business, (d) all capital leases of such Person, (e) all
non-contingent obligations of such Person to reimburse any bank or other Person
in respect of amounts paid under a letter of credit, banker’s acceptance or
similar instrument, (f) all equity securities of such Person subject to
repurchase or redemption otherwise than at the sole option of such Person,
(g) all obligations secured by a Lien on any asset of such Person, whether or
not such obligation is otherwise an obligation of such Person, (h) “earnouts”,
purchase price adjustments, profit sharing arrangements, deferred purchase money
amounts and similar payment obligations or continuing obligations of any nature
of such Person arising out of purchase and sale contracts; (i) all Debt of
others Guaranteed by such Person; (j) off-balance sheet liabilities and/or
pension plan liabilities; (k) obligations arising under non-compete agreements;
and (l) obligations arising under bonus, deferred compensation, incentive
compensation or similar arrangements, other than those arising in the Ordinary
Course of Business. Without duplication of any of the foregoing, Debt of
Borrowers shall include any and all Loans and Letter of Credit Liabilities.

“Default” means any condition or event which with the giving of notice or lapse
of time or both would, unless cured or waived, become an Event of Default.

“Deposit Account” means a “deposit account” (as defined in Article 9 of the
UCC), an investment account, or other account in which funds are held or
invested for credit to or for the benefit of any Borrower.

“Deposit Account Control Agreement” means an agreement, in form and substance
satisfactory to Administrative Agent, among Administrative Agent, any Borrower
and each bank in which such Borrower maintains a Deposit Account, which
agreement provides that (a) such bank shall comply with instructions originated
by Administrative Agent directing disposition of the funds in such Deposit
Account without further consent by the

 

4

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

applicable Borrower, and (b) such bank shall agree that it shall have no Lien
on, or right of setoff or recoupment against, such Deposit Account or the
contents thereof, other than in respect of usual and customary service fees and
returned items for which Administrative Agent has been given value, in each such
case expressly consented to by Administrative Agent, and containing such other
terms and conditions as Administrative Agent may require, including as to any
such agreement pertaining to any Lockbox Account, providing that such bank shall
wire, or otherwise transfer, in immediately available funds, on a daily basis to
the Payment Account all funds received or deposited into such Lockbox or Lockbox
Account.

“Dollars” or “$” means the lawful currency of the United States of America.

“EBITDA” has the meaning provided in the Compliance Certificate.

“Eligible Accounts” means, subject to the criteria below, an account receivable
of a Borrower, which was generated in the Ordinary Course of Business, which was
generated originally in the name of the Borrower and not acquired via assignment
or otherwise, and which Administrative Agent, in its good faith credit judgment
and discretion, deems to be an Eligible Account. The net amount of Eligible
Accounts at any time shall be (a) the face amount of such Eligible Accounts as
originally billed minus all cash collections and other proceeds of such Account
received from or on behalf of the Account Debtor thereunder as of such date and
any and all returns, rebates, discounts (which may, at Administrative Agent’s
option, be calculated on shortest terms), credits, allowances or excise taxes of
any nature at any time issued, owing, claimed by Account Debtors, granted,
outstanding or payable in connection with such Accounts at such time, and
(b) adjusted by applying percentages (known as “liquidity factors”) by payor
and/or payor class based upon the applicable Borrower’s actual recent collection
history for each such payor and/or payor class in a manner consistent with
Administrative Agent’s underwriting practices and procedures. Such liquidity
factors may be adjusted by Administrative Agent from time to time as warranted
by Administrative Agent’s underwriting practices and procedures and using
Administrative Agent’s good faith credit judgment. Without limiting the
generality of the foregoing, no Account shall be an Eligible Account if:

(a) the Account remains unpaid more than one hundred fifty (150) days past the
invoice date (but in no event more than ninety (90) days after the applicable
due date);

(b) the Account is subject to any defense, set-off, recoupment, counterclaim,
deduction, discount, credit, chargeback, freight claim, allowance, or adjustment
of any kind (but only to the extent of such defense, set-off, recoupment,
counterclaim, deduction, discount, credit, chargeback, freight claim, allowance,
or adjustment), or the applicable Borrower is not able to bring suit or
otherwise enforce its remedies against the Account Debtor through judicial
process;

(c) if the Account arises from the sale of goods, any part of any goods the sale
of which has given rise to the Account has been returned, rejected, lost, or
damaged (but only to the extent that such goods have been so returned, rejected,
lost or damaged);

(d) if the Account arises from the sale of goods, the sale was not an absolute,
bona fide sale, or the sale was made on consignment or on approval or on a
sale-or-return or bill-and-hold or progress billing basis, or the sale was made
subject to any other repurchase or return agreement, or the goods have not been
shipped to the Account Debtor or its designee or the sale was not made in
compliance with applicable Laws;

(e) if the Account arises from the performance of services, the services have
not actually been performed or the services were undertaken in violation of any
law or the Account represents a progress billing for which services have not
been fully and completely rendered;

(f) the Account is subject to a Lien other than a Permitted Lien, or
Administrative Agent does not have a Lien on such Account;

(g) the Account is evidenced by Chattel Paper or an Instrument of any kind, or
has been reduced to judgment, unless such Chattel Paper or Instrument has been
delivered to Administrative Agent;

 

5

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(h) the Account Debtor is an Affiliate or Subsidiary of a Credit Party, or if
the Account Debtor holds any Debt of a Credit Party;

(i) fifty percent (50%) or more of the aggregate unpaid Accounts from the
Account Debtor obligated on the Account are not deemed Eligible Accounts under
this Agreement for any reason;

(j) the total unpaid Accounts of the Account Debtor obligated on the Account
exceed twenty percent (20%) of the net amount of all Eligible Accounts owing
from all Account Debtors (but only the amount of the Accounts of such Account
Debtor exceeding such 20% limitation shall be considered ineligible);

(k) any covenant, representation or warranty contained in the Financing
Documents with respect to such Account has been breached in any respect;

(l) the Account is unbilled for greater that thirty (30) days after the
applicable goods or services have been rendered or delivered or has not been
invoiced to the Account Debtor in accordance with the procedures and
requirements of the applicable Account Debtor;

(m) the Account is an obligation of an Account Debtor that is the federal (or
local) government or a political subdivision thereof, unless Administrative
Agent has agreed to the contrary in writing and Administrative Agent has
received from the Account Debtor the acknowledgement of Administrative Agent’s
notice of assignment of such obligation pursuant to this Agreement;

(n) the Account is an obligation of an Account Debtor that has suspended
business, made a general assignment for the benefit of creditors, is unable to
pay its debts as they become due or as to which a petition has been filed
(voluntary or involuntary) under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or the Account is an Account as to which
any facts, events or occurrences exist which could reasonably be expected to
impair the validity, enforceability or collectibility of such Account or reduce
the amount payable or delay payment thereunder;

(o) the Account Debtor has its principal place of business or executive office
outside the United States, unless the sale is supported by an irrevocable letter
of credit or is subject to a guaranty or credit insurance, in each case
acceptable to Administrative Agent in its sole discretion

(p) the Account is payable in a currency other than United States dollars;

(q) the Account Debtor is an individual (other than physicians, dentists and
oral surgeons);

(r) the Borrower owning such Account has not signed and delivered to
Administrative Agent notices, in the form requested by Administrative Agent,
directing the Account Debtors to make payment to the applicable Lockbox Account;

(s) the Account includes late charges or finance charges (but only such portion
of the Account shall be ineligible);

(t) the Account arises out of the sale of any Inventory upon which any other
Person holds, claims or asserts a Lien; or

(u) the Account or Account Debtor fails to meet such other specifications and
requirements which may from time to time be established by Administrative Agent
in its good faith credit judgment and discretion.

 

6

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Eligible Inventory” means Inventory owned by a Borrower and acquired and
dispensed by such Borrower in the Ordinary Course of Business that
Administrative Agent, in its good faith credit judgment and discretion, deems to
be Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:

(a) such Inventory is not owned by a Borrower free and clear of all Liens and
rights of any other Person (including the rights of a purchaser that has made
progress payments and the rights of a surety that has issued a bond to assure
such Borrower’s performance with respect to that Inventory);

(b) such Inventory is placed on consignment or is in transit;

(c) such Inventory is covered by a negotiable document of title, unless such
document has been delivered to Administrative Agent with all necessary
endorsements, free and clear of all Liens except those in favor of
Administrative Agent;

(d) such Inventory is excess, obsolete, unsalable, shopworn, seconds, damaged,
unfit for sale, unfit for further processing, is of substandard quality or is
not of good and merchantable quality, free from any defects;

(e) such Inventory consists of marketing materials, display items or packing or
shipping materials, manufacturing supplies or Work-In-Process;

(f) such Inventory is not subject to a first priority Lien in favor of
Administrative Agent;

(g) such Inventory consists of goods that can be transported or sold only with
licenses that are not readily available or of any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or similar term, by any environmental law or any
Governmental Authority applicable to Borrowers or their business, operations or
assets;

(h) such Inventory is not covered by casualty insurance reasonably acceptable to
Administrative Agent;

(i) any covenant, representation or warranty contained in the Financing
Documents with respect to such Inventory has been breached in any material
respect;

(j) such Inventory is located (i) outside of the continental United States or
(ii) on premises where the aggregate amount of all Inventory (valued at cost) of
Borrowers located thereon is less than $10,000;

(k) such Inventory is located on premises with respect to which Administrative
Agent has not received a landlord, warehouseman, bailee or mortgagee letter
reasonably acceptable in form and substance to Administrative Agent;

(l) such Inventory consists of (A) discontinued items, (B) slow-moving or excess
items held in inventory, or (C) used items held for resale;

(m) such Inventory does not consist of finished goods;

(n) such Inventory does not meet all standards imposed by any Governmental
Authority, including with respect to its production, acquisition or importation
(as the case may be);

(o) such Inventory has an expiration date within the next six (6) months;

(p) such Inventory consists of products for which Borrowers have a greater than
twelve (12) month supply on hand;

(q) such Inventory is held for rental or lease by or on behalf of Borrowers;

(r) such Inventory is subject to any licensing, patent, royalty, trademark,
trade name or copyright agreement with any third parties, which agreement
restricts the ability of Administrative Agent or any Lender to sell or otherwise
dispose of such Inventory and for which Administrative Agent has not received a
licensor consent executed by the applicable licensor in form and substance
satisfactory to Administrative Agent; or

 

7

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(s) such Inventory fails to meet such other reasonable specifications and
requirements which may from time to time be established by Administrative Agent
in its good faith credit judgment. Administrative Agent and Borrowers agree that
Inventory shall be subject to periodic appraisal by Administrative Agent and
that valuation of Inventory shall be subject to adjustment pursuant to the
results of such appraisal. Notwithstanding the foregoing, the valuation of
Inventory shall be subject to any legal limitations on sale and transfer of such
Inventory.

“Eligible Swap Counterparty” means Administrative Agent, any Affiliate of
Administrative Agent, any Lender and/or any Affiliate of any Lender, that (a) at
any time it occupies such role or capacity enters into a Swap Contract with any
Borrower, and (b) in the case of a Lender or an Affiliate of a Lender other than
Administrative Agent, is expressly identified by Administrative Agent as
maintaining a reporting system acceptable to Administrative Agent with respect
to Swap Contract exposure and agrees with Administrative Agent to provide
regular reporting to Administrative Agent, in form and content reasonably
satisfactory to Administrative Agent, with respect to such exposure.

“Environmental Laws” any and all Laws relating to the environment or the effect
of the environment on human health or to emissions, discharges or releases of
pollutants, contaminants, Hazardous Materials or wastes into the environment,
including ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, Hazardous Materials
or wastes or the clean-up or other remediation thereof, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. § 9601 et seq.), the Resource Conservation and Recovery
Act of 1976 (42 U.S.C. § 6901 et seq.), the Federal Water Pollution Control Act
(33 U.S.C. § 1251 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. § 5101 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.), the
Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq.),
the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), the
Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. § 4851 et seq.),
any analogous state or local laws, any amendments thereto, and the regulations
promulgated pursuant to said laws, together with all amendments from time to
time to any of the foregoing and judicial interpretations thereof.

“Environmental Liens” means all Liens and other encumbrances imposed pursuant to
any Environmental Law, whether due to any act or omission of any Borrower or any
other Person.

“ERISA” means the Employee Retirement Income Security Act of 1974, as the same
may be amended, modified or supplemented from time to time, and any successor
statute thereto, and any and all rules or regulations promulgated from time to
time thereunder.

“ERISA Plan” means any “employee benefit plan”, as such term is defined in
Section 3(3) of ERISA (other than a Multiemployer Plan), which any Borrower
maintains, sponsors or contributes to, or, in the case of an employee benefit
plan which is subject to Section 412 of the Code or Title IV of ERISA, to which
any Borrower or any member of the Controlled Group may have any liability,
including any liability by reason of having been a substantial employer within
the meaning of Section 4063 of ERISA at any time during the preceding five
(5) years, or by reason of being deemed to be a contributing sponsor under
Section 4069 of ERISA.

“Event of Default” has the meaning set forth in Section 10.1.

“Excluded Collateral” means any Borrower’s equipment now or hereafter subject to
purchase money security interests, capital lease financings or other financing
described in subsection (c) of the definition of Permitted Indebtedness, each to
the extent permitted hereunder; provided, however, that, upon the termination or
lapse of any lease, agreement or contract, such Borrower shall, automatically
and without the necessity of any further action on the part of such Borrower or
any other Person, be deemed to have granted to Administrative Agent a security
interest in and Lien upon all of such Borrower’s right, title and interest in
and to any such equipment and the same shall constitute Collateral hereunder.

“Financing Documents” means this Agreement, any Notes, the Security Documents,
any fee letter among Merrill Lynch and any of the Borrowers relating to the
transactions contemplated hereby, any subordination or intercreditor agreement
pursuant to which any Debt and/or any Liens securing such Debt is subordinated
to all or

 

8

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

any portion of the Obligations and all other documents, instruments and
agreements related to the Obligations and heretofore executed, executed
concurrently herewith or executed at any time and from time to time hereafter,
as any or all of the same may be amended, supplemented, restated or otherwise
modified from time to time.

“Fixed Charge Coverage Ratio” has the meaning provided in the Compliance
Certificate.

“GAAP” means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the United States
accounting profession), which are applicable to the circumstances as of the date
of determination.

“General Intangible” means any “general intangible” as defined in Article 9 of
the UCC, and any personal property, including things in action, other than
accounts, chattel paper, commercial tort claims, deposit accounts, documents,
goods, instruments, investment property, letter-of-credit rights, letters of
credit, money, and oil, gas or other minerals before extraction, but including
payment intangibles and software.

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or Person exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any corporation or other Person owned or controlled
(through stock or capital ownership or otherwise) by any of the foregoing,
whether domestic or foreign.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise), or
(b) entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided, however, that
the term Guarantee shall not include endorsements for collection or deposit in
the Ordinary Course of Business. The term “Guarantee” used as a verb has a
corresponding meaning.

“Guarantor” means any Credit Party that has executed or delivered, or shall in
the future execute or deliver, any Guarantee of any portion of the Obligations.

“Hazardous Materials” means petroleum and petroleum products and compounds
containing them, including gasoline, diesel fuel and oil; explosives, flammable
materials; radioactive materials; polychlorinated biphenyls and compounds
containing them; lead and lead-based paint; asbestos or asbestos-containing
materials; underground or above-ground storage tanks, whether empty or
containing any substance; any substance the presence of which on the Project is
prohibited by any Environmental Laws; toxic mold, any substance that requires
special handling; and any other material or substance now or in the future
defined as a “hazardous substance,” “hazardous material,” “hazardous waste,”
“toxic substance,” “toxic pollutant,” “contaminant,” “pollutant” or other words
of similar import within the meaning of any Environmental Law, including:
(a) any “hazardous substance” defined as such in (or for purposes of) CERCLA, or
any so-called “superfund” or “superlien” Law, including the judicial
interpretation thereof; (b) any “pollutant or contaminant” as defined in 42
U.S.C.A. § 9601(33); (c) any material now defined as “hazardous waste” pursuant
to 40 C.F.R. Part 260; (d) any petroleum or petroleum by-products, including
crude oil or any fraction thereof; (e) natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel; (f) any “hazardous
chemical” as defined pursuant to 29 C.F.R. Part 1910; (g) any toxic or harmful
substances, wastes, materials, pollutants or contaminants (including, without
limitation, asbestos, polychlorinated biphenyls (“PCB’s”), flammable explosives,
radioactive materials, infectious substances, materials containing lead-based
paint or raw materials which include hazardous constituents); and (h) any other
toxic substance or contaminant that is subject to any Environmental Laws or
other past or present requirement of any Governmental Authority.

 

9

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Hazardous Materials Contamination” means contamination (whether now existing or
hereafter occurring) of the improvements, buildings, facilities, personalty,
soil, groundwater, air or other elements on or of the relevant property by
Hazardous Materials, or any derivatives thereof, or on or of any other property
as a result of Hazardous Materials, or any derivatives thereof, generated on,
emanating from or disposed of in connection with the relevant property.

“Indemnitees” has the meaning set forth in Section 12.17.

“Instrument” means “instrument”, as defined in Article 9 of the UCC.

“Intellectual Property” means, with respect to any Person, all patents, patent
applications and like protections, including improvements divisions,
continuation, renewals, reissues, extensions and continuations in part of the
same, trademarks, trade names, trade styles, trade dress, service marks, logos
and other business identifiers and, to the extent permitted under applicable
law, any applications therefore, whether registered or not, and the goodwill of
the business of such Person connection with and symbolized thereby, copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative works, whether published or unpublished,
technology, know-how and processes, operating manuals, trade secrets, computer
hardware and software, rights to unpatented inventions and all applications and
licenses therefor, used in or necessary for the conduct of business by such
Person and all claims for damages by way of any past, present or future
infringement of any of the foregoing.

“Inventory” means “inventory” as defined in Article 9 of the UCC.

“Inventory Sublimit” means an amount equal to sixty five percent (65%) of the
Revolving Loan Limit.

“Investment” means any investment in any Person, whether by means of acquiring
(whether for cash, property, services, securities or otherwise) or holding
securities, capital contributions, loans, time deposits, advances, Guarantees or
otherwise. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect thereto.

“IP Proceeds” has the meaning set forth in Schedule 9.1.

“Laws” means any and all federal, state, provincial, territorial, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, injunctions, permits, governmental agreements
and governmental restrictions, whether now or hereafter in effect, which are
applicable to any Credit Party in any particular circumstance. “Laws” include,
without limitation, Environmental Laws.

“LC Issuer” means one or more banks, trust companies or other Persons in each
case expressly identified by Administrative Agent from time to time, in its sole
discretion, as an LC Issuer for purposes of issuing one or more Letters of
Credit hereunder. Without limitation of Administrative Agent’s discretion to
identify any Person as an LC Issuer, no Person shall be designated as an LC
Issuer unless such Person maintains reporting systems acceptable to
Administrative Agent with respect to letter of credit exposure and agrees to
provide regular reporting to Administrative Agent satisfactory to it with
respect to such exposure.

“Lender” means each of (a) Merrill Lynch, in its capacity as a lender hereunder,
(b) each other Person party hereto in its capacity as a lender hereunder,
(c) each other Person that becomes a party hereto as Lender pursuant to
Section 12.6, and (d) the respective successors of all of the foregoing, and
“Lenders” means all of the foregoing. In addition to the foregoing, for the
purpose of identifying the Persons entitled to share in the Collateral and the
proceeds thereof under, and in accordance with the provisions of, this Agreement
and the Security Documents, the term “Lender” shall include Eligible Swap
Counterparties.

“Lender Letter of Credit” means a Letter of Credit issued by an LC Issuer that
is also, at the time of issuance of such Letter of Credit, a Lender.

 

10

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Letter of Credit” means a standby letter of credit issued for the account of
any Borrower by an LC Issuer which expires by its terms within one year after
the date of issuance and in any event at least thirty (30) days prior to the
Commitment Expiry Date. Notwithstanding the foregoing, a Letter of Credit may
provide for automatic extensions of its expiry date for one or more successive
one (1) year periods provided that the LC Issuer that issued such Letter of
Credit has the right to terminate such Letter of Credit on each such annual
expiration date and no renewal term may extend the term of the Letter of Credit
to a date that is later than the thirtieth (30th) day prior to the Commitment
Expiry Date.

“Letter of Credit Liabilities” means, at any time of calculation, denominated in
Dollars and if a Letter of Credit is issued in a currency other than Dollars,
calculated in Dollars at the then current exchange rate, the sum of (a) without
duplication, the amount then available for drawing under all outstanding Lender
Letters of Credit and all Supported Letters of Credit, in each case without
regard to whether any conditions to drawing thereunder can then be met, plus
(b) without duplication, the aggregate unpaid amount of all reimbursement
obligations in respect of previous drawings made under all such Lender Letters
of Credit and Supported Letters of Credit.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind, in respect of such asset. For the
purposes of this Agreement and the other Financing Documents, any Borrower or
any Subsidiary shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.

“Litigation” means any action, suit or proceeding before any court, mediator,
arbitrator or Governmental Authority.

“Loan Account” has the meaning set forth in Section 2.5(b).

“Loans” means the Revolving Loans.

“Lockbox” has the meaning set forth in Section 2.9.

“Lockbox Account” means an account or accounts maintained at the Lockbox Bank
into which collections of Accounts are paid.

“Lockbox Bank” has the meaning set forth in Section 2.9.

“Material Adverse Effect” means with respect to any event, act, condition or
occurrence of whatever nature (including any adverse determination in any
litigation, arbitration, or governmental investigation or proceeding), whether
singly or in conjunction with any other event or events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, (a) a material
adverse change in, or a material adverse effect upon, any of (i) the condition
(financial or otherwise), operations, business or properties of any of the
Credit Parties, (ii) the rights and remedies of Administrative Agent or Lenders
under any Financing Document, or the ability of any Credit Party to perform any
of its obligations under any Financing Document to which it is a party,
(iii) the legality, validity or enforceability of any Financing Document,
(iv) the existence, perfection or priority of any security interest granted in
any Financing Document, or (v) the value of any material Collateral; or (b) an
impairment to the likelihood that Eligible Accounts in general will be collected
and paid in the normal course of a Borrower’s business and upon the same
schedule and with the same frequency as such Borrower’s recent collections
history.

“Material Contracts” has the meaning set forth in Section 3.17.

“Maximum Lawful Rate” has the meaning set forth in Section 2.7.

“Merrill Lynch” means Merrill Lynch Capital, a division of Merrill Lynch
Business Financial Services Inc., and its successors.

 

11

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Minimum Liquidity” means the sum of Revolving Loan Availability plus cash, cash
equivalents and marketable securities which are (a) owned by Borrower, (b) not
subject to any Lien other than a Lien in favor of Administrative Agent, (c) not
pledged to or held by Administrative Agent to secure a specified Obligation, and
(d) not pledged to or held by Administrative Agent as an escrow or reserve
required under this Agreement.

“Multiemployer Plan” means a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA to which any Borrower or any other member of the
Controlled Group (or any Person who in the last five years was a member of the
Controlled Group) is making or accruing an obligation to make contributions or
has within the preceding five plan years (as determined on the applicable date
of determination) made contributions.

“Non-Funding Lender” means a Lender that has delivered a notice to the
Administrative Agent stating that such Lender shall cease making Revolving Loans
due to the non-satisfaction of one or more conditions set forth in Article 7,
and specifying any such non-satisfied conditions; provided, however, that any
Lender delivering any such notice shall be a Non-Funding Lender solely over the
period commencing on the Business Day following receipt by Administrative Agent
of such notice, and terminating on such date that such Lender has either revoked
the effectiveness of such notice or acknowledged to Administrative Agent the
satisfaction of the condition specified in such notice.

“Notes” means the Revolving Loan Notes.

“Notice of Borrowing” means a notice of a Responsible Officer of Borrower
Representative, appropriately completed and substantially in the form of
Exhibit D hereto.

“Notice of LC Credit Event” means a notice from a Responsible Officer of
Borrower Representative to Administrative Agent with respect to any issuance,
increase or extension of a Letter of Credit specifying: (a) the date of issuance
or increase of a Letter of Credit; (b) the identity of the LC Issuer with
respect to such Letter of Credit, (c) the expiry date of such Letter of Credit;
(d) the proposed terms of such Letter of Credit, including the face amount; and
(e) the transactions that are to be supported or financed with such Letter of
Credit or increase thereof.

“Obligations” means all obligations, liabilities and indebtedness (monetary
(including post-petition interest, whether or not allowed) or otherwise) of each
Credit Party under this Agreement or any other Financing Document, in each case
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due. In addition to,
but without duplication of, the foregoing, the Obligations shall include,
without limitation, all obligations, liabilities and indebtedness arising from
or in connection with (a) all Support Agreements, (b) all Lender Letters of
Credit, and (c) all Swap Contracts entered into with any Eligible Swap
Counterparty.

“OFAC” means the U.S. Department of Treasury Office of Foreign Assets Control.

“OFAC Lists” means, collectively, the Specially Designated Nationals and Blocked
Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed.
Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other
restricted Persons maintained pursuant to any of the rules and regulations of
OFAC or pursuant to any other applicable Executive Orders.

“Ordinary Course of Business” means, in respect of any transaction involving any
Credit Party, the ordinary course of business of such Credit Party, as conducted
by such Credit Party in accordance with past practices.

“Orderly Liquidation Value” means the net amount (after all costs of sale),
expressed in terms of money, which Administrative Agent, in its good faith
discretion, estimates can be realized from a sale, as of a specific date, given
a reasonable period to find a purchaser(s), with the seller being compelled to
sell on an as-is/where-is basis.

“Organizational Documents” means, with respect to any Person other than a
natural person, the documents by which such Person was organized (such as a
certificate of incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of designation
for preferred stock or other forms of preferred equity) and which relate to the
internal governance of such Person (such as by-laws, a partnership agreement or
an operating, limited liability or members agreement).

 

12

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Payment Account” means the account specified on the signature pages hereof into
which all payments by or on behalf of each Borrower to Administrative Agent
under the Financing Documents shall be made, or such other account as
Administrative Agent shall from time to time specify by notice to Borrower
Representative.

“Payment Notification” means a written notification substantially in the form of
Exhibit E hereto.

“PBGC” means the Pension Benefit Guaranty Corporation and any Person succeeding
to any or all of its functions under ERISA.

“Pension Plan” means any ERISA Plan that is subject to Section 412 of the Code
or Title IV of ERISA.

“Permits” shall have the meaning set forth in the Regulatory Rider.

“Permitted Affiliate” means with respect to any Person (a) any Person that
directly or indirectly controls such Person, and (b) any Person which is
controlled by or is under common control with such controlling Person. As used
in this definition, the term “control” of a Person means the possession,
directly or indirectly, of the power to vote eighty percent (80%) or more of any
class of voting securities of such Person or 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.

“Permitted Contest” means, with respect to any tax obligation or other
obligation allegedly or potentially owing from any Borrower to any governmental
tax authority or other third party, a contest maintained in good faith by
appropriate proceedings promptly instituted and diligently conducted and with
respect to which such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made on the books and
records and financial statements of the applicable Borrower(s); provided,
however, that (a) compliance with the obligation that is the subject of such
contest is effectively stayed during such challenge; (b) Borrowers’ title to,
and its right to use, the Collateral is not adversely affected thereby and
Administrative Agent’s Lien and priority on the Collateral are not adversely
affected, altered or impaired thereby; (c) Borrowers have given prior written
notice to Administrative Agent of Borrowers’ intent to so contest the
obligation; (d) the Collateral or any part thereof or any interest therein shall
not be in any danger of being sold, forfeited or lost by reason of such contest
by Borrowers; (e) Borrowers have given Administrative Agent notice of the
commencement of such contest and upon request by Administrative Agent, from time
to time, notice of the status of such contest by Borrowers and/or confirmation
of the continuing satisfaction of this definition; and (f) upon a final
determination of such contest, Borrowers shall promptly comply with the
requirements thereof.

“Permitted Contingent Obligations” means : (a) Contingent Obligations arising in
respect of the Debt under the Financing Documents and Letter of Credit
Liabilities; (b) Contingent Obligations resulting from endorsements for
collection or deposit in the Ordinary Course of Business; (c) Contingent
Obligations arising under or with respect to any Permitted Contest or Permitted
Liens; (d) Contingent Obligations outstanding on the date of this Agreement and
set forth on Schedule 5.1; (e) Contingent Obligations incurred in the Ordinary
Course of Business with respect to surety and appeal bonds, security deposits,
performance bonds and other similar obligations not to exceed $250,000 in the
aggregate at any time outstanding; (f) Contingent Obligations arising under
indemnity agreements with title insurers to cause such title insurers to issue
to Administrative Agent mortgagee title insurance policies; (g) Contingent
Obligations arising with respect to customary indemnification obligations in
favor of purchasers in connection with dispositions permitted under Section 5.6;
(h) so long as there exists no Event of Default both immediately before and
immediately after giving effect to any such transaction, Contingent Obligations
existing or arising under any Swap Contract, provided that such obligations are
(or were) entered into by Borrower or an Affiliate in the Ordinary Course of
Business for the purpose of directly mitigating risks associated with
liabilities, commitments, investments, assets, or property held or reasonably
anticipated by such Person and not for purposes of speculation; and (i) other
Contingent Obligations not permitted by clauses (a) through (h) above, not to
exceed $250,000 in the aggregate at any time outstanding.

 

13

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Permitted Indebtedness” means: (a) Borrower’s Debt to Administrative Agent and
each Lender under this Agreement and the other Financing Documents; (b) Debt
incurred as a result of endorsing negotiable instruments received in the
Ordinary Course of Business; (c) purchase money Debt not to exceed $3,500,000 at
any time (whether in the form of a loan or a lease) used solely to acquire, or
reimburse Borrower for the acquisition of, equipment used in the Ordinary Course
of Business and secured only by such equipment; (d) Debt existing on the date of
this Agreement and described on Schedule 5.1 (but not including any
refinancings, extensions, increases or amendments to such Debt other than
extensions of the maturity thereof without any other change in terms); (e) Debt,
if any, arising under Swap Contracts; (f) Debt constituting financed insurance
premiums; and (g) trade accounts payable arising and paid on a timely basis and
in the Ordinary Course of Business.

“Permitted Investments” means: (a) Investments shown on Schedule 5.7 and
existing on the Closing Date; (b) (i) cash equivalents, and (ii) any similar
short term Investments permitted by Borrowers’ investment policy, as amended
from time to time, provided that such investment policy (and any such amendment
thereto) has been approved by Administrative Agent; (c) Investments consisting
of the endorsement of negotiable instruments for deposit or collection or
similar transactions in the Ordinary Course of Business; (d) Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the Ordinary Course of Business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrowers or their Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrowers’ Board of Directors (or other
governing body), but the aggregate of all such loans outstanding may not exceed
$500,000 at any time; (e) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the Ordinary Course of Business; (f) Investments
consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the Ordinary
Course of Business; provided that this subpart (f) shall not apply to
Investments of Borrowers in any Subsidiary; (g) Investments consisting of
deposit accounts in which Administrative Agent has received a Deposit Account
Control Agreement; (h) Investments consisting of the acquisition of all or
substantially all of the assets or capital stock of another Person provided
that, after giving effect to such acquisition, no Event of Default has occurred
and is continuing or would exist after giving effect to such acquisition, and
such acquisition would not result in a decrease of more than ten percent
(10%) of the Tangible Net Worth of the Borrowers; (i) Investments by any
Borrower in any other Borrower made in compliance with Section 4.9(c); and
(j) other Investments in an amount not exceeding $50,000 in the aggregate.

“Permitted Liens” means: (a) deposits or pledges of cash to secure obligations
under workmen’s compensation, social security or similar laws, or under
unemployment insurance (but excluding Liens arising under ERISA) pertaining to a
Borrower’s employees, if any; (b) deposits or pledges of cash to secure bids,
tenders, contracts (other than contracts for the payment of money or the
deferred purchase price of property or services), leases, statutory obligations,
surety and appeal bonds and other obligations of like nature arising in the
Ordinary Course of Business; (c) carrier’s, warehousemen’s, mechanic’s,
workmen’s, materialmen’s or other like Liens on Collateral, other than Accounts,
Inventory and Intellectual Property, arising in the Ordinary Course of Business
with respect to obligations which are not due, or which are being contested
pursuant to a Permitted Contest; (d) Liens on Collateral, other than Accounts,
Inventory and Intellectual Property, for taxes or other governmental charges not
at the time delinquent or thereafter payable without penalty or the subject of a
Permitted Contest; (e) attachments, appeal bonds, judgments and other similar
Liens on Collateral other than Accounts, Inventory and Intellectual Property,
for sums not exceeding $100,000 in the aggregate arising in connection with
court proceedings; provided, however, that the execution or other enforcement of
such Liens is effectively stayed and the claims secured thereby are the subject
of a Permitted Contest; (f) with respect to real estate, easements, rights of
way, restrictions, minor defects or irregularities of title, none of which,
individually or in the aggregate, materially interfere with the benefits of the
security intended to be provided by the Security Documents, materially affect
the value or marketability of the Collateral, impair the use or operation of the
Collateral for the use currently being made thereof or impair Borrowers’ ability
to pay the Obligations in a timely manner or impair the use of the Collateral or
the ordinary conduct of the business of any Borrower or any Subsidiary and
which, in the case of any real estate which is part of the Collateral, are set
forth as exceptions to or subordinate matters in the title insurance policy
accepted by Administrative Agent insuring the lien of the Security Documents;
(g) Liens and encumbrances in favor of Administrative Agent under the Financing
Documents; (h) Liens on Collateral other than Accounts, Inventory and
Intellectual Property existing on the date hereof and set forth on Schedule 5.2
and (i) any Lien on any equipment securing Debt permitted under subpart (c) of
the definition of Permitted Indebtedness provided, however, that such Lien
attaches concurrently with or within twenty (20) days after the acquisition
thereof.

 

14

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Permitted Modifications” means (a) such amendments or other modifications to a
Borrower’s Organizational Documents as are required under this Agreement or by
applicable Law and fully disclosed to Administrative Agent within thirty
(30) days after such amendments or modifications have become effective, (b) such
amendments or modifications to a Borrower’s Organizational Documents (other than
those involving a change in the name of a Borrower or involving a reorganization
of the Borrower under the laws of a different jurisdiction) that would not
adversely affect the rights and interests of the Administrative Agent or Lenders
and fully disclosed to Administrative Agent within thirty (30) days after such
amendments or modifications have become effective and (c) changes permitted by
Section 9.2(d) hereof.

“Permitted Transfers” means the collective reference to one or more transfers,
via a sale and not by pledge or hypothecation, which, in the aggregate during
the term of this Agreement, result in a transfer of legal or beneficial
ownership or control of up to 20% of the direct or indirect ownership or voting
interests in the Borrowers or any Guarantor to a Person, (a) purchasing such
ownership interest in a public offering registered with the SEC or (b) other
than a Blocked Person, that is (i) a venture capital investor so long as
Borrowers have given Administrative Agent at least fifteen (15) days prior
written notice of the identity of the assignees, together with such information
as Administrative Agent shall deem necessary to confirm that such assignee is
not a Blocked Person or (ii) at the time of such transfer, already a holder of
direct or indirect ownership or voting interests in the Borrowers.
Notwithstanding the limitations set forth in the foregoing sentence (a) any
holder of direct or indirect ownership or voting interests in the Borrowers
which is a partnership may transfer such holder’s rights to such holder’s
constituent partners, retired partners (including spouses, ancestors, lineal
descendants and siblings of such partners or spouses who acquire such interests
by gift, will or intestate succession) or their respective Affiliates, (b) any
holder of direct or indirect ownership or voting interests in the Borrowers
which is a limited liability company may transfer such holder’s right to such
holder’s members, (c) any holder of direct or indirect ownership or voting
interests in the Borrowers which is a natural person may transfer such holder’s
rights to any immediate family member or to any trust created for the benefit of
such holder or his or her immediate family members, and (d) any holder of direct
or indirect ownership or voting interests in the Borrowers may transfer such
holder’s rights to a Permitted Affiliate of such holder (provided that no
transfer of any given interest pursuant to this subpart may be made more often
than once per twelve (12) month period), subject in each case to such
transferee’s agreeing in writing to be bound by the rights and restrictions of
this Agreement; and any such transfer described in the foregoing clauses
(a) through (d) shall be deemed a “Permitted Transfer” and shall not count
toward the twenty percent (20%) limitation described above.

“Person” means any natural person, corporation, limited liability company,
professional association, limited partnership, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, and
any Governmental Authority.

“Pro Rata Share” means (a) with respect to a Lender’s obligation to make
Revolving Loans, such Lender’s right to receive payments of principal and
interest with respect thereto, such Lender’s right to receive the unused line
fee described in Section 2.2(b), and such Lender’s obligation to share in Letter
of Credit Liabilities and to receive the related Letter of Credit fee described
in Section 2.5(b), the Revolving Loan Commitment Percentage of such Lender, and
(b) for all other purposes with respect to any Lender, the percentage obtained
by dividing (i) the sum of the Revolving Loan Commitment Amount of such Lender
(or, in the event the Revolving Loan Commitment shall have been terminated, such
Lender’s then existing Revolving Loan Outstandings), by (ii) the sum of the
Revolving Loan Commitment (or, in the event the Revolving Loan Commitment shall
have been terminated, the then existing Revolving Loan Outstandings) of all
Lenders.

“Regulatory Rider” means the Regulatory Rider dated the date hereof among
Borrowers, Administrative Agent and Lenders, as amended, supplemented, restated
or otherwise modified from time to time.

“Reimbursement Obligations” means, at any date, the obligations of each Borrower
then outstanding to reimburse (a) Administrative Agent for payments made by
Administrative Agent under a Support Agreement, and/or (b) any LC Issuer, for
payments made by such LC Issuer under a Lender Letter of Credit.

“Required Lenders” means at any time Lenders holding (a) sixty-six and two
thirds percent (66 2/3%) or more of the Revolving Loan Commitment, or (b) if the
Revolving Loan Commitment has been terminated, sixty-six and two thirds percent
(66 2/3%) or more of the sum of (x) the then aggregate outstanding principal
balance of the Loans plus (y) the then aggregate amount of Letter of Credit
Liabilities.

 

15

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Responsible Officer” means any of the Chief Executive Officer, Chief Financial
Officer or, solely with respect to a Borrowing Base Certificate and Notice of
Borrowing, Controller of the applicable Borrower.

“Restricted Distribution” means as to any Person (a) any dividend or other
distribution (whether in cash, securities or other property) on any equity
interest in such Person (except those payable solely in its equity interests of
the same class), (b) any payment on account of (i) the purchase, redemption,
retirement, defeasance, surrender, cancellation, termination or acquisition of
any equity interests in such Person or any claim respecting the purchase or sale
of any equity interest in such Person or (ii) any option, warrant or other right
to acquire any equity interests in such Person, (c) any management fees,
salaries or other fees or compensation to any Person holding an equity interest
in a Borrower or a Subsidiary of a Borrower (other than (A) payments of salaries
and other employee benefits to individuals, (B) directors fees, (C) the issuance
of stock options or restricted stock to employees and board members, and
(D) advances and reimbursements to employees or directors, all in the Ordinary
Course of Business and consistent with past practices), an Affiliate of a
Borrower or an Affiliate of any Subsidiary of a Borrower, (d) any lease or
rental payments to an Affiliate or Subsidiary of a Borrower, or (e) repayments
of or debt service on loans or other indebtedness held by any Person holding an
equity interest in a Borrower or a Subsidiary of a Borrower, an Affiliate of a
Borrower or an Affiliate of any Subsidiary of a Borrower.

“Revolving Lender” means each Lender having a Revolving Loan Commitment Amount
in excess of zero (or, in the event the Revolving Loan Commitment shall have
been terminated at any time, each Lender at such time having Revolving Loan
Outstandings in excess of zero).

“Revolving Loan Availability” means, at any time, the Revolving Loan Limit less
the Revolving Loan Outstandings.

“Revolving Loan Borrowing” means a borrowing of a Revolving Loan.

“Revolving Loan Commitment” means the sum of each Lender’s Revolving Loan
Commitment Amount.

“Revolving Loan Commitment Amount” means, as to any Lender, the dollar amount
set forth opposite such Lender’s name on the Commitment Annex under the column
“Revolving Loan Commitment Amount” (if such Lender’s name is not so set forth
thereon, then the dollar amount on the Commitment Annex for the Revolving Loan
Commitment Amount for such Lender shall be deemed to be zero), as such amount
may be adjusted from time to time by any amounts assigned (with respect to such
Lender’s portion of Revolving Loans outstanding and its commitment to make
Revolving Loans) pursuant to the terms of any and all effective assignment
agreements to which such Lender is a party.

“Revolving Loan Commitment Percentage” means, as to any Lender, (a) on the
Closing Date, the percentage set forth opposite such Lender’s name on the
Commitment Annex under the column “Revolving Loan Commitment Percentage” (if
such Lender’s name is not so set forth thereon, then, on the Closing Date, such
percentage for such Lender shall be deemed to be zero), and (b) on any date
following the Closing Date, the percentage equal to the Revolving Loan
Commitment Amount of such Lender on such date divided by the Revolving Loan
Commitment on such date.

“Revolving Loan Limit” means, at any time, the lesser of (a) the Revolving Loan
Commitment and (b) the Borrowing Base.

“Revolving Loan Note” has the meaning set forth in Section 2.3.

“Revolving Loan Outstandings” means at any time of calculation the sum of the
then existing aggregate outstanding principal amount of Revolving Loans and 105%
of the then existing Letter of Credit Liabilities.

 

16

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Revolving Loans” means any Note (as defined in Section 2.3) evidencing any
portion of the Revolving Loan.

“SEC” means the United States Securities and Exchange Commission.

“Securities Account” means a “securities account” (as defined in Article 9 of
the UCC), an investment account, or other account in which investment property
or securities are held or invested for credit to or for the benefit of any
Borrower.

“Security Document” means this Agreement and any other agreement, document or
instrument executed concurrently herewith or at any time hereafter pursuant to
which one or more Credit Parties or any other Person either (a) Guarantees
payment or performance of all or any portion of the Obligations, and/or
(b) provides, as security for all or any portion of the Obligations, a Lien on
any of its assets in favor of Administrative Agent for its own benefit and the
benefit of the Lenders, as any or all of the same may be amended, supplemented,
restated or otherwise modified from time to time.

“Solvent” means, with respect to any Person, that such Person (a) owns and will
own assets the fair saleable value of which are (i) greater than the total
amount of its liabilities (including Contingent Obligations), and (ii) greater
than the amount that will be required to pay the probable liabilities of its
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to it; and
(b) does not intend to incur and does not believe that it will incur debts
beyond its ability to pay such debts as they become due.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than fifty percent (50%) of the outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, capital stock of any
other class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of more than fifty percent (50%) of such
capital stock whether by proxy, agreement, operation of law or otherwise, and
(b) any partnership or limited liability company in which such Person and/or one
or more Subsidiaries of such Person shall have an interest (whether in the form
of voting or participation in profits or capital contribution) of more than
fifty percent (50%) or of which any such Person is a general partner or may
exercise the powers of a general partner. Unless the context otherwise requires,
each reference to a Subsidiary shall be a reference to a Subsidiary of a
Borrower.

“Support Agreement” has the meaning set forth in Section 2.5(a).

“Supported Letter of Credit” means a Letter of Credit issued by an LC Issuer in
reliance on one or more Support Agreements.

“Swap Contract” means any “swap agreement”, as defined in Section 101 of the
Bankruptcy Code, that is obtained by Borrower to provide protection against
fluctuations in interest or currency exchange rates, but only to the extent
Administrative Agent provides its prior written consent to the entry into such
“swap agreement”.

“Tangible Net Worth” means, on any date, the consolidated total assets of
Borrowers and their Subsidiaries minus, (i) any amounts attributable to
(a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trademarks and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c) reserves not
already deducted from assets, and (ii) Total Liabilities.

“Taxes” has the meaning set forth in Section 2.7.

“Termination Date” means the earlier to occur of (a) the Commitment Expiry Date,
or (b) any date on which Administrative Agent accelerates the maturity of the
Loans pursuant to Section 10.2.

 

17

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Total Liabilities” means, on any day, obligations that should, under GAAP, be
classified as liabilities on Borrowers’ consolidated balance sheet, including
all Debt.

“UCC” means the Uniform Commercial Code of the State of Illinois or of any other
state the laws of which are required to be applied in connection with the
perfection of security interests in any Collateral.

“United States” means the United States of America.

“Work-In-Process” means Inventory that is not a product that is finished and
approved by a Borrower in accordance with applicable Laws and such Borrower’s
normal business practices for release and delivery to customers.

Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder (including, without limitation, determinations made
pursuant to the exhibits hereto) shall be made, and all financial statements
required to be delivered hereunder shall be prepared on a consolidated basis in
accordance with GAAP applied on a basis consistent with the most recent audited
consolidated financial statements of each Borrower and its consolidated
subsidiaries delivered to Administrative Agent and each of the Lenders on or
prior to the Closing Date. If at any time any change in GAAP would affect the
computation of any financial ratio or financial requirement set forth in any
Financing Document, and either Borrowers or the Required Lenders shall so
request, the Administrative Agent, the Lenders and Borrowers shall negotiate in
good faith to amend such ratio or requirement to preserve the original intent
thereof in light of such change in GAAP (subject to the approval of the Required
Lenders); provided, however, that until so amended, (a) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to such
change therein and (b) Borrowers shall provide to the Administrative Agent and
the Lenders financial statements and other documents required under this
Agreement which include a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP. All
amounts used for purposes of financial calculations required to be made herein
shall be without duplication.

Section 1.3 Other Definitional Provisions. References in this Agreement to
“Articles”, “Sections”, “Annexes”, “Exhibits” or “Schedules” shall be to
Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement
unless otherwise specifically provided. Any term defined herein may be used in
the singular or plural. “Include”, “includes” and “including” shall be deemed to
be followed by “without limitation”. Except as otherwise specified or limited
herein, references to any Person include the successors and assigns of such
Person. References “from” or “through” any date mean, unless otherwise
specified, “from and including” or “through and including”, respectively.
References to any statute or act shall include all related current regulations
and all amendments and any successor statutes, acts and regulations. References
to any statute or act, without additional reference, shall be deemed to refer to
federal statutes and acts of the United States. References to any agreement,
instrument or document shall include all schedules, exhibits, annexes and other
attachments thereto. As used in this Agreement, the meaning of the term
“material” or the phrase “in all material respects” is intended to refer to an
act, omission, violation or condition which reflects or could reasonably be
expected to result in a Material Adverse Effect. References to capitalized terms
that are not defined herein, but are defined in the UCC, shall have the meanings
given them in the UCC.

Section 1.4 Funding and Settlement Currency. Unless otherwise specified herein,
the settlement of all payments and fundings hereunder between or among the
parties hereto shall be made in lawful money of the United States and in
immediately available funds.

Section 1.5 Riders. All Riders attached hereto, including, without limitation,
the Regulatory Rider, are hereby incorporated herein by this reference and made
a part hereof.

 

18

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

ARTICLE 2 - LOANS AND LETTERS OF CREDIT

Section 2.1 Revolving Loans.

(a) Revolving Loans and Borrowings. On the terms and subject to the conditions
set forth herein, each Lender severally agrees to make Loans to Borrowers from
time to time as set forth herein (each a “Revolving Loan”, and collectively,
“Revolving Loans”) equal to such Lender’s Revolving Loan Commitment Percentage
of Revolving Loans requested by Borrower hereunder, provided, however, that
after giving effect thereto, the Revolving Loan Outstandings shall not exceed
the Revolving Loan Limit. Borrowers shall deliver to Administrative Agent a
Notice of Borrowing with respect to each proposed Revolving Loan Borrowing, such
Notice of Borrowing to be delivered no later than 10:00 a.m. (Chicago time) on
the Business Day of such proposed borrowing. Each Borrower and each Revolving
Lender hereby authorizes Administrative Agent to make Revolving Loans on behalf
of Revolving Lenders, at any time in its sole discretion, (A) as provided in
Section 2.5(c), with respect to obligations arising under Support Agreements
and/or Lender Letters of Credit, and (B) to pay principal owing in respect of
the Loans and interest, fees, expenses and other charges of any Credit Party
from time to time arising under this Agreement or any other Financing Document.
The Borrowing Base shall be determined by Administrative Agent based on the most
recent Borrowing Base Certificate delivered to Administrative Agent in
accordance with this Agreement and such other information as may be available to
Administrative Agent. Without limiting any other rights and remedies of
Administrative Agent hereunder or under the other Financing Documents, the
Revolving Loans shall be subject to Administrative Agent’s continuing right to
withhold from the Borrowing Base reserves, and to increase and decrease such
reserves from time to time, if and to the extent that in Administrative Agent’s
good faith credit judgment and discretion, such reserves are necessary.

(b) Mandatory Revolving Loan Repayments and Prepayments.

(i) The Revolving Loan Commitment shall terminate on the Termination Date. On
such Termination Date, there shall become due, and Borrowers shall pay, the
entire outstanding principal amount of each Revolving Loan, together with
accrued and unpaid interest thereon to, but excluding, the Termination Date.

(ii) If at any time the Revolving Loan Outstandings exceed the Revolving Loan
Limit, then, on the next succeeding Business Day, Borrowers shall repay the
Revolving Loans or cash collateralize Letter of Credit Liabilities in the manner
specified in Section 2.5(e) or cancel outstanding Letters of Credit, or any
combination of the foregoing, in an aggregate amount equal to such excess.

(iii) Principal payable on account of Revolving Loans shall be payable by
Borrowers to Administrative Agent (A) immediately upon the receipt by any
Borrower or Administrative Agent of any payments on or proceeds from any of the
Accounts, to the extent of such payments or proceeds, as further described in
Section 2.9 below, and (B) in full on the Termination Date.

(c) Optional Prepayments. Borrowers may from time to time prepay the Revolving
Loans in whole or in part; provided, however, that any such partial prepayment
shall be in an amount equal to $100,000 or a higher integral multiple of
$25,000.

Section 2.2 Interest, Interest Calculations and Certain Fees.

(a) Interest. From and following the Closing Date, the Loans and the other
Obligations shall bear interest at the sum of the Base Rate plus the applicable
Base Rate Margin. Interest on the Loans shall be paid in arrears on the first
(1st) day of each month and on the maturity of such Loans, whether by
acceleration or otherwise. For purposes of calculating interest, all funds
transferred from the Payment Account for application to any Revolving Loans
shall be subject to a two (2) Business Day clearance period.

(b) Unused Line Fee. From and following the Closing Date, Borrowers shall pay
Administrative Agent, for the benefit of all Lenders committed to make Revolving
Loans, in accordance with their respective Pro Rata Shares, a fee in an amount
equal to (i) (A) the Revolving Loan Commitment minus (B) the average daily
balance of the sum of the Revolving Loan Outstandings during the preceding
month, multiplied by (ii) 0.504% per annum. Such fee is to be paid monthly in
arrears on the first day of each month.

(c) Collateral Fee. From and following the Closing Date, Borrowers shall pay
Administrative Agent, for its own account and not for the benefit of any other
Lenders, a fee in an amount equal to $2,000. Such fee is to be paid monthly in
arrears on the first day of each month.

 

19

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(d) Commitment Fee. Contemporaneous with Borrowers’ execution of this Agreement,
Borrowers shall pay Administrative Agent, for the benefit of all Lenders
committed to make Revolving Loans on the Closing Date, in accordance with their
respective Pro Rata Shares, a fee in an amount equal to (i) the Revolving Loan
Commitment, multiplied by (ii) one percent (1.0%). All fees payable pursuant to
this paragraph shall be deemed fully earned and non-refundable as of the Closing
Date.

(e) Deferred Revolving Loan Commitment Fee. If Lenders’ funding obligations in
respect of the Revolving Loan Commitment under this Agreement terminate for any
reason (whether by voluntary termination by Borrowers, by reason of the
occurrence of an Event of Default or otherwise) prior to the Commitment Expiry
Date, Borrowers shall pay to Administrative Agent, for the benefit of all
Lenders committed to make Revolving Loans on the Closing Date, a fee as
compensation for the costs of such Lenders being prepared to make funds
available to Borrowers under this Agreement, equal to an amount determined by
multiplying the Revolving Loan Commitment by the following applicable percentage
amount: three percent (3.0%) for the first year following the Closing Date, two
percent (2.0%) for the second year following the Closing Date, and one percent
(1.0%) thereafter. All fees payable pursuant to this paragraph shall be deemed
fully earned and non-refundable as of the Closing Date.

(f) RESERVED

(g) RESERVED

(h) Audit Fees. Borrowers shall pay to Administrative Agent, for its own account
and not for the benefit of any other Lenders, all reasonable fees and expenses
in connection with audits of Borrowers’ books and records, audits, valuations or
appraisals of the Collateral, audits of Borrowers’ compliance with applicable
Laws and such other matters as Administrative Agent shall deem appropriate,
which shall be due and payable on the first Business Day of the month following
the date of issuance by Administrative Agent of a written request for payment
thereof to Borrowers; provided, that so long as no Event of Default or Default
has occurred, Borrowers shall be liable for such fees and expenses for no more
than two (2) such audits in any given calendar year in an amount not to exceed
$40,000 per calendar year.

(i) Wire Fees. Borrowers shall pay to Administrative Agent, for its own account
and not for the account of any other Lenders, on written demand, any and all
fees, costs or expenses which Administrative Agent pays to a bank or other
similar institution (including, without limitation, any fees paid by
Administrative Agent to any other Lender) arising out of or in connection with
(i) the forwarding to Borrowers or any other Person on behalf of Borrowers, by
Administrative Agent, of proceeds of the Loans made by any Lender to Borrowers
pursuant to this Agreement, and (ii) the depositing for collection, by
Administrative Agent, of any check or item of payment received or delivered to
Administrative Agent on account of Obligations.

(j) Late Charges. If payments of principal (other than a final installment of
principal upon the Termination Date), interest due on the Obligations, or any
other amounts due hereunder or under the other Financing Documents are not
timely made and remain overdue for a period of five (5) days, Borrowers, without
notice or demand by Administrative Agent, promptly shall pay to Administrative
Agent, for its own account and not for the benefit of any other Lenders, as
additional compensation to Administrative Agent in administering the
Obligations, an amount equal to five percent (5.0%) of each delinquent payment.

(k) Computation of Interest and Related Fees. All interest and fees under each
Financing Document shall be calculated on the basis of a 360-day year for the
actual number of days elapsed. The date of funding of a Loan shall be included
in the calculation of interest. The date of payment of a Loan shall be excluded
from the calculation of interest. If a Loan is repaid on the same day that it is
made, one (1) day’s interest shall be charged.

(l) Automated Clearing House Payments. If Administrative Agent so elects,
monthly payments of interest shall be paid to Administrative Agent by Automated
Clearing House debit of immediately available funds from the financial
institution account designated by Borrower Representative in the Automated
Clearing House debit authorization executed by Borrowers or Borrower
Representative in connection with this Agreement, and shall be effective upon
receipt. Borrowers shall execute any and all forms and documentation necessary
from time to time to effectuate such automatic debiting. In no event shall any
such payments be refunded to Borrowers.

 

20

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 2.3 Notes. The portion of the Loans made by each Lender shall be
evidenced, if so requested by such Lender, by one or more promissory notes
executed by Borrowers on a joint and several basis (each, a “Note”) in an
original principal amount equal to such Lender’s Pro Rata Share of the Revolving
Loan Commitment.

Section 2.4 RESERVED

Section 2.5 Letters of Credit and Letter of Credit Fees.

(a) Letter of Credit. On the terms and subject to the conditions set forth
herein, the Revolving Loan Commitment may be used by Borrowers, in addition to
the making of Revolving Loans hereunder, for the issuance, prior to the
Termination Date, by (i) Administrative Agent, of letters of credit, Guarantees
or other agreements or arrangements (each, a “Support Agreement”) to induce an
LC Issuer to issue or increase the amount of, or extend the expiry date of, one
or more Letters of Credit and (ii) a Lender, identified by Administrative Agent,
as an LC Issuer, of one or more Lender Letters of Credit, so long as, in each
case:

(i) Administrative Agent shall have received a Notice of LC Credit Event at
least five (5) Business Days before the relevant date of issuance, increase or
extension; and

(ii) after giving effect to such issuance, increase or extension, (A) the
aggregate Letter of Credit Liabilities under all Letters of Credit do not exceed
$3,000,000, and (B) the Revolving Loan Outstandings do not exceed the Revolving
Loan Limit.

Nothing in this Agreement shall be construed to obligate any Lender to issue,
increase the amount of or extend the expiry date of any letter of credit, which
act or acts, if any, shall be subject to agreements to be entered into from time
to time between Borrowers and such Lender. Each Lender that is an LC Issuer
hereby agrees to give Administrative Agent prompt written notice of each
issuance of a Lender Letter of Credit by such Lender and each payment made by
such Lender in respect of Lender Letters of Credit issued by such Lender.

(b) Letter of Credit Fee. Borrowers shall pay to Administrative Agent, for the
benefit of the Revolving Lenders in accordance with their respective Pro Rata
Shares, a letter of credit fee with respect to the Letter of Credit Liabilities
for each Letter of Credit, computed for each day from the date of issuance of
such Letter of Credit to the date that is the last day a drawing is available
under such Letter of Credit, at a rate per annum equal to the Base Rate Margin
then applicable to Revolving Loans. Such fee shall be payable in arrears on the
last day of each calendar month prior to the Termination Date and on such date.
In addition, Borrowers agree to pay promptly to the LC Issuer any fronting or
other fees that it may charge in connection with any Letter of Credit.

(c) Reimbursement Obligations of Borrowers. If either (i) Administrative Agent
shall make a payment to an LC Issuer pursuant to a Support Agreement, or
(ii) any Lender shall honor any draw request under, and make payment in respect
of, a Lender Letter of Credit, (A) the applicable Borrower shall reimburse
Administrative Agent or such Lender, as applicable, for the amount of such
payment by the end of the day on which Administrative Agent or such Lender shall
make such payment and (B) Borrowers shall be deemed to have immediately
requested that Revolving Lenders make a Revolving Loan, in a principal amount
equal to the amount of such payment (but solely to the extent such Borrower
shall have failed to directly reimburse Administrative Agent or, with respect to
Lender Letters of Credit, the applicable LC Issuer, for the amount of such
payment). Administrative Agent shall promptly notify Revolving Lenders of any
such deemed request and each Revolving Lender (other than any such Revolving
Lender that was a Non-Funding Lender at the time the applicable Supported Letter
of Credit or Lender Letter of Credit was issued) hereby agrees to make available
to Administrative Agent not later than noon (Chicago time) on the Business Day
following such notification from Administrative Agent such Revolving Lender’s
Pro Rata Share of such Revolving Loan. Each Revolving Lender (other than any
applicable Non-Funding Lender specified above) hereby absolutely and
unconditionally agrees to fund such Revolving Lender’s Pro Rata Share of the
Loan described in the immediately preceding sentence, unaffected by any
circumstance whatsoever, including, without limitation, (x) the occurrence and
continuance of a Default or Event of Default, (y) the fact that, whether before
or after giving effect to the making of any such Revolving Loan, the Revolving
Loan Outstandings exceed or will exceed the Revolving Loan Limit, and/or (z) the
non-satisfaction of any conditions set forth in Section 7.2. Administrative
Agent hereby agrees to apply the gross proceeds of each Revolving Loan deemed
made pursuant to this Section 2.5(c) in satisfaction of Borrowers’ reimbursement

 

21

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

obligations arising pursuant to this Section 2.5(c). Borrowers shall pay
interest, on demand, on all amounts so paid by Administrative Agent pursuant to
any Support Agreement or to any applicable Lender in honoring a draw request
under any Lender Letter of Credit for each day from the date of such payment
until Borrowers reimburse Administrative Agent or the applicable Lender
therefore (whether pursuant to clause (A) or (B) of the first sentence of this
subsection (c)) at a rate per annum equal to the sum of two percent (2%) plus
the interest rate applicable to Revolving Loans for such day.

(d) Reimbursement and Other Payments by Borrowers. The obligations of each
Borrower to reimburse Administrative Agent and/or the applicable LC Issuer
pursuant to Section 2.5(c) shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement,
under all circumstances whatsoever, including the following:

(i) any lack of validity or enforceability of, or any amendment or waiver of or
any consent to departure from, any Letter of Credit or any related document;

(ii) the existence of any claim, set-off, defense or other right which any
Borrower may have at any time against the beneficiary of any Letter of Credit,
the LC Issuer (including any claim for improper payment), Administrative Agent,
any Lender or any other Person, whether in connection with any Financing
Document or any unrelated transaction, provided, however, that nothing herein
shall prevent the assertion of any such claim by separate suit or compulsory
counterclaim;

(iii) any statement or any other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect whatsoever;

(iv) any affiliation between the LC Issuer and Administrative Agent; or

(v) to the extent permitted under applicable law, any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing.

(e) Deposit Obligations of Borrowers. In the event any Letters of Credit are
outstanding at the time that Borrowers prepay in full or are required to repay
the Obligations or the Revolving Loan Commitment is terminated, Borrowers shall
(i) deposit with Administrative Agent for the benefit of all Revolving Lenders
cash in an amount equal to one hundred and ten percent (110%) of the aggregate
outstanding Letter of Credit Liabilities to be available to Administrative
Agent, for its benefit and the benefit of issuers of Letters of Credit, to
reimburse payments of drafts drawn under such Letters of Credit and pay any fees
and expenses related thereto, and (ii) prepay the fee payable under
Section 2.5(b) with respect to such Letters of Credit for the full remaining
terms of such Letters of Credit assuming that the full amount of such Letters of
Credit as of the date of such repayment or termination remain outstanding until
the end of such remaining terms. Upon termination of any such Letter of Credit
and provided no Event of Default has occurred and is continuing, the unearned
portion of such prepaid fee attributable to such Letter of Credit shall be
refunded to Borrowers, together with the deposit described in the preceding
clause (i) to the extent not previously applied by Administrative Agent in the
manner described herein.

Section 2.6 General Provisions Regarding Payment; Loan Account.

(a) All payments to be made by each Borrower under any Financing Document,
including payments of principal and interest made hereunder and pursuant to any
other Financing Document, and all fees, expenses, indemnities and
reimbursements, shall be made without set-off, recoupment or counterclaim, in
lawful money of the United States and in immediately available funds. 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 (it being understood and agreed that,
solely for purposes of calculating financial covenants and computations
contained herein and determining compliance therewith, if payment is made, in
full, on any such extended due date, such payment shall be deemed to have been
paid on the original due date without giving effect to any extension thereto).
Any payments received in the Payment Account before 3:00 p.m. (Chicago time) on
any date shall be deemed received by Administrative Agent on such date, and any
payments received in the Payment Account after 3:00 p.m. (Chicago time) on any
date shall be deemed received by Administrative Agent on the next succeeding
Business Day.

 

22

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(b) Administrative Agent shall maintain a loan account (the “Loan Account”) on
its books to record Loans and other extensions of credit made by the Lenders
hereunder or under any other Financing Document, and all payments thereon made
by each Borrower. All entries in the Loan Account shall be made in accordance
with Administrative Agent’s customary accounting practices as in effect from
time to time. The balance in the Loan Account, as recorded in Administrative
Agent’s books and records at any time shall be conclusive and binding evidence
of the amounts due and owing to Administrative Agent by each Borrower absent
manifest error; provided, however, that any failure to so record or any error in
so recording shall not limit or otherwise affect any Borrower’s duty to pay all
amounts owing hereunder or under any other Financing Document. Administrative
Agent shall endeavor to provide Borrowers with a monthly statement regarding the
Loan Account (but neither Administrative Agent nor any Lender shall have any
liability if Administrative Agent shall fail to provide any such statement).
Unless any Borrower notifies Administrative Agent of any objection to any such
statement (specifically describing the basis for such objection) within ninety
(90) days after the date of receipt thereof, it shall be deemed final, binding
and conclusive upon Borrowers in all respects as to all matters reflected
therein.

Section 2.7 Maximum Interest. In no event shall the interest charged with
respect to the Loans or any other Obligations of any Borrower under any
Financing Document exceed the maximum amount permitted under the laws of the
State of Illinois or of any other applicable jurisdiction. Notwithstanding
anything to the contrary herein or elsewhere, if at any time the rate of
interest payable hereunder or under any Note or other Financing Document (the
“Stated Rate”) would exceed the highest rate of interest permitted under any
applicable law to be charged (the “Maximum Lawful Rate”), then for so long as
the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the Stated Rate is less than the Maximum Lawful Rate, each Borrower
shall, to the extent permitted by law, continue to pay interest at the Maximum
Lawful Rate until such time as the total interest received is equal to the total
interest which would have been received had the Stated Rate been (but for the
operation of this provision) the interest rate payable. Thereafter, the interest
rate payable shall be the Stated Rate unless and until the Stated Rate again
would exceed the Maximum Lawful Rate, in which event this provision shall again
apply. In no event shall the total interest received by any Lender exceed the
amount which it could lawfully have received had the interest been calculated
for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the
prior sentence, any Lender has received interest hereunder in excess of the
Maximum Lawful Rate, such excess amount shall be applied to the reduction of the
principal balance of the Loans or to other amounts (other than interest) payable
hereunder, and if no such principal or other amounts are then outstanding, such
excess or part thereof remaining shall be paid to Borrowers. In computing
interest payable with reference to the Maximum Lawful Rate applicable to any
Lender, such interest shall be calculated at a daily rate equal to the Maximum
Lawful Rate divided by the number of days in the year in which such calculation
is made.

Section 2.8 Taxes; Capital Adequacy.

(a) All payments of principal and interest on the Loans and all other amounts
payable hereunder shall be made free and clear of and without deduction for any
present or future income, excise, stamp, documentary, payroll, employment,
property or franchise taxes and other taxes, fees, duties, levies, assessments,
withholdings or other charges of any nature whatsoever (including interest and
penalties thereon) imposed by any taxing authority, excluding taxes imposed on
or measured by Administrative Agent’s or any Lender’s net income by the
jurisdictions under which Administrative Agent or such Lender is organized or
conducts business (other than solely as the result of entering into any of the
Financing Documents or taking any action thereunder) (all non-excluded items
being called “Taxes”). If any withholding or deduction from any payment to be
made by any Borrower hereunder is required in respect of any Taxes pursuant to
any applicable Law, then Borrowers will: (i) pay directly to the relevant
authority the full amount required to be so withheld or deducted; (ii) promptly
forward to Administrative Agent an official receipt or other documentation
satisfactory to Administrative Agent evidencing such payment to such authority;
and (iii) pay to Administrative Agent for the account of Administrative Agent
and Lenders such additional amount or amounts as is necessary to ensure that the
net amount actually received by Administrative Agent and each Lender will equal
the full amount Administrative Agent and such Lender would have received had no
such withholding or deduction been required. If any Taxes are directly asserted
against Administrative Agent or any Lender with respect to any payment received
by Administrative Agent or such Lender hereunder,

 

23

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Administrative Agent or such Lender may pay such Taxes and Borrowers will
promptly pay such additional amounts (including any penalty, interest or
expense) as is necessary in order that the net amount received by such Person
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount such Person would have received had such Taxes not been
asserted so long as such amounts have accrued on or after the day which is one
hundred eighty (180) days prior to the date on which Administrative Agent or
such Lender first made written demand therefor.

(b) If any Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to Administrative Agent, for the account of
Administrative Agent and the respective Lenders, the required receipts or other
required documentary evidence, Borrowers shall indemnify Administrative Agent
and Lenders for any incremental Taxes, interest or penalties that may become
payable by Administrative Agent or any Lender as a result of any such failure.

(c) Each Lender that (i) is organized under the laws of a jurisdiction other
than the United States, and (ii)(A) is a party hereto on the Closing Date or
(B) purports to become an assignee of an interest as a Lender under this
Agreement after the Closing Date (unless such Lender was already a Lender
hereunder immediately prior to such assignment) (each such Lender a “Foreign
Lender”) shall execute and deliver to each of Borrowers and Administrative Agent
one or more (as Borrowers or Administrative Agent may reasonably request) United
States Internal Revenue Service Forms W-8ECI, W-8EXP, W-8BEN, W-8IMY (as
applicable) and other applicable forms, certificates or documents prescribed by
the United States Internal Revenue Service or reasonably requested by
Administrative Agent certifying as to such Lender’s entitlement to a complete
exemption from withholding or deduction of Taxes. Borrowers shall not be
required to pay additional amounts to any Lender pursuant to this Section 2.7
with respect to United States withholding and income Taxes to the extent that
the obligation to pay such additional amounts would not have arisen but for the
failure of such Lender to comply with this paragraph other than as a result of a
change in law.

(d) If any Lender shall determine in its commercially reasonable judgment that
the adoption or taking effect of, or any change in, any applicable Law regarding
capital adequacy, in each instance, after the Closing Date, or any change after
the Closing Date in the interpretation, administration or application thereof by
any Governmental Authority, central bank or comparable agency charged with the
interpretation, administration or application thereof, or the compliance by any
Lender or any Person controlling such Lender with any request, guideline or
directive regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority, central bank or comparable agency adopted or
otherwise taking effect after the Closing Date, has or would have the effect of
reducing the rate of return on such Lender’s or such controlling Person’s
capital as a consequence of such Lender’s obligations hereunder or under any
Support Agreement or Lender Letter of Credit to a level below that which such
Lender or such controlling Person could have achieved but for such adoption,
taking effect, change, interpretation, administration, application or compliance
(taking into consideration such Lender’s or such controlling Person’s policies
with respect to capital adequacy) then from time to time, upon written demand by
such Lender (which demand shall be accompanied by a statement setting forth the
basis for such demand and a calculation of the amount thereof in reasonable
detail, a copy of which shall be furnished to Administrative Agent), Borrowers
shall promptly pay to such Lender such additional amount as will compensate such
Lender or such controlling Person for such reduction, so long as such amounts
have accrued on or after the day which is one hundred eighty (180) days prior to
the date on which such Lender first made demand therefor.

(e) If any Lender requires compensation under Section 2.8(d), or requires any
Borrower to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.8(a), then, upon
the written request of Borrower Representative, such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder (subject to the
terms of this Agreement) to another of its offices, branches or affiliates, if,
in the judgment of such Lender, such designation or assignment (i) would
eliminate or materially reduce amounts payable pursuant to any such subsection,
as the case may be, in the future, and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender (as determined in its sole discretion). Borrowers hereby agree to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.

 

24

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 2.9 Appointment of Borrower Representative. Each Borrower hereby
designates Borrower Representative as its representative and agent on its behalf
for the purposes of issuing Notices of Borrowing, Notices of LC Credit Events
and Borrowing Base Certificates, and giving instructions with respect to the
disbursement of the proceeds of the Loans, requesting Letters of Credit, giving
and receiving all other notices and consents hereunder or under any of the other
Financing Documents and taking all other actions (including in respect of
compliance with covenants) on behalf of any Borrower or Borrowers under the
Financing Documents. Borrower Representative hereby accepts such appointment.
Notwithstanding anything to the contrary contained in this Agreement, no
Borrower other than Borrower Representative shall be entitled to take any of the
foregoing actions. The proceeds of each Loan made hereunder shall be advanced to
or at the direction of Borrower Representative and if not used by Borrower
Representative in its business (for the purposes provided in this Agreement)
shall be deemed to be immediately advanced by Borrower Representative to the
appropriate other Borrower hereunder as an intercompany loan (collectively,
“Intercompany Loans”). All Letters of Credit and Support Agreements issued
hereunder shall be issued at Borrower Representative’s request therefor and
shall be allocated to the appropriate Borrower’s Intercompany Loan account by
Borrower Representative. All collections of each Borrower in respect of Accounts
and other proceeds of Collateral of such Borrower received by Administrative
Agent and applied to the Obligations shall also be deemed to be repayments of
the Intercompany Loans owing by such Borrower to Borrower Representative.
Borrowers shall maintain accurate books and records with respect to all
Intercompany Loans and all repayments thereof. Administrative Agent and each
Lender may regard any notice or other communication pursuant to any Financing
Document from Borrower Representative as a notice or communication from all
Borrowers, and may give any notice or communication required or permitted to be
given to any Borrower or all Borrowers hereunder to Borrower Representative on
behalf of such Borrower or all Borrowers. Each Borrower agrees that each notice,
election, representation and warranty, covenant, agreement and undertaking made
on its behalf by Borrower Representative shall be deemed for all purposes to
have been made by such Borrower and shall be binding upon and enforceable
against such Borrower to the same extent as if the same had been made directly
by such Borrower.

Section 2.10 Joint and Several Liability. Borrowers are defined collectively to
include all Persons named as one of the Borrowers herein; provided, however,
that any references herein to “any Borrower”, “each Borrower” or similar
references, shall be construed as a reference to each individual Person named as
one of the Borrowers herein. Each Person so named shall be jointly and severally
liable for all of the obligations of Borrowers under this Agreement. Each
Borrower, individually, expressly understands, agrees and acknowledges, that the
credit facilities would not be made available on the terms herein in the absence
of the collective credit of all of the Persons named as the Borrowers herein,
the joint and several liability of all such Persons, and the
cross-collateralization of the collateral of all such Persons. Accordingly, each
Borrower, individually acknowledges that the benefit to each of the Persons
named as one of the Borrowers as a whole constitutes reasonably equivalent
value, regardless of the amount of the credit facilities actually borrowed by,
advanced to, or the amount of collateral provided by, any individual Borrower.
In addition, each entity named as one of the Borrowers herein hereby
acknowledges and agrees that all of the representations, warranties, covenants,
obligations, conditions, agreements and other terms contained in this Agreement
shall be applicable to and shall be binding upon and measured and enforceable
individually against each Person named as one of the Borrowers herein as well as
all such Persons when taken together. By way of illustration, but without
limiting the generality of the foregoing, the terms of Section 10.1 of this
Agreement are to be applied to each individual Person named as one of the
Borrowers herein (as well as to all such Persons taken as a whole), such that
the occurrence of any of the events described in Section 10.1 of this Agreement
as to any Person named as one of the Borrowers herein shall constitute an Event
of Default even if such event has not occurred as to any other Persons named as
the Borrowers or as to all such Persons taken as a whole.

Section 2.11 Collections and Lockbox Account.

(a) Borrowers shall maintain a lockbox (the “Lockbox”) with a United States
depository institution designated from time to time by Administrative Agent (the
“Lockbox Bank”), subject to the provisions of this Agreement, and shall execute
with the Lockbox Bank a Deposit Account Control Agreement and such other
agreements related to such Lockbox as Administrative Agent may require. Subject
to Section 2.11(e) below, Borrowers shall ensure that all collections of
Accounts are paid directly from Account Debtors into the Lockbox for deposit
into the Lockbox Account, (ii) directly into the Lockbox Account,.
Notwithstanding the foregoing, Borrowers agree to use commercially reasonable
efforts to cause collections of all Accounts to be paid directly by Account
Debtors into the Lockbox or the Lockbox Account, as the case may be, within 90
days from the Closing Date

 

25

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(b) All funds deposited into a Lockbox Account shall be transferred into the
Payment Account by the close of each Business Day.

(c) Notwithstanding anything in any lockbox agreement or Deposit Account Control
Agreement to the contrary, Borrowers agree that they shall be liable for any
fees and charges in effect from time to time and charged by the Lockbox Bank in
connection with the Lockbox and the Lockbox Account, and that Administrative
Agent shall have no liability therefor. Borrowers hereby indemnify and agree to
hold Administrative Agent harmless from any and all liabilities, claims, losses
and demands whatsoever, including reasonable attorneys’ fees and expenses,
arising from or relating to actions of Administrative Agent or the Lockbox Bank
pursuant to this Section or any lockbox agreement or Deposit Account Control
Agreement or similar agreement, except to the extent of such losses arising
solely from Administrative Agent’s gross negligence or willful misconduct.

(d) Administrative Agent shall apply, on a daily basis, all funds transferred
into the Payment Account pursuant to this Section to reduce the outstanding
Revolving Loans in such order of application as Administrative Agent shall
elect. If as the result of collections of Accounts pursuant to the terms and
conditions of this Section a credit balance exists with respect to the Payment
Account, such credit balance shall not accrue interest in favor of Borrowers,
but Administrative Agent shall transfer such funds into an account designated by
Borrower Representative for so long as no Event of Default exists.

(e) To the extent that any collections of Accounts or proceeds of other
Collateral are not sent directly to the Lockbox but are received by any
Borrower, such collections shall be held in trust for the benefit of
Administrative Agent pursuant to an express trust created hereby and immediately
remitted, in the form received, to applicable Lockbox or Lockbox Account. No
such funds received by any Borrower shall be commingled with other funds of the
Borrowers.

(f) Borrowers acknowledge and agree that compliance with the terms of this
Section is essential, and that Administrative Agent and Lenders will suffer
immediate and irreparable injury and have no adequate remedy at law, if any
Borrower, through acts or omissions, causes or permits Account Debtors to send
payments other than to the Lockbox, or if any Borrower fails to promptly deposit
collections of Accounts or proceeds of other Collateral in the Lockbox Account
as herein required. Accordingly, in addition to all other rights and remedies of
Administrative Agent and Lenders hereunder, Administrative Agent shall have the
right to seek specific performance of the Borrowers’ obligations under this
Section, and any other equitable relief as Administrative Agent may deem
necessary or appropriate, and Borrowers waive any requirement for the posting of
a bond in connection with such equitable relief.

(g) Borrowers shall not, and Borrowers shall not suffer or permit any Credit
Party to, (i) withdraw any amounts from any Lockbox Account, (ii) change the
procedures or sweep instructions under the agreements governing any Lockbox
Accounts, or (iii) send to or deposit in any Lockbox Account any funds other
than payments made with respect to and proceeds of Accounts or other Collateral.
Borrowers shall, and shall cause each Credit Party to, cooperate with
Administrative Agent in the identification and reconciliation on a daily basis
of all amounts received in or required to be deposited into the Lockbox
Accounts. If more than five percent (5%) of the collections of Accounts received
by Borrowers during any given fifteen (15) day period is not identified or
reconciled to the reasonable satisfaction of Administrative Agent within ten
(10) Business Days of receipt, Administrative Agent shall not be obligated to
make further advances under this Agreement until such amount is identified or is
reconciled to the reasonable satisfaction of Administrative Agent, as the case
may be. In addition, if any such amount cannot be identified or reconciled to
the reasonable satisfaction of Administrative Agent, Administrative Agent may
utilize its own staff or, if it deems necessary, engage an outside auditor, in
either case at Borrowers’ expense (which in the case of Administrative Agent’s
own staff shall be in accordance with Administrative Agent’s then prevailing
customary charges (plus expenses)), to make such examination and report as may
be necessary to identify and reconcile such amount.

(h) If any Borrower breaches its obligation to direct payments of the proceeds
of the Collateral to the Lockbox Account, Administrative Agent, as the
irrevocably made, constituted and appointed true and lawful attorney for
Borrowers, may, by the signature or other act of any of Administrative Agent’s
officers (without requiring any of them to do so), direct any Account Debtor to
pay proceeds of the Collateral to Borrowers by directing payment to the Lockbox
Account.

 

26

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

ARTICLE 3 - REPRESENTATIONS AND WARRANTIES

To induce Administrative Agent and Lenders to enter into this Agreement and to
make the Loans and other credit accommodations contemplated hereby, each
Borrower hereby represents and warrants to Administrative Agent and each Lender
that:

Section 3.1 Existence and Power. Each Credit Party is an entity as specified on
Schedule 3.1, is duly organized, validly existing and in good standing under the
laws of the jurisdiction specified on Schedule 3.1 and no other jurisdiction,
has the same legal name as it appears in such Credit Party’s Organizational
Documents and an organizational identification number (if any), in each case as
specified on Schedule 3.1, and has all powers and all Permits necessary or
desirable in the operation of its business as presently conducted or as proposed
to be conducted, except where the failure to have such Permits could not
reasonably be expected to have a Material Adverse Effect. Each Credit Party is
qualified to do business as a foreign entity in each jurisdiction in which it is
required to be so qualified, which jurisdictions as of the Closing Date are
specified on Schedule 3.1, except where the failure to be so qualified could not
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 3.1, no Credit Party (a) has had, over the five (5) year period
preceding the Closing Date, any name other than its current name, or (b) was
incorporated or organized under the laws of any jurisdiction other than its
current jurisdiction of incorporation or organization.

Section 3.2 Organization and Governmental Authorization; No Contravention. The
execution, delivery and performance by each Credit Party of the Financing
Documents to which it is a party are within its powers, have been duly
authorized by all necessary action pursuant to its Organizational Documents,
require no further action by or in respect of, or filing with, any Governmental
Authority and do not violate, conflict with or cause a breach or a default under
(a) any Law applicable to any Credit Party or any of the Organizational
Documents of any Credit Party, or (b) any agreement or instrument binding upon
it, except for such violations, conflicts, breaches or defaults as could not,
with respect to this clause (b), reasonably be expected to have a Material
Adverse Effect.

Section 3.3 Binding Effect. Each of the Financing Documents to which any Credit
Party is a party constitutes a valid and binding agreement or instrument of such
Credit Party, enforceable against such Credit Party in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws relating to the enforcement of
creditors’ rights generally and by general equitable principles.

Section 3.4 Capitalization. The authorized equity securities of each of the
Credit Parties as of the Closing Date is as set forth on Schedule 3.4. All
issued and outstanding equity securities of each of the Credit Parties are duly
authorized and validly issued, fully paid, nonassessable, free and clear of all
Liens other than those in favor of Administrative Agent for the benefit of
Administrative Agent and Lenders, and such equity securities were issued in
compliance with all applicable Laws. Except with respect to Alphatec Holdings,
Inc., the identity of the holders of the equity securities of each of the Credit
Parties and the percentage of their fully-diluted ownership of the equity
securities of each of the Credit Parties as of the Closing Date is set forth on
Schedule 3.4. The identity of the holders of at least five percent (5.0%) of the
equity securities of Alphatec Holdings, Inc. and the percentage of their
fully-diluted ownership of the equity securities of Alphatec Holdings, Inc. as
of September 26, 2007 is set forth on Schedule 3.4. No shares of the capital
stock or other equity securities of any Credit Party, other than those described
above, are issued and outstanding as of such applicable dates. Except as set
forth on Schedule 3.4, as of the Closing Date there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Credit Party of any
equity securities of any such entity.

 

27

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 3.5 Financial Information. All information delivered to Administrative
Agent and pertaining to the financial condition of any Credit Party fairly
presents the financial position of such Credit Party as of such date in
conformity with GAAP (and as to unaudited financial statements, subject to
normal year-end adjustments and the absence of footnote disclosures). All
information delivered to Administrative Agent and pertaining to the financial,
physical or other condition or aspect of the Borrowers is true, accurate and
correct in all material respects as of such date and as of the date hereof.
Since June 30, 2007, there has been no material adverse change in the business,
operations, properties, prospects or condition (financial or otherwise) of any
Credit Party.

Section 3.6 Litigation. Except as set forth on Schedule 3.6 as of the Closing
Date, and except as hereafter disclosed to Administrative Agent in writing,
there is no Litigation pending against, or to such Borrower’s knowledge
threatened against or affecting, any Credit Party. There is no Litigation
pending in which an adverse decision could reasonably be expected to have a
Material Adverse Effect or which in any manner draws into question the validity
of any of the Financing Documents.

Section 3.7 Ownership of Property. Each Borrower and each of its Subsidiaries is
the lawful owner of, has good and marketable title to and is in lawful
possession of, or has valid leasehold interests in, all properties and other
assets (real or personal, tangible, intangible or mixed) purported or reported
to be owned or leased (as the case may be) by such Person, subject to Permitted
Liens.

Section 3.8 No Default. No Event of Default, or to such Borrower’s knowledge,
Default, has occurred and is continuing. No Credit Party is in breach or default
under or with respect to any contract, agreement, lease or other instrument to
which it is a party or by which its property is bound or affected, which breach
or default could reasonably be expected to have a Material Adverse Effect.

Section 3.9 Labor Matters. As of the Closing Date, there are no strikes or other
labor disputes pending or, to any Borrower’s knowledge, threatened against any
Credit Party. Hours worked and payments made to the employees of the Credit
Parties have not been in violation of the Fair Labor Standards Act or any other
applicable Law dealing with such matters. All payments due from the Credit
Parties, or for which any claim may be made against any of them, on account of
wages and employee and retiree health and welfare insurance and other benefits
have been paid or accrued as a liability on their books, as the case may be. The
consummation of the transactions contemplated by the Financing Documents will
not give rise to a right of termination or right of renegotiation on the part of
any union under any collective bargaining agreement to which it is a party or by
which it is bound.

Section 3.10 Regulated Entities. No Credit Party is an “investment company” or a
company “controlled” by an “investment company” or a “subsidiary” of an
“investment company,” all within the meaning of the Investment Company Act of
1940.

Section 3.11 Margin Regulations. None of the proceeds from the Loans have been
or will be used, directly or indirectly, for the purpose of purchasing or
carrying any “margin stock” (as defined in Regulation U of the Federal Reserve
Board), for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any “margin stock” or for any other
purpose which might cause any of the Loans to be considered a “purpose credit”
within the meaning of Regulation T, U or X of the Federal Reserve Board.

Section 3.12 Compliance With Laws; Anti-Terrorism Laws.

(a) Each Credit Party is in compliance with the requirements of all applicable
Laws, except for such Laws the noncompliance with which could not reasonably be
expected to have a Material Adverse Effect.

(b) None of the Credit Parties, their Affiliates or any of their respective
agents acting or benefiting in any capacity in connection with the transactions
contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law,
(ii) engages in or conspires to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person.
No Credit Party nor, to the knowledge of any Credit Party, any of its Affiliates
or agents acting or benefiting in any capacity in connection with the
transactions contemplated by this Agreement, (x) conducts any

 

28

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

business or engages in making or receiving any contribution of funds, goods or
services to or for the benefit of any Blocked Person, or (y) deals in, or
otherwise engages in any transaction relating to, any property or interest in
property blocked pursuant to Executive Order No. 13224, any similar executive
order or other Anti-Terrorism Law.

Section 3.13 Taxes. All federal, state and local tax returns, reports and
statements required to be filed by or on behalf of each Credit Party have been
filed with the appropriate Governmental Authorities in all jurisdictions in
which such returns, reports and statements are required to be filed and, except
to the extent subject to a Permitted Contest, all Taxes (including real property
Taxes) and other charges shown to be due and payable in respect thereof have
been timely paid prior to the date on which any fine, penalty, interest, late
charge or loss may be added thereto for nonpayment thereof. Except to the extent
subject to a Permitted Contest, all state and local sales and use Taxes required
to be paid by each Credit Party have been paid. All federal and state returns
have been filed by each Credit Party for all periods for which returns were due
with respect to employee income tax withholding, social security and
unemployment taxes, and, except to the extent subject to a Permitted Contest,
the amounts shown thereon to be due and payable have been paid in full or
adequate provisions therefor have been made.

Section 3.14 Compliance with ERISA. Each Borrower and each other member of the
Controlled Group is in compliance with ERISA and the Code with respect to each
ERISA Plan, including the minimum funding standards of ERISA. Each ERISA Plan
which is intended to be qualified under Section 401(a) of the Code is so
qualified and the IRS has issued a favorable determination letter which may be
currently relied on with respect to each such ERISA Plan. Other than as listed
on Schedule 3.14, no Borrower nor any other member of the Controlled Group
maintains or contributes, or has in the last five years maintained or
contributed to, any ERISA Plan or Multiemployer Plan. Neither any Borrower nor
any other member of the Controlled Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Code in respect of any ERISA Plan,
(ii) failed to make any contribution or payment to any ERISA Plan or
Multiemployer Plan, or made any amendment to any ERISA Plan that has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security under ERISA or the Code or (iii) incurred any liability under Title IV
of ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA.

Section 3.15 Consummation of Financing Documents; Brokers. Except for fees
payable to Administrative Agent and/or Lenders, no broker, finder or other
intermediary has brought about the obtaining, making or closing of the
transactions contemplated by the Financing Documents, and no Credit Party has or
will have any obligation to any Person in respect of any finder’s or brokerage
fees, commissions or other expenses in connection herewith or therewith. Except
for fees payable to Administrative Agent and/or Lenders, no broker, finder or
other intermediary has brought about the obtaining, making or closing of the
transactions contemplated by the Financing Documents, and no Credit Party has or
will have any obligation to any Person in respect of any finder’s or brokerage
fee in connection herewith or therewith.

Section 3.16 RESERVED

Section 3.17 Material Contracts. Except for the Financing Documents and the
other agreements set forth on Schedule 3.17 (collectively with the Financing
Documents, the “Material Contracts”), as of the Closing Date there are no
(a) employment agreements covering the management of any Credit Party,
(b) [reserved], (c) agreements for managerial, consulting or similar services to
which any Credit Party is a party or by which it is bound, (d) agreements
regarding any Credit Party, its assets or operations or any investment therein
to which any of its equityholders is a party or by which it is bound, (e) real
estate leases, Intellectual Property licenses or other lease or license
agreements to which any Credit Party is a party, either as lessor or lessee, or
as licensor or licensee (other than licenses arising from the purchase of “off
the shelf” products), or (f) customer, marketing or supply agreements to which
any Credit Party is a party, in each case with respect to the preceding
clauses (a), (c), (d), (e) and (f) requiring payment of more than $1,000,000 in
any year, (g) distribution agreements with Borrower’s twenty (20) highest
ranking distributors with respect to sales generated in any year,
(h) [reserved], or (i) any other agreements or instruments to which any Credit
Party is a party, and the breach, nonperformance or cancellation of which, or
the failure of which to renew, could reasonably be expected to have a Material
Adverse Effect. Schedule 3.17 sets forth, with respect to each real estate lease
agreement to which any Borrower is a party (as a lessee) as of the Closing Date,
the address of the subject property and the annual rental (or, where applicable,
a general description of the method of computing the annual rental). The
consummation of the transactions contemplated by the Financing Documents will

 

29

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

not give rise to a right of termination in favor of any party to any Material
Contract (other than any Credit Party), except for such Material Contracts the
noncompliance with which would not reasonably be expected to have a Material
Adverse Effect.

Section 3.18 Compliance with Environmental Requirements; No Hazardous Materials.

Except in each case as set forth on Schedule 3.18:

(a) no notice, notification, demand, request for information, citation, summons,
complaint or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending, or to such Borrower’s
knowledge, threatened by any Governmental Authority or other Person with respect
to any (i) alleged violation by any Credit Party of any Environmental Law,
(ii) alleged failure by any Credit Party to have any Permits required in
connection with the conduct of its business or to comply with the terms and
conditions thereof, (iii) any generation, treatment, storage, recycling,
transportation or disposal of any Hazardous Materials, or (iv) release of
Hazardous Materials; and

(b) no property now owned or leased by any Credit Party and, to the knowledge of
each Borrower, no such property previously owned or leased by any Credit Party,
to which any Credit Party has, directly or indirectly, transported or arranged
for the transportation of any Hazardous Materials, is listed or, to such
Borrower’s knowledge, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA, or CERCLIS (as defined in CERCLA) or any similar
state list or is the subject of federal, state or local enforcement actions or,
to the knowledge of such Borrower, other investigations which may lead to claims
against any Credit Party for clean-up costs, remedial work, damage to natural
resources or personal injury claims, including, without limitation, claims under
CERCLA.

For purposes of this Section 3.18, each Credit Party shall be deemed to include
any business or business entity (including a corporation) that is, in whole or
in part, a predecessor of such Credit Party.

Section 3.19 Intellectual Property. Each Credit Party owns, is licensed to use
or otherwise has the right to use, all Intellectual Property that is material to
the condition (financial or other), business or operations of such Credit Party.
All such Intellectual Property existing as of the Closing Date which is issued,
registered or pending with any United States or foreign Governmental Authority
is listed on Schedule 3.19. Such Schedule 3.19 indicates in each case whether
such registered Intellectual Property (or application therefore) is owned or
licensed by such Credit Party, and in the case of any such licensed registered
Intellectual Property (or application therefore) and lists the name and address
of the licensor and the name and date of the agreement pursuant to which such
item of Intellectual Property is licensed. Except as indicated on Schedule 3.19,
no Credit Party has granted licenses of any Intellectual Property in favor of
third parties. All registered Intellectual Property of each Credit Party is duly
and properly registered, filed or issued in the appropriate office and
jurisdictions for such registrations, filings or issuances, except where the
failure to do so would not reasonably be expected to have a Material Adverse
Effect. Borrowers are not a party to, nor are bound by, any material license or
other agreement with respect to which any Borrower is the licensee that
prohibits or otherwise restricts such Borrower from granting a security interest
in such Borrower’s interest in such license or agreement or other property.
Other than as described on Schedule 3.6, to such Borrower’s knowledge, each
Credit Party conducts its business without infringement or claim of infringement
of any Intellectual Property rights of others and there is no infringement or
claim of infringement by others of any Intellectual Property rights of any
Credit Party, which infringement or claim of infringement could reasonably be
expected to have a Material Adverse Effect.

Section 3.20 Solvency. Each Borrower and each additional Credit Party is
Solvent.

Section 3.21 Full Disclosure. None of the written information (financial or
otherwise) furnished by or on behalf of any Credit Party to Administrative Agent
or any Lender in connection with the consummation of the transactions
contemplated by the Financing Documents, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading in light of the circumstances under
which such statements were made. All financial projections delivered to
Administrative Agent and the Lenders by Borrowers (or their agents) have been
prepared on the basis of the assumptions stated therein. Such projections
represent each Borrower’s best estimate of such Borrower’s future financial
performance and such

 

30

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

assumptions are believed by such Borrower to be fair and reasonable in light of
current business conditions; provided, however, that Borrowers can give no
assurance that such projections will be attained.

Section 3.22 RESERVED.

Section 3.23 Subsidiaries. Borrowers do not own any stock, partnership
interests, limited liability company interests or other equity securities except
for Permitted Investments.

ARTICLE 4 - AFFIRMATIVE COVENANTS

Each Borrower agrees that, so long as any Credit Exposure exists:

Section 4.1 Financial Statements and Other Reports. Each Borrower will deliver
to Administrative Agent: (1) as soon as available, but no later than thirty
(30) days after the last day of each month, a company prepared consolidated
balance sheet, cash flow and income statement covering Borrower’s consolidated
operations during the period, prepared under GAAP, consistently applied,
certified by a Responsible Officer and in a form acceptable to Administrative
Agent; (2) as soon as available, but no later than one hundred fifty (150) days
after the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Administrative Agent in its reasonable
discretion; (3) within five (5) days of delivery or filing thereof, copies of
all statements, reports and notices made available to Borrower’s security
holders and copies of all reports and other filings made by Borrower with any
stock exchange on which any securities of any Borrower are traded and/or the
SEC; (4) a prompt report of any legal actions pending or threatened against
Borrower or any of its Subsidiaries that could result in damages or costs to
Borrower or any of its Subsidiaries of Fifty Thousand Dollars ($50,000) or more;
(5) prompt written notice of an event that materially and adversely affects the
value of any Intellectual Property; and (6) budgets, sales projections,
operating plans and other financial information and information, reports or
statements regarding the Borrowers, their business and the Collateral as
Administrative Agent may from time to time reasonably request. Each Borrower
will, within thirty (30) days after the last day of each month, deliver to
Administrative Agent with the monthly financial statements, a duly completed
Compliance Certificate signed by a Responsible Officer setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement. Promptly upon their becoming available, Borrowers shall deliver to
Administrative Agent copies of all Swap Contracts. Each Borrower will, within
ten (10) days after the last day of each month and at such other times as
requested by Administrative Agent in its reasonable credit judgment, deliver to
Administrative Agent a duly completed Borrowing Base Certificate signed by a
Responsible Officer, with aged listings of accounts receivable and accounts
payable (by invoice date).

Section 4.2 Payment and Performance of Obligations. Each Borrower (a) will pay
and discharge, and cause each Subsidiary to pay and discharge, at or prior to
maturity, all of their respective obligations and liabilities, including tax
liabilities, except for such obligations and/or liabilities (i) that may be the
subject of a Permitted Contest, and (ii) the nonpayment or nondischarge of which
could not reasonably be expected to have a Material Adverse Effect, (b) will
maintain, and cause each Subsidiary to maintain, in accordance with GAAP,
appropriate reserves for the accrual of all of their respective obligations and
liabilities, and (c) will not breach or permit any Subsidiary to breach, or
permit to exist any default under, the terms of any lease, commitment, contract,
instrument or obligation to which it is a party, or by which its properties or
assets are bound, except for such breaches or defaults which could not
reasonably be expected to have a Material Adverse Effect.

Section 4.3 Maintenance of Existence. Each Borrower will preserve, renew and
keep in full force and effect, and will cause each Subsidiary to preserve, renew
and keep in full force and effect, their respective existence and their
respective rights, privileges and franchises necessary or desirable in the
normal conduct of business.

Section 4.4 Maintenance of Property; Insurance.

(a) Each Borrower will keep, and will cause each Subsidiary to keep, all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted. If all or any part of

 

31

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

the Collateral useful or necessary in its business, or upon which any Borrowing
Base is calculated, becomes damaged or destroyed, each Borrower will promptly
and completely repair and/or restore the affected Collateral in a good and
workmanlike manner, regardless of whether Administrative Agent agrees to
disburse insurance proceeds or other sums to pay costs of the work of repair or
reconstruction.

(b) Upon completion of any Permitted Contest, Borrowers shall, and will cause
each Subsidiary to, promptly pay the amount due, if any, and deliver to
Administrative Agent proof of the completion of the contest and payment of the
amount due, if any, following which Administrative Agent shall return the
security, if any, deposited with Administrative Agent pursuant to the definition
of Permitted Contest.

(c) Each Borrower will maintain, and will cause each Subsidiary to maintain,
(i) all insurance described on Schedule 4.4, upon the terms and with the
coverages and rights in favor of Administrative Agent and Lenders as described
in Schedule 4.4, and (ii) such other insurance coverage in such amounts and with
respect to such risks as Administrative Agent may reasonably from time to time
request provided, however, that, in no event shall such insurance be in amounts
or with coverage less than, or with carriers with qualifications inferior to,
any of the insurance or carriers in existence as of the Closing Date (or
required to be in existence after the Closing Date under a Financing Document),
as evidenced by the insurance certificates attached hereto as Schedule 4.4. All
such insurance shall be provided by insurers having an A.M. Best policyholders
rating reasonably acceptable to Administrative Agent.

(d) On or prior to the Closing Date, and at all times thereafter, each Borrower
will cause Administrative Agent to be named as an additional insured, assignee
and loss payee (which shall include, as applicable, identification as
mortgagee), as applicable, on each insurance policy required to be maintained
pursuant to this Section 4.4 pursuant to endorsements in form and content
acceptable to Administrative Agent. Borrowers will deliver to Administrative
Agent and the Lenders (i) on the Closing Date, a certificate from Borrowers’
insurance broker dated such date showing the amount of coverage as of such date,
and that such policies will include effective waivers (whether under the terms
of any such policy or otherwise) by the insurer of all claims for insurance
premiums against all loss payees and additional insureds and all rights of
subrogation against all loss payees and additional insureds, and that if all or
any part of such policy is canceled, terminated or expires, the insurer will
forthwith give notice thereof to each additional insured, assignee and loss
payee and that no cancellation, reduction in amount or material change in
coverage thereof shall be effective until at least thirty (30) days after
receipt by each additional insured, assignee and loss payee of written notice
thereof, (ii) upon the request of any Lender through Administrative Agent from
time to time full information as to the insurance carried, (iii) within five
(5) days of receipt of notice from any insurer, a copy of any notice of
cancellation, nonrenewal or material change in coverage from that existing on
the date of this Agreement, and (iv) forthwith, notice of any cancellation or
nonrenewal of coverage by any Borrower.

(e) In the event any Borrower fails to provide Administrative Agent with
evidence of the insurance coverage required by this Agreement, Administrative
Agent may purchase insurance at Borrowers’ expense to protect Administrative
Agent’s interests in the Collateral.

Section 4.5 Compliance with Laws. Each Borrower will comply, and cause each
Subsidiary to comply, with the requirements of all applicable Laws, except to
the extent that failure to so comply could not reasonably be expected to
(a) have a Material Adverse Effect, or (b) result in any Lien upon either (i) a
material portion of the assets of any such Person in favor of any Governmental
Authority, or (ii) any Accounts or Inventory.

Section 4.6 Inspection of Property, Books and Records. Each Borrower will keep,
and will cause each Subsidiary to keep, proper books of record substantially in
accordance with GAAP in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities; and
will permit, and will cause each Subsidiary to permit, at the sole cost of the
applicable Borrower or any applicable Subsidiary, representatives of
Administrative Agent and of any Lender (but at such Lender’s expense unless such
visit or inspection is made concurrently with Administrative Agent) to visit and
inspect any of their respective properties, to examine and make abstracts or
copies from any of their respective books and records, to conduct a collateral
audit and analysis of their respective operations and the Collateral, to verify
the amount and age of the Accounts, the identity and credit of the respective
Account Debtors, to review the billing practices of Borrower and to discuss
their respective affairs, finances and accounts with their respective officers,
employees and independent public

 

32

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

accountants as often as may reasonably be desired. In the absence of an Event of
Default, Administrative Agent or any Lender exercising any rights pursuant to
this Section 4.6 shall give the applicable Borrower or any applicable Subsidiary
commercially reasonable prior notice of such exercise. No notice shall be
required during the existence and continuance of any Event of Default. Borrowers
shall maintain backup electronic records of all books and records evidencing or
related to Collateral at their business location at 6110 Corte Del Cedro,
Carlsbad, California 92011.

Section 4.7 Use of Proceeds. Borrowers shall use the proceeds of Revolving Loans
solely for (a) transaction fees incurred in connection with the Financing
Documents and the refinancing on the Closing Date of Debt, and (b) for working
capital needs of Borrowers and their Subsidiaries. No portion of the proceeds of
the Loans will be used for family, personal, agricultural or household use.

Section 4.8 RESERVED

Section 4.9 Notices of Litigation and Defaults.

(a) Borrowers will give prompt written notice to Administrative Agent of any
litigation or governmental proceedings pending or threatened (in writing)
against Borrowers or other Credit Party which would reasonably be expected to
have a Material Adverse Effect with respect to Borrowers or any other Credit
Party.

(b) Without limiting or contradicting any other more specific provision of this
Agreement, promptly (and in any event within three (3) Business Days) upon any
Borrower becoming aware of the existence of any Default or Event of Default,
Borrowers shall give written notice to Administrative Agent of such occurrence,
which such notice shall include a reasonably detailed description of such
Default or Event of Default.

Section 4.10 Hazardous Materials; Remediation.

(a) If any release or disposal of Hazardous Materials shall occur or shall have
occurred on any real property or any other assets of any Borrower or any other
Credit Party, such Borrower will cause, or direct the applicable Credit Party to
cause, the prompt containment and removal of such Hazardous Materials and the
remediation of such real property or other assets as is necessary to comply with
all Environmental Laws and to preserve the value of such real property or other
assets. Without limiting the generality of the foregoing, each Borrower shall,
and shall cause each other Credit Party to, comply with each Environmental Law
requiring the performance at any real property by any Borrower or any other
Credit Party of activities in response to the release or threatened release of a
Hazardous Material.

(b) Borrowers will provide Administrative Agent within thirty (30) days after
written demand therefor with a bond, letter of credit or similar financial
assurance evidencing to the reasonable satisfaction of Administrative Agent that
sufficient funds are available to pay the cost of removing, treating and
disposing of any Hazardous Materials or Hazardous Materials Contamination and
discharging any assessment which may be established on any property as a result
thereof, such demand to be made, if at all, upon Administrative Agent’s
reasonable business determination that the failure to remove, treat or dispose
of any Hazardous Materials or Hazardous Materials Contamination, or the failure
to discharge any such assessment could reasonably be expected to have a Material
Adverse Effect.

Section 4.11 Further Assurances.

(a) Each Borrower will, and will cause each Subsidiary to, at its own cost and
expense, cause to be promptly and duly taken, executed, acknowledged and
delivered all such further acts, documents and assurances as may from time to
time be necessary or as Administrative Agent or the Required Lenders may from
time to time reasonably request in order to carry out the intent and purposes of
the Financing Documents and the transactions contemplated thereby, including all
such actions to (i) establish, create, preserve, protect and perfect a first
priority Lien (subject only to Permitted Liens) in favor of Administrative Agent
for the benefit of the Lenders on the Collateral (including Collateral acquired
after the date hereof), and (ii) unless Administrative Agent shall agree
otherwise in writing, cause all Subsidiaries of Borrowers to be jointly and
severally obligated with the other

 

33

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Borrowers under all covenants and obligations under this Agreement, including
the obligation to repay the Obligations. Without limiting the generality of the
foregoing, (x) Borrowers shall, at the time of the delivery of any Compliance
Certificate disclosing the acquisition by an Credit Party of any registered
Intellectual Property or application for the registration of Intellectual
Property, deliver to Administrative Agent a duly completed and executed
Supplement to the applicable Credit Party’s Patent Security Agreement or
Trademark Security Agreement in the form of the respective Exhibit thereto and
(y) at the request of Administrative Agent, following the disclosure by
Borrowers on any Compliance Certificate of the acquisition by any Credit Party
of any rights under a license as a licensee with respect to any registered
Intellectual Property or application for the registration of any Intellectual
Property owned by another Person, Borrowers shall execute any documents
requested by Administrative Agent to establish, create, preserve, protect and
perfect a first priority lien in favor of Administrative Agent, to the extent
legally possible, in such Borrower’s rights under such license and shall use
their commercially reasonable best efforts to obtain the written consent of the
licensor which such license to the granting in favor of Administrative Agent of
a Lien on such Borrower’s rights as licensee under such license.

(b) Upon receipt of an affidavit of an officer of Administrative Agent or a
Lender as to the loss, theft, destruction or mutilation of any Note or any other
Financing Document which is not of public record, and, in the case of any such
mutilation, upon surrender and cancellation of such Note or other applicable
Financing Document, Borrowers will issue, in lieu thereof, a replacement Note or
other applicable Financing Document, dated the date of such lost, stolen,
destroyed or mutilated Note or other Financing Document in the same principal
amount thereof and otherwise of like tenor.

(c) Upon the formation or acquisition of a new Subsidiary, Borrowers shall
(i) pledge, have pledged or cause or have caused to be pledged to the
Administrative Agent pursuant to a pledge agreement in form and substance
satisfactory to the Administrative Agent, all of the outstanding shares of
equity interests or other equity interests of such new Subsidiary owned directly
or indirectly by any Borrower, along with undated stock or equivalent powers for
such certificates, executed in blank; (ii) unless Administrative Agent shall
agree otherwise in writing, cause the new Subsidiary to take such other actions
(including entering into or joining any Security Documents) as are necessary or
advisable in the reasonable opinion of the Administrative Agent in order to
grant the Administrative Agent, acting on behalf of the Lenders, a first
priority Lien on all real and personal property of such Subsidiary in existence
as of such date and in all after acquired property, which first priority Liens
are required to be granted pursuant to this Agreement; (iii) unless
Administrative Agent shall agree otherwise in writing, cause such new Subsidiary
to either (at the election of Administrative Agent) become a Borrower hereunder
with joint and several liability for all obligations of Borrowers hereunder and
under the other Financing Documents pursuant to a joinder agreement or other
similar agreement in form and substance satisfactory to Administrative Agent or
to become a Guarantor of the obligations of Borrowers hereunder and under the
other Financing Documents pursuant to a guaranty and suretyship agreement in
form and substance satisfactory to Administrative Agent; and (iv) cause the new
Subsidiary to deliver certified copies of such Subsidiary’s certificate or
articles of incorporation, together with good standing certificates, by-laws (or
other operating agreement or governing documents), resolutions of the Board of
Directors or other governing body, approving and authorize the execution and
delivery of the Security Documents, incumbency certificates and to execute
and/or deliver such other documents and legal opinions or to take such other
actions as may be requested by the Administrative Agent, in each case, in form
and substance satisfactory to the Administrative Agent.

(d) Upon the request of Administrative Agent, Borrowers shall obtain a
landlord’s agreement or mortgagee agreement, as applicable, from the lessor of
each leased property or mortgagee of owned property with respect to any business
location where any portion of the Collateral included in or proposed to be
included in the Borrowing Base, or the records relating to such Collateral
and/or software and equipment relating to such records or Collateral, is stored
or located (including any new location where Borrowers maintain their chief
executive office or headquarters), which agreement or letter shall be reasonably
satisfactory in form and substance to Administrative Agent. Borrowers shall
timely and fully pay and perform its obligations under all leases and other
agreements with respect to each leased location where any Collateral, or any
records related thereto, is or may be located.

Section 4.12 RESERVED

Section 4.13 Power of Attorney. Each of the officers of Administrative Agent is
hereby irrevocably made, constituted and appointed the true and lawful attorney
for Borrowers (without requiring any of them to act as

 

34

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

such) with full power of substitution to do the following: (a) after the
occurrence and during the continuance of an Event of Default endorse the name of
Borrowers upon any and all checks, drafts, money orders, and other instruments
for the payment of money that are payable to Borrowers and constitute
collections on Borrowers’ Accounts; (b) so long as Administrative Agent has
provided not less than three (3) Business Days’ prior written notice to Borrower
to perform the same and Borrower has failed to take such action, execute in the
name of Borrowers any schedules, assignments, instruments, documents, and
statements that Borrowers are obligated to give Administrative Agent under this
Agreement; (c) after the occurrence and during the continuance of an Event of
Default, take any action Borrowers are required to take under this Agreement;
(d) so long as Administrative Agent has provided not less than three
(3) Business Days’ prior written notice to Borrower to perform the same and
Borrower has failed to take such action, do such other and further acts and
deeds in the name of Borrowers that Administrative Agent may deem necessary or
desirable to enforce any Account or other Collateral or perfect Administrative
Agent’s security interest or Lien in any Collateral; and (e) after the
occurrence and during the continuance of an Event of Default, do such other and
further acts and deeds in the name of Borrowers that Administrative Agent may
deem necessary or desirable to enforce its rights with regard to any Account or
other Collateral. This power of attorney shall be irrevocable and coupled with
an interest.

Section 4.14 Borrowing Base Collateral Administration.

(a) All data and other information relating to Accounts or other intangible
Collateral shall at all times be kept by Borrowers at their respective principal
offices and shall not be moved from such locations without (i) providing prior
written notice to Administrative Agent, and (ii) obtaining the prior written
consent of Administrative Agent, which consent shall not be unreasonably
withheld.

(b) Borrowers shall provide prompt written notice to each Person who either is
currently an Account Debtor or becomes an Account Debtor at any time following
the date of this Agreement that directs each Account Debtor to make payments
into the Lockbox, and hereby authorizes Administrative Agent, upon Borrowers’
failure to send such notices within ten (10) days after the date of this
Agreement (or ten (10) days after the Person becomes an Account Debtor), to send
any and all similar notices to such Person. Administrative Agent reserves the
right to notify Account Debtors that Administrative Agent has been granted a
Lien upon all Accounts.

(c) Borrowers will conduct a physical count of the Inventory at least once per
year and at such other times as Administrative Agent requests, and Borrowers
shall provide to Administrative Agent a written accounting of such physical
count in form and substance satisfactory to Administrative Agent. Each Borrower
will maintain at all times a perpetual inventory system. Each Borrower will keep
adequate records at all times as to the quantity, source, quality and
characteristics of its Inventory and will use commercially reasonable efforts to
at all times keep its Inventory in good and marketable condition. In addition to
the foregoing, from time to time, Administrative Agent may require Borrowers to
obtain and deliver to Administrative Agent appraisal reports in form and
substance and from appraisers reasonably satisfactory to Administrative Agent
stating the then current fair market values of all or any portion of Inventory
owned by each Borrower or any Subsidiaries.

(d) Borrowers will use commercially reasonable efforts to at all times keep its
FF&E in good repair and physical condition, ordinary wear and tear excepted.

(e) In addition to the foregoing, from time to time, Administrative Agent may
require Borrowers to obtain and deliver to Administrative Agent appraisal
reports in form and substance and from appraisers reasonably satisfactory to
Administrative Agent stating the then current fair market values of all or any
portion of Inventory, Intellectual Property and FF&E owned by each Borrower or
any Subsidiaries; provided, that so long as no Event of Default or Default has
occurred, Borrowers shall be liable for such fees and expenses for no more than
one (1) such appraisal for each of Inventory, Intellectual Property and FF&E in
any given calendar year.

 

35

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

ARTICLE 5 - NEGATIVE COVENANTS

Each Borrower agrees that, so long as any Credit Exposure exists:

Section 5.1 Debt; Contingent Obligations. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, create, incur, assume, guarantee or
otherwise become or remain directly or indirectly liable with respect to, any
Debt, except for Permitted Indebtedness. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, create, assume, incur or suffer to exist
any Contingent Obligations, except for Permitted Contingent Obligations.

Section 5.2 Liens. No Borrower will, or will permit any Subsidiary to, directly
or indirectly, create, assume or suffer to exist any Lien on any asset now owned
or hereafter acquired by it, except for Permitted Liens. Without limiting the
generality of the foregoing, no Borrower will, or will permit any Subsidiary to,
directly or indirectly, create, assume or suffer to exist any Lien on any of its
or their Intellectual Property, except for Permitted Liens.

Section 5.3 Restricted Distributions. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Distribution; provided, however, that the following
Restricted Distributions may be paid: (a) at any time, dividends may be paid by
any Subsidiary of any Borrower to such parent Borrower (and/or to any
intermediate Subsidiary who is also a Borrower); (b) any Borrower may pay
dividends solely in common stock; and (c) Borrower may repurchase the stock of
former employees, directors or consultants pursuant to stock repurchase
agreements so long as an Event of Default does not exist at the time of such
repurchase and would not exist after giving effect to such repurchase, provided
that such repurchase does not exceed $500,000 in the aggregate per fiscal year

Section 5.4 Restrictive Agreements. No Borrower will, or will permit any
Subsidiary to, directly or indirectly (a) enter into or assume any agreement
(other than the Financing Documents and any agreements for purchase money debt
permitted under clause (c) of the definition of Permitted Indebtedness)
prohibiting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired, or (b) create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind (except as provided by the Financing Documents) on the
ability of any Subsidiary to: (i) pay or make Restricted Distributions to any
Borrower or any Subsidiary; (ii) pay any Debt owed to any Borrower or any
Subsidiary; (iii) make loans or advances to any Borrower or any Subsidiary; or
(iv) transfer any of its property or assets to any Borrower or any Subsidiary.

Section 5.5 RESERVED

Section 5.6 Consolidations, Mergers and Sales of Assets; Change in Control. No
Borrower will, or will permit any Subsidiary to, directly or indirectly
(a) consolidate or merge or amalgamate with or into any other Person, other than
Permitted Mergers, or (b) consummate any asset dispositions other than
(i) dispositions of Inventory in the Ordinary Course of Business and not
pursuant to any bulk sale, and (ii) dispositions of personal property assets
(other than Accounts) for cash and fair value that the applicable Borrower
determines in good faith is no longer used or useful in the business of such
Borrower and its Subsidiaries. No Borrower will suffer or permit to occur any
Change in Ownership with respect to itself, any Subsidiary or any Guarantor
other than Permitted Transfers with respect to such Persons. No Borrower will
suffer or permit to occur any Change in Control with respect to its
shareholders.

Section 5.7 Purchase of Assets, Investments. No Borrower will, or will permit
any Subsidiary to, directly or indirectly (a) acquire or enter into any
agreement to acquire any assets other than in the Ordinary Course of Business or
as permitted under clause (h) of the definition of Permitted Investments;
(b) engage or enter into any agreement to engage in any joint venture or
partnership with any other Person; or (c) acquire or own or enter into any
agreement to acquire or own any Investment in any Person other than Permitted
Investments.

Section 5.8 Transactions with Affiliates. Except as otherwise disclosed on
Schedule 5.8, and except for transactions that are disclosed to Administrative
Agent in advance of being entered into and which contain terms that are no less
favorable to the applicable Borrower or any Subsidiary, as the case may be, than
those which might be obtained from a third party not an Affiliate of any Credit
Party, no Borrower will, or will permit any Subsidiary to, directly or
indirectly, enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of any Borrower.

Section 5.9 Modification of Organizational Documents. No Borrower will, or will
permit any Subsidiary to, directly or indirectly, amend or otherwise modify any
Organizational Documents of such Person, except for Permitted Modifications.

 

36

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 5.10 Modification of Certain Agreements. No Borrower will, or will
permit any Subsidiary to, directly or indirectly, amend or otherwise modify any
Material Contract, which amendment or modification in any case: (a) is contrary
to the terms of this Agreement or any other Financing Document; (b) could
reasonably be expected to be adverse to the rights, interests or privileges of
the Administrative Agent or the Lenders or their ability to enforce the same;
(c) results in the imposition or expansion in any material respect of any
obligation of or restriction or burden on any Borrower or any Subsidiary; or
(d) reduces in any material respect any rights or benefits of any Borrower or
any Subsidiaries (it being understood and agreed that any such determination
shall be in the discretion of the Administrative Agent). Each Borrower shall,
prior to entering into any amendment or other modification of any of the
foregoing documents, deliver to Administrative Agent reasonably in advance of
the execution thereof, any final or execution form copy of amendments or other
modifications to such documents, and such Borrower agrees not to take, nor
permit any of its Subsidiaries to take, any such action with respect to any such
documents without obtaining such approval from Administrative Agent.

Section 5.11 Conduct of Business. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, engage in any line of business other than
those businesses engaged in on the Closing Date and described on Schedule 5.11
and businesses reasonably related thereto.

Section 5.12 Lease Payments. No Borrower will, or will permit any Subsidiary to,
directly or indirectly, incur or assume (whether pursuant to a Guarantee or
otherwise) any liability for rental payments except in the Ordinary Course of
Business.

Section 5.13 Limitation on Sale and Leaseback Transactions. No Borrower will, or
will permit any Subsidiary to, directly or indirectly, enter into any
arrangement with any Person whereby, in a substantially contemporaneous
transaction, any Borrower or any Subsidiaries sells or transfers all or
substantially all of its right, title and interest in an asset and, in
connection therewith, acquires or leases back the right to use such asset.

Section 5.14 Deposit Accounts and Securities Accounts. Schedule 5.14 lists all
of the Deposit Accounts and Securities Accounts of each Borrower as of the
Closing Date. No Borrower will, or will permit any Subsidiary organized within
the United States to, directly or indirectly, establish any new bank account,
Deposit Account or Securities Account without prior written notice to
Administrative Agent and unless Administrative Agent, such Borrower or such
Subsidiary and the bank, financial institution or securities intermediary at
which the account is to be opened enter into a control agreement regarding such
account pursuant to which such bank, financial institution or securities
intermediary acknowledges the security interest of Administrative Agent in such
account, agrees to comply with instructions originated by Administrative Agent
directing disposition of the funds or investment property or securities in the
account without further consent from any Borrower, and agrees to subordinate and
limit any security interest the bank, financial institution or securities
intermediary may have in the account on terms satisfactory to Administrative
Agent. Borrowers will not maintain balances in excess of $5,000 in the aggregate
in Deposit Accounts that are not subject to such control agreements in favor of
Administrative Agent.

Section 5.15 Compliance with Anti-Terrorism Laws. Administrative Agent hereby
notifies Borrowers that pursuant to the requirements of Anti-Terrorism Laws, and
Administrative Agent’s policies and practices, Administrative Agent is required
to obtain, verify and record certain information and documentation that
identifies Borrowers and its principals, which information includes the name and
address of each Borrower and its principals and such other information that will
allow Administrative Agent to identify such party in accordance with
Anti-Terrorism Laws. No Borrower will, or will permit any Subsidiary to,
directly or indirectly, knowingly enter into any Material Contracts with any
Blocked Person or any Person listed on the OFAC Lists. Each Borrower shall
immediately notify Administrative Agent if such Borrower has knowledge that any
Borrower or any additional Credit Party becomes a Blocked Person or becomes
listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to,
(c) is indicted on, or (d) is arraigned and held over on charges involving money
laundering or predicate crimes to money laundering. No Borrower will, or will
permit any Subsidiary to, directly or indirectly, (i) conduct any business or
engage in any transaction or dealing with any Blocked Person, including, without
limitation, the making or receiving of any contribution of funds, goods or
services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise
engage in any transaction relating to, any property or interests in property

 

37

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

blocked pursuant to Executive Order No. 13224, any similar executive order or
other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in Executive Order
No. 13224 or other Anti-Terrorism Law.

ARTICLE 6 - FINANCIAL COVENANTS

Borrowers agree that, so long as any Credit Exposure exists:

Section 6.1 Fixed Charge Coverage Ratio. Borrowers will not permit the Fixed
Charge Coverage Ratio for any period set forth below to be less than the ratio
set forth below for such period:

 

Period

   Ratio

Any given calendar quarter, measured on the last day of such calendar quarter on
a trailing 12-month basis (which shall be the Defined Period for purposes of
Section 6.1)

   1.2 to 1.0

Notwithstanding the forgoing, the failure of Borrowers to comply with
Section 6.1 for any Defined Period shall not constitute an Event of Default so
long as Borrowers maintained Minimum Liquidity of not less than $2,000,000 at
all times during the calendar quarter ending on the last day of such Defined
Period.

Section 6.2 Evidence of Compliance. Borrowers shall furnish to Administrative
Agent, together with the financial reporting required of Borrower in Section 4.1
hereof, evidence (in form and content satisfactory to Lender) of Borrowers’
compliance with the covenants in this Article and evidence that no Event of
Default specified in this Article has occurred. Such evidence shall include,
without limitation, (a) a statement and report, on a form approved by
Administrative Agent, detailing Borrowers’ calculations, and (b) if requested by
Administrative Agent, back-up documentation (including, without limitation,
invoices, receipts and other evidence of costs incurred during such quarter as
Administrative Agent shall reasonably require) evidencing the propriety of the
calculations.

ARTICLE 7 - CONDITIONS

Section 7.1 Conditions to Closing. The obligation of each Lender to make the
initial Loans, of Administrative Agent to issue any Support Agreements on the
Closing Date and of any LC Issuer to issue any Lender Letter of Credit on the
Closing Date shall be subject to the receipt by Administrative Agent of each
agreement, document and instrument set forth on the closing checklist prepared
by Administrative Agent or its counsel, each in form and substance satisfactory
to Administrative Agent, and such other closing deliverables reasonably
requested by Administrative Agent and Lenders, and to the satisfaction of the
following conditions precedent, each to the satisfaction of Administrative Agent
and Lenders and their respective counsel in their sole discretion:

(a) the payment of all fees, expenses and other amounts due and payable under
each Financing Document;

(b) the absence, since June 30, 2007, of any material adverse change in any
aspect of the business, operations, properties, prospects or condition
(financial or otherwise) of any Credit Party or any seller of any assets or
business to be purchased by any Borrower contemporaneous with the Closing Date,
or any event or condition which could reasonably be expected to result in such a
material adverse change; and

(c) the receipt of the initial Borrowing Base Certificate, prepared as of the
Closing Date.

 

38

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 7.2 Conditions to Each Loan, Support Agreement and Lender Letter of
Credit.

The obligation of the Lenders to make a Loan (other than Revolving Loans made
pursuant to Section 2.5(c)) or an advance in respect of any Loan, of
Administrative Agent to issue any Support Agreement or of any LC Issuer to issue
any Lender Letter of Credit, (including on the Closing Date) is subject to the
satisfaction of the following additional conditions:

(a) in the case of a Revolving Loan Borrowing, receipt by Administrative Agent
of a Notice of Borrowing (or telephonic notice if permitted by this Agreement)
and updated Borrowing Base Certificate, in the case of any Support Agreement or
Lender Letter of Credit, receipt by Administrative Agent of a Notice of LC
Credit Event in accordance with Section 2.5(a);

(b) the fact that, immediately after such borrowing and after application of the
proceeds thereof or after such issuance, the Revolving Loan Outstandings will
not exceed the Revolving Loan Limit;

(c) the fact that, immediately before and after such advance or issuance, no
Default or Event of Default shall have occurred and be continuing;

(d) the fact that the representations and warranties of each Credit Party
contained in the Financing Documents shall be true, correct and complete on and
as of the date of such borrowing or issuance, except to the extent that any such
representation or warranty relates to a specific date in which case such
representation or warranty shall be true and correct as of such earlier date;
and

(e) the fact that no adverse change in the condition (financial or otherwise),
properties, business, prospects, or operations of Borrowers or any other Credit
Party shall have occurred and be continuing with respect to Borrowers or any
Credit Party since the date of this Agreement.

Each giving of a Notice of LC Credit Event hereunder, each giving of a Notice of
Borrowing hereunder and each acceptance by any Borrower of the proceeds of any
Loan made hereunder shall be deemed to be (y) a representation and warranty by
each Borrower on the date of such notice or acceptance as to the facts specified
in this Section, and (z) a restatement by each Borrower that each and every one
of the representations made by it in any of the Financing Documents is true and
correct in all material respects (except to the extent that such representations
and warranties expressly relate solely to an earlier date).

Section 7.3 Searches. Before the Closing Date, and thereafter (as and when
determined by Administrative Agent in its discretion), Administrative Agent
shall have the right to perform, all at Borrowers’ expense, the searches
described in clauses (a), (b), (c) and (d) below against Borrowers and any other
Credit Party, the results of which are to be consistent with Borrowers’
representations and warranties under this Agreement and the satisfactory results
of which shall be a condition precedent to all advances of Loan proceeds, all
issuances of Lender Letters of Credit and all undertakings in respect of Support
Agreements: (a) UCC searches with the Secretary of State of the jurisdiction in
which the applicable Person is organized; (b) judgment, pending litigation,
federal tax lien, personal property tax lien, and corporate and partnership tax
lien searches, in each jurisdiction searched under clause (a) above; and
(c) searches of applicable corporate, limited liability company, partnership and
related records to confirm the continued existence, organization and good
standing of the applicable Person and the exact legal name under which such
Person is organized.

Section 7.4 Post Closing Requirements. Borrowers shall complete each of the post
closing obligations and/or provide to Administrative Agent each of the
documents, instruments, agreements and information listed on Schedule 7.4
attached hereto on or before the date set forth for each such item thereon, each
of which shall be completed or provided in form and substance satisfactory to
Administrative Agent.

ARTICLE 8 - RESERVED

ARTICLE 9 - SECURITY AGREEMENT

Section 9.1 Generally. As security for the payment and performance of the
Obligations, and without limiting any other grant of a Lien and security
interest in any Security Document, Borrowers hereby assign and grant to
Administrative Agent, for the benefit of itself and Lenders, a continuing first
priority Lien on and security interest in, upon, and to the personal property
set forth on Schedule 9.1 attached hereto and made a part hereof.

 

39

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 9.2 Representations and Warranties and Covenants Relating to Collateral.

(a) Each Borrower has good title to, has rights in, and the power to transfer
each item of Collateral upon which it purports to grant a Lien hereunder, free
and clear of any and all Liens except Permitted Liens. Except as set forth on
Schedule 9.2, each Borrower is the sole owner of the registered Intellectual
Property it purports to own. To the knowledge of Borrowers after due inquiry,
each patent is valid and enforceable and no part of the Intellectual Property of
Borrowers has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the registered Intellectual Property of
Borrowers violates the rights of any third party. Schedule 9.2 sets forth
(i) each chief executive office and principal place of business of each Borrower
and each of their respective Subsidiaries and (ii) all of the addresses
(including all warehouses) at which any of the Collateral is located and/or
books and records of Borrowers regarding any of the Collateral are kept, which
such Schedule 9.2 indicates in each case which Borrower(s) have Collateral
and/or books and records located at such address, and, in the case of any such
address not owned by one or more of the Borrowers(s), indicates the nature of
such location (e.g., leased business location operated by Borrower(s), third
party warehouse, consignment location, processor location, etc.) and the name
and address of the third party owning and/or operating such location.

(b) Without limiting the generality of Section 3.2, except as indicated on
Schedule 3.19 with respect to any rights of any Borrower as a licensee under any
license of Intellectual Property owned by another Person, and except for the
filing of financing statements under the UCC, no authorization, approval or
other action by, and no notice to or filing with, any Governmental Authority or
consent of any other Person is required for (i) the grant by each Borrower to
Administrative Agent of the security interests and Liens in the Collateral
provided for under this Agreement and the other Security Documents (if any), or
(ii) the exercise by Administrative Agent of its rights and remedies with
respect to the Collateral provided for under this Agreement and the other
Security Documents or under any applicable Law, including the UCC and neither
any such grant of Liens in favor of Administrative Agent or exercise of rights
by Administrative Agent shall violate or cause a default under any agreement
between any Borrower and any other Person relating to any such collateral,
including any license to which a Borrower is a party, whether as licensor or
licensee, with respect to any Intellectual Property, whether owned by such
Borrower or any other Person.

(c) As of the Closing Date, no Borrower has any ownership interest in any
Chattel Paper, letter of credit rights, commercial tort claims, Instruments,
documents or investment property (other than equity interests in any
Subsidiaries of such Borrower disclosed on Schedule 4.4) or Intellectual
Property (other than Intellectual Property disclosed on Schedule 3.19), and
Borrowers shall give notice to Administrative Agent promptly (but in any event
not later than the delivery by Borrowers of the next Compliance Certificate
required pursuant to Section 4.1 above) upon the acquisition by any Borrower of
any such Chattel Paper, letter of credit rights, commercial tort claims,
Instruments, documents, investment property or Intellectual Property. No Person
other than Administrative Agent or (if applicable) any Lender has “control” (as
defined in Article 9 of the UCC) over any Deposit Account, investment property
(including Securities Accounts and commodities account), letter of credit rights
or electronic chattel paper in which any Borrower has any interest (except for
such control arising by operation of law in favor of any bank or securities
intermediary or commodities intermediary with whom any Deposit Account,
Securities Account or commodities account of Borrowers is maintained).

(d) Borrowers shall not, and shall not permit any Credit Party to, take any of
the following actions or make any of the following changes unless Borrowers have
given at least thirty (30) days prior written notice to Administrative Agent of
Borrowers’ intention to take any such action (which such written notice shall
include an updated version of any Schedule impacted by such change) and have
executed any and all documents, instruments and agreements and taken any other
actions which Administrative Agent may request after receiving such written
notice in order to protect and preserve the Liens, rights and remedies of
Administrative Agent with respect to the Collateral: (i) change the legal name
or organizational identification number of any Borrower as it appears in
official filings in the jurisdiction of its organization, (ii) change the
jurisdiction of incorporation or formation of any Borrower or Credit Party or
allow any Borrower or Credit Party to designate any jurisdiction as an
additional jurisdiction of incorporation for such Borrower or Credit Party, or
change the type of entity that it is, or (iii) change its chief executive
office, principal place of business, or the location of its records concerning
the Collateral or move

 

40

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

any Collateral to or place any Collateral on any location that is not then
listed on the Schedules and/or establish any business location at any location
that is not then listed on the Schedules.

(e) Borrowers shall not adjust, settle or compromise the amount or payment of
any Account, or release wholly or partly any Account Debtor, or allow any credit
or discount thereon (other than adjustments, settlements, compromises, credits
and discounts in the Ordinary Course of Business, made while no Default exists
and in amounts which are not material with respect to the Account and which,
after giving effect thereto, do not cause the Borrowing Base to be less than the
Revolving Loan Outstandings) without the prior written consent of Administrative
Agent. Without limiting the generality of this Agreement or any other provisions
of any of the Financing Documents relating to the rights of Administrative Agent
after the occurrence and during the continuance of an Event of Default,
Administrative Agent shall have the right at any time after the occurrence and
during the continuance of an Event of Default to: (i) exercise the rights of
Borrowers with respect to the obligation of any Account Debtor to make payment
or otherwise render performance to Borrowers and with respect to any property
that secures the obligations of any Account Debtor or any other Person obligated
on the Collateral, and (ii) adjust, settle or compromise the amount or payment
of such Accounts.

(f) Without limiting the generality of Sections 9.2(c) and 9.2(e):

(i) Borrowers shall deliver to Administrative Agent all tangible Chattel Paper
and all Instruments and documents owned by any Borrower and constituting part of
the Collateral duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Administrative
Agent. Borrowers shall provide Administrative Agent with “control” (as defined
in Article 9 of the UCC) of all electronic Chattel Paper owned by any Borrower
and constituting part of the Collateral by having Administrative Agent
identified as the assignee on the records pertaining to the single authoritative
copy thereof and otherwise complying with the applicable elements of control set
forth in the UCC. Borrowers also shall deliver to Administrative Agent all
security agreements securing any such Chattel Paper and securing any such
Instruments. Borrowers will mark conspicuously all such Chattel Paper and all
such Instruments and documents with a legend, in form and substance satisfactory
to Administrative Agent, indicating that such Chattel Paper and such instruments
and documents are subject to the security interests and Liens in favor of
Administrative Agent created pursuant to this Agreement and the Security
Documents. Borrowers shall comply with all the provisions of Section 5.14 with
respect to the Deposit Accounts and Securities Accounts of Borrowers.

(ii) Borrowers shall deliver to Administrative Agent all letters of credit on
which any Borrower is the beneficiary and which give rise to letter of credit
rights owned by such Borrower which constitute part of the Collateral in each
case duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to Administrative Agent.
Borrowers shall take any and all actions as may be necessary or desirable, or
that Administrative Agent may request, from time to time, to cause
Administrative Agent to obtain exclusive “control” (as defined in Article 9 of
the UCC) of any such letter of credit rights in a manner acceptable to
Administrative Agent.

(iii) Borrowers shall promptly advise Administrative Agent upon any Borrower
becoming aware that it has any interests in any commercial tort claim that
constitutes part of the Collateral, which such notice shall include descriptions
of the events and circumstances giving rise to such commercial tort claim and
the dates such events and circumstances occurred, the potential defendants with
respect such commercial tort claim and any court proceedings that have been
instituted with respect to such commercial tort claims, and Borrowers shall,
with respect to any such commercial tort claim, execute and deliver to
Administrative Agent such documents as Administrative Agent shall request to
perfect, preserve or protect the Liens, rights and remedies of Administrative
Agent with respect to any such commercial tort claim.

(iv) Except for Accounts and Inventory in an aggregate amount of $25,000, no
Accounts or Inventory or other Collateral shall at any time be in the possession
or control of any warehouse, consignee, bailee or any of Borrowers’ agents or
processors without prior written notice to Administrative Agent and the receipt
by Administrative Agent, if Administrative Agent has so requested, of warehouse
receipts, consignment agreements or bailee lien waivers (as applicable)
satisfactory to Administrative Agent prior to the commencement of such
possession or control. Borrower has notified Administrative Agent that Inventory
is currently located at the locations set forth on Schedule 9.2. Borrowers
shall, upon the request of Administrative Agent, notify any such

 

41

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

warehouse, consignee, bailee, agent or processor of the security interests and
Liens in favor of Administrative Agent created pursuant to this Agreement and
the Security Documents, instruct such Person to hold all such Collateral for
Administrative Agent’s account subject to Administrative Agent’s instructions
and shall obtain an acknowledgement from such Person that such Person holds the
Collateral for Administrative Agent’s benefit.

(v) Borrowers shall cause all equipment and other tangible Personal Property
other than Inventory to be maintained and preserved in the same condition,
repair and in working order as when new, ordinary wear and tear excepted, and
shall promptly make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable to such
end. Upon request of Administrative Agent, Borrowers shall promptly deliver to
Administrative Agent any and all certificates of title, applications for title
or similar evidence of ownership of all such tangible Personal Property and
shall cause Administrative Agent to be named as lienholder on any such
certificate of title or other evidence of ownership. Borrowers shall not permit
any such tangible Personal Property to become fixtures to real estate unless
such real estate is subject to a Lien in favor of Administrative Agent.

(vi) Each Borrower hereby authorizes Administrative Agent to file without the
signature of such Borrower one or more UCC financing statements relating to
liens on personal property relating to all or any part of the Collateral, which
financing statements may list Administrative Agent as the “secured party” and
such Borrower as the “debtor” and which describe and indicate the collateral
covered thereby as all or any part of the Collateral under the Financing
Documents (including an indication of the collateral covered by any such
financing statement as “all assets” of such Borrower now owned or hereafter
acquired), in such jurisdictions as Administrative Agent from time to time
determines are appropriate, and to file without the signature of such Borrower
any continuations of or corrective amendments to any such financing statements,
in any such case in order for Administrative Agent to perfect, preserve or
protect the Liens, rights and remedies of Administrative Agent with respect to
the Collateral.

(vii) As of the Closing Date, no Borrower holds, and after the Closing Date
Borrowers shall promptly notify Administrative Agent in writing upon creation or
acquisition by any Borrower of, any Collateral which constitutes a claim against
any Governmental Authority, including, without limitation, the federal
government of the United States or any instrumentality or agency thereof, the
assignment of which claim is restricted by any applicable Law, including,
without limitation, the federal Assignment of Claims Act and any other
comparable Law. Upon the request of Administrative Agent, Borrowers shall take
such steps as may be necessary or desirable, or that Administrative Agent may
request, to comply with any such applicable Law.

(viii) Borrowers shall furnish to Administrative Agent from time to time any
statements and schedules further identifying or describing the Collateral and
any other information, reports or evidence concerning the Collateral as
Administrative Agent may reasonably request from time to time.

Section 9.3 UCC Remedies.

(a) Upon the occurrence of and during the continuance of an Event of Default
under this Agreement or the other Financing Documents, Administrative Agent, in
addition to all other rights, options, and remedies granted to Administrative
Agent under this Agreement or at law or in equity, may exercise, either directly
or through one or more assignees or designees, all rights and remedies granted
to it under all Financing Documents and under the UCC in effect in the
applicable jurisdiction(s) and under any other applicable law; including,
without limitation:

(i) The right to take possession of, send notices regarding, and collect
directly the Collateral, with or without judicial process;

(ii) The right to (by its own means or with judicial assistance) enter any of
Borrowers’ premises and take possession of the Collateral, or render it
unusable, or to render it usable or saleable, or dispose of the Collateral on
such premises in compliance with subsection (iii) below and to take possession
of Borrowers’ original books and records, to obtain access to Borrowers’ data
processing equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein in any
manner Administrative Agent deems appropriate, without any liability for rent,
storage, utilities, or other sums, and Borrowers shall not resist or interfere
with such action (if Borrowers’ books and records are prepared or maintained

 

42

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

by an accounting service, contractor or other third party agent, Borrowers
hereby irrevocably authorize such service, contractor or other agent, upon
notice by Administrative Agent to such Person that an Event of Default has
occurred and is continuing, to deliver to Administrative Agent or its designees
such books and records, and to follow Administrative Agent’s instructions with
respect to further services to be rendered);

(iii) The right to require Borrowers at Borrowers’ expense to assemble all or
any part of the Collateral and make it available to Administrative Agent at any
place designated by Lender;

(iv) The right to notify postal authorities to change the address for delivery
of Borrowers’ mail to an address designated by Administrative Agent and to
receive, open and dispose of all mail addressed to any Borrower.

(v) The right to enforce Borrowers’ rights against Account Debtors and other
obligors, including, without limitation, (i) the right to collect Accounts
directly in Administrative Agent’s own name (as agent for Lenders) and to charge
the collection costs and expenses, including attorneys’ fees, to Borrowers, and
(ii) the right, in the name of Administrative Agent or any designee of
Administrative Agent or Borrowers, to verify the validity, amount or any other
matter relating to any Accounts by mail, telephone, telegraph or otherwise,
including, without limitation, verification of Borrowers’ compliance with
applicable Laws. Borrowers shall cooperate fully with Administrative Agent in an
effort to facilitate and promptly conclude such verification process. Such
verification may include contacts between Administrative Agent and applicable
federal, state and local regulatory authorities having jurisdiction over the
Borrowers’ affairs, all of which contacts Borrowers hereby irrevocably
authorize.

(b) Each Borrower agrees that a notice received by it at least ten (10) days
before the time of any intended public sale, or the time after which any private
sale or other disposition of the Collateral is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. If permitted by applicable
law, any perishable Collateral which threatens to speedily decline in value or
which is sold on a recognized market may be sold immediately by Administrative
Agent without prior notice to Borrowers. At any sale or disposition of
Collateral, Administrative Agent may (to the extent permitted by applicable law)
purchase all or any part of the Collateral, free from any right of redemption by
Borrowers, which right is hereby waived and released. Each Borrower covenants
and agrees not to interfere with or impose any obstacle to Administrative
Agent’s exercise of its rights and remedies with respect to the Collateral.
Administrative Agent shall have no obligation to clean-up or otherwise prepare
the Collateral for sale. Administrative Agent may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral. Administrative Agent
may sell the Collateral without giving any warranties as to the Collateral.
Administrative Agent may specifically disclaim any warranties of title or the
like. This procedure will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral. If Administrative Agent sells any
of the Collateral upon credit, Borrowers will be credited only with payments
actually made by the purchaser, received by Administrative Agent and applied to
the indebtedness of the purchaser. In the event the purchaser fails to pay for
the Collateral, Administrative Agent may resell the Collateral and Borrowers
shall be credited with the proceeds of the sale. Borrowers shall remain liable
for any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all Obligations.

(c) Without restricting the generality of the foregoing and for the purposes
aforesaid, each Borrower hereby appoints and constitutes Administrative Agent
its lawful attorney-in-fact with full power of substitution in the Collateral,
upon the occurrence and during the continuance of an Event of Default, to use
unadvanced funds remaining under this Agreement or which may be reserved,
escrowed or set aside for any purposes hereunder at any time, or to advance
funds in excess of the face amount of the Notes, to pay, settle or compromise
all existing bills and claims, which may be Liens or security interests, or to
avoid such bills and claims becoming Liens against the Collateral; to execute
all applications and certificates in the name of such Borrower and to prosecute
and defend all actions or proceedings in connection with the Collateral; and to
do any and every act which such Borrower might do in its own behalf; it being
understood and agreed that this power of attorney shall be a power coupled with
an interest and cannot be revoked.

(d) Solely in connection with the exercise of its rights and remedies hereunder,
Administrative Agent and each Lender is hereby granted a non-exclusive,
royalty-free license or other right to use, without charge,

 

43

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Borrowers’ labels, mask works, rights of use of any name, any other Intellectual
Property and advertising matter, and any similar property as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and, in connection with Administrative Agent’s exercise of its rights
under this Article, Borrowers’ rights under all licenses (whether as licensor or
licensee) and all franchise agreements inure to Administrative Agent’s and each
Lender’s benefit. Each Borrower irrevocably agrees that Administrative Agent may
sell any of such Borrower’s Inventory directly to any person, including without
limitation persons who have previously purchased the Borrower’s Inventory from
the Borrowers; and in connection with any such sale or other enforcement of
Administrative Agent’s rights under this Agreement or any other Financing
Document, may sell Inventory which bears any Trademark owned by or licensed to
Borrowers and any Inventory that is covered by any copyright owned by or
licensed to the Borrowers and Administrative Agent may finish any work in
process and affix any trademark owned by or licensed to the Borrowers and sell
such Inventory as provided herein. The rights in this Section are in addition to
the rights of Administrative Agent or Lender would have under applicable law if
it were a person who acquired Inventory or Goods of Borrowers in an
unconditional sale from Borrowers (for example under the doctrines of
exhaustion, first sale, fair use, nominal use and the like).

ARTICLE 10 - EVENTS OF DEFAULT

Section 10.1 Events of Default.

For purposes of the Financing Documents, the occurrence of any of the following
conditions and/or events, whether voluntary or involuntary, by operation of law
or otherwise, shall constitute an “Event of Default”:

(a) i) any Borrower shall fail to pay within five (5) days of when due any
principal, interest, premium or fee under any Financing Document or any other
amount payable under any Financing Document, or (ii) there shall occur any
default in the performance of or compliance with any of the following sections
of this Agreement: Article 5; Article 6; Sections 4.4 and 4.6; and Section 2.11;

(b) any Credit Party defaults (i) in the performance of or compliance with any
term contained in this Agreement or in any other Financing Document (other than
occurrences described in other provisions of this Section 10.1 for which a
different grace or cure period is specified or for which no grace or cure period
is specified and thereby constitute immediate Events of Default) and such
default is not remedied by the Credit Party or waived by Administrative Agent
within thirty (30) days, or (ii) in the performance of or compliance with
Section 4.1 of this Agreement and such default is not remedied by the Credit
Party or waived by Administrative Agent within three (3) days;

(c) any representation, warranty, certification or statement made by any Credit
Party or any other Person in any Financing Document or in any certificate,
financial statement or other document delivered pursuant to any Financing
Document is incorrect in any respect (or in any material respect if such
representation, warranty, certification or statement is not by its terms already
qualified as to materiality) when made (or deemed made);

(d) failure of any Credit Party to pay when due or within any applicable grace
period any principal, interest or other amount on Debt in excess of $200,000
(other than the Loans) or in respect of any Swap Contract, or the occurrence of
any breach, default, condition or event with respect to any Debt (other than the
Loans) or in respect of any Swap Contract, if the effect of such failure or
occurrence is to cause or to permit the holder or holders of any such Debt, or
the counterparty under any such Swap Contract, to cause, Debt or other
liabilities having an individual principal amount in excess of $200,000 or
having an aggregate principal amount in excess of $200,000 to become or be
declared due prior to its stated maturity;

(e) any Credit Party or any Subsidiary of a Borrower shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;

 

44

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(f) an involuntary case or other proceeding shall be commenced against any
Credit Party or any Subsidiary of a Borrower seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of forty-five (45) days; or
an order for relief shall be entered against any Credit Party or any Subsidiary
of a Borrower under applicable federal bankruptcy, insolvency or other similar
law in respect of (i) bankruptcy, liquidation, winding-up, dissolution or
suspension of general operations, (ii) composition, rescheduling,
reorganization, arrangement or readjustment of, or other relief from, or stay of
proceedings to enforce, some or all of the debts or obligations, or
(iii) possession, foreclosure, seizure or retention, sale or other disposition
of, or other proceedings to enforce security over, all or any substantial part
of the assets of such Credit Party or Subsidiary;

(g) (i) institution of any steps by any Person to terminate a Pension Plan if as
a result of such termination any Credit Party or any member of the Controlled
Group could be required to make a contribution to such Pension Plan, or could
incur a liability or obligation to such Pension Plan, in excess of $100,000,
(ii) a contribution failure occurs with respect to any Pension Plan sufficient
to give rise to a Lien under Section 302(f) of ERISA, or (iii) there shall occur
any withdrawal or partial withdrawal from a Multiemployer Plan and the
withdrawal liability (without unaccrued interest) to Multiemployer Plans as a
result of such withdrawal (including any outstanding withdrawal liability that
any Credit Party or any member of the Controlled Group have incurred on the date
of such withdrawal) exceeds $100,000;

(h) one or more judgments or orders for the payment of money (not paid or fully
covered by insurance maintained in accordance with the requirements of this
Agreement and as to which the relevant insurance company has acknowledged
coverage) aggregating in excess of $100,000 shall be rendered against any or all
Credit Parties and either (i) enforcement proceedings shall have been commenced
by any creditor upon any such judgments or orders, or (ii) there shall be any
period of twenty (20) consecutive days during which a stay of enforcement of any
such judgments or orders, by reason of a pending appeal, bond or otherwise,
shall not be in effect;

(i) any Lien created by any of the Security Documents shall at any time fail to
constitute a valid and perfected Lien on all of the Collateral purported to be
encumbered thereby, subject to no prior or equal Lien except Permitted Liens, or
any Credit Party shall so assert;

(j) indictment of any Credit Party by any Governmental Authority;

(k) an event of default occurs under any Guarantee of any portion of the
Obligations;

(l) any Borrower makes any payment on account of any Debt that has been
subordinated to any of the Obligations, other than payments specifically
permitted by the terms of such subordination;

(m) if any Borrower is or becomes an entity whose equity is registered with the
SEC, and/or is publicly traded on and/or registered with a public securities
exchange, such Borrower’s equity fails to remain registered with the SEC in good
standing, and/or such equity fails to remain publicly traded on and registered
with a public securities exchange; or

(n) the occurrence of any fact, event or circumstance that could reasonably be
expected to result in a Material Adverse Effect, if such default shall have
continued unremedied for a period of twenty (20) days after written notice from
Administrative Agent.

All cure periods provided for in this Section shall run concurrently with any
cure period provided for in any applicable Financing Documents under which the
default occurred.

Section 10.2 Acceleration and Suspension or Termination of Revolving Loan
Commitment. Upon the occurrence and during the continuance of an Event of
Default, Administrative Agent may, and shall if requested by Required Lenders,
(a) by notice to Borrower Representative suspend or terminate the Revolving Loan
Commitment and the obligations of Administrative Agent and the Lenders with
respect thereto, in whole or in part

 

45

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(and, if in part, such reduction shall be pro rata among the Lenders having a
Revolving Loan Commitment Percentage), and/or (b) by notice to Borrower
Representative declare the Obligations to be, and the Obligations shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower and Borrowers will pay the same; provided, however, that in the case of
any of the Events of Default specified in Section 10.1(e) or 10.1(f) above,
without any notice to any Borrower or any other act by Administrative Agent or
the Lenders, the Revolving Loan Commitment and the obligations of Administrative
Agent and the Lenders with respect thereto shall thereupon immediately and
automatically terminate and all of the Obligations shall become immediately and
automatically due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by each Borrower and
Borrowers will pay the same.

Section 10.3 Cash Collateral. If (a) any Event of Default specified in
Section 10.1(e) or 10.1(f) shall occur, (b) the Obligations shall have otherwise
been accelerated pursuant to Section 10.2, or (c) the Revolving Loan Commitment
and the obligations of Administrative Agent and the Lenders with respect thereto
shall have been terminated pursuant to Section 10.2, then without any request or
the taking of any other action by Administrative Agent or the Lenders, Borrowers
shall immediately comply with the provisions of Section 2.5(e) with respect to
the deposit of cash collateral to secure the existing Letter of Credit Liability
and future payment of related fees.

Section 10.4 Default Rate of Interest. At the election of Administrative Agent
or Required Lenders, after the occurrence of an Event of Default and for so long
as it continues, (a) the Loans and other Obligations shall bear interest at
rates that are five percent (5.0%) per annum in excess of the rates otherwise
payable under this Agreement, and (b) the fee described in Section 2.5(b) shall
increase by a rate that is five percent (5.0%) in excess of the rate otherwise
payable under such Section.

Section 10.5 Setoff Rights. During the continuance of any Event of Default, each
Lender is hereby authorized by each Borrower at any time or from time to time,
with reasonably prompt subsequent notice to such Borrower (any prior or
contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (a) balances held by such Lender or any of
such Lender’s Affiliates at any of its offices for the account of such Borrower
or any of its Subsidiaries (regardless of whether such balances are then due to
such Borrower or its Subsidiaries), and (b) other property at any time held or
owing by such Lender to or for the credit or for the account of such Borrower or
any of its Subsidiaries, against and on account of any of the Obligations;
except that no Lender shall exercise any such right without the prior written
consent of Administrative Agent. Any Lender exercising a right to set off shall
purchase for cash (and the other Lenders shall sell) interests in each of such
other Lender’s Pro Rata Share of the Obligations as would be necessary to cause
all Lenders to share the amount so set off with each other Lender in accordance
with their respective Pro Rata Share of the Obligations. Each Borrower agrees,
to the fullest extent permitted by law, that any Lender and any of such Lender’s
Affiliates may exercise its right to set off with respect to the Obligations as
provided in this Section 10.5.

Section 10.6 Application of Proceeds. Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence and during the continuance of
an Event of Default, (a) each Borrower irrevocably waives the right to direct
the application of any and all payments at any time or times thereafter received
by Administrative Agent from or on behalf of such Borrower or any other
Guarantor of all or any part of the Obligations, and, as between Borrowers on
the one hand and Administrative Agent and Lenders on the other, Administrative
Agent shall have the continuing and exclusive right to apply and to reapply any
and all payments received against the Obligations in such manner as
Administrative Agent may deem advisable notwithstanding any previous application
by Administrative Agent, and (b) the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied: first, to
all fees, costs, indemnities, liabilities, obligations and expenses incurred by
or owing to Administrative Agent with respect to this Agreement, the other
Financing Documents or the Collateral; second, to all fees, costs, indemnities,
liabilities, obligations and expenses incurred by or owing to any Lender with
respect to this Agreement, the other Financing Documents or the Collateral;
third, to accrued and unpaid interest on the Obligations (including any interest
which, but for the provisions of the Bankruptcy Code, would have accrued on such
amounts); fourth, to the principal amount of the Obligations outstanding and to
provide cash collateral to secure any and all Letter of Credit Liability and
future payment of related fees, as provided for in Section 2.5(e); and fifth to
any other indebtedness or obligations of Borrowers owing to Administrative Agent
or any Lender under the Financing Documents and sixth, to the Obligations owing
to any Eligible Swap Counterparty in respect of any Swap Contracts. Any balance
remaining shall be delivered to Borrowers or to whoever may be

 

46

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

lawfully entitled to receive such balance or as a court of competent
jurisdiction may direct. In carrying out the foregoing, (x) amounts received
shall be applied in the numerical order provided until exhausted prior to the
application to the next succeeding category, and (y) each of the Persons
entitled to receive a payment in any particular category shall receive an amount
equal to its pro rata share of amounts available to be applied pursuant thereto
for such category.

Section 10.7 Waivers.

(a) Except as otherwise provided for in this Agreement and to the fullest extent
permitted by applicable law, each Borrower waives: (i) presentment, demand and
protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Financing Documents, the Notes or
any other notes, commercial paper, accounts, contracts, documents, Instruments,
Chattel Paper and Guarantees at any time held by Lenders on which any Borrower
may in any way be liable, and hereby ratifies and confirms whatever Lenders may
do in this regard; (ii) all rights to notice and a hearing prior to
Administrative Agent’s or any Lender’s taking possession or control of, or to
Administrative Agent’s or any Lender’s replevy, attachment or levy upon, any
Collateral or any bond or security which might be required by any court prior to
allowing Administrative Agent or any Lender to exercise any of its remedies; and
(iii) the benefit of all valuation, appraisal and exemption Laws. Each Borrower
acknowledges that it has been advised by counsel of its choices and decisions
with respect to this Agreement, the other Financing Documents and the
transactions evidenced hereby and thereby.

(b) Each Borrower for itself and all its successors and assigns, (i) agrees that
its liability shall not be in any manner affected by any indulgence, extension
of time, renewal, waiver, or modification granted or consented to by Lender;
(ii) consents to any indulgences and all extensions of time, renewals, waivers,
or modifications that may be granted by Administrative Agent or any Lender with
respect to the payment or other provisions of the Financing Documents, and to
any substitution, exchange or release of the Collateral, or any part thereof,
with or without substitution, and agrees to the addition or release of any
Borrower, endorsers, guarantors, or sureties, or whether primarily or
secondarily liable, without notice to any other Borrower and without affecting
its liability hereunder; (iii) agrees that its liability shall be unconditional
and without regard to the liability of any other Borrower, Administrative Agent
or any Lender for any tax on the indebtedness; and (iv) to the fullest extent
permitted by law, expressly waives the benefit of any statute or rule of law or
equity now provided, or which may hereafter be provided, which would produce a
result contrary to or in conflict with the foregoing.

(c) To the extent that Administrative Agent or any Lender may have acquiesced in
any noncompliance with any requirements or conditions precedent to the closing
of the Loans or to any subsequent disbursement of Loan proceeds, such
acquiescence shall not be deemed to constitute a waiver by Administrative Agent
or any Lender of such requirements with respect to any future disbursements of
Loan proceeds and Administrative Agent may at any time after such acquiescence
require Borrowers to comply with all such requirements. Any forbearance by
Administrative Agent or Lender in exercising any right or remedy under any of
the Financing Documents, or otherwise afforded by applicable law, including any
failure to accelerate the maturity date of the Loans, shall not be a waiver of
or preclude the exercise of any right or remedy nor shall it serve as a novation
of the Notes or as a reinstatement of the Loans or a waiver of such right of
acceleration or the right to insist upon strict compliance of the terms of the
Financing Documents. Administrative Agent’s or any Lender’s acceptance of
payment of any sum secured by any of the Financing Documents after the due date
of such payment shall not be a waiver of Administrative Agent’s and such
Lender’s right to either require prompt payment when due of all other sums so
secured or to declare a default for failure to make prompt payment. The
procurement of insurance or the payment of taxes or other Liens or charges by
Administrative Agent as the result of an Event of Default shall not be a waiver
of Administrative Agent’s right to accelerate the maturity of the Loans, nor
shall Administrative Agent’s receipt of any condemnation awards, insurance
proceeds, or damages under this Agreement operate to cure or waive any Credit
Party’s default in payment of sums secured by any of the Financing Documents.

(d) Without limiting the generality of anything contained in this Agreement or
the other Financing Documents, each Borrower agrees that if an Event of Default
is continuing (i) Administrative Agent and Lenders shall not be subject to any
“one action” or “election of remedies” law or rule, and (ii) all Liens and other
rights, remedies or privileges provided to Administrative Agent or Lenders shall
remain in full force and effect until Administrative Agent or Lenders have
exhausted all remedies against the Collateral and any other properties owned

 

47

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

by Borrowers and the Financing Documents and other security instruments or
agreements securing the Loans have been foreclosed, sold and/or otherwise
realized upon in satisfaction of Borrowers’ obligations under the Financing
Documents.

(e) Nothing contained herein or in any other Financing Document shall be
construed as requiring Administrative Agent or any Lender to resort to any part
of the Collateral for the satisfaction of any of Borrowers’ obligations under
the Financing Documents in preference or priority to any other Collateral, and
Administrative Agent may seek satisfaction out of all of the Collateral or any
part thereof, in its absolute discretion in respect of Borrowers’ obligations
under the Financing Documents. In addition, Administrative Agent shall have the
right from time to time to partially foreclose upon any Collateral in any manner
and for any amounts secured by the Financing Documents then due and payable as
determined by Administrative Agent in its sole discretion, including, without
limitation, the following circumstances: (i) in the event any Borrower defaults
beyond any applicable grace period in the payment of one or more scheduled
payments of principal and/or interest, Administrative Agent may foreclose upon
all or any part of the Collateral to recover such delinquent payments, or
(ii) in the event Administrative Agent elects to accelerate less than the entire
outstanding principal balance of the Loans, Administrative Agent may foreclose
all or any part of the Collateral to recover so much of the principal balance of
the Loans as Lender may accelerate and such other sums secured by one or more of
the Financing Documents as Administrative Agent may elect. Notwithstanding one
or more partial foreclosures, any unforeclosed Collateral shall remain subject
to the Financing Documents to secure payment of sums secured by the Financing
Documents and not previously recovered.

(f) To the fullest extent permitted by law, each Borrower, for itself and its
successors and assigns, waives in the event of foreclosure of any or all of the
Collateral any equitable right otherwise available to any Credit Party which
would require the separate sale of any of the Collateral or require
Administrative Agent or Lenders to exhaust their remedies against any part of
the Collateral before proceeding against any other part of the Collateral; and
further in the event of such foreclosure each Borrower does hereby expressly
consent to and authorize, at the option of Administrative Agent, the foreclosure
and sale either separately or together of each part of the Collateral.

Section 10.8 Injunctive Relief. The parties acknowledge and agree that, in the
event of a breach or threatened breach of any Credit Party’s obligations under
any Financing Documents, Administrative Agent and Lenders may have no adequate
remedy in money damages and, accordingly, shall be entitled to an injunction
(including, without limitation, a temporary restraining order, preliminary
injunction, writ of attachment, or order compelling an audit) against such
breach or threatened breach, including, without limitation, maintaining any cash
management and collection procedure described herein. However, no specification
in this Agreement of a specific legal or equitable remedy shall be construed as
a waiver or prohibition against any other legal or equitable remedies in the
event of a breach or threatened breach of any provision of this Agreement. Each
Credit Party waives, to the fullest extent permitted by law, the requirement of
the posting of any bond in connection with such injunctive relief. By joining in
the Financing Documents as a Credit Party, each Credit Party specifically joins
in this Section as if this Section were a part of each Financing Document
executed by such Credit Party.

Section 10.9 Marshalling. Administrative Agent and Lenders shall have no
obligation to marshal any assets in favor of any Credit Party, or against or in
payment of any of the other Obligations or any other obligation owed to
Administrative Agent or Lenders by any Credit Party.

ARTICLE 11 - AGENT

Section 11.1 Appointment and Authorization. Each Lender hereby irrevocably
appoints and authorizes Administrative Agent to enter into each of the Financing
Documents to which it is a party (other than this Agreement) on its behalf and
to take such actions as Administrative Agent on its behalf and to exercise such
powers under the Financing Documents as are delegated to Administrative Agent by
the terms thereof, and/or by the terms of any interlender or agency agreement
entered into among Administrative Agent and Lenders, together with all such
powers as are reasonably incidental thereto. Subject to the terms of the other
Financing Documents and/or any such interlender or agency agreement,
Administrative Agent is authorized and empowered to amend, modify, or waive any
provisions of this Agreement or the other Financing Documents on behalf of
Lenders. The provisions of this Article 11 are solely for the benefit of
Administrative Agent and Lenders and neither any Borrower nor any other Credit
Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its

 

48

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

functions and duties under this Agreement, Administrative Agent shall act solely
as agent of Lenders and does not assume and shall not be deemed to have assumed
any obligation toward or relationship of agency or trust with or for any
Borrower or any other Credit Party. Administrative Agent may perform any of its
duties hereunder, or under the Financing Documents and/or any such interlender
or agency agreement, by or through its agents or employees.

Section 11.2 Right to Perform, Preserve and Protect. If any Credit Party fails
to perform any obligation hereunder or under any other Financing Document,
Administrative Agent itself may, but shall not be obligated to, cause such
obligation to be performed at Borrowers’ expense. Administrative Agent is
further authorized by Borrowers and the Lenders to make expenditures from time
to time which Administrative Agent, in its reasonable business judgment, deems
necessary or desirable to (a) preserve or protect the business conducted by
Borrowers and the other Credit Parties, the Collateral, or any portion thereof
and/or (b) enhance the likelihood of, or maximize the amount of, repayment of
the Loans and other Obligations. Each Borrower hereby agrees to reimburse
Administrative Agent on demand for any and all costs, liabilities and
obligations incurred by Administrative Agent pursuant to this Section 11.2,
together with interest thereon at the applicable default rate hereunder.

ARTICLE 12 - MISCELLANEOUS

Section 12.1 Survival. All agreements, representations and warranties made
herein and in every other Financing Document shall survive the execution and
delivery of this Agreement and the other Financing Documents. The provisions of
Section 2.8 and Articles 11 and 12 shall survive the payment of the Obligations
(both with respect to any Lender and all Lenders collectively) and any
termination of this Agreement and any judgment with respect to any Obligations,
including any final foreclosure judgment with respect to any Security Document,
and no unpaid or unperformed, current or future, Obligations will merge into any
such judgment.

Section 12.2 No Waivers. No failure or delay by Administrative Agent or any
Lender in exercising any right, power or privilege under any Financing Document
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein and therein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law. Any reference in any Financing Document to the “continuing”
nature of any Event of Default shall not be construed as establishing or
otherwise indicating that any Borrower or any other Credit Party has the
independent right to cure any such Event of Default, but is rather presented
merely for convenience should such Event of Default be waived in accordance with
the terms of the applicable Financing Documents.

Section 12.3 Notices.

(a) All notices, requests and other communications to any party hereunder shall
be in writing (including prepaid overnight courier, facsimile transmission or
similar writing) and shall be given to such party at its address, facsimile
number or e-mail address set forth on the signature pages hereof (or, in the
case of any such Lender who becomes a Lender after the date hereof, in an
assignment agreement or in a notice delivered to Borrower Representative and
Administrative Agent by the assignee Lender forthwith upon such assignment) or
at such other address, facsimile number or e-mail address as such party may
hereafter specify for the purpose by notice to Administrative Agent and Borrower
Representative; provided, however, that notices, requests or other
communications shall be permitted by electronic means only in accordance with
the provisions of Section 12.3(b) and (c). Each such notice, request or other
communication shall be effective (i) if given by facsimile, when such notice is
transmitted to the facsimile number specified by this Section and the sender
receives a confirmation of transmission from the sending facsimile machine, or
(ii) if given by mail, prepaid overnight courier or any other means, when
received or when receipt is refused at the applicable address specified by this
Section 12.3(a).

(b) Notices and other communications to the parties hereto may be delivered or
furnished by electronic communication (including e-mail and Internet or intranet
websites) pursuant to procedures approved from time to time by Administrative
Agent, provided, however, that the foregoing shall not apply to notices sent
directly to any Lender if such Lender has notified the Administrative Agent that
it is incapable of receiving notices by electronic communication. The
Administrative Agent or Borrower Representative may, in their discretion, agree
to accept notices and other communications to them hereunder by electronic
communications pursuant to procedures approved by it, provided, however, that
approval of such procedures may be limited to particular notices or
communications.

 

49

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other
communications sent to an e-mail address shall be deemed received upon the
sender’s receipt of an acknowledgment from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other
written acknowledgment), and (ii) notices or communications posted to an
Internet or intranet website shall be deemed received upon the deemed receipt by
the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communication is available and
identifying the website address therefor, provided, however, that if any such
notice or other communication is not sent or posted during normal business
hours, such notice or communication shall be deemed to have been sent at the
opening of business on the next Business Day.

Section 12.4 Severability. In case any provision of or obligation under this
Agreement or any other Financing Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

Section 12.5 Amendments and Waivers.

(a) No provision of this Agreement or any other Financing Document may be
amended, waived or otherwise modified unless such amendment, waiver or other
modification is in writing and is signed or otherwise approved by Borrowers, the
Administrative Agent and the Required Lenders; provided that

(i) no such amendment, waiver or other modification that would have the effect
of increasing or reducing a Lender’s Revolving Loan Commitment, Revolving Loan
Commitment Amount or Revolving Loan Commitment Percentage shall be effective as
to such Lender without such Lender’s written consent or signature;

(ii) no such amendment, waiver or modification that would affect the rights and
duties of Administrative Agent shall be effective without Administrative Agent’s
written consent or signature;

(iii) no such amendment, waiver or other modification shall, unless signed by
all the Lenders directly affected thereby, (A) reduce the principal of, rate of
interest on or any fees with respect to any Loan or forgive any principal,
interest (other than default interest) or fees (other than late charges) with
respect to any Loan (B) postpone the date fixed for, or waive, any payment of
principal of any Loan or of interest on any Loan (other than default interest)
or any fees provided for hereunder (other than late charges or for any
termination of any commitment; (C) change the definition of the term Required
Lenders or the percentage of Lenders which shall be required for Lenders to take
any action hereunder; (D) release all or substantially all or any material
portion of the Collateral, authorize any Borrower to sell or otherwise dispose
of all or substantially all or any material portion of the Collateral or release
any Guarantor of all or any portion of the Obligations or its Guarantee
obligations with respect thereto, except, in each case with respect to this
clause (D), as otherwise may be provided in this Agreement or the other
Financing Documents (including in connection with any disposition permitted
hereunder); (E) amend, waive or otherwise modify this Section 12.5 or the
definitions of the terms used in this Section 12.5 insofar as the definitions
affect the substance of this Section 12.5; (F) consent to the assignment,
delegation or other transfer by any Credit Party of any of its rights and
obligations under any Financing Document or release any Borrower of its payment
obligations under any Financing Document, except, in each case with respect to
this clause (F), pursuant to a merger or consolidation permitted pursuant to
this Agreement or (G) amend any of the provisions of Section 10.6 or amend any
of the definitions Pro Rata Share, Revolving Loan Commitment, Revolving Loan
Commitment Amount, Revolving Loan Commitment Percentage or that provide for the
Lenders to receive their Pro Rata Shares of any fees, payments, setoffs or
proceeds of Collateral hereunder. It is hereby understood and agreed that all
Lenders shall be deemed directly affected by an amendment, waiver or other
modification of the type described in the preceding clauses (C), (D), (E),
(F) and (G) of the preceding sentence.

(b) Without limitation of the provisions of the preceding clause (a), no waiver,
amendment or other modification to this Agreement shall, unless signed by each
Eligible Swap Counterparty then in existence, modify the provisions of
Section 10.6 in any manner adverse to the interests of each such Eligible Swap
Counterparty.

(c) Administrative Agent shall be entitled, in its sole and absolute discretion,
to waive any financial covenant of any Credit Party and to provide its written
consent to a proposed Swap Contract.

 

50

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 12.6 Assignments; Participations.

(a) Assignments by Lenders.

(i) Each Lender may at any time assign or grant participations in all or any
portion of such Lender’s Loans and interest in the Revolving Loan Commitment,
together with all related obligations of such Lender hereunder, but only with
the prior written consent of Administrative Agent, provided, that such consent
shall not be required in connection with any assignment or granting of a
participation by any Lender to an Affiliate of such Lender. If Administrative
Agent grants its consent to any such assignment by a Lender, such Lender shall
thereupon be released of any further obligations under this Agreement. Each
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve
Bank; provided, however, that no such pledge or assignment shall release such
Lender from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.

(ii) Administrative Agent, acting solely for this purpose as an agent of
Borrowers, shall maintain at its offices located in Chicago, Illinois a copy of
each assignment agreement (assigning a Lender’s interests hereunder) delivered
to it and a register for the recordation of the names and addresses of each
Lender, and the commitments of, and principal amount of the Loans owing to, such
Lender pursuant to the terms hereof. The entries in such register shall be
conclusive, and Borrowers, Administrative Agent and Lenders may treat each
Person whose name is recorded therein pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. Such register shall be available for inspection by any Borrower and
any Lender, at any reasonable time upon reasonable prior notice to
Administrative Agent.

(b) Credit Party Assignments. No Credit Party may assign, delegate or otherwise
transfer any of its rights or other obligations hereunder or under any other
Financing Document without the prior written consent of Administrative Agent and
each Lender.

Section 12.7 Headings. Headings and captions used in the Financing Documents
(including the Exhibits, Schedules and Annexes hereto and thereto) are included
for convenience of reference only and shall not be given any substantive effect.

Section 12.8 Confidentiality. Administrative Agent and each Lender shall hold
all non-public information regarding the Credit Parties and their respective
businesses pursuant to the requirements hereof in accordance with such Person’s
customary procedures for handling information of such nature, except that
disclosure of such information may be made (a) to their respective agents,
employees, Subsidiaries, Affiliates, attorneys, auditors, professional
consultants, rating agencies, insurance industry associations and portfolio
management services, (b) to prospective transferees or purchasers of any
interest in the Loans, and to prospective contractual counterparties (or the
professional advisors thereto) in Swap Contracts permitted hereby, provided,
however, that any such Persons shall have agreed to be bound by the provisions
of this Section 12.8, (c) as required by Law, subpoena, judicial order or
similar order and in connection with any litigation, (d) as may be required in
connection with the examination, audit or similar investigation of such Person,
and (e) to a Person that is a trustee, investment advisor, collateral manager,
servicer, noteholder or secured party in a Securitization (as hereinafter
defined) in connection with the administration, servicing and reporting on the
assets serving as collateral for such Securitization. For the purposes of this
Section, “Securitization” shall mean a public or private offering by a Lender or
any of its Affiliates or their respective successors and assigns, of securities
which represent an interest in, or which are collateralized, in whole or in
part, by the Loans. Confidential information shall include only such information
identified as such at the time provided to Administrative Agent and shall not
include information that either: (i) is in the public domain, or becomes part of
the public domain after disclosure to such Person through no fault of such
Person, or (ii) is disclosed to such Person by a Person other than a Credit
Party, provided, however, Administrative Agent does not have actual knowledge
that such Person is prohibited from disclosing such information. The obligations
of Administrative Agent and Lenders under this Section 12.8 shall supersede and
replace the obligations of Administrative Agent and Lenders under any
confidentiality agreement in respect of this financing executed and delivered by
Administrative Agent or any Lender prior to the date hereof.

 

51

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 12.9 Waiver of Consequential and Other Damages. To the fullest extent
permitted by applicable law, no Borrower shall assert, and each Borrower hereby
waives, any claim against any Indemnitee (as defined below), on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of this Agreement, any other Financing Document or any agreement or instrument
contemplated hereby or thereby, the transactions contemplated hereby or thereby,
any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee
shall be liable for any damages arising from the use by unintended recipients of
any information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Agreement or the other Financing Documents or the transactions contemplated
hereby or thereby.

Section 12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT, EACH
NOTE AND EACH OTHER FINANCING DOCUMENT, AND ALL MATTERS RELATING HERETO OR
THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR
OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES. EACH BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO ADMINISTRATIVE AGENT’S ELECTION, ALL ACTIONS
OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER
FINANCING DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH BORROWER EXPRESSLY
SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY
DEFENSE OF FORUM NON CONVENIENS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON
SUCH BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.

Section 12.11 WAIVER OF JURY TRIAL. EACH BORROWER, ADMINISTRATIVE AGENT AND THE
LENDERS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH BORROWER,
ADMINISTRATIVE AGENT AND EACH LENDER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AND
THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS.
EACH BORROWER, ADMINISTRATIVE AGENT AND EACH LENDER WARRANTS AND REPRESENTS THAT
IT HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND
THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

Section 12.12 Publication; Advertisement.

(a) Publication. No Credit Party will directly or indirectly publish, disclose
or otherwise use in any public disclosure, advertising material, promotional
material, press release or interview, any reference to the name, logo or any
trademark of Merrill Lynch or any of its Affiliates or any reference to this
Agreement or the financing evidenced hereby, in any case except (i) as required
by Law, subpoena or judicial or similar order, in which case the applicable
Credit Party shall give Administrative Agent prior written notice of such
publication or other disclosure, or (ii) with Merrill Lynch’s prior written
consent.

(b) Advertisement. Each Lender and each Credit Party hereby authorizes Merrill
Lynch to publish the name of such Lender and Credit Party, the existence of the
financing arrangements referenced under this Agreement, the primary purpose
and/or structure of those arrangements, the amount of credit extended under each
facility, the title and role of each party to this Agreement, and the total
amount of the financing evidenced hereby in any “tombstone”, comparable
advertisement or press release which Merrill Lynch elects to submit for
publication. In addition, each Lender and each Credit Party agrees that Merrill
Lynch may provide lending industry trade

 

52

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

organizations with information necessary and customary for inclusion in league
table measurements after the Closing Date. With respect to any of the foregoing,
Merrill Lynch shall provide Borrowers with an opportunity to review and confer
with Merrill Lynch regarding the contents of any such tombstone, advertisement
or information, as applicable, prior to its submission for publication and,
following such review period, Merrill Lynch may, from time to time, publish such
information in any media form desired by Merrill Lynch, until such time that
Borrowers shall have requested Merrill Lynch cease any such further publication.

Section 12.13 Counterparts; Integration. This Agreement and the other Financing
Documents may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. Signatures by facsimile shall bind the parties hereto. This
Agreement and the other Financing Documents constitute the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.

Section 12.14 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.

Section 12.15 Time. Time is of the essence in each Borrower’s and each other
Credit Party’s performance under this Agreement and all other Financing
Documents.

Section 12.16 Lender Approvals. Unless expressly provided herein to the
contrary, any approval, consent, waiver or satisfaction of Administrative Agent
or Lenders with respect to any matter that is the subject of this Agreement, the
other Financing Documents may be granted or withheld by Administrative Agent and
Lenders in their sole and absolute discretion and credit judgment.

Section 12.17 Expenses; Indemnity

(a) Borrowers agree to pay all reasonable legal, audit and appraisal fees and
all other reasonable out-of-pocket charges and expenses incurred by
Administrative Agent and Lenders (including the fees and expenses of
Administrative Agent’s counsel, advisors and consultants) in connection with the
negotiation, preparation, legal review and execution of each of the Financing
Documents, including but not limited to UCC and judgment lien searches and UCC
filings and fees for post-closing UCC and judgment lien searches. In addition,
Borrowers shall pay all such reasonable fees and expenses associated with any
amendments, modifications and terminations to the Financing Documents following
closing.

(b) Borrowers agree to pay all out-of-pocket charges and expenses incurred by
Administrative Agent (including the fees and expenses of Administrative Agent’s
counsel, advisers and consultants) in connection with the administration of this
Agreement and the other Financing Documents and the credit facilities provided
hereunder and thereunder, the administration, enforcement, protection or
preservation of any right or claim of Administrative Agent, the termination of
this Agreement, the termination of any Liens of Administrative Agent on the
Collateral, or the collection of any amounts due under the Financing Documents,
including any such charges and expenses incurred in connection with any
“work-out” or with any proceeding under the Bankruptcy Code with respect to any
Credit Party.

(c) Borrowers hereby indemnify and agree to defend (with counsel acceptable to
Administrative Agent) and hold harmless Administrative Agent and Lenders, their
partners, officers, agents and employees (collectively in the singular,
“Indemnitee”) from and against any liability, loss, cost, expense (including
reasonable attorneys’ fees and expenses for both in-house and outside counsel),
claim, damage, suit, action or proceeding ever suffered or incurred by any
Indemnitee or in which an Indemnitee may ever be or become involved (whether as
a party, witness or otherwise) (a) arising from any Credit Party’s failure to
observe, perform or discharge any of its covenants, obligations, agreements or
duties under the Financing Documents, (b) arising from the breach of any of the
representations or warranties contained in any Financing Document, (c) arising
by reason of this Agreement, the other Financing Documents or the transactions
contemplated hereby or thereby, or (d) relating to claims of any Person with
respect to the Collateral; provided, however, Borrower shall not be liable under
this Section 12.17(c) to the extent such loss is solely related to Indemnitee’s
gross negligence or willful misconduct.

 

53

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(d) Notwithstanding any contrary provision in this Agreement, the obligations of
Borrowers under this Section 12.17 shall survive the payment in full of the
Obligations and the termination of this Agreement. NO INDEMNITEE SHALL BE
RESPONSIBLE OR LIABLE TO THE BORROWERS OR TO ANY OTHER PARTY TO ANY FINANCING
DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON
ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER
FINANCING DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.

Section 12.18 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Borrowers and Administrative Agent and each Lender and
their respective successors and permitted assigns.

Section 12.19 Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition or other proceeding be
filed by or against any Credit Party for liquidation or reorganization, should
any Credit Party become insolvent or make an assignment for the benefit of any
creditor or creditors or should an interim receiver, receiver, receiver and
manger or trustee be appointed for all or any significant part of any Credit
Party’s assets, and shall continue to be effective or to be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a fraudulent preference reviewable transaction or otherwise, all as
though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.

[SIGNATURES APPEAR ON FOLLOWING PAGES]

 

54

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

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

 

BORROWERS: ALPHATEC HOLDINGS, INC. By:   /s/ Steven M. Yasbek Name:   Steven M.
Yasbek Title:   CFO and Vice President ALPHATEC SPINE, INC. By:   /s/ Steven M.
Yasbek Name:   Steven M. Yasbek Title:   CFO and Vice President NEXMED, INC. By:
  /s/ Steven M. Yasbek Name:   Steven M. Yasbek Title:   Treasurer and Vice
President

Address:

2051 Palomar Airport Road

Suite 100

Carlsbad, California 92011

Attn: General Counsel and Vice President, Compliance

Facsimile: (760) 431-1624

E-Mail: EGarner@alphatecspine.com

With copies to:

Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.

666 Third Avenue

New York, NY 10017

Attn: James M. McKnight, Esquire

Facsimile: (212) 983-3115

E-Mail: jmcknight@mintz.com

SIGNATURES CONTINUE ON THE FOLLOWING PAGE

 

55

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

AGENT: MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial
Services Inc., as Administrative Agent and a Lender By:   /s/ Amy Hansen Name:  
Amy Hansen Title:   Assistant Vice President

Address:

222 N. LaSalle Street, 16th Floor

Chicago, Illinois 60601

Attn: Account Manager for MLC-HCF Alphatec Spine, Inc. transaction

Facsimile: 1-866-251-2944

E-Mail: MLC_HCF_ABL2@ml.com

With copies to:

Merrill Lynch Capital

222 N. LaSalle Street, 16th Floor

Chicago, Illinois 60601

Attn: Group Senior Transaction Attorney, Healthcare Finance

Facsimile Number: (312) 499-3245

Merrill Lynch Capital

7700 Wisconsin Ave., Suite 400

Bethesda, Maryland 20814

Attn: Group Senior Transaction Attorney, Healthcare Finance

Facsimile Number: (866) 341-9053

Blank Rome LLP

One Logan Square

Philadelphia, Pennsylvania 19103

Attn: Lawrence F. Flick, II, Esq.

Facsimile Number: (215) 569-5522

Payment Account Designation:

LaSalle Bank

200 West Monroe

Chicago, IL 60606

ABA #: 071000505

Account Name: MLBFS Healthcare Finance

Account #: 5800395088

Attention: Alphatec Spine, Inc.

SIGNATURES CONTINUE ON THE FOLLOWING PAGE

 

56

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LENDERS: MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial
Services Inc., as Lender By:   /s/ Amy Hansen Name:   Amy Hansen Title:  
Assistant Vice President

Address:

222 N. LaSalle Street, 16th Floor

Chicago, Illinois 60601

Attn: Account Manager for MLC-HCF Alphatec Spine, Inc. transaction

Facsimile: 1-866-251-2944

E-Mail: MLC_HCF_ABL2@ml.com

With copies to:

Merrill Lynch Capital

222 N. LaSalle Street, 16th Floor

Chicago, Illinois 60601

Attn: Group Senior Transaction Attorney, Healthcare Finance

Facsimile Number: (312) 499-3245

Merrill Lynch Capital

7700 Wisconsin Ave., Suite 400

Bethesda, Maryland 20814

Attn: Group Senior Transaction Attorney, Healthcare Finance

Facsimile Number: (866) 341-9053

Blank Rome LLP

One Logan Square

Philadelphia, Pennsylvania 19103

Attn: Lawrence F. Flick, II, Esq.

Facsimile Number: (215) 569-5522

 

57

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

ANNEXES, EXHIBITS, RIDERS AND SCHEDULES

 

ANNEXES

  

Annex A

   Commitment Annex

EXHIBITS

  

Exhibit A

   Reserved

Exhibit B

   Compliance Certificate

Exhibit C

   Borrowing Base Certificate

Exhibit D

   Notice of Borrowing

RIDERS

  

Regulatory Rider

  

SCHEDULES

  

Schedule 3.1

   Existence, Organizational ID Numbers, Foreign Qualification, Prior Names

Schedule 3.4

   Capitalization

Schedule 3.6

   Litigation

Schedule 3.17

   Material Contracts

Schedule 3.18

   Environmental Compliance

Schedule 3.19

   Intellectual Property

Schedule 3.25(a)(ix)

   FDA Correspondence

Schedule 3.25(a)(x)

   Recalls; Market Withdrawals

Schedule 3.25(b)(ii)

   Required Permits

Schedule 4.4

   Insurance

Schedule 5.1

   Debt; Contingent Obligations

Schedule 5.2

   Liens

Schedule 5.7

   Investments

Schedule 5.8

   Affiliate Transactions

Schedule 5.11

   Business Description

Schedule 5.14

   Deposit Accounts and Securities Accounts

Schedule 7.4

   Post-Closing Obligations

Schedule 9.1

   Collateral

Schedule 9.2

   Location of Collateral

 

58

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Annex A to Credit Agreement (Commitment Annex)

 

Lender

   Revolving Loan
Commitment
Amount    Revolving Loan
Commitment
Percentage  

Merrill Lynch Capital

   $ 20,000,000    100 %

TOTALS

   $ 20,000,000    100 %

 

Exhibit A – Page 1

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Exhibit A to Credit Agreement (Reserved)

 

Exhibit A – Page 2

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Exhibit B to Credit Agreement (Compliance
Certificate)

COMPLIANCE CERTIFICATE

Date:                     ,             

This certificate is given by                                 , a Responsible
Officer of                                                       (the
“Company”), pursuant to that certain Credit and Security Agreement dated as of
September             , 2007 among the Company and any additional Borrower that
may hereafter be added thereto (collectively, “Borrowers”), Merrill Lynch
Capital, a division of Merrill Lynch Business Financial Services Inc.,
individually as a Lender and as Administrative Agent, and the financial
institutions or other entities from time to time parties hereto, each as a
Lender (as such agreement may have been amended, restated, supplemented or
otherwise modified from time to time, the “Credit Agreement”). Capitalized terms
used herein without definition shall have the meanings set forth in the Credit
Agreement.

The undersigned Responsible Officer hereby certifies to Administrative Agent and
Lenders that:

(a) the financial statements delivered with this certificate in accordance with
Section 4.1 of the Credit Agreement fairly present in all material respects the
results of operations and financial condition of Borrowers and their
Subsidiaries as of the dates and the accounting period covered by such financial
statements;

(b) I have reviewed the terms of the Credit Agreement and have made, or caused
to be made under my supervision, a review in reasonable detail of the
transactions and conditions of Borrowers and their Subsidiaries during the
accounting period covered by such financial statements;

(c) such review has not disclosed the existence during or at the end of such
accounting period, and I have no knowledge of the existence as of the date
hereof, of any condition or event that constitutes a Default or an Event of
Default, except as set forth in Schedule 1 hereto, which includes a description
of the nature and period of existence of such Default or an Event of Default and
what action Borrowers have taken, are undertaking and propose to take with
respect thereto;

(d) Except as noted on Schedule 2 attached hereto, the Credit Agreement contains
a complete and accurate list of all business locations of Borrowers and
Guarantors and all names under which Borrowers or Guarantors currently conduct
business; Schedule 2 specifically notes any changes in the names under which
Borrowers or Guarantors conduct business;

(e) Except as noted on Schedule 3 attached hereto, the undersigned has no
knowledge of any federal or state tax liens having been filed against the
Borrowers, Guarantors or any Collateral;

(f) Except as noted on Schedule 3 attached hereto, the undersigned has no
knowledge of any failure of the Borrowers or Guarantors to make required
payments of withholding or other tax obligations of the Borrowers or Guarantors
during the accounting period to which the attached statements pertain or any
subsequent period.

(g) If the Credit Agreement contemplates a lien on the deposit accounts or
investment accounts of the Borrowers and/or Guarantors in favor of
Administrative Agent, Schedule 4 attached hereto contains a complete and
accurate statement of all deposit or investment accounts maintained by Borrowers
or Guarantors;

(h) Except as described in the Credit Agreement or in Schedule 5 attached
hereto, the undersigned has no knowledge of any current, pending or threatened:

(i) litigation against the Borrowers or Guarantors;

 

Exhibit B – Page 1

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(ii) inquiries, investigations or proceedings concerning the business affairs,
practices, licensing or reimbursement entitlements of Borrowers or Guarantors;

(iii) default by Borrowers or Guarantors under any material contract to which
either of them is a party, including, without limitation, any leases.

(i) Except as noted on Schedule 6 attached hereto, no Borrower has acquired, by
purchase, by the approval or granting of any application for registration
(whether or not such application was previously disclosed to Administrative
Agent by Borrowers) or otherwise, any Intellectual Property that is registered
with any United States or foreign Governmental Authority, or has filed with any
such United States or foreign Governmental Authority, any new application for
the registration of any Intellectual Property, or acquired rights under a
license as a licensee with respect to any such registered Intellectual Property
(or any such application for the registration of Intellectual Property) owned by
another Person, that has not previously been reported to Administrative Agent on
Schedule 3.17 to the Credit Agreement or any Schedule 6 to any previous
Compliance Certificate delivered by the Company to Administrative Agent.

(j) Except as noted on Schedule 7 attached hereto, no Borrower or Guarantor has
acquired, by purchase or otherwise, any Chattel Paper, Letter of Credit Rights,
Instruments, Documents or Investment Property that has not previously been
reported to Administrative Agent on any Schedule 7 to any previous Compliance
Certificate delivered by Borrower Representative to Administrative Agent.

(k) Except as noted on Schedule 8 attached hereto, no Borrower or Guarantor is
aware of any Commercial Tort Claim that has not previously been reported to
Administrative Agent on any Schedule 8 to any previous Compliance Certificate
delivered by Borrower Representative to Administrative Agent.

(l) Borrower and Guarantor are in compliance with the covenants contained in
Article 6 of the Credit Agreement, and in any Guarantee constituting a part of
the Financing Documents, as demonstrated by the calculation of such covenants
below, except as set forth below; in determining such compliance, the following
calculations have been made: [See attached worksheets]. Such calculations and
the certifications contained therein are true, correct and complete.

The foregoing certifications and computations are made as of
                                ,              (end of month) and delivered this
             day of                     , 20        .

 

Sincerely, By     Name     Title    

 

Exhibit B – Page 2

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Schedules to Compliance Certificate

Schedule 1 – Non-Compliance with Covenants

Schedule 2 – Business Locations and Names of Borrowers and Guarantors

Schedule 3 – Unpaid Tax or Withholding Obligations

Schedule 4 – List of all Deposit and Investment Accounts of Borrowers and
Guarantors

Schedule 5 – Pending Litigation, Inquiries or Investigations; Defaults under
Material Contracts

Schedule 6 – Newly Acquired Intellectual Property and Intellectual Property
Licenses

Worksheet(s) for Financial or Other Covenant Calculations

 

Exhibit B – Page 3

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

EBITDA Worksheet (Attachment to Compliance Certificate)

EBITDA for the applicable measurement period (the “Defined Period”) is defined
as follows:

 

Net income (or loss) for the Defined Period of Borrowers and their Consolidated
Subsidiaries, but excluding: (a) the income (or loss) of any Person (other than
Subsidiaries of Borrowers) in which Borrowers or any of their Subsidiaries has
an ownership interest unless received by Borrower or their Subsidiary in a cash
distribution; and (b) the income (or loss) of any Person accrued prior to the
date it became a Subsidiary of Borrowers or is merged into or consolidated with
Borrowers   $ ________

Plus:

  Any provision for (or less any benefit from) income and franchise taxes
deducted in the determination of net income for the Defined Period     ________
 

Interest expense, net of interest income, deducted in the determination of net
income for the Defined Period

    ________  

Amortization and depreciation deducted in the determination of net income for
the Defined Period

    ________   Other non-cash expenses (or less other non-cash gains or income)
deducted in the determination of net income for the Defined Period and for which
no cash outlay (or cash receipt) is foreseeable prior to the Commitment Expiry
Date     ________

EBITDA for the Defined Period

  $          

 

Exhibit B – Page 4

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Fixed Charge Coverage Ratio Worksheet (Attachment to Compliance Certificate)

Fixed Charge Coverage Ratio for the applicable measurement period (the “Defined
Period”) is defined as follows:

 

Fixed Charges:

   Interest expense ($            ), net of interest income ($            ),
interest paid in kind ($            ) and amortization of capitalized fees and
expenses incurred to consummate the transactions contemplated by the Financing
Documents and included in interest expense ($            ), included in the
determination of net income of Borrowers and their Consolidated Subsidiaries for
the Defined Period (“Total Interest Expense”)    $ _________

Plus:

  Any provision for (or less any benefit from) income or franchise taxes
included in the determination of net income for the Defined Period *     
_________   Scheduled payments of principal for the Defined Period with respect
to all Debt (including the portion of scheduled payments under capital leases
allocable to principal and excluding scheduled repayments of Revolving Loans and
other Debt subject to reborrowing to the extent not accompanied by a concurrent
and permanent reduction of the Revolving Loan Commitment (or equivalent loan
commitment))      _________

Operating Cash Flow:

  

EBITDA for the Defined Period (calculated in the manner required by Section 6.0
of the Compliance Certificate)

   $ _________

Less:

 

Unfinanced capital expenditures for the Defined Period

     _________   To the extent not already reflected in the calculation of
EBITDA, other capitalized costs, defined as the gross amount paid in cash and
capitalized during the Defined Period, as long term assets, other than amounts
capitalized during the Defined Period as capital expenditures for property,
plant and equipment or similar fixed asset accounts      _________

Operating Cash Flow

   $           

Fixed Charge Coverage Ratio (Ratio of Operating Cash Flow to Fixed Charges) for
the Defined Period

     ___ to 1.0

Minimum Fixed Charge Coverage for the Defined Period

     1.2 to 1.0

In Compliance

     Yes/No

 

Exhibit B – Page 5

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Minimum Liquidity Worksheet (Attachment to Compliance Certificate)

The Minimum Liquidity requirement for the applicable measurement period (the
“Defined Period”) is defined as follows:

 

Cash and Cash Equivalents

   $ _________________

Plus: The Revolving Loan Limit

     _________________

Less: Revolving Loan Outstanding

     _________________

Total Liquidity

   $ _________________

Minimum Liquidity

   $ 2,000,000

In Compliance

     Yes/No

 

Exhibit B – Page 6

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Exhibit C to Credit Agreement (Borrowing Base
Certificate)

 

Exhibit C – Page 1

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Exhibit D to Credit Agreement (Notice of Borrowing)

[BORROWER REPRESENTATIVE]

Date:                     ,             

This certificate is given by                                 , a Responsible
Officer of                          (“Borrower Representative”), pursuant to
Section 2.1(b)(i) of that certain Credit and Security Agreement dated as of
                        ,              among                      and
                     (“Borrowers”), the Lenders from time to time party thereto
and Merrill Lynch Capital, a division of Merrill Lynch Business Financial
Services Inc., as Administrative Agent for Lenders (as such agreement may have
been amended, restated, supplemented or otherwise modified from time to time the
“Credit Agreement”). Capitalized terms used herein without definition shall have
the meanings set forth in the Credit Agreement.

The undersigned Responsible Officer hereby gives notice to Administrative Agent
of Borrower Representative’s request to on [ date ] borrow
$[                    ] of Revolving Loans. Attached is a Borrowing Base
Certificate complying in all respects with the Credit Agreement and confirming
that, after giving effect to the requested advance, the Revolving Loan
Outstandings will not exceed the Revolving Loan Limit.

The undersigned officer hereby certifies that, both before and after giving
effect to the request above (a) each of the conditions precedent set forth in
Section 7.2 have been satisfied, (b) all of the representations and warranties
contained in the Credit Agreement and the other Financing Documents are true,
correct and complete as of the date hereof, except to the extent such
representation or warranty relates to a specific date, in which case such
representation or warranty is true, correct and complete as of such earlier
date, and (c) no Default or Event of Default has occurred and is continuing on
the date hereof.

IN WITNESS WHEREOF, the undersigned officer has executed and delivered this
certificate this              day of                     ,             .

 

By:     Name:     Title:   Authorized Signatory for Borrower Representative

 

Exhibit D – Page 1

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Schedule 7.4 – Post Closing Requirements

[***]

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Schedule 9.1 – Collateral

The Collateral consists of all of Borrower’s right, title and interest in and to
the following, whether now owned or hereafter created, acquired or arising, and
all proceeds and products of the following:

All goods, Accounts (including health-care insurance receivables), Equipment,
Inventory, contract rights or rights to payment of money, leases, license
agreements, franchise agreements, General Intangibles (except as provided
below), commercial tort claims, documents, instruments (including any promissory
notes), chattel paper (whether tangible or electronic), cash, deposit accounts,
securities accounts, fixtures, letter of credit rights (whether or not the
letter of credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets, whether now
owned or hereafter acquired, wherever located; and

All of Borrowers’ books relating to the foregoing, and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include any of the
following, whether now owned or hereafter acquired (the “Excluded Property”),
except to the extent that it is necessary under applicable law to have a
security interest in any of the Excluded Property in order to have a perfected
lien and security interest in and to the “IP Proceeds” defined below: exclusive
inbound licenses, or rights in or ownership of any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing; provided, however, the Collateral shall include all IP Proceeds.
The term “IP Proceeds” means all accounts, general intangibles, license and
royalty fees and other revenues, proceeds, income or rights to payment arising
out of or relating to the use, sale, licensing, financing or disposition of any
of the Excluded Property (nothing herein implying the secured party’s consent to
any such sale, licensing, financing or disposition).

In addition to the foregoing, the Collateral shall exclude the Excluded
Collateral.

Pursuant to the terms of a certain negative pledge arrangement with
Administrative Agent, each Borrower has agreed not to encumber any of the
Excluded Property without Administrative Agent’s prior written consent.

 

1

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

LOGO [g18720img001.jpg]    Regulatory Rider

REGULATORY RIDER

This Regulatory Rider (as the same may be amended, supplemented, restated or
otherwise modified from time to time, this “Regulatory Rider”) is made a part of
and is incorporated by reference into that certain Credit and Security Agreement
(as the same may be amended, supplemented, restated or otherwise modified from
time to time, the “Credit Agreement”), dated as of September __, 2007, by and
among ALPHATEC HOLDINGS, INC. , a Delaware corporation, ALPHATEC SPINE, INC., a
California corporation, NEXMED, INC., a California corporation, and any
additional Borrower that may thereafter be added to the Credit Agreement
(collectively, “Borrowers” and each individually, a “Borrower”), MERRILL LYNCH
CAPITAL, a division of Merrill Lynch Business Financial Services Inc.,
individually as a Lender, and as Administrative Agent, and the financial
institutions or other entities from time to time parties to the Credit
Agreement, each as a Lender.

In consideration of the premises and the agreements, provisions and covenants
herein contained and in the Credit Agreement, Borrowers, Lenders and
Administrative Agent agree as follows:

Section 1 Definitions; Other Definition Provisions. All capitalized terms not
otherwise defined in this Rider shall have the meanings given them in the Credit
Agreement. The provisions of Section 1.3 of the Credit Agreement shall apply in
interpreting this Regulatory Rider.

Section 1.1 Additional Defined Terms. The following additional definitions are
hereby appended to Section 1.1 of the Credit Agreement:

“Correction” means repair, modification, adjustment, relabeling, destruction or
inspection (including patient monitoring) of a product without its physical
removal to some other location; or any plan in response to a state or federal
notice of violation or deficiency, such as, without limitation, FDA 483
inspection reports, FDA warning letters, and any plans to implement, monitor and
audit ongoing compliance with plans of correction.

“Device Application” means a 510(k) premarket notification or premarket approval
(PMA) application, as appropriate, as those terms are defined in the FDCA.

“FDA” means the Food and Drug Administration of the United States of America or
any successor entity thereto.

“FDCA” means the Federal Food, Drug, and Cosmetic Act, as amended, 21 U.S.C.
Section 301 et seq. and all regulations promulgated thereunder.

“Good Manufacturing Practice” means current good manufacturing practices, as set
forth in the Quality System Regulation, 21 C.F.R. Part 820, and Current Good
Tissue Practice, 21 CFR 1271, Subpart D .

“Market Withdrawal” means a Person’s Removal or Correction of a distributed
product which involves a minor violation that would not be subject to legal
action by the FDA or which involves no violation, e.g., normal stock rotation
practices, routine equipment adjustments and repairs, etc.

“Permits” means all governmental licenses, authorizations, supplier numbers,
registrations, permits, device authorizations and approvals, certificates,
franchises, qualifications, accreditations, consents, approvals, listings,
certificates, product clearances or approvals, marketing authorizations and all
other licenses, authorizations, registrations, permits, consents and approvals
or exemptions thereto required in connection with the conduct of any Borrower’s
or any Subsidiary’s business or to comply with any applicable Laws, including,
without limitation, establishment registrations, device listings,
Investigational Device Exemptions (IDEs), 510(k) exemptions, 510(k) clearances,
PMA approvals, and tissue bank licenses, as those terms are defined in the FDCA
and implementing regulations, and those issued by state governments,
environmental protection agency permits, and any and all licenses, patents,
trademarks and other intellectual property rights necessary for the conduct of
any Borrower’s or Subsidiary’s business.

 

2

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

“Products” means any services provided or products manufactured, sold,
developed, tested or marketed by any Borrower or any of its Subsidiaries.

“Recall” means a Person’s Removal or Correction of a marketed product that the
FDA considers to be in violation of the laws it administers and against which
the FDA would initiate legal action, e.g., seizure.

“Removal” means the physical removal of a device from its point of use to some
other location for repair, modification, adjustment, relabeling, destruction, or
inspection.

“Required Permit” means a Permit (a) issued or required under Laws applicable to
the business of any Borrower or any of its Subsidiaries or necessary in the
manufacturing, importing, exporting, possession, ownership, warehousing,
marketing, promoting, sale, labeling, furnishing, distribution or delivery of
goods or services under Laws applicable to the business of any Borrower or any
of its Subsidiaries or any Device Application (including without limitation, at
any point in time, all licenses, registrations, listings, certificates,
accreditations, approvals and permits issued by the FDA or any other applicable
Governmental Authority necessary for the testing, manufacture, marketing or sale
of any Product by any Borrower or any of its Subsidiaries as such activities are
being conducted by such Person with respect to such Product at such time), and
(b) issued by any Person from which any Borrower or any of its Subsidiaries has
received an accreditation to include any and all those issued by state
governments necessary to the conduct of any Borrower’s or Subsidiary’s business.

“Specified Laws” means all applicable laws relating to the operation of private
label and other medical device product distributions, and the possession,
control, warehousing, marketing, sale and distribution of medical devices,
including without limitation, the Food Drug and Cosmetic Act of 1938 (21 U.S.C.
§ 801 et seq., Current Good Manufacturing Practices (CGMP) requirements of the
Quality System regulation for medical devices, as specified in Title 21, Code of
Federal Regulations, Part 820 (21 C.F.R. 820), and Current Tissue Practice (21
CFR 1270 and 1271, Subpart D), the Occupational Health and Safety Act (29 U.S.C.
§ 651 et seq.), any laws pertaining to the storage and disposal of biomedical
and other hazardous waste, and any implementing regulations to any of the
foregoing or other applicable state, federal or laws of foreign governments.

“Transport and Disposal Agreement” means an agreement for the transport and
disposal of hazardous wastes in accordance with all applicable Laws, as the same
may be amended, supplemented, restated, modified or replaced from time to time.

“Stock Recovery” means a Person’s Removal or Correction of a product that has
not been marketed or that has not left the direct control of such Person, i.e.,
the product is located on the premises owned by, or under the control of, such
Person and no portion of the lot has been released for sale or use.

Section 2 Additional Representations and Warranties. The following is hereby
appended to the Credit Agreement as new Section 3.25:

Section 3.25 Compliance of Products.

(a) Each Borrower and each Subsidiary:

(i) has obtained all Required Permits, or has contracted with third parties
holding Required Permits, necessary for compliance with all Laws including the
Specified Laws, and all such Required Permits are current and each holder of
such Required Permits is in material compliance with the terms and conditions of
all such Required Permits;

(ii) has been operating in compliance in all material respects with all
reporting and regulatory requirements imposed upon it as well as the Specified
Laws, including reporting to FDA and other agencies of product deviations,
contamination or of device malfunctions and/or device-related serious injuries
or deaths and reporting to FDA of Corrections or Removals, when and as required
under the FDCA;

 

3

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(iii) has not, and none of its officers, directors, employees, shareholders,
their agents or affiliates have, made an untrue statement of material fact or
fraudulent statement to the FDA or failed to disclose a material fact required
to be disclosed to the FDA, committed an act, made a statement, or failed to
make a statement that could reasonably be expected to provide a basis for the
FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts,
Bribery, and Illegal Gratuities,” set forth in 56 Fed. Regulation 46191
(September 10, 1991);

(iv) has not received any notice that any Governmental Authority, including the
FDA, the Office of the Inspector General of HHS, the United States Department of
Justice or any equivalent foreign agency, has commenced or threatened to
initiate any action to enjoin a Credit Party, or any of its officers, directors,
employees, shareholders, agents or Affiliates, from conducting their respective
businesses at any facility owned or used by any of them, or for any material
civil penalty, injunction, seizure or criminal action, or which would result in
the revocation, transfer, surrender, suspension or other material impairment of
any Required Permit;

(v) is not a participant in any federal program whereby any federal, state or
local government or quasi-governmental body, agency, board or other authority
may have the right to recover funds by reason of the advance of federal funds,
including those authorized under the Hill-Burton Act (42 U.S.C. 291, et seq.);

(vi) has not been threatened to be (A) excluded from United States health care
programs pursuant to 42 U.S.C. §1320a7 and related regulations, (B) “suspended”
or “debarred” from selling products to the United States government or its
agencies pursuant to the Federal Acquisition Regulation, relating to debarment
and suspension applicable to federal government agencies generally (48 C.F.R.
Subpart 9.4), or other applicable laws or regulations, or (C) made a party to
any other action by any governmental authority that may prohibit it from selling
products to any governmental or other purchaser pursuant to any Law;

(vii) is in material compliance with all Environmental Laws;

(viii) maintains or causes to be maintained a standard of care in the storage,
use, transportation and disposal of all Products, medical equipment, medical
supplies, medical products, human tissue and medical waste, of any kind and in
any form, that is at least comparable to that which exists on the date of this
Agreement and that is in conformity in all material respects with all applicable
regulations and Laws;

(ix) except as set forth on Schedule 3.25(a)(ix), has not received from the FDA
at any time Warning Letters, Form FDA-483 inspection reports, “Untitled Letter,”
other correspondence or notice setting forth allegedly objectionable
observations or alleged violations of laws and regulations enforced by the FDA,
including the FDCA, or any comparable correspondence from any state or local
authority responsible for regulating medical device products and establishments,
or any comparable correspondence from any foreign counterpart of the FDA, or any
comparable correspondence from any foreign counterpart of any state or local
authority with regard to any Product or the manufacture, processing, packing, or
holding thereof;

(x) except as set forth on Schedule 3.25(a)(x), has not engaged in any Recalls,
Market Withdrawals, or other forms of product retrieval from the marketplace of
any Products at any time;

(xi) has entered into an agreement with a reputable and qualified Person for the
transport and disposal of hazardous wastes pursuant to which such Person has
agreed to provide such transport and disposal services at all facilities at
which such biomedical wastes and hazardous wastes are

 

4

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

generated in conformity in all material respects with all applicable regulations
and Laws and such Transport and Disposal Agreement remains in full force and
effect;

(xii) maintains or causes to be maintained a policy that prevents the exposure
of employees or contractors to bloodborne pathogens by prohibiting staff from
handling returned or used Product if such Product is not received in a
decontaminated manner;

(xiii) has implemented or is causing to be implemented all corrective actions
agreed to in response to observations and/or deficiencies noted in any
inspection or audit by any Governmental Authority or other licensing
organization at each respective facility, including but not limited to the
corrective actions outlined in Borrowers’ response to the FDA dated November 26,
2003 to address deficiencies raised in the FDA Form 483 issued to Borrowers on
November 18, 2003;

(xiv) conducts sufficient and regular internal quality audits, evaluations of
suppliers/contractors, and conducts management review meetings at regularly
defined intervals in compliance with Specified Laws;

(xv) has initiated the implementation of a procedure for validation of software
according to established procedures governing process and software validation;

(xvi) has ensured that process controls including those dealing with
“passivation” are conducted in accordance with documented instructions and
standard operating procedures;

(xvii) has implemented a procedure to ensure that periodic inspections of
equipment and documentation of those inspections are conducted in accordance
with established procedures to ensure adherence to applicable maintenance
schedules;

(xviii) has implemented a procedure for the visual inspection of microscopes and
other equipment to ensure that schedules for the adjustment, cleaning and other
maintenance of equipment are established and implemented;

(xix) has implemented a procedure to perform integrity testing on sterile
product sampled from finished goods inventory to include acceptance criteria to
be established and documented as well as requirements for remedial action in
event of failure;

(xx) has taken all actions necessary to ensure that the procedures inkling work
instructions necessary for implementing corrective and preventive actions are
complete and implemented;

(xxi) has taken all actions to ensure that the procedure to ensure that
equipment is routinely calibrated is complete and that appropriate training is
conducted to ensure that these actions are carried out; and

(xxii) has ensured that adequate staff to perform regulatory functions is in
place and that all individuals holding responsibility for regulatory functions,
in a management or supervisory capacity, possess the requisite experience,
training and certifications to carry out their job responsibilities.

(b) With respect to Products:

(i) No Borrower or any Subsidiary of any Borrower has acquired, received, or
otherwise transferred any human tissue or organs for valuable consideration for
use in human transplantation, in violation of any Law;

(ii) Schedule 3.25 (b)(ii) hereto lists all Required Permits issued by a
Governmental Authority in North America relating to a Product and/or the
applicable Borrower’s manufacture, sale, development, testing or marketing
thereof maintained by Borrowers as of the Closing Date, together with

 

5

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

the applicable Product category corresponding to the Required Permits. Borrowers
have delivered to Administrative Agent on or prior to the Closing Date copies of
all such Required Permits. If, after the Closing Date, any Borrower acquires or
renews any Required Permit issued by a Governmental Authority in North America
relating to a Product and/or the applicable Borrower’s manufacture, sale,
development, testing or marketing thereof issued, such Borrower shall promptly
deliver a copy of such new or renewed Required Permit along with a copy of an
amended and restated Schedule 3.25 (b)(ii);

(iii) Each Product commercially distributed within the past 12 months is not
adulterated or misbranded within the meaning of the FDCA;

(iv) Each Product is not an article prohibited from introduction into interstate
commerce under the provisions of Sections 510(k) or 515 of the FDCA;

(v) Each Product has been and/or shall be manufactured, imported, possessed,
owned, warehoused, marketed, promoted, sold, labeled, furnished, distributed and
marketed in accordance with all applicable Permits and Laws, including but not
limited to the FDCA;

(vi) Each Product has been and/or shall be designed and manufactured in
accordance with Good Manufacturing Practice as defined in the Quality System
Regulation 21 C.F.R. Part 820 and Current Good Tissue Practice, 21 CFR Part 1271
(Subpart D);

(vii) Without limiting the generality of Section 3.25(a)(i) above, with respect
to any Product being tested or manufactured by any Borrower or any Subsidiary of
any Borrower, such Person has received, and such Product shall be the subject
of, all Required Permits needed in connection with the testing or manufacture of
such Product as such testing is currently being conducted by or on behalf of
such Person, and such Person has not received any notice from any applicable
Government Authority, including the FDA, that such Government Authority is
conducting an investigation or review of (A) such Person’s manufacturing
facilities and processes for such Product which have disclosed any material
deficiencies or violations of Laws (including healthcare laws) and/or the
Required Permits related to the manufacture of such Product, or (B) any such
Required Permit or that any such Required Permit has been revoked or withdrawn,
nor has any such Governmental Authority issued any order or recommendation
stating that the development, testing and/or manufacturing of such Product by
such Person should cease;

(viii) Without limiting the generality of Section 3.25(a)(i) above, with respect
to any Product marketed or sold by any Borrower or any Subsidiary of any
Borrower, such Person shall have received, and such Product shall be the subject
of, all Required Permits needed in connection with the marketing and sales of
such Product as currently being marketed or sold by such Person, and such Person
has not received any notice from any applicable Governmental Authority,
including the FDA, that such Governmental Authority is conducting an
investigation or review of any such Required Permit or approval or that any such
Required Permit has been revoked or withdrawn, nor has any such Governmental
Authority issued any order or recommendation stating that such marketing or
sales of such Product cease or that such Product be withdrawn from the
marketplace; and

(ix) Borrowers and their Subsidiaries have not experienced any significant
failures in their manufacturing of any Product such that the amount of such
Product successfully manufactured by them in accordance with all specifications
thereof and the Required Payments related thereto in any month shall decrease
significantly with respect to the quantities of such Product produced in the
prior month.

(c) Neither the execution nor performance by any Borrower or any of its
Subsidiaries of any Financing Documents or other Operative Documents, nor the
exercise of any remedies by any party thereunder, will adversely affect any of
the Required Permits.

 

6

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

Section 3 Additional Affirmative Covenants. The following is hereby appended to
the Credit Agreement as new Section 4.15:

Section 4.15 Covenants Regarding Products and Compliance with Required Permits.

(a) Without limiting the generality of Section 4.5, in connection with the
development, testing, manufacture, marketing or sale of each and any Product by
any Borrower or any of its Subsidiaries, such Person shall comply with all
Required Permits at all times issued by any Government Authority, including the
FDA, with respect to such development, testing, manufacture, marketing or sales
of such Product by such Person as such activities are at any such time being
conducted by such Person, including the timely filing (after giving effect to
any extension duly obtained) of all notifications, reports, submissions,
Required Permit renewals, cost reports and other reports of every kind
whatsoever required by Laws (which reports shall be materially accurate and
complete in all respects and not misleading in any respect and shall not remain
open or unsettled) and shall operate in a manner such that the Required Permits
remain in full force and effect.

(b) Without limiting the generality of Section 4.12, Borrowers shall immediately
and in any case within three (3) Business Days give written notice to
Administrative Agent upon any Borrower or any of its Subsidiaries becoming aware
that any of the representations and warranties set forth in this Regulatory
Rider with respect to any Product have become incorrect in any respect (provided
that, for the avoidance of doubt, the giving of such notice shall not cure or
result in the automatic waiver of any Default or Event of Default that may have
resulted from such breach of such representation or warranty).

(c) Borrowers and their Subsidiaries shall maintain in full force and effect an
agreement for the transport and disposal of hazardous wastes with respect to all
facilities at which such waste is generated.

(d) Borrowers and their Subsidiaries shall maintain or cause to be maintained a
policy that prevents the exposure of employees or contractors to bloodborne
pathogens by prohibiting staff from handling returned or used Product if such
Product is not received in a decontaminated manner.

(e) Borrower and their Subsidiaries shall maintain or cause to be maintained all
corrective actions agreed to in response to observations and/or deficiencies
noted in any inspection or audit by any Governmental Authority or other
licensing organization at each respective facility.

(f) Borrowers and their Subsidiaries shall conduct ongoing sufficient and
regular internal quality system audits, evaluations of suppliers/contractors,
and conduct management review meetings at defined intervals adequate to achieve
material compliance in accordance with Specified Laws.

(g) Borrowers and their Subsidiaries shall maintain or cause to be maintained a
procedure for validation of software according to established procedures
government process and software validation in accordance with Specified Laws.

(h) Borrowers and their Subsidiaries shall maintain or cause to be maintained
process controls including those dealing with “passivation” in accordance with
documented instructions and standard operating procedures and in material
compliance with Specified Laws.

(i) Borrowers and their Subsidiaries. shall maintain or cause to be maintained
procedures to ensure that periodic inspections of equipment and documentation of
those inspections are conducted to ensure adherence to applicable maintenance
schedules and in material compliance with Specified Laws.

(j) Borrowers and their Subsidiaries . shall maintain or cause to be maintained
procedures for the visual inspection of microscopes and other equipment to
ensure that schedules for the adjustment, cleaning and other maintenance or
equipment in material compliance with Specified Laws.

(k) Borrowers and their Subsidiaries shall maintain or cause to be maintained
procedures for integrity testing on sterile products sampled from finished goods
inventory to include acceptance criteria as well as remedial action. in event of
failure in material compliance with Specified Laws.

 

7

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(l) Borrowers and their Subsidiaries shall maintain or cause to be maintained
actions necessary to ensure that procedures for implementing corrective and
preventive actions are complete and are implemented in material compliance with
Specified Laws.

(m) Borrowers and their Subsidiaries shall maintain or cause to be maintained
procedures to define the control of environmental conditions to include
microbial sampling every two weeks in accordance with established procedures and
Specified Laws.

(n) Borrowers and their Subsidiaries shall maintain or cause to be maintained
all actions to ensure that procedures to ensure that equipment is routinely
calibrated is complete and that appropriate training is conducted to ensure that
these actions are carried out in material compliance with Specified Laws.

(o) Borrowers and their Subsidiaries shall maintain adequate staffing of
regulatory personnel with the requisite experience, training and certifications
to carry out their job responsibilities in compliance with Specified Laws.

Section 4 Additional Negative Covenants. The following sections are hereby
appended to the Credit Agreement as new Section 5.16 and new Section 5.17:

Section 5.16 Covenants Regarding Required Permits. No Credit Party shall
(a) suffer or permit to occur (i) any transfer of a Required Permit or rights
thereunder to any Person (other than a Borrower or Administrative Agent); or
(ii) any rescission, withdrawal, revocation, termination, amendment or
modification of or other alteration to the nature, tenor or scope of any
Required Permit except for any such amendment, modification or other alteration
the effect of which is to expand such Person’s business and which does not have
a Material Adverse Effect and does not materially adversely affect the
Administrative Agent’s rights and remedies with respect to the Collateral; or
(b) rescind, withdraw, revoke, amend, modify, supplement, or otherwise alter the
nature, tenor or scope of the Required Permits.

Section 5.17 Human Tissue or Organs. No Credit Party shall acquire, receive, or
otherwise transfer any human tissue or organs for valuable consideration for use
in human transplantation in violation of any Law.

Section 6 Events of Default. In addition to the events listed in Section 10.1,
the occurrence of any of the following conditions and/or events, whether
voluntary or involuntary, by operation of law or otherwise, shall constitute an
“Event of Default” under the Credit Agreement:

(a) the institution of any proceeding by FDA or similar Governmental Authority
to order the withdrawal of any Product or Product category from the market or to
enjoin the manufacturing, marketing, selling or distributing any Product or
Product category if the same could be reasonably expected to have a Material
Adverse Effect;

(b) the institution of any action or proceeding by any FDA or any other
Governmental Authority to revoke, suspend, reject, withdraw, limit, or restrict
any Required Permit held by any Borrower or any Subsidiary of any Borrower or
any representative of such Person if the same could reasonably be expected to
have a Material Adverse Effect;

(c) the commencement of any enforcement action against any Borrower or any
Subsidiary of any Borrower by FDA or any other Governmental Authority if such
enforcement action could reasonably be expected to have a Material Adverse
Effect;

(d) the recall of any Product from the market, the voluntary withdrawal of any
Product from the market, or actions to discontinue the sale of any Product, if
the same could reasonably be expected to have a Material Adverse Effect;

 

8

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

(e) the termination of any agreements with manufacturers that supply any Product
or any components of any Product or any changes to any agreements with
manufacturers that supply any Product or any components of any Product that
could reasonably be expected to have a Material Adverse Effect.

[SIGNATURES APPEAR ON FOLLOWING PAGE]

 

9

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.

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

IN WITNESS WHEREOF, intending to be legally bound, and intending that this
document constitute an instrument executed and delivered under seal, the
undersigned have executed this document under seal as of the date of the Credit
Agreement.

BORROWERS:

 

ALPHATEC HOLDINGS, INC. By:     Name:     Title:      

 

ALPHATEC SPINE, INC. By:     Name:     Title:      

 

NEXMED, INC. By:     Name:     Title:      

AGENT:

MERRILL LYNCH CAPITAL,

a division of Merrill Lynch Business Financial Services Inc.,

as Administrative Agent and a Lender

 

By:     Name:     Title:    

LENDERS:

MERRILL LYNCH CAPITAL,

a division of Merrill Lynch Business Financial Services Inc.,

as Lender

 

By:     Name:     Title:    

 

Portions of this Exhibit were omitted and have been filed separately with the
Secretary of the

Commission pursuant to the Company’s application requesting confidential
treatment under Rule

24b-2 of the Securities Exchange Act of 1934.