EXHIBIT 10.2

EXECUTION VERSION

 

 

 

CREDIT AGREEMENT

by and among

CRYOLIFE, INC.

and

EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO

as Borrowers,

and

WELLS FARGO FOOTHILL, INC.

as Lender

Dated as of February 8, 2005

 

 

 

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TABLE OF CONTENTS

 

              Page 1.   DEFINITIONS AND CONSTRUCTION    1  

1.1

   Definitions    1  

1.2

   Accounting Terms    1  

1.3

   Code    1  

1.4

   Construction    1  

1.5

   Schedules and Exhibits    1

2.

  LOAN AND TERMS OF PAYMENT    2  

2.1

   Revolver Advances    2  

2.3

   Borrowing Procedures and Settlements    2  

2.4

   Payments    2  

2.5

   Overadvances    4  

2.6

   Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations   
4  

2.7

   Cash Management    5  

2.8

   Crediting Payments; Clearance Charge    6  

2.9

   Designated Account    6  

2.10

   Maintenance of Loan Account; Statements of Obligations    7  

2.11

   Fees    7  

2.12

   Letters of Credit    7  

2.13

   Intentionally Omitted    9  

2.14

   Capital Requirements    9  

2.15

   Joint and Several Liability of Borrowers    9

3.

  CONDITIONS; TERM OF AGREEMENT    11  

3.1

   Conditions Precedent to the Initial Extension of Credit    11  

3.2

   Conditions Precedent to all Extensions of Credit    11  

3.3

   Term    12  

3.4

   Effect of Termination    12  

3.5

   Early Termination by Borrowers    12

4.

  REPRESENTATIONS AND WARRANTIES    12  

4.1

   No Encumbrances    12  

4.2

   Intentionally Omitted    12  

4.3

   Intentionally Omitted    13  

4.4

   Equipment    13  

4.5

   Location of Inventory and Equipment    13

 

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TABLE OF CONTENTS

(continued)

 

              Page   4.6    Inventory Records    13  

4.7

   State of Incorporation; Location of Chief Executive Office; Organizational
Identification Number; Commercial Tort Claims    13  

4.8

   Due Organization and Qualification; Subsidiaries    13  

4.9

   Due Authorization; No Conflict    14  

4.10

   Litigation    15  

4.11

   No Material Adverse Change    15  

4.12

   Fraudulent Transfer    15  

4.13

   Employee Benefits    15  

4.14

   Environmental Condition    15  

4.15

   Intellectual Property    15  

4.16

   Leases    16  

4.17

   Deposit Accounts and Securities Accounts    16  

4.18

   Complete Disclosure    16  

4.19

   Indebtedness    16

5.

  AFFIRMATIVE COVENANTS    16  

5.1

   Accounting System    16  

5.2

   Collateral Reporting    16  

5.3

   Financial Statements, Reports, Certificates    16  

5.4

   Intentionally Omitted    16  

5.5

   Inspection    17  

5.6

   Maintenance of Properties    17  

5.7

   Taxes    17  

5.8

   Insurance; Litigation Settlement    17  

5.9

   Location of Inventory and Equipment    18  

5.10

   Compliance with Laws    18  

5.11

   Leases    18  

5.12

   Existence    18  

5.13

   Environmental    18  

5.14

   Disclosure Updates    19  

5.16

   Formation of Subsidiaries    19

6.

  NEGATIVE COVENANTS    19  

6.1

   Indebtedness    19  

6.2

   Liens    20

 

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TABLE OF CONTENTS

(continued)

 

              Page   6.3    Restrictions on Fundamental Changes    20  

6.4

   Disposal of Assets    21  

6.5

   Change Name    21  

6.6

   Nature of Business    21  

6.7

   Prepayments and Amendments    21  

6.8

   Change of Control    21  

6.9

   Consignments    21  

6.10

   Distributions    21  

6.11

   Accounting Methods    21  

6.12

   Investments    22  

6.13

   Transactions with Affiliates    22  

6.14

   Use of Proceeds    22  

6.15

   Inventory and Equipment with Bailees    22  

6.16

   Financial Covenants    22

7.

  EVENTS OF DEFAULT    23

8.

  LENDER’S RIGHTS AND REMEDIES    25  

8.1

   Rights and Remedies    25  

8.2

   Remedies Cumulative    25  

8.3

   Bank Product Providers    25

9.

  TAXES AND EXPENSES    25

10.

  WAIVERS; INDEMNIFICATION    26  

10.1

   Demand; Protest; etc.    26  

10.2

   Lender’s Liability for Borrower Collateral    26  

10.3

   Indemnification    26

11.

  NOTICES    26

12.

  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER    27

13.

  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS    28  

13.1

   Assignments and Participations    28  

13.2

   Successors    30

14.

  AMENDMENTS; WAIVERS    30  

14.1

   Amendments and Waivers    30  

14.2

   No Waivers; Cumulative Remedies    30

15.

  GENERAL PROVISIONS    30

 

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TABLE OF CONTENTS

(continued)

 

              Page   15.1    Effectiveness    30  

15.2

   Section Headings    30  

15.3

   Interpretation    30  

15.4

   Severability of Provisions    30  

15.5

   Withholding Taxes    31  

15.6

   Counterparts; Electronic Execution    31  

15.7

   Revival and Reinstatement of Obligations    31  

15.8

   Confidentiality    31  

15.9

   Integration    32  

15.10

   Parent as Agent for Borrowers    32

 

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EXHIBITS AND SCHEDULES

 

Exhibit A-1

   Form of Assignment and Acceptance

Exhibit C-1

   Form of Compliance Certificate

Schedule 1.1

   Definitions

Schedule 2.7(a)

   Cash Management Banks

Schedule 3.1

   Conditions Precedent

Schedule 4.5

   Locations of Inventory and Equipment

Schedule 4.7(a)

   States of Organization

Schedule 4.7(b)

   Chief Executive Offices

Schedule 4.7(c)

   Organizational Identification Numbers

Schedule 4.7(d)

   Commercial Tort Claims

Schedule 4.8(b)

   Capitalization of Borrowers

Schedule 4.8(c)

   Capitalization of Borrowers’ Subsidiaries

Schedule 4.10

   Litigation

Schedule 4.14

   Environmental Matters

Schedule 4.15

   Intellectual Property

Schedule 4.19

   Permitted Indebtedness

Schedule 5.2

   Collateral Reporting

Schedule 5.3

   Financial Statements, Reports, Certificates

Schedule 6.7

   Capitalized Lease Obligations to be Prepaid on Closing Date

Schedule D-1

   Designated Account

Schedule L-1

   Lender’s Account

Schedule P-1

   Permitted Cash Investments

Schedule P-2

   Permitted Liens

 

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of February 8,
2005, by and among, on the one hand, WELLS FARGO FOOTHILL, INC., a California
corporation (“Lender”), and, on the other hand, CRYOLIFE, INC., a Florida
corporation (“Parent”), and each of Parent’s Subsidiaries identified on the
signature pages hereof (such Subsidiaries, together with Parent, are referred to
hereinafter each individually as a “Borrower”, and individually and
collectively, jointly and severally, as the “Borrowers”).

The parties agree as follows:

 

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. Capitalized terms used in this Agreement shall have the
meanings specified therefor on Schedule 1.1.

1.2 Accounting Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP. When used herein, the term “financial
statements” shall include the notes and schedules thereto. Whenever the term
“Borrowers” or the term “Parent” is used in respect of a financial covenant or a
related definition, it shall be understood to mean Parent and its Subsidiaries
on a consolidated basis unless the context clearly requires otherwise.

1.3 Code. Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein,
provided, however, that to the extent that the Code is used to define any term
herein and such term is defined differently in different Articles of the Code,
the definition of such term contained in Article 9 shall govern.

1.4 Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in the other Loan
Documents to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any Event of Default shall “exist,”
“continue” or be “continuing” until such Event of Default has been waived in
writing in accordance with Section 14.1. Any reference herein to the
satisfaction or repayment in full of the Obligations shall mean the repayment in
full in cash (or cash collateralization in accordance with the terms hereof) of
all Obligations other than contingent indemnification Obligations and other than
any Bank Product Obligations that, at such time, are allowed by the applicable
Bank Product Provider to remain outstanding and are not required to be repaid or
cash collateralized pursuant to the provisions of this Agreement. Any reference
herein to any Person shall be construed to include such Person’s successors and
assigns. Any requirement of a writing contained herein or in the other Loan
Documents shall be satisfied by the transmission of a Record and any Record
transmitted shall constitute a representation and warranty as to the accuracy
and completeness of the information contained therein.

1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.

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2. LOAN AND TERMS OF PAYMENT.

2.1 Revolver Advances.

(a) Subject to the terms and conditions of this Agreement, and during the term
of this Agreement, Lender agrees to make advances (“Advances”) to Borrowers in
an amount at any one time outstanding not to exceed an amount equal to the
lesser of (i) the Maximum Revolver Amount less the Letter of Credit Usage, or
(ii) the Borrowing Base less the Letter of Credit Usage.

(b) Anything to the contrary in this Section 2.1 notwithstanding, Lender shall
have the right to establish reserves in such amounts, and with respect to such
matters, as Lender in its Permitted Discretion shall deem necessary or
appropriate, against the Borrowing Base, including reserves (i) with respect to
(A) sums that Borrowers are required to pay by any Section of this Agreement or
any other Loan Document (such as taxes, assessments, insurance premiums, or, in
the case of leased assets, rents or other amounts payable under such leases) and
have failed to pay, and (B) amounts owing by Borrowers or their Subsidiaries to
any Person to the extent secured by a Lien on, or trust over, any of the
Collateral (other than a Permitted Lien), which Lien or trust, in the Permitted
Discretion of Lender likely would have a priority superior to the Lender’s Liens
(such as Liens or trusts in favor of landlords, warehousemen, carriers,
mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad
valorem, excise, sales, or other taxes where given priority under applicable
law) in and to such item of the Collateral, and (ii) after the occurrence and
during the continuance of an Event of Default, with respect to such other
matters as Lender in its Permitted Discretion shall deem necessary or
appropriate. In addition to the foregoing, Lender shall have the right to have
the Borrower’s business reappraised by a qualified appraisal company selected by
Lender from time to time after the occurrence of a Default or Event of Default
for the purpose of redetermining the Enterprise Valuation and, as a result,
redetermining the Borrowing Base.

(c) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to
the terms and conditions of this Agreement, reborrowed at any time during the
term of this Agreement.

2.2 Intentionally omitted.

2.3 Borrowing Procedures and Settlements.

(a) Procedure for Borrowing. Each Borrowing shall be made by an irrevocable
written request by an Authorized Person delivered to Lender. Such notice must be
received by Lender no later than 10:00 a.m. (California time) on the Business
Day that is the requested Funding Date specifying (i) the amount of such
Borrowing, and (ii) the requested Funding Date, which shall be a Business Day.
At Lender’s election, in lieu of delivering the above-described written request,
any Authorized Person may give Lender telephonic notice of such request by the
required time. In such circumstances, Borrowers agree that any such telephonic
notice will be confirmed in writing within 24 hours of the giving of such
telephonic notice, but the failure to provide such written confirmation shall
not affect the validity of the request.

(b) Making of Advances. If Lender has received a timely request for a Borrowing
in accordance with the provisions hereof, and subject to the satisfaction of the
applicable terms and conditions set forth herein, Lender shall make the proceeds
of such Advance available to Borrowers on the applicable Funding Date by
transferring available funds equal to such proceeds to Administrative Borrower’s
Designated Account.

2.4 Payments.

(a) Payments by Borrowers. Except as otherwise expressly provided herein, all
payments by Borrowers shall be made to Lender’s Account for the account of
Lender and shall be made in immediately available funds, no later than 11:00
a.m. (California time) on the date specified herein. Any

 

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payment received by Lender later than 11:00 a.m. (California time), shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue until such following Business Day.

(b) Apportionment and Application.

(i) All payments shall be remitted to Lender and all such payments, and all
proceeds of Collateral received by Lender, shall be applied as follows:

(A) first, to pay any Lender Expenses then due to Lender under the Loan
Documents, until paid in full,

(B) second, to pay any fees or premiums then due to Lender under the Loan
Documents until paid in full,

(C) third, to pay interest due in respect of Advances until paid in full,

(D) fourth, so long as no Event of Default has occurred and is continuing, and
at Lender’s election, to pay amounts then due and owing by Administrative
Borrower or its Subsidiaries in respect of Bank Products, until paid in full,

(E) fifth, so long as no Event of Default has occurred and is continuing, to pay
the principal of all Advances until paid in full,

(F) sixth, if an Event of Default has occurred and is continuing, ratably (i) to
pay the principal of all Advances until paid in full, (ii) to Lender, to be held
by Lender as cash collateral in an amount up to 105% of the Letter of Credit
Usage until paid in full, and (iii) to Lender, to be held by Lender, for the
benefit of the Bank Product Providers, as cash collateral in an amount up to the
amount of the Bank Product Reserve established prior to the occurrence of, and
not in contemplation of, the subject Event of Default until Borrowers’ and their
Subsidiaries’ obligations in respect of Bank Products have been paid in full or
the cash collateral amount has been exhausted,

(G) seventh, if an Event of Default has occurred and is continuing, to pay any
other Obligations (including the provision of amounts to Lender, to be held by
Lender, for the benefit of the Bank Product Providers, as cash collateral in an
amount up to the amount determined by Lender in its Permitted Discretion as the
amount necessary to secure Borrowers’ and its Subsidiaries’ obligations in
respect of Bank Products), and

(H) eighth, to Borrowers (to be wired to the Designated Account) or such other
Person entitled thereto under applicable law; provided, however, that any such
amount remitted to Borrowers from a Lender Deposit Account shall be limited to
the amount of collected funds in such account (after payment of the amounts
described in items (A) through (G) above) in excess of $10,000 (which $10,000
amount shall be held in such account as cash collateral (i) to pay any amounts
due to the applicable depository bank from time to time in respect of such
account or any lockbox services provided by such depository bank in connection
with such account which are not otherwise paid by Borrowers directly, through a
debit against the Designated Account or otherwise or (ii) to pay any other
Obligations that may be due from time to time).

(ii) In each instance, so long as no Event of Default has occurred and is
continuing, this Section 2.4(b) shall not apply to any payment made by Borrowers
to Lender and specified by Borrowers to be for the payment of specific
Obligations then due and payable (or prepayable) under any provision of this
Agreement.

 

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(iii) For purposes of the foregoing, “paid in full” means payment of all amounts
owing under the Loan Documents according to the terms thereof, including loan
fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default
interest, interest on interest, and expense reimbursements, whether or not any
of the foregoing would be or is allowed or disallowed in whole or in part in any
Insolvency Proceeding.

(iv) In the event of a direct conflict between the priority provisions of this
Section 2.4 and other provisions contained in any other Loan Document, it is the
intention of the parties hereto that such priority provisions in such documents
shall be read together and construed, to the fullest extent possible, to be in
concert with each other. In the event of any actual, irreconcilable conflict
that cannot be resolved as aforesaid, the terms and provisions of this
Section 2.4 shall control and govern.

2.5 Overadvances. If, at any time or for any reason, the amount of Obligations
owed by Borrowers to Lender pursuant to Section 2.1 or Section 2.12 is greater
than any of the limitations set forth in Section 2.1 or Section 2.12, as
applicable (an “Overadvance”), Borrowers immediately shall pay to Lender, in
cash, the amount of such excess, which amount shall be used by Lender to reduce
the Obligations in accordance with the priorities set forth in Section 2.4(b).
In addition, Borrowers hereby promise to pay the Obligations (including
principal, interest, fees, costs, and expenses) in Dollars in full as and when
due and payable under the terms of this Agreement and the other Loan Documents.

2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.

(a) Interest Rates. Except as provided in clause (c) below, all Obligations
(except for undrawn Letters of Credit and except for Bank Product Obligations)
that have been charged to the Loan Account pursuant to the terms hereof shall
bear interest on the Daily Balance thereof at a per annum rate equal to the Base
Rate plus the Base Rate Margin.

The foregoing notwithstanding, at no time shall any portion of the Obligations
(other than Bank Product Obligations) bear interest on the Daily Balance thereof
at a per annum rate less than 5.25%. To the extent that interest accrued
hereunder at the rate set forth herein would be less than the foregoing minimum
daily rate, the interest rate chargeable hereunder for such day automatically
shall be deemed increased to the minimum rate.

(b) Letter of Credit Fee. Borrowers shall pay Lender a Letter of Credit fee (in
addition to the charges, commissions, fees, and costs set forth in
Section 2.12(d)) which shall accrue at a rate equal to 2.00% per annum times the
Daily Balance of the undrawn amount of all outstanding Letters of Credit.

(c) Default Rate. Upon the occurrence and during the continuation of an Event of
Default (and at the election of Lender),

(i) all Obligations (except for undrawn Letters of Credit and except for Bank
Product Obligations) that have been charged to the Loan Account pursuant to the
terms hereof shall bear interest on the Daily Balance thereof at a per annum
rate equal to 2 percentage points above the per annum rate otherwise applicable
hereunder, and

(ii) the Letter of Credit fee provided for above shall be increased to 2
percentage points above the per annum rate otherwise applicable hereunder.

(d) Payment. Except as provided to the contrary in Section 2.11, interest,
Letter of Credit fees, and all other fees payable hereunder shall be due and
payable, in arrears, on the first day of each month at any time that any
Obligations are outstanding or at any time that Lender has an obligation to
extend credit hereunder. Borrowers hereby authorize Lender, from time to time,
without prior notice to Borrowers,

 

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to charge all interest and fees (when due and payable), all Lender Expenses (as
and when incurred), all charges, commissions, fees, and costs provided for in
Section 2.12(e) (as and when accrued or incurred), all fees and costs provided
for in Section 2.11 (as and when accrued or incurred), and all other payments as
and when due and payable under any Loan Document (including any amounts due and
payable to the Bank Product Providers in respect of Bank Products up to the
amount of the Bank Product Reserve) to Borrowers’ Loan Account, which amounts
thereafter shall constitute Advances hereunder and shall accrue interest at the
rate then applicable to Advances hereunder. Any interest not paid when due shall
be compounded by being charged to Borrowers’ Loan Account and shall thereafter
constitute Advances hereunder and shall accrue interest at the rate then
applicable to Advances.

(e) Computation. All interest and fees chargeable under the Loan Documents shall
be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.

(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrowers and Lender, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto, as of the
date of this Agreement, Borrowers are and shall be liable only for the payment
of such maximum as allowed by law, and payment received from Borrowers in excess
of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.

2.7 Cash Management.

(a) Borrowers shall and shall cause each of their Subsidiaries to establish and
maintain cash management services of a type and on terms satisfactory to Lender
at one or more of the banks or securities intermediaries set forth on Schedule
2.7(a) (each a “Cash Management Bank”). Borrowers shall and shall cause each of
their Subsidiaries to (i) request in writing and otherwise take such reasonable
steps to ensure that all of their and their Subsidiaries’ Account Debtors
forward payment of the amounts owed by them directly to a Cash Management
Account with respect to which the applicable Borrower or Subsidiary has
delivered to Lender a Control Agreement or an account with respect to which
Lender is the customer of the depository bank (each a “Lender Deposit Account”),
and (ii) deposit or cause to be deposited promptly, and in any event no later
than the first Business Day after the date of receipt thereof, all of their
Collections (including those sent directly by their Account Debtors to Borrowers
or their Subsidiaries) into a Cash Management Account with respect to which the
applicable Borrower or Subsidiary has delivered a Control Agreement or a Lender
Deposit Account; provided, however, that foreign Account Debtors of CryoLife
Europa Ltd. may make payments directly to an Excluded Account and any
Collections received by CryoLife Europa Ltd. in respect of its foreign Account
Debtors may be deposited into an Excluded Account.

(b) Each Cash Management Bank shall establish and maintain Control Agreements
with Lender and a Borrower or Subsidiary of a Borrower, as applicable, in form
and substance acceptable to Lender; provided, however, that Borrowers and their
Subsidiaries shall not be required to deliver a Control Agreement with respect
to any Deposit Account or Securities Account so long as the aggregate balance in
all such accounts not subject to Control Agreements does not exceed in the
aggregate $5,000,000 at any time (or, if either (i) Parent has not received at
least $15,000,000 in net proceeds from an offering of Stock on or before
March 31, 2005 or (ii) at any time after March 31, 2005, the collected balance
in Cash Management Accounts subject to Control Agreements is less than
$10,000,000 in the aggregate, such $5,000,000 limit shall be reduced to
$2,000,000 from and after March 31, 2005 or, in the case of clause (ii), from
and after the date such collected balance in Cash Management Accounts subject to
Control Agreements is less than

 

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$10,000,000 in the aggregate) (collectively, such accounts with respect to which
a Control Agreement is not required, the “Excluded Accounts” and each an
“Excluded Account”). Each such Control Agreement shall provide, among other
things, that (i) the Cash Management Bank will comply with any instructions
originated by Lender directing the disposition of the funds in such Deposit
Account (or, in the case of a Securities Account, entitlement orders originated
by Lender) without further consent by Borrowers or their Subsidiaries, as
applicable, (ii) the Cash Management Bank has no rights of setoff or recoupment
or any other claim against the applicable Deposit Account or Securities Account,
other than for payment of its service fees and other charges directly related to
the administration of such account and, in the case of a Deposit Account, for
returned checks or other items of payment, and (iii) upon written notice by
Lender without further consent by Borrower or their Subsidiaries, it will
forward by daily sweep all amounts in the applicable Deposit Account or
Securities Account to the Lender’s Account. Notwithstanding the foregoing,
Lender agrees that it shall not send any such notice or otherwise direct the
disposition of funds in any such Cash Management Account unless and until an
Event of Default has occurred or Excess Availability first drops below
$7,500,000 after the Closing Date.

(c) So long as no Default or Event of Default has occurred and is continuing,
Administrative Borrower may amend Schedule 2.7(a) to add or replace a Cash
Management Bank or Cash Management Account; provided, however, that (i) such
prospective Cash Management Bank shall be reasonably satisfactory to Lender, and
(ii) unless such account is an Excluded Account, prior to the time of the
opening of such Cash Management Account, a Borrower or its Subsidiary, as
applicable, and such prospective Cash Management Bank shall have executed and
delivered to Lender a Control Agreement. Borrowers (or their Subsidiaries, as
applicable) shall close any of their Cash Management Accounts (and establish
replacement cash management accounts in accordance with the foregoing sentence)
promptly and in any event within 30 days of notice from Lender that such Cash
Management Bank no longer has an issuer credit rating of A2 or A or better from
Moody’s or S&P, respectively, and is no longer acceptable to Lender in Lender’s
reasonable judgment, or as promptly as practicable and in any event within 60
days of notice from Lender that the operating performance, funds transfer, or
availability procedures or performance of such Cash Management Bank with respect
to such accounts or Lender’s liability under any Control Agreement with such
Cash Management Bank is no longer acceptable in Lender’s reasonable judgment.

(d) Except for the Excluded Accounts, all Cash Management Accounts shall be cash
collateral accounts subject to Control Agreements.

2.8 Crediting Payments; Clearance Charge. The receipt of any payment item by
Lender (whether from transfers to Lender by the Cash Management Banks pursuant
to the Control Agreements or otherwise) shall not be considered a payment on
account unless such payment item is a wire transfer of immediately available
federal funds made to the Lender’s Account or unless and until such payment item
is honored when presented for payment. Should any payment item not be honored
when presented for payment, then Borrowers shall be deemed not to have made such
payment and interest shall be calculated accordingly. Anything to the contrary
contained herein notwithstanding, any payment item shall be deemed received by
Lender only if it is received into the Lender’s Account on a Business Day on or
before 11:00 a.m. (California time). If any payment item is received into the
Lender’s Account on a non-Business Day or after 11:00 a.m. (California time) on
a Business Day, it shall be deemed to have been received by Lender as of the
opening of business on the immediately following Business Day. The parties
acknowledge and agree that the economic benefit of the foregoing provisions of
this Section 2.8 shall be for the exclusive benefit of Lender.

2.9 Designated Account. Lender is authorized to make the Advances, and Lender is
authorized to issue the Letters of Credit, under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person or, without instructions, if pursuant to Section 2.6(d).
Administrative Borrower agrees to establish and maintain the Designated Account
with the Designated Account Bank for the purpose of receiving the proceeds of
the Advances requested by Borrowers and made by Lender hereunder. Unless
otherwise agreed by Lender and Administrative Borrower, any Advance requested by
Borrowers and made by Lender hereunder shall be made to the Designated Account.

 

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2.10 Maintenance of Loan Account; Statements of Obligations. Lender shall
maintain an account on its books in the name of Borrowers (the “Loan Account”)
on which Borrowers will be charged with, all Advances made by Lender to
Borrowers or for Borrowers’ account, the Letters of Credit issued by Lender for
Borrowers’ account, and with all other payment Obligations hereunder or under
the other Loan Documents (except for Bank Product Obligations), including,
accrued interest, fees and expenses, and Lender Expenses. In accordance with
Section 2.8, the Loan Account will be credited with all payments received by
Lender from Borrowers or for Borrowers’ account, including all amounts received
in the Lender’s Account from any Cash Management Bank. Lender shall render
statements regarding the Loan Account to Administrative Borrower, including
principal, interest, fees, and including an itemization of all charges and
expenses constituting Lender Expenses owing, and such statements, absent
manifest error, shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrowers and Lender unless, within 30 days
after receipt thereof by Administrative Borrower, Administrative Borrower shall
deliver to Lender written objection thereto describing the error or errors
contained in any such statements.

2.11 Fees. Borrowers shall pay to Lender, as and when due and payable under the
terms of the Fee Letter, the fees set forth in the Fee Letter.

2.12 Letters of Credit.

(a) Subject to the terms and conditions of this Agreement, Lender agrees to
issue letters of credit for the account of Borrowers (each, an “L/C”) or to
purchase participations or execute indemnities or reimbursement obligations
(each such undertaking, an “L/C Undertaking”) with respect to letters of credit
issued by an Underlying Issuer (as of the Closing Date, the prospective
Underlying Issuer is to be Wells Fargo) for the account of Borrowers. Each
request for the issuance of a Letter of Credit or the amendment, renewal, or
extension of any outstanding Letter of Credit shall be made in writing by an
Authorized Person and delivered to Lender via hand delivery, telefacsimile, or
other electronic method of transmission reasonably in advance of the requested
date of issuance, amendment, renewal, or extension. Each such request shall be
in form and substance satisfactory to Lender in its Permitted Discretion and
shall specify (i) the amount of such Letter of Credit, (ii) the date of
issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the
expiration date of such Letter of Credit, (iv) the name and address of the
beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as
applicable), and (v) such other information (including, in the case of an
amendment, renewal, or extension, identification of the outstanding Letter of
Credit to be so amended, renewed, or extended) as shall be necessary to prepare,
amend, renew, or extend such Letter of Credit. If requested by Lender, Borrowers
also shall be an applicant under the application with respect to any Underlying
Letter of Credit that is to be the subject of an L/C Undertaking. Lender shall
have no obligation to issue a Letter of Credit if any of the following would
result after giving effect to the issuance of such requested Letter of Credit:

(i) the Letter of Credit Usage would exceed the Borrowing Base less the
outstanding amount of Advances, or

(ii) the Letter of Credit Usage would exceed $2,000,000, or

(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less
the outstanding amount of Advances.

Borrowers and Lender acknowledge and agree that certain Underlying Letters of
Credit may be issued to support letters of credit that already are outstanding
as of the Closing Date. Each Letter of Credit (and corresponding Underlying
Letter of Credit) shall be in form and substance acceptable to Lender (in the
exercise of its Permitted Discretion), including the requirement that the
amounts payable thereunder must be payable in Dollars. If Lender is obligated to
advance funds under a Letter of Credit, Borrowers immediately shall reimburse
such L/C Disbursement to Lender by paying to Lender an amount equal to such L/C
Disbursement not later than 11:00 a.m., California time, on the date that such
L/C Disbursement is made, if

 

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Administrative Borrower shall have received written or telephonic notice of such
L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such
notice has not been received by Administrative Borrower prior to such time on
such date, then not later than 11:00 a.m., California time, on the Business Day
that Administrative Borrower receives such notice, if such notice is received
prior to 10:00 a.m., California time, on the date of receipt, and, in the
absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances under Section 2.6. To the
extent an L/C Disbursement is deemed to be an Advance hereunder, Borrowers’
obligation to reimburse such L/C Disbursement shall be discharged and replaced
by the resulting Advance.

(b) Each Borrower hereby agrees to indemnify, save, defend, and hold Lender
harmless from any loss, cost, expense, or liability, and reasonable attorneys
fees incurred by Lender arising out of or in connection with any Letter of
Credit; provided, however, that no Borrower shall be obligated hereunder to
indemnify for any loss, cost, expense, or liability to the extent that it is
caused by the gross negligence or willful misconduct of Lender. Each Borrower
agrees to be bound by the Underlying Issuer’s regulations and interpretations of
any Underlying Letter of Credit or by Lender’s interpretations of any L/C issued
by Lender to or for such Borrower’s account, even though this interpretation may
be different from such Borrower’s own, and each Borrower understands and agrees
that Lender shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrowers’ instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Each Borrower understands that the L/C Undertakings may
require Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrowers against such Underlying Issuer.
Each Borrower hereby agrees to indemnify, save, defend, and hold Lender harmless
with respect to any loss, cost, expense (including reasonable attorneys fees),
or liability incurred by Lender under any L/C Undertaking as a result of
Lender’s indemnification of any Underlying Issuer; provided, however, that no
Borrower shall be obligated hereunder to indemnify for any loss, cost, expense,
or liability to the extent that it is caused by the gross negligence or willful
misconduct of Lender. Each Borrower hereby acknowledges and agrees that Lender
shall not be responsible for delays, errors, or omissions resulting from the
malfunction of equipment in connection with any Letter of Credit.

(c) Each Borrower hereby authorizes and directs any Underlying Issuer to deliver
to Lender all instruments, documents, and other writings and property received
by such Underlying Issuer pursuant to such Underlying Letter of Credit and to
accept and rely upon Lender’s instructions with respect to all matters arising
in connection with such Underlying Letter of Credit and the related application.

(d) Any and all issuance charges, commissions, fees, and costs incurred by
Lender relating to Underlying Letters of Credit shall be Lender Expenses for
purposes of this Agreement and immediately shall be reimbursable by Borrowers to
Lender for the account of Lender; it being acknowledged and agreed by each
Borrower that, as of the Closing Date, the issuance charge imposed by the
prospective Underlying Issuer is .825% per annum times the face amount of each
Underlying Letter of Credit, that such issuance charge may be changed from time
to time, and that the Underlying Issuer also imposes a schedule of charges for
amendments, extensions, drawings, and renewals.

(e) If by reason of (i) any change after the Closing Date in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
thereof by any Governmental Authority, or (ii) compliance by the Underlying
Issuer or Lender with any direction, request, or requirement (irrespective of
whether having the force of law) of any Governmental Authority or monetary
authority including, Regulation D of the Federal Reserve Board as from time to
time in effect (and any successor thereto):

(i) any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Letter of Credit issued hereunder, or

 

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(ii) there shall be imposed on the Underlying Issuer or Lender any other
condition regarding any Underlying Letter of Credit or any Letter of Credit
issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the cost
to Lender of issuing, making, guaranteeing, or maintaining any Letter of Credit
or to reduce the amount receivable in respect thereof by Lender, then, and in
any such case, Lender may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify
Administrative Borrower, and Borrowers shall pay on demand such amounts as
Lender may specify to be necessary to compensate Lender for such additional cost
or reduced receipt, together with interest on such amount from the date of such
demand until payment in full thereof at the rate then applicable to Advances.
The determination by Lender of any amount due pursuant to this Section, as set
forth in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.

2.13 Intentionally Omitted.

2.14 Capital Requirements. If, after the date hereof, Lender determines that
(i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by Lender
or its parent bank holding company with any guideline, request or directive of
any such entity regarding capital adequacy (whether or not having the force of
law), has the effect of reducing the return on Lender’s or such holding
company’s capital as a consequence of Lender’s obligations hereunder to a level
below that which Lender or such holding company could have achieved but for such
adoption, change, or compliance (taking into consideration Lender’s or such
holding company’s then existing policies with respect to capital adequacy and
assuming the full utilization of such entity’s capital) by any amount deemed by
Lender to be material, then Lender may notify Administrative Borrower thereof.
Following receipt of such notice, Borrowers agree to pay Lender on demand the
amount of such reduction of return of capital as and when such reduction is
determined, payable within 90 days after presentation by Lender of a statement
in the amount and setting forth in reasonable detail Lender’s calculation
thereof and the assumptions upon which such calculation was based (which
statement shall be deemed true and correct absent manifest error). In
determining such amount, Lender may use any reasonable averaging and attribution
methods.

2.15 Joint and Several Liability of Borrowers.

(a) Each Borrower is accepting joint and several liability hereunder and under
the other Loan Documents in consideration of the financial accommodations to be
provided by Lender under this Agreement, for the mutual benefit, directly and
indirectly, of each Borrower and in consideration of the undertakings of the
other Borrowers to accept joint and several liability for the Obligations.

(b) Each Borrower, jointly and severally, hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several
liability with the other Borrowers, with respect to the payment and performance
of all of the Obligations (including, without limitation, any Obligations
arising under this Section 2.15), it being the intention of the parties hereto
that all the Obligations shall be the joint and several obligations of each
Borrower without preferences or distinction among them.

(c) If and to the extent that any Borrower shall fail to make any payment with
respect to any of the Obligations as and when due or to perform any of the
Obligations in accordance with the terms thereof, then in each such event the
other Borrowers will make such payment with respect to, or perform, such
Obligation.

(d) The Obligations of each Borrower under the provisions of this Section 2.15
constitute the absolute and unconditional, full recourse Obligations of each
Borrower enforceable against

 

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each such Borrower to the full extent of its properties and assets, irrespective
of the validity, regularity or enforceability of this Agreement or any other
circumstances whatsoever.

(e) Except as otherwise expressly provided in this Agreement, each Borrower
hereby waives notice of acceptance of its joint and several liability, notice of
any Advances or Letters of Credit issued under or pursuant to this Agreement,
notice of the occurrence of any Default, Event of Default, or of any demand for
any payment under this Agreement, notice of any action at any time taken or
omitted by Lender under or in respect of any of the Obligations, any requirement
of diligence or to mitigate damages and, generally, to the extent permitted by
applicable law, all demands, notices and other formalities of every kind in
connection with this Agreement (except as otherwise provided in this Agreement).
Each Borrower hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the
acceptance of any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action or acquiescence by
Lender at any time or times in respect of any default by any Borrower in the
performance or satisfaction of any term, covenant, condition or provision of
this Agreement, any and all other indulgences whatsoever by Lender in respect of
any of the Obligations, and the taking, addition, substitution or release, in
whole or in part, at any time or times, of any security for any of the
Obligations or the addition, substitution or release, in whole or in part, of
any Borrower. Without limiting the generality of the foregoing, each Borrower
assents to any other action or delay in acting or failure to act on the part of
Lender with respect to the failure by any Borrower to comply with any of its
respective Obligations, including, without limitation, any failure strictly or
diligently to assert any right or to pursue any remedy or to comply fully with
applicable laws or regulations thereunder, which might, but for the provisions
of this Section 2.15 afford grounds for terminating, discharging or relieving
any Borrower, in whole or in part, from any of its Obligations under this
Section 2.15, it being the intention of each Borrower that, so long as any of
the Obligations hereunder remain unsatisfied, the Obligations of each Borrower
under this Section 2.15 shall not be discharged except by performance and then
only to the extent of such performance. The Obligations of each Borrower under
this Section 2.15 shall not be diminished or rendered unenforceable by any
winding up, reorganization, arrangement, liquidation, reconstruction or similar
proceeding with respect to any Borrower or Lender.

(f) Each Borrower represents and warrants to Lender that such Borrower is
currently informed of the financial condition of Borrowers and of all other
circumstances which a diligent inquiry would reveal and which bear upon the risk
of nonpayment of the Obligations. Each Borrower further represents and warrants
to Lender that such Borrower has read and understands the terms and conditions
of the Loan Documents. Each Borrower hereby covenants that such Borrower will
continue to keep informed of Borrowers’ financial condition, the financial
condition of other guarantors, if any, and of all other circumstances which bear
upon the risk of nonpayment or nonperformance of the Obligations.

(g) Each Borrower waives all rights and defenses arising out of an election of
remedies by Lender, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Lender’s rights of subrogation and reimbursement against such Borrower.

(h) Intentionally omitted.

(i) The provisions of this Section 2.15 are made for the benefit of Lender and
its successors and assigns, and may be enforced by it or them from time to time
against any or all Borrowers as often as occasion therefor may arise and without
requirement on the part of Lender, successor or assign first to marshal any of
its or their claims or to exercise any of its or their rights against any
Borrower or to exhaust any remedies available to it or them against any Borrower
or to resort to any other source or means of obtaining payment of any of the
Obligations hereunder or to elect any other remedy. The provisions of this
Section 2.15 shall remain in effect until all of the Obligations shall have been
paid in full or otherwise fully satisfied. If at any time, any payment, or any
part thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by Lender upon the insolvency, bankruptcy or

 

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reorganization of any Borrower, or otherwise, the provisions of this
Section 2.15 will forthwith be reinstated in effect, as though such payment had
not been made.

(j) Each Borrower hereby agrees that it will not enforce any of its rights of
contribution or subrogation against any other Borrower with respect to any
liability incurred by it hereunder or under any of the other Loan Documents, any
payments made by it to Lender with respect to any of the Obligations or any
collateral security therefor until such time as all of the Obligations have been
paid in full in cash. Any claim which any Borrower may have against any other
Borrower with respect to any payments to Lender hereunder or under any other
Loan Documents are hereby expressly made subordinate and junior in right of
payment, without limitation as to any increases in the Obligations arising
hereunder or thereunder, to the prior payment in full in cash of the Obligations
and, in the event of any insolvency, bankruptcy, receivership, liquidation,
reorganization or other similar proceeding under the laws of any jurisdiction
relating to any Borrower, its debts or its assets, whether voluntary or
involuntary, all such Obligations shall be paid in full in cash before any
payment or distribution of any character, whether in cash, securities or other
property, shall be made to any other Borrower therefor.

(k) Each Borrower hereby agrees that, after the occurrence and during the
continuance of any Default or Event of Default, the payment of any amounts due
with respect to the indebtedness owing by any Borrower to any other Borrower is
hereby subordinated to the prior payment in full in cash of the Obligations.
Each Borrower hereby agrees that after the occurrence and during the continuance
of any Default or Event of Default, such Borrower will not demand, sue for or
otherwise attempt to collect any indebtedness of any other Borrower owing to
such Borrower until the Obligations shall have been paid in full in cash. If,
notwithstanding the foregoing sentence, such Borrower shall collect, enforce or
receive any amounts in respect of such indebtedness, such amounts shall be
collected, enforced and received by such Borrower as trustee for Lender, and
such Borrower shall deliver any such amounts to Lender for application to the
Obligations in accordance with Section 2.4(b).

 

3. CONDITIONS; TERM OF AGREEMENT.

3.1 Conditions Precedent to the Initial Extension of Credit. The obligation of
Lender to make the initial extension of credit provided for hereunder, is
subject to the fulfillment, to the satisfaction of Lender of each of the
conditions precedent set forth on Schedule 3.1 (the making of such initial
extension of credit by Lender being conclusively deemed to be its satisfaction
or waiver of the conditions precedent).

3.2 Conditions Precedent to all Extensions of Credit. The obligation of Lender
to make any Advances hereunder at any time (or to extend any other credit
hereunder) shall be subject to the following conditions precedent:

(a) the representations and warranties contained in this Agreement or in the
other Loan Documents shall be true and correct in all material respects on and
as of the date of such extension of credit, as though made on and as of such
date (except to the extent that such representations and warranties relate
solely to an earlier date);

(b) no Default or Event of Default shall have occurred and be continuing on the
date of such extension of credit, nor shall either result from the making
thereof;

(c) no injunction, writ, restraining order, or other order of any nature
restricting or prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
any Borrower, Lender, or any of their Affiliates; and

(d) no Material Adverse Change shall have occurred.

 

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3.3 Term. This Agreement shall continue in full force and effect for a term
ending on the date three (3) years following the Closing Date (the “Maturity
Date”). The foregoing notwithstanding, Lender shall have the right to terminate
its obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.

3.4 Effect of Termination. On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of Borrowers with
respect to outstanding Letters of Credit and including all Bank Product
Obligations) immediately shall become due and payable without notice or demand
(including (a) either (i) providing cash collateral to be held by Lender in an
amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original
Letters of Credit to be returned to Lender, and (b) providing cash collateral
(in an amount determined by Lender as sufficient to satisfy the reasonably
estimated credit exposure) to be held by Lender for the benefit of the Bank
Product Providers with respect to the Bank Product Obligations). No termination
of this Agreement, however, shall relieve or discharge Borrowers or their
Subsidiaries of their duties, Obligations, or covenants hereunder or under any
other Loan Document and the Lender’s Liens in the Collateral shall remain in
effect until all Obligations have been paid in full and Lender’s obligations to
provide additional credit hereunder have been terminated. When this Agreement
has been terminated and all of the Obligations have been paid in full and
Lender’s obligations to provide additional credit under the Loan Documents have
been terminated irrevocably, Lender will, at Borrowers’ sole expense, execute
and deliver any termination statements, lien releases, mortgage releases,
re-assignments of trademarks, discharges of security interests, and other
similar discharge or release documents (and, if applicable, in recordable form)
as are reasonably necessary to release, as of record, the Lender’s Liens and all
notices of security interests and liens previously filed by Lender with respect
to the Obligations.

3.5 Early Termination by Borrowers. Borrowers have the option, at any time upon
90 days prior written notice by Administrative Borrower to Lender, to terminate
this Agreement by paying to Lender, in cash, the Obligations (including
(a) either (i) providing cash collateral to be held by Lender in an amount equal
to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of
Credit to be returned to Lender, and (b) providing cash collateral (in an amount
determined by Lender as sufficient to satisfy the reasonably estimated credit
exposure) to be held by Lender for the benefit of the Bank Product Providers
with respect to the Bank Product Obligations), in full. If Administrative
Borrower has sent a notice of termination pursuant to the provisions of this
Section, then Lender’s obligations to extend credit hereunder shall terminate
and Borrowers shall be obligated to repay the Obligations (including (a) either
(i) providing cash collateral to be held by Lender in an amount equal to 105% of
the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be
returned to Lender, and (b) providing cash collateral (in an amount determined
by Lender as sufficient to satisfy the reasonably estimated credit exposure) to
be held by Lender for the benefit of the Bank Product Providers with respect to
the Bank Products Obligations), in full, on the date set forth as the date of
termination of this Agreement in such notice.

 

4. REPRESENTATIONS AND WARRANTIES.

In order to induce Lender to enter into this Agreement, each Borrower makes the
following representations and warranties to Lender which shall be true, correct,
and complete, in all material respects, as of the date hereof, and shall be
true, correct, and complete, in all material respects, as of the Closing Date,
and at and as of the date of the making of each Advance (or other extension of
credit) made thereafter, as though made on and as of the date of such Advance
(or other extension of credit) (except to the extent that such representations
and warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:

4.1 No Encumbrances. Each Borrower and its Subsidiaries has good and
indefeasible title to, or a valid leasehold interest in, their personal property
assets and good and marketable title to, or a valid leasehold interest in, their
Real Property, in each case, free and clear of Liens except for Permitted Liens.

4.2 Intentionally Omitted.

 

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4.3 Intentionally Omitted.

4.4 Equipment. Each material item of Equipment of Borrowers and their
Subsidiaries is used or held for use in their business and is in good working
order, ordinary wear and tear and damage by casualty excepted.

4.5 Location of Inventory and Equipment. The Inventory and Equipment (other than
vehicles or Equipment out for repair) of Borrowers and their Subsidiaries are
not stored with a bailee, warehouseman, or similar party and are located only
at, or in-transit between, the locations identified on Schedule 4.5 (as such
Schedule may be updated pursuant to Section 5.9).

4.6 Inventory Records. Each Borrower keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its and its
Subsidiaries’ Inventory and the book value thereof.

4.7 State of Incorporation; Location of Chief Executive Office; Organizational
Identification Number; Commercial Tort Claims.

(a) The jurisdiction of organization of each Borrower and each of its
Subsidiaries is set forth on Schedule 4.7(a).

(b) The chief executive office of each Borrower and each of its Subsidiaries is
located at the address indicated on Schedule 4.7(b) (as such Schedule may be
updated pursuant to Section 5.9).

(c) Each Borrower’s and each of its Subsidiaries’ organizational identification
number, if any, is identified on Schedule 4.7(c).

(d) As of the Closing Date, Borrowers and their Subsidiaries do not hold any
commercial tort claims, except as set forth on Schedule 4.7(d).

4.8 Due Organization and Qualification; Subsidiaries.

(a) Each Borrower and each Subsidiary of a Borrower is duly organized and
existing and in good standing under the laws of the jurisdiction of its
organization and qualified to do business in any state where the failure to be
so qualified reasonably could be expected to result in a Material Adverse
Change.

(b) Set forth on Schedule 4.8(b), is a complete and accurate description of the
authorized capital Stock of each Borrower, by class, and, as of the Closing
Date, a description of the number of shares of each such class that are issued
and outstanding. Other than as described on Schedule 4.8(b), there are no
subscriptions, options, warrants, or calls relating to any shares of each
Borrower’s capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument.

(c) Set forth on Schedule 4.8(c), is a complete and accurate list of each
Borrower’s direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their organization, (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries, and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by the applicable Borrower. All of the outstanding capital Stock
of each such Subsidiary has been validly issued and is fully paid and
non-assessable.

(d) Except as set forth on Schedule 4.8(c), there are no subscriptions, options,
warrants, or calls relating to any shares of any Borrower’s Subsidiaries’
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. No Borrower or any of its respective
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire

 

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any shares of any Borrower’s Subsidiaries’ capital Stock or any security
convertible into or exchangeable for any such capital Stock.

4.9 Due Authorization; No Conflict.

(a) As to each Borrower, the execution, delivery, and performance by such
Borrower of this Agreement and the other Loan Documents to which it is a party
have been duly authorized by all necessary action on the part of such Borrower.

(b) As to each Borrower, the execution, delivery, and performance by such
Borrower of this Agreement and the other Loan Documents to which it is a party
do not and will not (i) violate any provision of federal, state, or local law or
regulation applicable to any Borrower, the Governing Documents of any Borrower,
or any order, judgment, or decree of any court or other Governmental Authority
binding on any Borrower, (ii) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of any Borrower, (iii) result in or require the
creation or imposition of any Lien of any nature whatsoever upon any properties
or assets of Borrower, other than Permitted Liens, or (iv) require any approval
of any Borrower’s interestholders or any approval or consent of any Person under
any material contractual obligation of any Borrower, other than consents or
approvals that have been obtained and that are still in force and effect.

(c) Other than the filing of financing statements, and the recordation of the
Mortgages, the execution, delivery, and performance by each Borrower of this
Agreement and the other Loan Documents to which such Borrower is a party do not
and will not require any registration with, consent, or approval of, or notice
to, or other action with or by, any Governmental Authority, other than consents
or approvals that have been obtained and that are still in force and effect.

(d) As to each Borrower, this Agreement and the other Loan Documents to which
such Borrower is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by such Borrower will be the legally valid
and binding obligations of such Borrower, enforceable against such Borrower in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors’ rights generally.

(e) The Lender’s Liens are validly created, perfected, and first priority Liens,
subject only to Permitted Liens.

(f) The execution, delivery, and performance by each Guarantor of the Loan
Documents to which it is a party have been duly authorized by all necessary
action on the part of such Guarantor.

(g) The execution, delivery, and performance by each Guarantor of the Loan
Documents to which it is a party do not and will not (i) violate any provision
of federal, state, or local law or regulation applicable to such Guarantor, the
Governing Documents of such Guarantor, or any order, judgment, or decree of any
court or other Governmental Authority binding on such Guarantor, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of such Guarantor,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of such Guarantor, other than Permitted
Liens, or (iv) require any approval of such Guarantor’s interestholders or any
approval or consent of any Person under any material contractual obligation of
such Guarantor, other than consents or approvals that have been obtained and
that are still in force and effect.

(h) Other than the filing of financing statements and the recordation of the
Mortgages, the execution, delivery, and performance by each Guarantor of the
Loan Documents to which such Guarantor

 

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is a party do not and will not require any registration with, consent, or
approval of, or notice to, or other action with or by, any Governmental
Authority, other than consents or approvals that have been obtained and that are
still in force and effect.

(i) The Loan Documents to which each Guarantor is a party, and all other
documents contemplated hereby and thereby, when executed and delivered by such
Guarantor will be the legally valid and binding obligations of such Guarantor,
enforceable against such Guarantor in accordance with their respective terms,
except as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors’ rights generally.

4.10 Litigation. Other than those matters disclosed on Schedule 4.10, and other
than matters arising after the Closing Date that reasonably could not be
expected to result in a Material Adverse Change, there are no actions, suits, or
proceedings pending or, to the best knowledge of each Borrower, threatened
against any Borrower or any of its Subsidiaries.

4.11 No Material Adverse Change. All financial statements relating to Borrowers
and their Subsidiaries or Guarantor that have been delivered by Borrowers to
Lender have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and present fairly in all material respects,
Borrowers’ and their Subsidiaries’ (or any Guarantor’s, as applicable) financial
condition as of the date thereof and results of operations for the period then
ended. There has not been a Material Adverse Change with respect to Borrowers
and their Subsidiaries (or any Guarantor, as applicable) since the date of the
latest financial statements submitted to Lender on or before the Closing Date.

4.12 Fraudulent Transfer.

(a) Each Borrower and each Subsidiary of a Borrower is Solvent.

(b) No transfer of property is being made by any Borrower or any Subsidiary of a
Borrower and no obligation is being incurred by any Borrower or any Subsidiary
of a Borrower in connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Borrowers or their Subsidiaries.

4.13 Employee Benefits. None of Borrowers, any of their Subsidiaries, or any of
their ERISA Affiliates maintains or contributes to any Benefit Plan.

4.14 Environmental Condition. Except as set forth on Schedule 4.14, (a) to
Borrowers’ knowledge, none of Borrowers’ or their Subsidiaries’ properties or
assets has ever been used by Borrowers, their Subsidiaries, or by previous
owners or operators in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials, where such use, production,
storage, handling, treatment, release or transport was in violation, in any
material respect, of any applicable Environmental Law, (b) to Borrowers’
knowledge, none of Borrowers’ nor their Subsidiaries’ properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, (c) none of Borrowers
nor any of their Subsidiaries have received notice that a Lien arising under any
Environmental Law has attached to any revenues or to any Real Property owned or
operated by Borrowers or their Subsidiaries, and (d) none of Borrowers nor any
of their Subsidiaries have received a summons, citation, notice, or directive
from the United States Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by any Borrower or
any Subsidiary of a Borrower resulting in the releasing or disposing of
Hazardous Materials into the environment.

4.15 Intellectual Property. Each Borrower and each Subsidiary of a Borrower
owns, or holds licenses in, all trademarks, trade names, copyrights, patents,
patent rights, and licenses that are necessary to the conduct of its business as
currently conducted, and attached hereto as Schedule 4.15 (as updated from time
to

 

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time) is a true, correct, and complete listing of all material patents, patent
applications, trademarks, trademark applications, copyrights, and copyright
registrations as to which each Borrower or one of its Subsidiaries is the owner
or is an exclusive licensee.

4.16 Leases. Borrowers and their Subsidiaries enjoy peaceful and undisturbed
possession under all leases material to their business and to which they are
parties or under which they are operating and all of such material leases are
valid and subsisting and no material default by Borrowers or their Subsidiaries
exists under any of them.

4.17 Deposit Accounts and Securities Accounts. Set forth on Schedule 2.7 is a
listing of all of Borrowers’ and their Subsidiaries’ Deposit Accounts and
Securities Accounts, including, with respect to each bank or securities
intermediary (a) the name and address of such Person, and (b) the account
numbers of the Deposit Accounts or Securities Accounts maintained with such
Person.

4.18 Complete Disclosure. All factual information (taken as a whole) furnished
by or on behalf of Borrowers or their Subsidiaries in writing to Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement, the other
Loan Documents, or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of Borrowers or their Subsidiaries in writing to Lender will be, true and
accurate in all material respects on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary to
make such information (taken as a whole) not misleading in any material respect
at such time in light of the circumstances under which such information was
provided. On the Closing Date, the Closing Date Projections represent, and as of
the date on which any other Projections are delivered to Lender, such additional
Projections represent Borrowers’ good faith estimate of their and their
Subsidiaries’ future performance for the periods covered thereby.

4.19 Indebtedness. Set forth on Schedule 4.19 is a true and complete list of all
Indebtedness of each Borrower and each Subsidiary of a Borrower outstanding
immediately prior to the Closing Date that is to remain outstanding after the
Closing Date and such Schedule accurately reflects the aggregate principal
amount of such Indebtedness and describes the principal terms thereof.

 

5. AFFIRMATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until the payment in full of the Obligations, Borrowers shall
and shall cause each of their respective Subsidiaries to do all of the
following:

5.1 Accounting System. Maintain a system of accounting that enables Borrowers to
produce financial statements in accordance with GAAP and maintain records
pertaining to the Collateral that contain information as from time to time
reasonably may be requested by Lender. Borrowers also shall keep a reporting
system that shows all additions, sales, claims, returns, and allowances with
respect to their and their Subsidiaries’ sales.

5.2 Collateral Reporting. Provide Lender with each of the reports set forth on
Schedule 5.2 at the times specified therein.

5.3 Financial Statements, Reports, Certificates. Deliver to Lender each of the
financial statements, reports, or other items set forth on Schedule 5.3 at the
times specified herein. In addition, Parent agrees that no Subsidiary of Parent
will have a fiscal year different from that of Parent.

5.4 Intentionally Omitted.

 

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5.5 Inspection. Permit Lender, and its duly authorized representatives or agents
to visit any of its properties and inspect any of its assets or books and
records, to examine and make copies of its books and records, and to discuss its
affairs, finances, and accounts with, and to be advised as to the same by, its
officers and employees at such reasonable times and intervals as Lender may
designate and, so long as no Default or Event of Default exists, with reasonable
prior notice to Administrative Borrower.

5.6 Maintenance of Properties. Maintain and preserve all of their properties
which are necessary or useful in the proper conduct to their business in good
working order and condition, ordinary wear, tear, and casualty excepted (and
except where the failure to do so could not be expected to result in a Material
Adverse Change), and comply at all times with the provisions of all material
leases to which it is a party as lessee, so as to prevent any loss or forfeiture
thereof or thereunder; provided, however, that if Borrowers determine in their
reasonable business judgment not to continue their tissue business, they shall
not be required to maintain assets used solely for such business.

5.7 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrowers,
their Subsidiaries, or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Borrowers will and will cause their Subsidiaries to make
timely payment or deposit of all tax payments and withholding taxes required of
them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will, upon
request, furnish Lender with proof satisfactory to Lender indicating that the
applicable Borrower or Subsidiary of a Borrower has made such payments or
deposits.

5.8 Insurance; Litigation Settlement.

(a) At Borrowers’ expense, maintain insurance respecting their and their
Subsidiaries’ assets wherever located, covering loss or damage by fire, theft,
explosion, and all other hazards and risks as ordinarily are insured against by
other Persons engaged in the same or similar businesses. Borrowers also shall
maintain business interruption, public liability, and product liability
insurance, as well as insurance against larceny, embezzlement, and criminal
misappropriation. All such policies of insurance shall be in such amounts and
with such insurance companies as are reasonably satisfactory to Lender.
Borrowers shall deliver copies of all such policies to Lender with an
endorsement naming Lender as the sole loss payee (under a satisfactory lender’s
loss payable endorsement) or additional insured, as appropriate. Each policy of
insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever.

(b) Administrative Borrower shall give Lender prompt notice of any casualty loss
or liability claim exceeding $250,000 that is not already disclosed on Schedule
4.10. With respect to losses or liability claims arising under litigation
matters disclosed on Schedule 4.10, Borrowers shall have the exclusive right to
adjust any losses payable under any insurance policies described above and, so
long as (i) no Event of Default has occurred and is continuing and (ii) Excess
Availability is equal to or greater than $7,500,000, Borrowers shall have the
exclusive right to settle any such liability claims that are not covered by
insurance. Following the occurrence and during the continuation of an Event of
Default or if Excess Availability is less than $7,500,000, Borrowers shall not
settle any such liability claim without the prior written consent of Lender.
With respect to all other losses or liability claims, so long as no Event of
Default has occurred and is continuing, Borrowers shall have the exclusive right
to adjust any losses (other than property/casualty losses in excess of $250,000)
payable under any such insurance policies or settle any liability claims of less
than $250,000 not covered by insurance. Following the occurrence and during the
continuation of an Event of Default, or in the case of any losses payable under
such property/casualty insurance exceeding $250,000 or uninsured liability
claims in excess of $250,000, Lender shall have the exclusive right to adjust
any such losses payable under any such insurance policies, without any liability
to Borrowers whatsoever in respect of such adjustments, and Borrowers shall not
settle any such uninsured liability claims without the prior written consent of
Lender. Any monies received as payment for any loss

 

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under any insurance policy mentioned above (other than liability insurance
policies) or as payment of any award or compensation for condemnation or taking
by eminent domain, shall be paid over to Lender to be applied at the option of
Lender either to the prepayment of the Obligations or to be disbursed to
Administrative Borrower under staged payment terms reasonably satisfactory to
Lender for application to the cost of repairs, replacements, or restorations;
provided, however, that, with respect to any such monies in an aggregate amount
during any 12 consecutive month period not in excess of $250,000, so long as
(A) no Default or Event of Default shall have occurred and is continuing,
(B) Borrowers’ Excess Availability is greater than $7,500,000,
(C) Administrative Borrower shall have given Lender prior written notice of the
Borrowers or their respective Subsidiaries’ intention to apply such monies to
the costs of repairs, replacement, or restoration of the property which is the
subject of the loss, destruction, or taking by condemnation, (D) the monies are
held in a cash collateral account in which Lender has a perfected first-priority
security interest, and (E) Borrowers or their Subsidiaries complete such
repairs, replacements, or restoration within 180 days after the initial receipt
of such monies, Borrowers shall have the option to apply such monies to the
costs of repairs, replacement, or restoration of the property which is the
subject of the loss, destruction, or taking by condemnation unless and to the
extent that such applicable period shall have expired without such repairs,
replacements, or restoration being made, in which case, any amounts remaining in
the cash collateral account shall be paid to Lender and applied as set forth
above.

5.9 Location of Inventory and Equipment. Keep Borrowers’ and their Subsidiaries’
Inventory and Equipment (other than vehicles and Equipment out for repair) only
at the locations identified on Schedule 4.5 and their chief executive offices
only at the locations identified on Schedule 4.7(b); provided, however, that
Administrative Borrower may amend Schedule 4.5 or Schedule 4.7(b) so long as
such amendment occurs by written notice to Lender not less than 30 days prior to
the date on which such Inventory or Equipment is moved to such new location or
such chief executive office is relocated, so long as such new location is within
the continental United States, and so long as, at the time of such written
notification, the applicable Borrower provides Lender a Collateral Access
Agreement with respect thereto.

5.10 Compliance with Laws. Comply with the requirements of all applicable laws,
rules, regulations, and orders of any Governmental Authority, other than laws,
rules, regulations, and orders the non-compliance with which, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Change.

5.11 Leases. Pay when due all rents and other amounts payable under any material
leases to which any Borrower or any Subsidiary of a Borrower is a party or by
which any Borrower’s or any of its Subsidiaries’ properties and assets are
bound, unless such payments are the subject of a Permitted Protest.

5.12 Existence. At all times preserve and keep in full force and effect each
Borrower’s and each of its Subsidiaries’ valid existence and good standing and
any rights and franchises material to their businesses.

5.13 Environmental.

(a) Keep any property either owned or operated by any Borrower or any Subsidiary
of a Borrower free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Lender documentation of such compliance which Lender
reasonably requests, (c) promptly notify Lender of any release of a Hazardous
Material in any reportable quantity from or onto property owned or operated by
any Borrower or any Subsidiary of a Borrower and take any Remedial Actions
required to abate said release or otherwise to come into compliance with
applicable Environmental Law, and (d) promptly, but in any event within 5 days
of its receipt thereof, provide Lender with written notice of any of the
following: (i) notice that an Environmental Lien has been filed against any of
the real or personal property of any Borrower or any Subsidiary of a Borrower,
(ii) commencement of any Environmental Action or notice that an Environmental
Action will be filed against any Borrower or any

 

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Subsidiary of a Borrower, and (iii) notice of a violation, citation, or other
administrative order which reasonably could be expected to result in a Material
Adverse Change.

5.14 Disclosure Updates. Promptly and in no event later than 5 Business Days
after obtaining knowledge thereof, notify Lender if any written information,
exhibit, or report furnished to Lender contained, at the time it was furnished,
any untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made. The foregoing to the contrary notwithstanding,
any notification pursuant to the foregoing provision will not cure or remedy the
effect of the prior untrue statement of a material fact or omission of any
material fact nor shall any such notification have the affect of amending or
modifying this Agreement or any of the Schedules hereto.

5.15 Control Agreements. Take all reasonable steps in order for Lender to obtain
control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the
Code with respect to (subject to the proviso contained in Section 6.12) all of
its Securities Accounts, Deposit Accounts, electronic chattel paper, investment
property, and letter of credit rights.

5.16 Formation of Subsidiaries. At the time that any Borrower or any Guarantor
forms any direct or indirect Subsidiary or acquires any direct or indirect
Subsidiary after the Closing Date, such Borrower or such Guarantor shall
(a) cause such new Subsidiary to provide to Lender a joinder to the Guaranty and
the Security Agreement, together with such other security documents (including
Mortgages with respect to any Real Property of such new Subsidiary), as well as
appropriate financing statements (and with respect to all property subject to a
Mortgage, fixture filings), all in form and substance satisfactory to Lender
(including being sufficient to grant Lender a first priority Lien (subject to
Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary), (b) provide to Lender a pledge agreement and appropriate
certificates and powers or financing statements, hypothecating all of the direct
or beneficial ownership interest in such new Subsidiary, in form and substance
satisfactory to Lender, and (c) provide to Lender all other documentation,
including one or more opinions of counsel satisfactory to Lender (which opinions
shall be substantially similar to the opinion delivered on the Closing Date or
in such other form as shall be acceptable to Lender), which in its opinion is
appropriate with respect to the execution and delivery of the applicable
documentation referred to above (including policies of title insurance or other
documentation with respect to all property subject to a Mortgage). Any document,
agreement, or instrument executed or issued pursuant to this Section 5.16 shall
be a Loan Document.

 

6. NEGATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until the payment in full of the Obligations, Borrowers will
not and will not permit any of their respective Subsidiaries to do any of the
following:

6.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:

(a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit,

(b) Indebtedness set forth on Schedule 4.19,

(c) Permitted Purchase Money Indebtedness,

(d) Indebtedness arising from issuances by Borrowers of subordinated debt or
debentures, provided that Borrowers enter into a subordination agreement
relating to such Indebtedness in form and substance satisfactory to Lender, or

 

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(e) refinancings, renewals, or extensions of Indebtedness permitted under
clauses (b) and (c) of this Section 6.1 (and continuance or renewal of any
Permitted Liens associated therewith) so long as: (i) the terms and conditions
of such refinancings, renewals, or extensions do not, in Lender’s reasonable
judgment, materially impair the prospects of repayment of the Obligations by
Borrowers or materially impair Borrowers’ creditworthiness, (ii) such
refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate (by more than two percent (2%)) with
respect to, the Indebtedness so refinanced, renewed, or extended or add one or
more Borrowers as liable with respect thereto if such additional Borrowers were
not liable with respect to the original Indebtedness, (iii) such refinancings,
renewals, or extensions do not result in a shortening of the average weighted
maturity of the Indebtedness so refinanced, renewed, or extended, nor are they
on terms or conditions, that, taken as a whole, are materially more burdensome
or restrictive to the applicable Borrower, (iv) if the Indebtedness that is
refinanced, renewed, or extended was subordinated in right of payment to the
Obligations, then the terms and conditions of the refinancing, renewal, or
extension Indebtedness must include subordination terms and conditions that are
at least as favorable to Lender as those that were applicable to the refinanced,
renewed, or extended Indebtedness, and (v) the Indebtedness that is refinanced,
renewed, or extended is not recourse to any Person that is liable on account of
the Obligations other than those Persons which were obligated with respect to
the Indebtedness that was refinanced, renewed, or extended,

(f) endorsement of instruments or other payment items for deposit,

(g) Indebtedness composing Permitted Investments, and

(h) Indebtedness owed to insurance companies consisting of financed insurance
premiums by such insurance companies so long as the aggregate principal amount
of such Indebtedness does not exceed $3,000,000 at any time outstanding and the
term of any such notes payable does not exceed one year.

6.2 Liens. Create, incur, assume, or suffer to exist, directly or indirectly,
any Lien on or with respect to any of its assets, of any kind, whether now owned
or hereafter acquired, or any income or profits therefrom, except for Permitted
Liens (including Liens that are replacements of Permitted Liens to the extent
that the original Indebtedness is refinanced, renewed, or extended under
Section 6.1(e) and so long as the replacement Liens only encumber those assets
that secured the refinanced, renewed, or extended Indebtedness).

6.3 Restrictions on Fundamental Changes.

(a) Enter into any merger, consolidation, reorganization, or recapitalization,
or reclassify its Stock; provided, however, that Parent may reorganize its
tissue and products lines into separate lines of business,

(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution),

(c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in
one transaction or a series of transactions, all or any substantial part of its
assets,

(d) Suspend or go out of a substantial portion of its or their business;
provided, however, that Parent may elect to sell or discontinue its tissue line
of business upon the prior written consent of Lender,

(e) Create or acquire any Subsidiary; provided, however, that Borrowers may
create any wholly owned United States domestic Subsidiary so long as Borrowers
and such Subsidiary comply with Section 5.16.

 

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6.4 Disposal of Assets. Other than Permitted Dispositions, convey, sell, lease,
license, assign, transfer, or otherwise dispose of any of the assets of any
Borrower or any Subsidiary of a Borrower.

6.5 Change Name. Change any Borrower’s or any of its Subsidiaries’ name,
organizational identification number, state of organization, or organizational
identity; provided, however, that a Borrower or a Subsidiary of a Borrower may
change its name upon at least 30 days prior written notice by Administrative
Borrower to Lender of such change and so long as, at the time of such written
notification, such Borrower or such Subsidiary provides any financing statements
necessary to perfect and continue perfected the Lender’s Liens.

6.6 Nature of Business. Make any change in the principal nature of their
business other than changes that are reasonable extensions of their business as
of the Closing Date.

6.7 Prepayments and Amendments. Except in connection with a refinancing
permitted by Section 6.1(e),

(a) optionally prepay, redeem, defease, purchase, or otherwise acquire any
Indebtedness of any Borrower or any Subsidiary of a Borrower, other than the
Obligations in accordance with this Agreement, and on the Closing Date Borrower
may prepay certain Capitalized Lease Obligations described on Schedule 6.7,

(b) make any payment on account of Indebtedness that has been contractually
subordinated in right of payment if such payment is not permitted at such time
under the subordination terms and conditions, or

(c) directly or indirectly, amend, modify, alter, increase, or change any of the
terms or conditions of any agreement, instrument, document, indenture, or other
writing evidencing or concerning Indebtedness permitted under Section 6.1(b) or
(c).

6.8 Change of Control. Cause, permit, or suffer, directly or indirectly, any
Change of Control.

6.9 Consignments. Except for Inventory with an aggregate market value of less
than $500,000, consign any of their Inventory or sell any of their Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.

6.10 Distributions. Other than (a) distributions or declaration and payment of
dividends by a Borrower or a Subsidiary of a Borrower to a Borrower or (b) so
long as Excess Availability plus Qualified Cash exceeds $7,500,000, declaration
and payment of dividends by Parent on any of its preferred stock (whether
currently outstanding or hereafter issued), make any distribution or declare or
pay any dividends (in cash or other property, other than common Stock) on, or
purchase, acquire, redeem, or retire any of any Borrower’s Stock, of any class,
whether now or hereafter outstanding.

6.11 Accounting Methods. Modify or change their fiscal year or their method of
accounting (other than as may be required to conform to GAAP) or enter into,
modify, or terminate any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Borrowers’ or their Subsidiaries’ accounting records
without said accounting firm or service bureau agreeing to provide Lender
information regarding Borrowers’ and their Subsidiaries’ financial condition;
provided, however, that Borrowers and their Subsidiaries shall be entitled to
change their accounting firm to the extent required pursuant to any settlement
agreement entered into in connection with any litigation matter referred to on
Schedule 4.10 or as required by an order of a court of competent jurisdiction.

 

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6.12 Investments. Except for Permitted Investments, directly or indirectly, make
or acquire any Investment, or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
Administrative Borrower and its Subsidiaries shall not have Permitted
Investments in Deposit Accounts or Securities Accounts at any time unless either
(a) Administrative Borrower or its Subsidiary, as applicable, and the applicable
securities intermediary or bank have entered into Control Agreements governing
such Permitted Investments in order to perfect (and further establish) the
Lender’s Liens in such Permitted Investments or (b) such Deposit Accounts or
Securities Accounts are Excluded Accounts. Subject to the foregoing proviso,
Borrowers shall not and shall not permit their Subsidiaries to establish or
maintain any Deposit Account or Securities Account unless Lender shall have
received a Control Agreement in respect of such Deposit Account or Securities
Account.

6.13 Transactions with Affiliates. Directly or indirectly enter into or permit
to exist any transaction with any Affiliate of any Borrower except for
transactions that (a) are in the ordinary course of Borrowers’ business, (b) are
upon fair and reasonable terms, (c) if they involve one or more payments by any
Borrower or any of its Subsidiaries in excess of $5,000,000, are fully disclosed
to Lender, and (d) are no less favorable to Borrowers or their respective
Subsidiaries, as applicable, than would be obtained in an arm’s length
transaction with a non-Affiliate.

6.14 Use of Proceeds. Use the proceeds of the Advances for any purpose other
than (a) on the Closing Date, to pay transactional fees, costs, and expenses
incurred in connection with this Agreement, the other Loan Documents, and the
transactions contemplated hereby and thereby, and (b) thereafter, consistent
with the terms and conditions hereof, for its lawful and permitted purposes.

6.15 Inventory and Equipment with Bailees. Store the Inventory or Equipment of
Borrowers or their Subsidiaries at any time now or hereafter with a bailee,
warehouseman, or similar party, provided, however, that (i) Borrowers and their
Subsidiaries may store Inventory from their BioGlue Product Line in hospitals
that use such products in the ordinary course of business so long as such
products are segregated from Inventory owned by such hospitals and so long as
such products are clearly marked as property of Borrowers and their Subsidiaries
and (ii) Borrowers and their Subsidiaries may store Inventory at leased or
bailee locations so long as a Collateral Access Agreement with respect to each
such location (other than leased or bailee locations that in the aggregate do
not have in excess of $500,000 of Inventory located there at any time) is
delivered to Lender.

6.16 Financial Covenants.

With respect to any period ending as of the last day of any quarter, fail to
maintain or achieve either:

(a) average Excess Availability plus Qualified Cash of at least $12,500,000 for
the quarter then ended, or

(b) each of the following:

(i) EBITDA, measured on a quarter-end basis, of at least the required amount set
forth in the following table for the applicable period set forth opposite
thereto:

 

Applicable Amount

  

Applicable Period

($12,500,000)    For the 12 month period ending March 31, 2005 ($11,000,000)   
For the 12 month period ending June 30, 2005

 

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($5,000,000)    For the 12 month period ending September 30, 2005 $770,000   
For the 12 month period ending December 31, 2005 The greater of $770,000 or
80% of the EBITDA
projected by Borrowers for
such period as set forth in
the most recently delivered
Projections approved by
Lender    For the 12 month period ending on each fiscal quarter end thereafter

(ii) a BioGlue Gross Margin, measured on a fiscal quarter-end basis for the
immediately preceding 12 month period, of at least 70%, and

(iii) Excess Availability plus Qualified Cash, as of any date, of at least
$5,000,000.

 

7. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an event of default
(each, an “Event of Default”) under this Agreement:

7.1 If Borrowers fail to pay when due and payable, or when declared due and
payable, (a) all or any portion of the Obligations consisting of interest, fees,
or charges due Lender, reimbursement of Lender Expenses, or other amounts (other
than any portion thereof constituting principal) constituting Obligations
(including any portion thereof that accrues after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding), and such failure continues
for a period of 3 Business Days, or (b) all or any portion of the principal of
the Obligations);

7.2 If any Borrower or any Subsidiary of any Borrower

(a) fails to perform or observe any covenant or other agreement contained in any
of Sections 2.7, 5.2, 5.3, 5.5, 5.8, 5.12, 5.14, 5.16, and 6.1 through 6.16 of
this Agreement;

(b) fails to perform or observe any covenant or other agreement contained in any
of Sections 5.6, 5.7, 5.9, 5.10, 5.11, and 5.15 of this Agreement and such
failure continues for a period of 10 days after the earlier of (i) the date on
which such failure shall first become known to any officer of any Borrower or
(ii) written notice thereof is given to Administrative Borrower by Lender; or

(c) fails to perform or observe any covenant or other agreement contained in
such Agreement, or in any of the other Loan Documents; in each case, other than
any such covenant or agreement that is the subject of another provision of this
Section 7 (in which event such other provision of this Section 7 shall govern),
and such failure continues for a period of 20 days after the earlier of (i) the
date on which such failure shall first become known to any officer of any
Borrower or (ii) written notice thereof is given to Administrative Borrower by
Lender;

7.3 If any material portion of any Borrower’s or any of its Subsidiaries’ assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person and

 

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the same is not discharged before the earlier of 30 days after the date it first
arises or 5 days prior to the date on which such property or asset is subject to
forfeiture by such Borrower or the applicable Subsidiary;

7.4 If an Insolvency Proceeding is commenced by any Borrower or any Subsidiary
of a Borrower;

7.5 If an Insolvency Proceeding is commenced against any Borrower or any
Subsidiary of a Borrower, and any of the following events occur: (a) the
applicable Borrower or such Subsidiary consents to the institution of such
Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 60 calendar days of the date of
the filing thereof; (d) an interim trustee is appointed to take possession of
all or any substantial portion of the properties or assets of, or to operate all
or any substantial portion of the business of, any Borrower or any Subsidiary of
a Borrower, or (e) an order for relief shall have been issued or entered
therein;

7.6 If any Borrower or any Subsidiary of a Borrower is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;

7.7 If one or more judgments or other claims involving an aggregate amount of
$1,000,000, or more (except to the extent covered by insurance pursuant to which
the insurer has accepted liability therefor in writing) shall be entered or
filed against (or, in the case of a settlement claim, entered into by) any
Borrower or any Subsidiary of any Borrower or with respect to any of their
respective assets, and (except in the case of a settlement) the same is not
released, discharged, bonded against, or stayed pending appeal before the
earlier of 30 days after the date it first arises or 5 days prior to the date on
which such asset is subject to being forfeited by the applicable Borrower or the
applicable Subsidiary;

7.8 If there is a default in one or more agreements to which any Borrower or any
Subsidiary of a Borrower is a party with one or more third Persons relative to
Indebtedness of any Borrower or any Subsidiary of any Borrower involving an
aggregate amount of $1,000,000 or more, and such default (i) occurs at the final
maturity of the obligations thereunder, or (ii) results in a right by such third
Person(s), irrespective of whether exercised, to accelerate the maturity of the
applicable Borrower’s or Subsidiary’s obligations thereunder;

7.9 If any warranty, representation, statement, or Record made herein or in any
other Loan Document or delivered to Lender in connection with this Agreement or
any other Loan Document proves to be untrue in any material respect as of the
date of issuance or making or deemed making thereof;

7.10 If the obligation of any Guarantor under the Guaranty is limited or
terminated by operation of law or by such Guarantor;

7.11 If the Security Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby, except as a result of a disposition of the applicable Collateral in a
transaction permitted under this Agreement; or

7.12 Any provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by any Borrower or any Subsidiary of a Borrower, or a proceeding shall
be commenced by any Borrower or any Subsidiary of a Borrower, or by any
Governmental Authority having jurisdiction over any Borrower or any Subsidiary
of a Borrower, seeking to establish the invalidity or unenforceability thereof,
or any Borrower or any Subsidiary of a Borrower shall deny that it has any
liability or obligation purported to be created under any Loan Document.

 

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8. LENDER’S RIGHTS AND REMEDIES.

8.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an
Event of Default, Lender (at its election but without notice of its election and
without demand) may do any one or more of the following, all of which are
authorized by Borrowers:

(a) Declare all or any portion of the Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;

(b) Cease advancing money or extending credit to or for the benefit of Borrowers
under this Agreement, under any of the Loan Documents, or under any other
agreement between Borrowers and Lender;

(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of Lender, but without affecting any of the
Lender’s Liens in the Collateral and without affecting the Obligations; and

(d) Lender shall have all other rights and remedies available at law or in
equity or pursuant to any other Loan Document.

The foregoing to the contrary notwithstanding, upon the occurrence of any Event
of Default described in Section 7.4 or Section 7.5, in addition to the remedies
set forth above, without any notice to Borrowers or any other Person or any act
by Lender, Lender’s obligation to extend credit hereunder shall terminate and
the Obligations then outstanding, together with all accrued and unpaid interest
thereon, and all fees and all other amounts due under this Agreement and the
other Loan Documents, shall automatically and immediately become due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are expressly waived by Borrowers.

8.2 Remedies Cumulative. The rights and remedies of Lender under this Agreement,
the other Loan Documents, and all other agreements shall be cumulative. Lender
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by Lender of one right or
remedy shall be deemed an election, and no waiver by Lender of any Event of
Default shall be deemed a continuing waiver. No delay by Lender shall constitute
a waiver, election, or acquiescence by it.

8.3 Bank Product Providers. Each Bank Product Provider shall be deemed a party
hereto for purposes of any reference in any Loan Document with respect to the
Bank Product Providers or the Bank Product Obligations; it being understood and
agreed that the rights and benefits of such Bank Product Provider under the Loan
Documents consist exclusively of such Bank Provider’s right to share in payments
and collections out of the Collateral as more fully set forth herein. In
connection with any such distribution of payments and collections, Lender shall
be entitled to assume no amounts are due to any Bank Product Provider unless
such Bank Product Provider has notified Lender in writing of the amount of any
such liability owed to it prior to such distribution.

 

9. TAXES AND EXPENSES.

If any Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, Lender, in its sole discretion and without prior
notice to any Borrower, may do any or all of the following: (a) make payment of
the same or any part thereof, (b) set up such reserves against the Borrowing
Base or the Maximum Revolver Amount as Lender deems necessary to protect Lender
from the exposure created by such failure, or (c) in the case of the failure to
comply with Section 5.8 hereof, obtain and maintain insurance policies of the
type described in Section 5.8 and take any

 

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action with respect to such policies as Lender deems prudent. Any such amounts
paid by Lender shall constitute Lender Expenses and any such payments shall not
constitute an agreement by Lender to make similar payments in the future or a
waiver by Lender of any Event of Default under this Agreement. Lender need not
inquire as to, or contest the validity of, any such expense, tax, or Lien and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.

 

10. WAIVERS; INDEMNIFICATION.

10.1 Demand; Protest; etc. Each Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by
Lender on which any such Borrower may in any way be liable.

10.2 Lender’s Liability for Borrower Collateral. Each Borrower hereby agrees
that: (a) so long as Lender complies with its obligations, if any, under the
Code, Lender shall not in any way or manner be liable or responsible for:
(i) the safekeeping of the Borrower Collateral, (ii) any loss or damage thereto
occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of
loss, damage, or destruction of the Borrower Collateral shall be borne by
Borrowers.

10.3 Indemnification. Each Borrower shall pay, indemnify, defend, and hold the
Lender-Related Persons and each Participant (each, an “Indemnified Person”)
harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, proceedings, and damages, and
all reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith or in connection with the enforcement
of this indemnification (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration (including
any restructuring or workout with respect hereto) of this Agreement, any of the
other Loan Documents, or the transactions contemplated hereby or thereby or the
monitoring of Borrowers’ and their Subsidiaries’ compliance with the terms of
the Loan Documents, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively, the
“Indemnified Liabilities”). The foregoing to the contrary notwithstanding,
Borrowers shall have no obligation to any Indemnified Person under this
Section 10.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrowers were required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrowers
with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE
OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

 

11. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by Borrowers
or Lender to the other relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested),

 

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overnight courier or telefacsimile to Borrowers in care of Administrative
Borrower or to Lender, as the case may be, at its address set forth below:

 

If to Administrative Borrower:

   CRYOLIFE, INC.   

1655 Roberts Boulevard N.W. Kennesaw, GA 30144

Attn: Mr. D. Ashley Lee

Fax No.: (770) 419-3355

with copies to:

  

ARNALL GOLDEN GREGORY LLP

171 17th Street

Suite 2100

Atlanta, Georgia 30363-1031

Attn: Sherman A. Cohen, Esq.

Fax No.: (404) 873-8631

If to Lender:

  

WELLS FARGO FOOTHILL, INC.

1000 Abernathy Road, N.E., Suite 1450

Atlanta, GA 30328

Attn: Business Finance Division Manager

Fax No.: 770 – 508-1374

with a copy to:

  

FOOTHILL CAPITAL CORPORATION

2450 Colorado Avenue, Suite 3000 West

Santa Monica, CA 90404

Attn: Business Finance Division Manager

Fax No.: 310 – 453-7442

with copies to:

  

PAUL, HASTINGS, JANOFSKY & WALKER LLP

600 Peachtree Street, NE, Suite 2400

Atlanta, GA 30308 Attn: Chris D. Molen, Esq.

Fax No.: 404 – 815-2424

Lender and Borrowers may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 11, other
than notices by Lender in connection with enforcement rights against the
Borrower Collateral under the provisions of the Code, shall be deemed received
on the earlier of the date of actual receipt or 3 Business Days after the
deposit thereof in the mail. Each Borrower acknowledges and agrees that notices
sent by Lender in connection with the exercise of enforcement rights against
Borrower Collateral under the provisions of the Code shall be deemed sent when
deposited in the mail or personally delivered, or, where permitted by law,
transmitted by telefacsimile or any other method set forth above.

 

12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE

 

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DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF GEORGIA.

(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED
IN THE COUNTY OF FULTON, STATE OF GEORGIA, PROVIDED, HOWEVER, THAT ANY SUIT
SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING
SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWERS
AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).

(c) BORROWERS AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWERS AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

13.1 Assignments and Participations.

(a) Lender may assign and delegate to one or more assignees (each an “Assignee”)
that are Eligible Transferees all, or any ratable part of all, of the
Obligations and the other rights and obligations of Lender hereunder and under
the other Loan Documents, in a minimum amount of $5,000,000; provided, however,
that Borrowers may continue to deal solely and directly with Lender in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses, and related
information with respect to the Assignee, have been given to Administrative
Borrower by Lender and the Assignee, and (ii) Lender and its Assignee have
delivered to Administrative Borrower an Assignment and Acceptance. Anything
contained herein to the contrary notwithstanding, the Assignee need not be an
Eligible Transferee if such assignment is in connection with any merger,
consolidation, sale, transfer, or other disposition of all or any substantial
portion of the business or loan portfolio of the assigning Lender.

(b) From and after the date that Lender provides Administrative Borrower with
such written notice and an executed Assignment and Acceptance, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of Lender under the Loan
Documents, and (ii) Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights (except with respect to
Section 10.3 hereof) and be released from any future obligations under this
Agreement (and in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender’s rights and obligations under this
Agreement and the other Loan Documents, Lender shall cease to be a party hereto
and thereto), and such assignment shall effect a novation between Borrowers and
the Assignee; provided,

 

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however, that nothing contained herein shall release Lender from obligations
that survive the termination of this Agreement, including such assigning
Lender’s obligations under Article 15 of this Agreement.

(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (1) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto,
(2) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Borrower or the
performance or observance by any Borrower of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto, (3) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance,
(4) such Assignee will, independently and without reliance upon such assigning
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement, and (5) such Assignee agrees that it will perform
all of the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.

(d) Immediately upon Borrower’s receipt of the fully executed Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the rights and duties of Lender arising therefrom.

(e) Lender may at any time sell to one or more commercial banks, financial
institutions, or other Persons (a “Participant”) participating interests in
Obligations and the other rights and interests of Lender hereunder and under the
other Loan Documents; provided, however, that (i) Lender shall remain the
“Lender” for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations and the
other rights and interests of Lender hereunder shall not constitute a “Lender”
hereunder or under the other Loan Documents and Lender’s obligations under this
Agreement shall remain unchanged, (ii) Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrowers and Lender shall
continue to deal solely and directly with each other in connection with Lender’s
rights and obligations under this Agreement and the other Loan Documents,
(iv) Lender shall not transfer or grant any participating interest under which
the Participant has the right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or
of any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such Participant is participating, (B) reduce the
interest rate applicable to the Obligations hereunder in which such Participant
is participating, (C) release all or substantially all of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through Lender, or (E) change the
amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrowers hereunder shall be determined
as if Lender had not sold such participation, except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
derivative through Lender and no Participant shall have any rights under this
Agreement or the other Loan Documents or any direct rights as to Borrowers, the
Collections of Borrowers or their Subsidiaries, the Collateral, or otherwise in
respect of the Obligations. No Participant shall have the right to participate
directly in the making of decisions by Lender.

 

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(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may, subject to the provisions of
Section 15.8, disclose all documents and information which it now or hereafter
may have relating to Borrowers and their Subsidiaries and their respective
businesses.

(g) Any other provision in this Agreement notwithstanding, Lender may at any
time create a security interest in, or pledge, all or any portion of its rights
under and interest in this Agreement in favor of any Federal Reserve Bank in
accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR § 203.24, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.

13.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrowers may not assign this Agreement or any rights or duties hereunder
without Lender’s prior written consent and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by Lender shall release any
Borrower from its Obligations. Lender may assign this Agreement and the other
Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 13.1 hereof and, except as expressly required pursuant to Section 13.1
hereof, no consent or approval by any Borrower is required in connection with
any such assignment.

 

14. AMENDMENTS; WAIVERS.

14.1 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document (other than Bank Product Agreements), and
no consent with respect to any departure by Borrowers therefrom, shall be
effective unless the same shall be in writing and signed by Lender and
Administrative Borrower (on behalf of all Borrowers) and then any such waiver or
consent shall be effective, but only in the specific instance and for the
specific purpose for which given.

14.2 No Waivers; Cumulative Remedies. No failure by Lender to exercise any
right, remedy, or option under this Agreement or any other Loan Document, or
delay by Lender in exercising the same, will operate as a waiver thereof. No
waiver by Lender will be effective unless it is in writing, and then only to the
extent specifically stated. No waiver by Lender on any occasion shall affect or
diminish Lender’s rights thereafter to require strict performance by Borrowers
of any provision of this Agreement. Lender’s rights under this Agreement and the
other Loan Documents will be cumulative and not exclusive of any other right or
remedy that Lender may have.

 

15. GENERAL PROVISIONS.

15.1 Effectiveness. This Agreement shall be binding and deemed effective when
executed by Borrowers and Lender.

15.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

15.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed against Lender or Borrowers, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to accomplish fairly the purposes and intentions
of all parties hereto.

15.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

 

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15.5 Withholding Taxes. All payments made by any Borrower hereunder or under any
note or other Loan Document will be made without setoff, counterclaim, or other
defense. In addition, all such payments will be made free and clear of, and
without deduction or withholding for, any present or future Taxes, and in the
event any deduction or withholding of Taxes is required, each Borrower shall
comply with the penultimate sentence of this Section 15.5. “Taxes” shall mean,
any taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding any tax imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein measured by or based on the
net income or net profits of Lender) and all interest, penalties or similar
liabilities with respect thereto. If any Taxes are so levied or imposed, each
Borrower agrees to pay the full amount of such Taxes and such additional amounts
as may be necessary so that every payment of all amounts due under this
Agreement, any note, or Loan Document, including any amount paid pursuant to
this Section 15.5 after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein; provided, however, that
Borrowers shall not be required to increase any such amounts if the increase in
such amount payable results from Lender’s own willful misconduct or gross
negligence (as finally determined by a court of competent jurisdiction). Each
Borrower will furnish to Lender as promptly as possible after the date the
payment of any Tax is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by any Borrower.

15.6 Counterparts; Electronic Execution. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile or other electronic method of transmission shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile or
other electronic method of transmission also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.

15.7 Revival and Reinstatement of Obligations. If the incurrence or payment of
the Obligations by any Borrower or Guarantor or the transfer to Lender of any
property should for any reason subsequently be declared to be void or voidable
under any state or federal law relating to creditors’ rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a “Voidable Transfer”), and if Lender is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrowers or Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.

15.8 Confidentiality. Lender agrees that material, non-public information
regarding Borrowers and their Subsidiaries, their operations, assets, and
existing and contemplated business plans shall be treated by Lender in a
confidential manner, and shall not be disclosed by Lender to Persons who are not
parties to this Agreement, except: (a) to attorneys for and other advisors,
accountants, auditors, and consultants to any member of Lender, (b) to
Subsidiaries and Affiliates of Lender (including the Bank Product Providers),
provided that any such Subsidiary or Affiliate shall have agreed to receive such
information hereunder subject to the terms of this Section 15.8, (c) as may be
required by statute, decision, or judicial or administrative order, rule, or
regulation, (d) as may be agreed to in advance by Administrative Borrower or its
Subsidiaries or as requested or required by any Governmental Authority pursuant
to any subpoena or other legal process, (e) as to any such information that is
or becomes generally available to the public (other than as a result of
prohibited disclosure by Lender), (f) in connection with any assignment,
prospective assignment, sale, prospective sale, participation or prospective
participations, or pledge or prospective pledge of Lender’s interest under this
Agreement, provided that any such assignee, prospective assignee, purchaser,
prospective purchaser,

 

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participant, prospective participant, pledgee, or prospective pledgee shall have
agreed in writing to receive such information hereunder subject to the terms of
this Section, and (g) in connection with any litigation or other adversary
proceeding involving parties hereto which such litigation or adversary
proceeding involves claims related to the rights or duties of such parties under
this Agreement or the other Loan Documents. The provisions of this Section 15.8
shall survive for 2 years after the payment in full of the Obligations.

15.9 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

15.10 Parent as Agent for Borrowers. Each Borrower hereby irrevocably appoints
Parent as the borrowing agent and attorney-in-fact for all Borrowers (the
“Administrative Borrower”) which appointment shall remain in full force and
effect unless and until Lender shall have received prior written notice signed
by each Borrower that such appointment has been revoked and that another
Borrower has been appointed Administrative Borrower. Each Borrower hereby
irrevocably appoints and authorizes the Administrative Borrower (i) to provide
Lender with all notices with respect to Advances and Letters of Credit obtained
for the benefit of any Borrower and all other notices and instructions under
this Agreement and (ii) to take such action as the Administrative Borrower deems
appropriate on its behalf to obtain Advances and Letters of Credit and to
exercise such other powers as are reasonably incidental thereto to carry out the
purposes of this Agreement. It is understood that the handling of the Loan
Account and Collateral of Borrowers in a combined fashion, as more fully set
forth herein, is done solely as an accommodation to Borrowers in order to
utilize the collective borrowing powers of Borrowers in the most efficient and
economical manner and at their request, and that Lender shall not incur
liability to any Borrower as a result hereof. Each Borrower expects to derive
benefit, directly or indirectly, from the handling of the Loan Account and the
Collateral in a combined fashion since the successful operation of each Borrower
is dependent on the continued successful performance of the integrated group. To
induce Lender to do so, and in consideration thereof, each Borrower hereby
jointly and severally agrees to indemnify Lender harmless against any and all
liability, expense, loss or claim of damage or injury, made against Lender by
any Borrower or by any third party whosoever, arising from or incurred by reason
of (a) the handling of the Loan Account and Collateral of Borrowers as herein
provided, (b) Lender’s relying on any instructions of the Administrative
Borrower, or (c) any other action taken by Lender hereunder or under the other
Loan Documents, except that Borrowers will have no liability to any
Lender-Related Person under this Section 15.10 with respect to any liability
that has been finally determined by a court of competent jurisdiction to have
resulted solely from the gross negligence or willful misconduct of such
Lender-Related Person.

[Signature pages to follow.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered as of the date first above written.

 

CRYOLIFE, INC., a Florida corporation, as Borrower By:   /s/ Title:   /s/
CRYOLIFE TECHNOLOGY, INC., a Nevada corporation, as Borrower By:   /s/ Title:  
/s/ AURAZYME PHARMACEUTICALS, INC., a Florida corporation, as Borrower By:   /s/
Title:   /s/ WELLS FARGO FOOTHILL, INC., a California corporation, as Lender By:
  /s/ Title:   /s/

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Schedule 1.1

As used in the Agreement, the following terms shall have the following
definitions:

“Account” means an account (as that term is defined in the Code).

“Account Debtor” means any Person who is obligated on an Account, chattel paper,
or a general intangible.

“ACH Transactions” means any cash management or related services (including the
Automated Clearing House processing of electronic fund transfers through the
direct Federal Reserve Fedline system) provided by a Bank Product Provider for
the account of Administrative Borrower or its Subsidiaries.

“Administrative Borrower” has the meaning specified therefor in Section 15.10.

“Advances” has the meaning specified therefor in Section 2.1(a).

“Affiliate” means, as applied to any Person, any other Person who controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, “control” means the possession, directly or indirectly through
one or more intermediaries, of the power to direct the management and policies
of a Person, whether through the ownership of Stock, by contract, or otherwise.

“Agreement” means the Credit Agreement to which this Schedule 1.1 is attached.

“Assignee” has the meaning specified therefor in Section 13.1(a).

“Assignment and Acceptance” means an Assignment and Acceptance Agreement
substantially in the form of Exhibit A-1.

“Authorized Person” means any officer or employee of Administrative Borrower.

“Availability” means, as of any date of determination, the amount that Borrowers
are entitled to borrow as Advances hereunder (after giving effect to all then
outstanding Obligations (other than Bank Product Obligations) and all sublimits
and reserves then applicable hereunder).

“Bank Product” means any financial accommodation extended to Administrative
Borrower or its Subsidiaries by a Bank Product Provider (other than pursuant to
the Agreement) including: (a) credit cards, (b) credit card processing services,
(c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management,
including controlled disbursement, accounts or services, or (g) transactions
under Hedge Agreements.

“Bank Product Agreements” means those agreements entered into from time to time
by Administrative Borrower or its Subsidiaries with a Bank Product Provider in
connection with the obtaining of any of the Bank Products.

“Bank Product Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by Administrative Borrower
or its Subsidiaries to any Bank Product Provider pursuant to or evidenced by the
Bank Product Agreements and irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all such amounts that
Administrative Borrower or its Subsidiaries are obligated to reimburse to Lender
as a result of Lender

 

Schedule 1.1, Page 1

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purchasing participations from, or executing indemnities or reimbursement
obligations to, a Bank Product Provider with respect to the Bank Products
provided by such Bank Product Provider to Administrative Borrower or its
Subsidiaries.

“Bank Product Provider” means Wells Fargo or any of its Affiliates.

“Bank Product Reserve” means, as of any date of determination, the amount of
reserves that Lender has established (based upon the Bank Product Providers’
reasonable determination of the credit exposure of Administrative Borrower and
its Subsidiaries in respect of Bank Products) in respect of Bank Products then
provided or outstanding.

“Bankruptcy Code” means title 11 of the United States Code, as in effect from
time to time.

“Base Rate” means, the rate of interest announced, from time to time, within
Wells Fargo at its principal office in San Francisco as its “prime rate”, with
the understanding that the “prime rate” is one of Wells Fargo’s base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publications as Wells Fargo may designate.

“Base Rate Margin” means 1 percentage point.

“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) for which any Borrower or any Subsidiary or ERISA Affiliate of any
Borrower has been an “employer” (as defined in Section 3(5) of ERISA) within the
past six years.

“BioGlue Gross Margin” means, with respect to any period, the ratio (expressed
as a percentage) of Borrowers’ and its Subsidiaries’ consolidated (a) gross
revenues (net of allowances, discounts, returns and rebates) less cost of goods
sold in respect of its BioGlue Product Line, to (b) the gross revenues (net of
allowances, discounts, returns and rebates) in respect of its BioGlue Product
Line.

“BioGlue Product Line” means Borrowers’ two-component surgical adhesive product
line that is dispersed via a controlled delivery system and crosslinks to the
repair site creating a flexible mechanical seal independently of the body’s
clotting mechanism.

“Board of Directors” means the board of directors (or comparable managers) of
Parent or any committee thereof duly authorized to act on behalf of the board of
directors (or comparable managers).

“Borrower” and “Borrowers” have the respective meanings specified therefor in
the preamble to the Agreement.

“Borrowing” means a borrowing hereunder consisting of Advances made on the same
day by Lender.

“Borrowing Base” means, as of any date of determination, the result of:

(a) 20% of the amount of the Enterprise Valuation, minus

(b) the sum of (i) the Bank Product Reserve and (ii) the aggregate amount of
reserves, if any, established by Lender under Section 2.1(b).

 

Schedule 1.1, Page 2

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“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks are authorized or required to close in the state of Georgia.

“Capital Expenditures” means, with respect to any Person for any period, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period that are capital expenditures as determined in accordance with GAAP,
whether such expenditures are paid in cash or financed.

“Capitalized Lease Obligation” means that portion of the obligations under a
Capital Lease that is required to be capitalized in accordance with GAAP.

“Capital Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc.
(“Moody’s”), (c) commercial paper maturing no more than 270 days from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit or
bankers’ acceptances maturing within 1 year from the date of acquisition thereof
issued by any bank organized under the laws of the United States or any state
thereof having at the date of acquisition thereof combined capital and surplus
of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank
that satisfies the criteria described in clause (d) above, or (ii) any other
bank organized under the laws of the United States or any state thereof so long
as the amount maintained with any such other bank is less than or equal to
$100,000 and is insured by the Federal Deposit Insurance Corporation, and
(f) Investments in money market funds substantially all of whose assets are
invested in the types of assets described in clauses (a) through (e) above.

“Cash Management Account” means a Deposit Account or Securities Account of a
Borrower or a Subsidiary of a Borrower (a “Cash Management Account”) at a Cash
Management Bank.

“Cash Management Bank” has the meaning specified therefor in Section 2.7(a).

“Change of Control” means that (a) any “person” or “group” (within the meaning
of Sections 13(d) and 14(d) of the Exchange Act), becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
25%, or more, of the Stock of Parent having the right to vote for the election
of members of the Board of Directors, or (b) a majority of the members of the
Board of Directors do not constitute Continuing Directors.

“Closing Date” means the date of the making of the initial Advance (or other
extension of credit) hereunder.

“Code” means the Georgia Uniform Commercial Code, as in effect from time to
time.

 

Schedule 1.1, Page 3

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“Collateral” means all assets and interests in assets and proceeds thereof now
owned or hereafter acquired by Administrative Borrower or its Subsidiaries in or
upon which a Lien is granted under any of the Loan Documents.

“Collateral Access Agreement” means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in Administrative Borrower’s or its Subsidiaries’ books and records, Equipment
or Inventory, in each case, in form and substance satisfactory to Lender.

“Collections” means all cash, checks, notes, instruments, and other items of
payment (including insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds).

“Compliance Certificate” means a certificate substantially in the form of
Exhibit C-1 delivered by the chief financial officer of Parent to Lender.

“Continuing Director” means (a) any member of the Board of Directors who was a
director (or comparable manager) of Parent on the Closing Date, and (b) any
individual who becomes a member of the Board of Directors after the Closing Date
if such individual was appointed or nominated for election to the Board of
Directors by a majority of the Continuing Directors, but excluding any such
individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Parent and whose initial assumption of office resulted from such contest or the
settlement thereof.

“Control Agreement” means a control agreement, in form and substance
satisfactory to Lender, executed and delivered by Administrative Borrower or one
of its Subsidiaries, Lender, and the applicable securities intermediary (with
respect to a Securities Account) or bank (with respect to a Deposit Account).

“Daily Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.

“Default” means an event, condition, or default that, with the giving of notice,
the passage of time, or both, would be an Event of Default.

“Deposit Account” means any deposit account (as that term is defined in the
Code).

“Designated Account” means the Deposit Account of Administrative Borrower
identified on Schedule D-1.

“Designated Account Bank” has the meaning specified therefor in Schedule D-1.

“Dollars” or “$” means United States dollars.

“EBITDA” means, with respect to any fiscal period, Parent’s and its
Subsidiaries’ consolidated net earnings (or loss), minus extraordinary gains and
interest income, plus interest expense, income taxes, and depreciation and
amortization for such period, in each case, as determined in accordance with
GAAP.

“Eligible Transferee” means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having total assets in excess of
$250,000,000, (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for

 

Schedule 1.1, Page 4

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Economic Cooperation and Development or a political subdivision of any such
country and which has total assets in excess of $250,000,000, provided that such
bank is acting through a branch or agency located in the United States, (c) a
finance company, insurance company, or other financial institution or fund that
is engaged in making, purchasing, or otherwise investing in commercial loans in
the ordinary course of its business and having (together with its Affiliates)
total assets in excess of $250,000,000, (d) any Affiliate (other than
individuals) of Lender, (e) so long as no Event of Default has occurred and is
continuing, any other Person approved by Administrative Borrower (which approval
of Administrative Borrower shall not be unreasonably withheld, delayed, or
conditioned), and (f) during the continuation of an Event of Default, any other
Person approved by Lender.

“Enterprise Valuation” means the most recent appraised valuation of Borrower’s
business and its assets acceptable to Lender and determined at the direction or
request of Lender by a third party appraiser acceptable to Lender.

“Environmental Actions” means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or
releases of Hazardous Materials from (a) any assets, properties, or businesses
of any Borrower, any Subsidiary of a Borrower, or any of their predecessors in
interest, (b) from adjoining properties or businesses, or (c) from or onto any
facilities which received Hazardous Materials generated by any Borrower, any
Subsidiary of a Borrower, or any of their predecessors in interest.

“Environmental Law” means any applicable federal, state, provincial, foreign or
local statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, in each case, to the extent binding on any
Borrower or any Subsidiary of a Borrower, relating to the environment, the
effect of the environment on employee health, or Hazardous Materials, in each
case as amended from time to time.

“Environmental Liabilities” means all liabilities, monetary obligations, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of counsel,
experts, or consultants, and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest incurred as a result of any claim or
demand, or Remedial Action required, by any Governmental Authority or any third
party, and which relate to any Environmental Action.

“Environmental Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities.

“Equipment” means equipment (as that term is defined in the Code).

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto.

“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of a Borrower or a
Subsidiary of a Borrower under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer as
the employees of a Borrower or a Subsidiary of a Borrower under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which a Borrower or a Subsidiary of a Borrower is a member
under IRC Section 414(m), or (d) solely for

 

Schedule 1.1, Page 5

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purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject
to ERISA that is a party to an arrangement with a Borrower or a Subsidiary of a
Borrower and whose employees are aggregated with the employees of a Borrower or
a Subsidiary of a Borrower under IRC Section 414(o).

“Event of Default” has the meaning specified therefor in Section 7.

“Excess Availability” means, as of any date of determination, the amount equal
to Availability minus the aggregate amount, if any, of all trade payables of
Borrowers and their Subsidiaries aged in excess of their historical levels with
respect thereto and all book overdrafts of Borrowers and their Subsidiaries in
excess of their historical practices with respect thereto, in each case as
determined by Lender in its Permitted Discretion.

“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time
to time.

“Excluded Accounts” and “Excluded Account” have the respective meanings
specified therefor in Section 2.7.

“Fee Letter” means that certain fee letter between Borrowers and Lender, in form
and substance satisfactory to Lender.

“Funding Date” means the date on which a Borrowing occurs.

“GAAP” means generally accepted accounting principles as in effect from time to
time in the United States, consistently applied.

“Governing Documents” means, with respect to any Person, the certificate or
articles of incorporation, by-laws, or other organizational documents of such
Person.

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, board, department, or agency or any
court, tribunal, administrative hearing body, arbitration panel, commission, or
other similar dispute-resolving panel or body.

“Guarantors” means each Subsidiary of each Borrower that is not itself a
Borrower (other than CryoLife Europa Ltd., a company organized under the laws of
England and Wales), and “Guarantor” means any one of them.

“Guaranty” means that certain general continuing guaranty executed and delivered
by each Guarantor in favor of Lender and the Bank Product Providers, in form and
substance satisfactory to Lender.

“Hazardous Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP
toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.

 

Schedule 1.1, Page 6

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“Hedge Agreement” means any and all agreements, or documents now existing or
hereafter entered into by Administrative Borrower or any of its Subsidiaries
that provide for an interest rate, credit, commodity or equity swap, cap, floor,
collar, forward foreign exchange transaction, currency swap, cross currency rate
swap, currency option, or any combination of, or option with respect to, these
or similar transactions, for the purpose of hedging Administrative Borrower’s or
any of its Subsidiaries’ exposure to fluctuations in interest or exchange rates,
loan, credit exchange, security or currency valuations or commodity prices.

“Indebtedness” means (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations as a lessee under Capital Leases, (d) all obligations or liabilities
of others secured by a Lien on any asset of a Person or its Subsidiaries,
irrespective of whether such obligation or liability is assumed, (e) all
obligations to pay the deferred purchase price of assets (other than trade
payables incurred in the ordinary course of business and repayable in accordance
with customary trade practices), (f) all obligations owing under Hedge
Agreements, and (g) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted, or
sold with recourse) any obligation of any other Person that constitutes
Indebtedness under any of clauses (a) through (f) above.

“Indemnified Liabilities” has the meaning specified therefor in Section 10.3.

“Indemnified Person” has the meaning specified therefor in Section 10.3.

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.

“Intercompany Subordination Agreement” means a subordination agreement executed
and delivered by Borrowers and each of their Subsidiaries and Lender, the form
and substance of which is satisfactory to Lender.

“Interest Expense” means, for any period, the aggregate of the interest expense
of Parent and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.

“Inventory” means inventory (as that term is defined in the Code).

“Investment” means, with respect to any Person, any investment by such Person in
any other Person (including Affiliates) in the form of loans, guarantees,
advances, or capital contributions (excluding (a) commission, travel, and
similar advances to officers and employees of such Person made in the ordinary
course of business, and (b) bona fide Accounts arising in the ordinary course of
business consistent with past practice), purchases or other acquisitions of
Indebtedness, Stock, or all or substantially all of the assets of such other
Person (or of any division or business line of such other Person), and any other
items that are or would be classified as investments on a balance sheet prepared
in accordance with GAAP.

“IRC” means the Internal Revenue Code of 1986, as in effect from time to time.

“L/C” has the meaning specified therefor in Section 2.12(a).

 

Schedule 1.1, Page 7

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“L/C Disbursement” means a payment made by Lender pursuant to a Letter of
Credit.

“L/C Undertaking” has the meaning specified therefor in Section 2.12(a).

“Lender” has the meaning specified therefor in the preamble to the Agreement,
and shall include any other Person made a party to the Agreement in accordance
with the provisions of Section 13.1.

“Lender Deposit Account” has the meaning specified in Section 2.7.

“Lender Expenses” means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by a Borrower or its Subsidiaries under
any of the Loan Documents that are paid, advanced, or incurred by Lender,
(b) fees or charges paid or incurred by Lender in connection with Lender’s
transactions with Borrowers or their Subsidiaries, including, fees or charges
for photocopying, notarization, couriers and messengers, telecommunication,
public record searches (including tax lien, litigation, and Uniform Commercial
Code searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic collateral appraisals or business
valuations to the extent of the fees and charges (and up to the amount of any
limitation) contained in the Agreement, real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) costs and expenses
incurred by Lender in the disbursement of funds to or for the account of
Borrowers (by wire transfer or otherwise), (d) charges paid or incurred by
Lender resulting from the dishonor of checks, (e) reasonable costs and expenses
paid or incurred by Lender to correct any default or enforce any provision of
the Loan Documents, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, or advertising to
sell the Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Lender related to any inspections or
audits to the extent of the fees and charges (and up to the amount of any
limitation) contained in the Agreement, (g) reasonable costs and expenses of
third party claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Lender’s relationship with any Borrower or any
Subsidiary of a Borrower, (h) Lender’s reasonable costs and expenses (including
attorneys fees) incurred in advising, structuring, drafting, reviewing,
administering, syndicating, or amending the Loan Documents, and (i) Lender’s
reasonable costs and expenses (including attorneys, accountants, consultants,
and other advisors fees and expenses) incurred in terminating, enforcing
(including attorneys, accountants, consultants, and other advisors fees and
expenses incurred in connection with a “workout,” a “restructuring,” or an
Insolvency Proceeding concerning any Borrower or any Subsidiary of a Borrower or
in exercising rights or remedies under the Loan Documents), or defending the
Loan Documents, irrespective of whether suit is brought, or in taking any
Remedial Action concerning the Collateral.

“Lender-Related Person” means Lender, together with its Affiliates, officers,
directors, employees, attorneys, and agents.

“Lender’s Account” means the account identified in Schedule L-1.

“Lender’s Liens” means the Liens granted by Borrowers or their Subsidiaries to
Lender under the Agreement or the other Loan Documents.

“Letter of Credit” means an L/C or an L/C Undertaking, as the context requires.

“Letter of Credit Usage” means, as of any date of determination, the aggregate
undrawn amount of all outstanding Letters of Credit.

 

Schedule 1.1, Page 8

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“Lien” means any interest in an asset securing an obligation owed to, or a claim
by, any Person other than the owner of the asset, irrespective of whether
(a) such interest is based on the common law, statute, or contract, (b) such
interest is recorded or perfected, and (c) such interest is contingent upon the
occurrence of some future event or events or the existence of some future
circumstance or circumstances. Without limiting the generality of the foregoing,
the term “Lien” includes the lien or security interest arising from a mortgage,
deed of trust, encumbrance, notice of Lien, levy or assessment, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also includes reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.

“Loan Account” has the meaning specified therefor in Section 2.10.

“Loan Documents” means the Agreement, the Bank Product Agreements, the Control
Agreements, the Fee Letter, the Guaranty, the Intercompany Subordination
Agreement, the Letters of Credit, any Mortgages, the Security Agreement, any
note or notes executed by a Borrower in connection with the Agreement and
payable Lender, and any other agreement entered into, now or in the future, by
any Borrower and Lender in connection with the Agreement.

“Material Adverse Change” means (a) a material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of Borrowers and their Subsidiaries, taken as a whole,
(b) a material impairment of a Borrower’s or any of its Subsidiaries’ ability to
perform its obligations under the Loan Documents to which it is a party or of
Lender’s ability to enforce the Obligations or realize upon the Collateral, or
(c) a material impairment of the enforceability or priority of the Lender’s
Liens with respect to the Collateral as a result of an action or failure to act
on the part of a Borrower or a Subsidiary of a Borrower.

“Maturity Date” has the meaning specified therefor in Section 3.3.

“Maximum Revolver Amount” means $15,000,000.

“Moody’s” means Moody’s Investor Service, Inc.

“Mortgages” means, individually and collectively, one or more mortgages, deeds
of trust, or deeds to secure debt, executed and delivered by a Borrower or a
Subsidiary of a Borrower in favor of Lender, in form and substance satisfactory
to Lender, that encumber the Real Property Collateral.

“Obligations” means (a) all loans, Advances, debts, principal, interest
(including any interest that accrues after the commencement of an Insolvency
Proceeding regardless of whether allowed or allowable in whole or in part as a
claim in any such Insolvency Proceeding), contingent reimbursement obligations
with respect to outstanding Letters of Credit, premiums, liabilities (including
all amounts charged to Borrowers’ Loan Account pursuant hereto), obligations
(including indemnification obligations), fees (including the fees provided for
in the Fee Letter), charges, costs, Lender Expenses (including any fees or
expenses that accrue after the commencement of an Insolvency Proceeding,
regardless of whether allowed or allowable in whole or in part as a claim in any
such Insolvency Proceeding), lease payments, guaranties, covenants, and duties
of any kind and description owing by Borrowers to Lender pursuant to or
evidenced by the Loan Documents and irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including all interest not paid when due
and all Lender Expenses that Borrowers are required to pay or reimburse by the
Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any
reference in the Agreement or in the Loan Documents to the Obligations shall
include all or any portion thereof and any extensions,

 

Schedule 1.1, Page 9

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modifications, renewals, or alterations thereof, both prior and subsequent to
any Insolvency Proceeding.

“Overadvance” has the meaning specified therefor in Section 2.5.

“Parent” has the meaning specified therefor in the preamble to the Agreement.

“Participant” has the meaning specified therefor in Section 13.1(e).

“Permitted Discretion” means a determination made in the exercise of reasonable
(from the perspective of a secured lender) business judgment.

“Permitted Dispositions” means (a) sales or other dispositions of Equipment that
is substantially worn, damaged, or obsolete in the ordinary course of business,
(b) sales of Inventory or services to buyers in the ordinary course of business,
(c) the use or transfer of money or Cash Equivalents in a manner that is not
prohibited by the terms of the Agreement or the other Loan Documents, (d) the
licensing of patents, trademarks, copyrights and other intellectual property
rights in the ordinary course of business, on a non-exclusive basis, and (e) the
licensing of patents, trademarks, copyrights and other intellectual property
rights on an exclusive basis where exclusivity is restricted to a limited field
of use that does not prohibit Borrowers and their Subsidiaries, or any of them,
from commercializing the intellectual property rights so licensed in
applications outside the limited field of use or in any application presently
commercialized by the Borrowers and their Subsidiaries; provided, however, that
Lender shall be granted a perfected first priority security interest in each
license described in clause (d) or (e) above and Borrowers and their
Subsidiaries shall not enter into any such license if an Event of Default has
occurred and is continuing.

“Permitted Investments” means (a) Investments in cash and Cash Equivalents,
(b) Investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, (d) Investments received in settlement of amounts due to a Borrower or
any Subsidiary of a Borrower effected in the ordinary course of business or
owing to a Borrower or any Subsidiary of a Borrower as a result of Insolvency
Proceedings involving an Account Debtor or upon the foreclosure or enforcement
of any Lien in favor of a Borrower or any Subsidiary of a Borrower,
(e) purchases of additional patents or non-patented intellectual property to
enhance the BioGlue Product Line or equipment or other capital assets used in
connection therewith so long as no Default or Event of Default exists or would
be caused thereby and so long as the aggregate purchase price therefor does not
exceed $3,000,000, and (f) other investments consistent with Borrowers’
investment policy set forth on Schedule P-1.

“Permitted Liens” means (a) Liens held by Lender, (b) Liens for unpaid taxes,
assessments, or other governmental charges or levies that either (i) are not yet
delinquent, or (ii) do not have priority over the Lender’s Liens and the
underlying taxes, assessments, or charges or levies are the subject of Permitted
Protests, (c) judgment Liens that do not constitute an Event of Default under
Section 7.7 of the Agreement, (d) Liens set forth on Schedule P-2, (e) the
interests of lessors under operating leases, (f) purchase money Liens or the
interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof,
(g) Liens arising by operation of law in favor of warehousemen, landlords,
carriers, mechanics, materialmen, laborers, or suppliers, incurred in the
ordinary course of Borrowers’ business and not in connection with the borrowing
of money, and which Liens either (i) are for sums not yet delinquent, or
(ii) are the subject of Permitted Protests, (h) Liens on amounts deposited in
connection with obtaining worker’s compensation or other unemployment insurance,
(i) Liens on amounts deposited in connection with the making or entering into of
bids, tenders, or leases in the ordinary course of business and not in
connection with the borrowing of money, (j) Liens on amounts deposited as
security for surety or

 

Schedule 1.1, Page 10

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appeal bonds in connection with obtaining such bonds in the ordinary course of
business, and (k) with respect to any Real Property, easements, rights of way,
and zoning restrictions that do not materially interfere with or impair the use
or operation thereof.

“Permitted Protest” means the right of Administrative Borrower or any of its
Subsidiaries to protest any Lien (other than any Lien that secures the
Obligations), taxes (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment, provided that (a) a reserve
with respect to such obligation is established on a Borrower’s or any of its
Subsidiaries’ books and records in such amount as is required under GAAP,
(b) any such protest is instituted promptly and prosecuted diligently by
Administrative Borrower or any of its Subsidiaries, as applicable, in good
faith, and (c) Lender is satisfied that, while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Lender’s Liens.

“Permitted Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness incurred after the Closing Date in an aggregate
principal amount outstanding at any one time not in excess of $3,000,000.

“Person” means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.

“Projections” means Parent’s (on a consolidated [and consolidating] basis with
its Subsidiaries) forecasted (a) balance sheets, (b) profit and loss statements,
and (c) cash flow statements, all prepared on a basis consistent with Parent’s
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.

“Purchase Money Indebtedness” means Indebtedness (other than the Obligations,
but including Capitalized Lease Obligations) incurred at the time of, or within
20 days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof.

“Qualified Cash” means, as of any date of determination, the amount of
unrestricted cash and Cash Equivalents of Borrowers and their Subsidiaries that
is in Deposit Accounts or in Securities Accounts, or any combination thereof,
and which such Deposit Account or Securities Account is the subject of a Control
Agreement and is maintained by a branch office of the bank or securities
intermediary located within the United States.

“Real Property” means any estates or interests in real property now owned or
hereafter acquired by any Borrower or a Subsidiary of any Borrower and the
improvements thereto.

“Real Property Collateral” means any fee owned Real Property hereafter acquired
by a Borrower or any Subsidiary of a Borrower.

“Record” means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.

“Remedial Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) restore or reclaim natural resources or the
environment, (d) perform any pre-

 

Schedule 1.1, Page 11

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remedial studies, investigations, or post-remedial operation and maintenance
activities, or (e) conduct any other actions with respect to Hazardous Materials
authorized by Environmental Laws.

“Required Availability” means that the sum of (a) Excess Availability, plus
(b) Qualified Cash exceeds $12,000,000.

“Revolver Usage” means, as of any date of determination, the sum of (a) the
amount of outstanding Advances, plus (b) the amount of the Letter of Credit
Usage.

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc.

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

“Securities Account” means a “securities account” (as that term is defined in
the Code).

“Security Agreement” means a pledge and security agreement, in form and
substance satisfactory to Lender, executed and delivered by Borrower to Lender.

“Solvent” means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such Person’s
debts.

“Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).

“Subsidiary” of a Person means a corporation, partnership, limited liability
company, or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority of
the board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company, or other entity.

“Taxes” has the meaning specified therefor in Section 15.5.

“Underlying Issuer” means a third Person which is the beneficiary of an L/C
Undertaking and which has issued a letter of credit at the request of Lender for
the benefit of Borrowers.

“Underlying Letter of Credit” means a letter of credit that has been issued by
an Underlying Issuer.

“United States” means the United States of America.

“Voidable Transfer” has the meaning specified therefor in Section 15.7.

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking
association.

 

Schedule 1.1, Page 12

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Schedule 3.1

The obligation of Lender to make its initial extension of credit provided for in
the Agreement is subject to the fulfillment, to the satisfaction of Lender (the
making of such initial extension of credit by Lender being conclusively deemed
to be its satisfaction or waiver of the following), of each of the following
conditions precedent:

(a) the Closing Date shall occur on or before February 9, 2005;

(b) Lender shall have received a letter duly executed by each Borrower and each
Guarantor authorizing Lender to file appropriate financing statements in such
office or offices as may be necessary or, in the opinion of Lender, desirable to
perfect the security interests to be created by the Loan Documents;

(c) Lender shall have received evidence that appropriate financing statements
have been duly filed in such office or offices as may be necessary or, in the
opinion of Lender, desirable to perfect the Lender ‘s Liens in and to the
Collateral, and Lender shall have received searches reflecting the filing of all
such financing statements;

(d) Lender shall have received each of the following documents, in form and
substance satisfactory to Lender, duly executed, and each such document shall be
in full force and effect:

(i) the Control Agreements,

(ii) a disbursement letter executed and delivered by Borrowers to Lender
regarding the extensions of credit to be made on the Closing Date, the form and
substance of which is satisfactory to Lender,

(iii) the Fee Letter,

(iv) the Guaranty,

(v) the Intercompany Subordination Agreement,

(vi) the Patent Security Agreement,

(vii) the Security Agreement, together with all certificates representing the
shares of Stock pledged thereunder, as well as Stock powers with respect thereto
endorsed in blank,

(viii) the Trademark Security Agreement;

(e) Lender shall have received a certificate from the Secretary of each Borrower
(i) attesting to the resolutions of such Borrower’s Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which such Borrower is a party, (ii) authorizing
specific officers of such Borrower to execute the same, and (iii) attesting to
the incumbency and signatures of such specific officers of such Borrower;

(f) Lender shall have received copies of each Borrower’s Governing Documents, as
amended, modified, or supplemented to the Closing Date, certified by the
Secretary of such Borrower;

 

Schedule 3.1, Page 1

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(g) Lender shall have received a certificate of status with respect to each
Borrower, dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of such
Borrower, which certificate shall indicate that such Borrower is in good
standing in such jurisdiction;

(h) Lender shall have received certificates of status with respect to each
Borrower, each dated within 30 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions (other than the
jurisdiction of organization of such Borrower) in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that such Borrower is in good standing in such
jurisdictions;

(i) Lender shall have received a certificate from the Secretary of each
Guarantor (i) attesting to the resolutions of such Guarantor’s Board of
Directors authorizing its execution, delivery, and performance of the Loan
Documents to which such Guarantor is a party, (ii) authorizing specific officers
of such Guarantor to execute the same and (iii) attesting to the incumbency and
signatures of such specific officers of Guarantor;

(j) Lender shall have received copies of each Guarantor’s Governing Documents,
as amended, modified, or supplemented to the Closing Date, certified by the
Secretary of such Guarantor;

(k) Lender shall have received a certificate of status with respect to each
Guarantor, dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of such
Guarantor, which certificate shall indicate that such Guarantor is in good
standing in such jurisdiction;

(l) Lender shall have received certificates of status with respect to each
Guarantor, each dated within 30 days of the Closing Date, such certificates to
be issued by the appropriate officer of the jurisdictions (other than the
jurisdiction of organization of such Guarantor) in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that such Guarantor is in good standing in such
jurisdictions;

(m) Lender shall have received a certificate of insurance, together with the
endorsements thereto, as are required by Section 5.8, the form and substance of
which shall be satisfactory to Lender;

(n) Lender shall have received Collateral Access Agreements with respect to the
following location: 1655 Roberts Blvd., NW, Kennesaw, Georgia;

(o) Lender shall have received an opinion of Borrowers’ counsel in form and
substance satisfactory to Lender;

(p) Borrowers shall have the Required Availability after giving effect to the
initial extensions of credit hereunder and the payment of all fees and expenses
required to be paid by Borrowers on the Closing Date under this Agreement or the
other Loan Documents;

(q) Lender shall have completed its business, legal, and collateral due
diligence, including (i) a collateral audit and review of Borrowers’ and their
Subsidiaries’ books and records and verification of Borrowers’ representations
and warranties to Lender, the results of which shall be satisfactory to Lender,
(ii) an inspection of each of the locations where Borrowers’ and their
Subsidiaries’ Inventory is located, the results of which shall be satisfactory
to Lender, (iii) completion of Uniform Commercial Code and intellectual property
Lien searches, the results of which shall be satisfactory to Lender, and
(iv) review of

 

Schedule 3.1, Page 2

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all litigation, including, without limitation, SEC investigations, the results
of which shall be satisfactory to Lender;

(r) Lender shall have received completed reference checks with respect to
Borrowers’ senior management, the results of which are satisfactory to Lender in
its sole discretion;

(s) Lender shall have received the Enterprise Valuation, the results of which
shall be satisfactory to Lender;

(t) Lender shall have received a set of Projections of the Parent and its
Subsidiaries for the 3 year period following the Closing Date (on a year by year
basis, and for the 1 year period following the Closing Date, on a month by month
basis), in form and substance (including as to scope and underlying assumptions)
satisfactory to Lender;

(u) Borrowers shall have paid all Lender Expenses incurred in connection with
the transactions evidenced by this Agreement;

(v) Lender shall have received copies of each of Parent’s material contracts,
together with a certificate of the Secretary of the Parent certifying each such
document as being a true, correct, and complete copy thereof;

(w) Borrowers and each of their Subsidiaries shall have received all licenses,
approvals or evidence of other actions required by any Governmental Authority in
connection with the execution and delivery by Borrowers or their Subsidiaries of
the Loan Documents or with the consummation of the transactions contemplated
thereby; and

(x) all other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance satisfactory to Lender.

 

Schedule 3.1, Page 3

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Schedule 5.2

Provide Lender with each of the documents set forth below at the following times
in form satisfactory to Lender:

 

Quarterly (no later than the 30th day after each quarter)   

(a) a detailed aging, by total, of Borrowers’ Accounts, together with a
reconciliation and supporting documentation for any reconciling items noted,

 

(b) a summary, by vendor, of Borrowers’ and their Subsidiaries’ accounts payable
and any book overdrafts and of any held checks,

 

(c) a detailed report regarding Borrowers’ and their Subsidiaries’ cash and Cash
Equivalents, including an indication of which amounts constitute Qualified Cash,
and

 

(d) a report regarding Borrowers’ and their Subsidiaries’ accrued, but unpaid,
ad valorem taxes.

 

   

Upon request by Lender

 

  

(e) such other reports as to the Collateral or the financial condition of
Borrowers and their Subsidiaries, as Lender may reasonably request.

 

 

Schedule 5.2, Page 1

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Schedule 5.3

Deliver to Lender each of the financial statements, reports, or other items set
forth set forth below at the following times in form satisfactory to Lender:

 

   

as soon as available, but in any event within 30 days (45 days in the case of a
month that is the end of one of Parent’s fiscal quarters) after the end of each
month during each of Parent’s fiscal years

 

  

(f) an unaudited consolidated balance sheet, income statement, and statement of
cash flow (and consolidating balance sheet and income statement) covering
Parent’s and its Subsidiaries’ operations during such period, and

 

(g) a Compliance Certificate.

    as soon as available, but in any event within 90 days after the end of each
of Parent’s fiscal years   

(h) consolidated financial statements of Parent and its Subsidiaries for each
such fiscal year, audited by independent certified public accountants reasonably
acceptable to Lender and certified, without any qualifications (including any
(A) “going concern” or like qualification or exception, (B) qualification or
exception as to the scope of such audit, or (C) qualification which relates to
the treatment or classification of any item and which, as a condition to the
removal of such qualification, would require an adjustment to such item, the
effect of which would be to cause any noncompliance with the provisions of
Section 6.16), by such accountants to have been prepared in accordance with GAAP
(such audited financial statements to include a balance sheet, income statement,
and statement of cash flow and, if prepared, such accountants’ letter to
management),

 

(i) unaudited consolidating balance sheet and income statement of Parent and its
Subsidiaries for such fiscal year, and

 

(j) a Compliance Certificate.

 

   

as soon as available, but in any event within 30 days prior to the start of each
of Parent’s fiscal years,

 

   (k) copies of Parent’s Projections, in form and substance (including as to
scope and underlying assumptions) satisfactory to Lender, in its Permitted
Discretion, for the forthcoming year, quarter by quarter, certified by the chief
financial officer of Parent as being such officer’s good faith estimate of the
financial performance of Parent during the period covered thereby.     if and
when filed by any Borrower,   

(l) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current
reports,

 

(m) any other filings made by any Borrower with the SEC, and

 

(n) any other information that is provided by Parent to its shareholders
generally.

 

 

Schedule 5.3, Page 1

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promptly, but in any event within 5 days after a Borrower has knowledge of any
event or condition that constitutes a Default or an Event of Default,

 

   (o) notice of such event or condition and a statement of the curative action
that Borrowers proposes to take with respect thereto.    

promptly after the commencement thereof (or, in the case of a threat described
in clause (ii), promptly upon such threat), but in any event within 5 days after
the service of process with respect thereto (or, in the case of any threat
described in clause (ii), within 5 days of such threat) on any Borrower or any
Subsidiary of a Borrower,

 

   (p) (i) notice of all actions, suits, or proceedings brought by or against
any Borrower or any Subsidiary of a Borrower before any Governmental Authority
(other than the United States Food and Drug Administration) which reasonably
could be expected to result in a Material Adverse Change, and (ii) notice of all
actions, suits, or proceedings brought by or against (or threatened by or
against) any Borrower or any Subsidiary of a Borrower before the United States
Food and Drug Administration.    

promptly upon receipt thereof, but in any event within 5 days after receipt,

 

  

(q) copies of all Warning Letters, Notices of Observation or Orders (as such
terms are defined under the Federal Food, Drug, and Cosmetic Act of 1938, as
amended, or applicable regulations issued thereunder) received by any Borrower
or any Subsidiary of a Borrower from the United States Food and Drug
Administration.

 

   

promptly upon Borrowers’ obtaining knowledge thereof, but in any event within 5
days after obtaining such knowledge,

 

   (r) notice of any material default under any intellectual property license of
the type described in clause (d) or (e) of the definition of Permitted
Disposition.    

upon the request of Lender,

 

  

(s) any other information reasonably requested relating to the financial
condition of Borrowers or their Subsidiaries.

 

 

Schedule 5.3, Page 2