EXHIBIT 10.1
CREDIT AND SECURITY AGREEMENT
     THIS CREDIT AND SECURITY AGREEMENT (as the same may be amended,
supplemented, restated or otherwise modified from time to time, the “Agreement”)
is dated as of June 30, 2006 by and among ADVANCIS PHARMACEUTICAL CORPORATION
(“Advancis”), a Delaware corporation, and any additional Borrower that may
hereafter be added to this Agreement (Advancis and each other Borrower hereafter
added to this Agreement, individually as a Borrower and collectively as
Borrowers), MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business
Financial Services Inc., individually as a Lender, and as Agent, and the
financial institutions or other entities from time to time parties hereto, each
as a Lender.
RECITALS
Borrowers have requested that Agent and Lenders make available to Borrowers
term, revolving and letter of credit financing facilities as described herein.
Agent and Lenders are willing to extend such credit to Borrowers under the terms
and conditions herein set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained, Borrowers, Lenders and Agent agree as follows:
ARTICLE 1 — DEFINITIONS
     Section 1.1 Certain Defined Terms.
     The following terms have the following meanings:
     “Account Debtor” means “account debtor”, as defined in Article 9 of the
UCC, and any other obligor in respect of an Account.
     “Accounts” means collectively (a) any right to payment of a monetary
obligation, whether or not earned by performance, (b) without duplication, any
“account” (as defined in the UCC), any accounts receivable (whether in the form
of payments for services rendered or goods sold, rents, license fees or
otherwise), any “health-care-insurance receivables” (as defined in the UCC), any
“payment intangibles” (as defined in the UCC) and all other rights to payment
and/or reimbursement of every kind and description, whether or not earned by
performance, (c) all accounts, “general intangibles” (as defined in the UCC),
Intellectual Property, rights, remedies, Guarantees, “supporting obligations”
(as defined in the UCC), “letter-of-credit rights” (as defined in the UCC) and
security interests in respect of the foregoing, all rights of enforcement and
collection, all books and records evidencing or related to the foregoing, and
all rights under the Financing Documents in respect of the foregoing, (d) all
information and data compiled or derived by any Borrower or to which any
Borrower is entitled in respect of or related to the foregoing, and (e) all
proceeds of any of the foregoing.
     “Agent” means Merrill Lynch, in its capacity as Agent for the Lenders
hereunder, as such capacity is established in, and subject to the provisions of,
Article 10, and the successors of Merrill Lynch in such capacity.
     “Affiliate” means with respect to any Person (a) any Person that directly
or indirectly controls such Person, (b) any Person which is controlled by or is
under common control with such controlling Person, and (c) each of such Person’s
(other than, with respect to any Lender, any Lender’s) officers or directors (or
Persons functioning in substantially similar roles). As used in this definition,
the term “control” of a Person means the possession, directly or indirectly, of
the power to vote five percent (5%) or more of any class of voting securities of
such Person or to direct or cause the direction of the management or policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
     “Allowed Distribution” has the meaning set forth in Section 5.3.

 

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     “Anti-Terrorism Laws” means any Laws relating to terrorism or money
laundering, including Executive Order No. 13224 (effective September 24, 2001),
the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act,
and the Laws administered by OFAC.
     “Assignment Agreement” means an agreement pursuant to which any Lender
shall assign any or all of its interests as a Lender hereunder pursuant to
Section 11.6, as substantially in the form of Exhibit A hereto.
     “Bankruptcy Code” means Title 11 of the United States Code entitled
“Bankruptcy”, as the same may be amended, modified or supplemented from time to
time, and any successor statute thereto.
     “Base Rate” means a rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) equal to (a) the rate of interest which is identified and
normally published by Bloomberg Professional Service Page BBAM 1 as the offered
rate for loans in United States dollars for the period of one (1) month under
the caption British Bankers Association LIBOR Rates as of 11:00 a.m. (London
time) as adjusted on a daily basis and effective on the second full Business Day
after each such day (unless such date is not a Business Day, in which event the
next succeeding Business Day will be used); divided by (b) the sum of one minus
the daily average during the preceding month of the aggregate maximum reserve
requirement (expressed as a decimal) then imposed under Regulation D of the
Board of Governors of the Federal Reserve System (or any successor thereto) for
“Eurocurrency Liabilities” (as defined therein). If Bloomberg Professional
Service (or another nationally-recognized rate reporting source acceptable to
Agent) no longer reports the LIBOR or Agent determines in good faith that the
rate so reported no longer accurately reflects the rate available to Agent in
the London Interbank Market or if such index no longer exists or if Page BBAM 1
no longer exists or accurately reflects the rate available to Agent in the
London Interbank Market, Agent may select a comparable replacement index or
replacement page, as the case may be.
     “Base Rate Margin” means (a) 3.75% per annum, with respect to the Revolving
Loans and other Obligations (other than the Term Loan), and (b) 5.0% per annum
with respect to the Term Loan.
     “Bear Stearns” means, collectively, BX, L.P., Bear Stearns Health
Innoventures, L.P., Bear Stearns Health Innoventures Offshore, L.P., Bear
Stearns Health Innoventures Employee Fund, L.P. and BSHI Members, L.L.C.
     “Benefit Arrangement” means any employee benefit plan within the meaning of
Section 3(e) of ERISA which is not a Plan or Multiemployer Plan and which is
maintained or otherwise contributed to by any Borrower or any other member of
the Controlled Group.
     “Blocked Person” means any Person: (a) listed in the annex to, or is
otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person
owned or controlled by, or acting for or on behalf of, any Person that is listed
in the annex to, or is otherwise subject to the provisions of, Executive Order
No. 13224, (c) a Person with which any Lender is prohibited from dealing or
otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person
that commits, threatens or conspires to commit or supports “terrorism” as
defined in Executive Order No. 13224, or (e) a Person that is named a “specially
designated national” or “blocked person” on the most current list published by
OFAC or other similar list.
     “Borrowers” mean, collectively, Advancis and any additional borrower that
may hereafter be added by written amendment to this Agreement.
     “Borrower’s Account” means, with respect to any Borrower, the account
specified on the signature pages hereof below such Borrower’s name into which
Loans for the benefit of such Borrower shall, absent other instructions, be
made, or such other account as Borrower may specify by written notice to Agent.
     “Borrowing Base” means:
          (a) the product of (i) eighty five percent (85%) multiplied by
(ii) the aggregate net amount at such time of the Eligible Accounts; minus
          (b) the amount of any reserves and/or adjustments provided for in this
Agreement.

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     “Borrowing Base Certificate” means a certificate, duly executed by a
Responsible Officer of Advancis, appropriately completed and substantially in
the form of Exhibit C hereto.
     “Business Day” means any day except a Saturday, Sunday or other day on
which either the New York Stock Exchange is closed, or on which commercial banks
in Chicago and New York City are authorized by law to close.
     “CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980.
     “Change in Control” means any of the following events: (a) any Person or
two or more Persons acting in concert shall have acquired beneficial ownership,
directly or indirectly, of, or shall have acquired by contract or otherwise, or
shall have entered into a contract or arrangement that, upon consummation, will
result in its or their acquisition of or control over, voting stock of Advancis
(or other securities convertible into such voting stock) representing 40% or
more of the combined voting power of all voting stock of Advancis (excluding one
or more of Healthcare Ventures, Rho Ventures or Bear Stearns) or (b) Advancis
ceases to own all of the outstanding capital stock of any other Borrower. As
used herein, “beneficial ownership” shall have the meaning provided in
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
     “Closing Date” means the date of this Agreement.
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time.
     “Collateral” means all property described on Schedule 8.1 hereto.
     “Commitment Annex” means Annex A to this Agreement.
     “Commitment Expiry Date” means March 30, 2010.
     “Compliance Certificate” means a certificate, duly executed by a
Responsible Officer of Advancis, appropriately completed and substantially in
the form of Exhibit B hereto.
     “Consolidated Subsidiary” means at any date any Subsidiary or other Person
the accounts of which would be consolidated with those of a Borrower (or any
other Person, as the context may require hereunder) in its consolidated
financial statements if such statements were prepared as of such date.
     “Contingent Obligation” means, with respect to any Person, any direct or
indirect liability of such Person: (a) with respect to any debt, lease, dividend
or other obligation of another Person (a “Third Party Obligation”) if the
purpose or intent of such Person incurring such liability, or the effect
thereof, is to provide assurance to the obligee of such Third Party Obligation
that such Third Party Obligation will be paid or discharged, or that any
agreement relating thereto will be complied with, or that any holder of such
Third Party Obligation will be protected, in whole or in part, against loss with
respect thereto; (b) with respect to any undrawn portion of any letter of credit
issued for the account of such Person or as to which such Person is otherwise
liable for the reimbursement of any drawing; (c) under any swap contract or
other derivative obligation; (d) to make take-or-pay or similar payments if
required regardless of nonperformance by any other party or parties to an
agreement; or (e) for any obligations of another Person pursuant to any
Guarantee or pursuant to any agreement to purchase, repurchase or otherwise
acquire any obligation or any property constituting security therefor, to
provide funds for the payment or discharge of such obligation or to preserve the
solvency, financial condition or level of income of another Person. The amount
of any Contingent Obligation shall be equal to the amount of the obligation so
Guaranteed or otherwise supported or, if not a fixed and determinable amount,
the maximum amount so Guaranteed or otherwise supported.
     “Controlled Group” means all members of any group of corporations and all
members of a group of trades or businesses (whether or not incorporated) under
common control which, together with any Borrower, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of
ERISA.
     “Credit Exposure” means any period of time during which the Revolving Loan
Commitment or Term

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Loan Commitment is outstanding or any Loan, Reimbursement Obligation or other
Obligation remains unpaid or any Letter of Credit or Support Agreement remains
outstanding; provided, however, that no Credit Exposure shall be deemed to exist
solely due to the existence of contingent indemnification liability, absent the
assertion of a claim with respect thereto.
     “Credit Party” means any Guarantor under a Guarantee of the Obligations or
any part thereof, any Borrower and any Subsidiary of any Borrower, whether now
existing or hereafter acquired or formed; and “Credit Parties” means all such
Persons, collectively.
     “Debt” of a Person means at any date, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising and paid on a timely
basis and in the Ordinary Course of Business, (d) all capital leases of such
Person, (e) all non-contingent obligations of such Person to reimburse any bank
or other Person in respect of amounts paid under a letter of credit, banker’s
acceptance or similar instrument, (f) all equity securities of such Person
subject to repurchase or redemption otherwise than at the sole option of such
Person, (g) all obligations secured by a Lien on any asset of such Person,
whether or not such obligation is otherwise an obligation of such Person, (h)
“earnouts”, purchase price adjustments, profit sharing arrangements, deferred
purchase money amounts and similar payment obligations or continuing obligations
of any nature of such Person arising out of purchase and sale contracts; (i) all
Debt of others Guaranteed by such Person; (j) off-balance sheet liabilities (as
defined under SEC rules and regulations) and/or pension plan liabilities;
(k) obligations arising under non-compete agreements; (l) obligations arising
under bonus, deferred compensation, incentive compensation or similar
arrangements, other than those arising in the Ordinary Course of Business; and
(m) Contingent Obligations. Without duplication of any of the foregoing, Debt of
Borrowers shall include any and all Loans and Letter of Credit Liabilities.
     “Default” means any condition or event which with the giving of notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
     “Deposit Account” means a “deposit account” (as defined in Article 9 of the
UCC), an investment account, or other account in which funds are held or
invested for credit to or for the benefit of any Borrower.
     “Deposit Account Control Agreement” means an agreement, in form and
substance satisfactory to Agent, among Agent, a Borrower and each bank in which
such Borrower maintains a Deposit Account, which agreement provides that
(a) such bank shall comply with instructions originated by Agent directing
disposition of the funds in such Deposit Account without further consent by the
applicable Borrower, and (b) such bank shall agree that it shall have no Lien
on, or right of setoff or recoupment against, such Deposit Account or the
contents thereof, other than in respect of commercially reasonable fees and
other items, in each such case expressly consented to by Agent, and containing
such other terms and conditions as Agent may require, including as to any such
agreement pertaining to any Lockbox Account, providing that such bank shall
wire, or otherwise transfer, in immediately available funds, on a daily basis to
the Payment Account all funds received or deposited into such Lockbox or Lockbox
Account.
     “Eligible Accounts” means, subject to the criteria below, an account
receivable of a Borrower, which was generated in the Ordinary Course of
Business, which was generated originally in the name of a Borrower and not
acquired via assignment or otherwise (other than among Borrowers), and which
Agent, in its good faith credit judgment and discretion, deems to be an Eligible
Account. The net amount of Eligible Accounts at any time shall be the face
amount of such Eligible Accounts as originally billed minus all cash collections
and other proceeds of such Account received from or on behalf of the Account
Debtor thereunder as of such date and any and all returns, rebates, discounts
(which may, at Agent’s option, be calculated on shortest terms), credits,
allowances or excise taxes of any nature at any time issued, owing, claimed by
Account Debtors, granted, outstanding or payable in connection with such
Accounts at such time. Without limiting the generality of the foregoing, no
Account shall be an Eligible Account if:
     (a) the Account remains unpaid more than ninety (90) days past the claim or
invoice date (but in no event more than one hundred twenty (120) days after the
applicable goods or services have been rendered or delivered);

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     (b) the Account is subject to any defense, set-off, recoupment,
counterclaim, deduction, discount, credit, chargeback, freight claim, allowance,
or adjustment of any kind (but only to the extent of such defense, set-off,
recoupment, counterclaim, deduction, discount, credit, chargeback, freight
claim, allowance, or adjustment), or the applicable Borrower is not able to
bring suit or otherwise enforce its remedies against the Account Debtor through
judicial process;
     (c) if the Account arises from the sale of goods, any part of any goods the
sale of which has given rise to the Account has been returned, rejected, lost,
or damaged (but only to the extent that such goods have been so returned,
rejected, lost or damaged);
     (d) if the Account arises from the sale of goods, the sale was not an
absolute, bona fide sale, or the sale was made on consignment or on approval or
on a sale-or-return or bill-and-hold or progress billing basis, or the sale was
made subject to any other repurchase or return agreement (other than sales made
by a Borrower in the Ordinary Course of Business in accordance with the standard
return policy of such Borrower), or the goods have not been shipped to the
Account Debtor or its designee or the sale was not made in compliance with
applicable Laws;
     (e) if the Account arises from the performance of services, the services
have not actually been performed or the services were undertaken in violation of
any law or the Account represents a progress billing for which services have not
been fully and completely rendered;
     (f) the Account is subject to a Lien other than a Permitted Lien, or Agent
does not have a Lien on such Account;
     (g) the Account is evidenced by Chattel Paper or an Instrument of any kind,
or has been reduced to judgment, unless such Chattel Paper or Instrument has
been delivered to Agent;
     (h) the Account Debtor is an Affiliate or Subsidiary of a Credit Party, or
if the Account Debtor holds any Debt of a Credit Party (but only to the extent
of such Debt);
     (i) more than twenty five percent (25%) of the aggregate balance of all
Accounts owing from the Account Debtor obligated on the Account are ineligible
under subclause (a) above;
     (j) without limiting the provisions of clause (i) above, fifty percent
(50%) or more of the aggregate unpaid Accounts from the Account Debtor obligated
on the Account are not deemed Eligible Accounts under this Agreement for any
reason;
     (k) the total unpaid Accounts of the Account Debtor (other than Amerisource
Bergen Corporation, Cardinal Health, Inc. and McKesson Corporation) obligated on
the Account exceed twenty percent (20%) of the net amount of all Eligible
Accounts owing from all Account Debtors (but only the amount of the Accounts of
such Account Debtor exceeding such 20% limitation shall be considered
ineligible);
     (l) any covenant, representation or warranty contained in the Financing
Documents with respect to such Account has been breached in any respect;
     (m) the Account is unbilled or has not been invoiced to the Account Debtor
in accordance with the procedures and requirements of the applicable Account
Debtor;
     (n) the Account is an obligation of an Account Debtor that is the federal
(or local) government or a political subdivision thereof, unless Agent has
agreed to the contrary in writing and Agent has received from the Account Debtor
the acknowledgement of Agent’s notice of assignment of such obligation pursuant
to this Agreement;
     (o) the Account is an obligation of an Account Debtor that has suspended
business, made a general assignment for the benefit of creditors, is unable to
pay its debts as they become due or as to which a petition has been filed
(voluntary or involuntary) under any law relating to bankruptcy, insolvency,
reorganization or relief of

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debtors, or the Account is an Account as to which any facts, events or
occurrences exist which could reasonably be expected to impair the validity,
enforceability or collectibility of such Account or reduce the amount payable or
delay payment thereunder;
     (p) the Account Debtor has its principal place of business or executive
office outside the United States or the Account is payable in a currency other
than United States dollars;
     (q) the Account Debtor is an individual;
     (r) the Borrower owning such Account has not signed and delivered to Agent
notices, in the form requested by Agent, directing the Account Debtors to make
payment to the applicable Lockbox Account; or
     (s) the Account or Account Debtor fails to meet such other specifications
and requirements which may from time to time be established by Agent in its good
faith credit judgment and discretion.
     “Environmental Laws” means any and all Laws relating to the environment or
the effect of the environment on human health or to emissions, discharges or
releases of pollutants, contaminants, Hazardous Materials or wastes into the
environment, including ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, Hazardous
Materials or wastes or the clean-up or other remediation thereof.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as the
same may be amended, modified or supplemented from time to time, and any
successor statute thereto, and any and all rules or regulations promulgated from
time to time thereunder.
     “Event of Default” has the meaning set forth in Section 9.1.
     “Excluded Property” has the meaning set forth in Schedule 8.1.
     “Extraordinary Receipts” means any cash received by or paid to or for the
account of any Credit Party not in the Ordinary Course of Business in excess of
$300,000 in the aggregate (and not consisting of proceeds described in any of
clauses (i) and/or (iii) of Section 2.1(a)(ii)(B)), including, without
limitation, amounts received in respect of foreign, United States, State or
local tax refunds to the extent not included in the calculation of operating
income (as determined in accordance with GAAP), pension plan reversions,
purchase price and other monetary adjustments made pursuant to any acquisition
document and/or indemnification payments made pursuant to any acquisition
document (other than such indemnification payments to the extent that the
amounts so received are applied by a Credit Party for the purpose of replacing,
repairing or restoring any assets or properties of a Credit Party, or satisfying
the condition giving rise to the claim for indemnification or otherwise covering
any out-of-pocket expenses incurred by any Credit Party in obtaining such
payments). Notwithstanding the foregoing, “Extraordinary Receipts” shall not
includes proceeds received by Advancis as a result of an equity issuance.
     “Financing Documents” means this Agreement, any Notes, the any
subordination or intercreditor agreement pursuant to which any Debt and/or any
Liens securing such Debt is subordinated to all or any portion of the
Obligations and all other documents, instruments and agreements contemplated
herein or thereby and heretofore executed, executed concurrently herewith or
executed at any time and from time to time hereafter, as any or all of the same
may be amended, supplemented, restated or otherwise modified from time to time.
     “GAAP” means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the United States
accounting profession), which are applicable to the circumstances as of the date
of determination.
     “Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or Person exercising
executive, legislative, judicial, regulatory or

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administrative functions of or pertaining to government and any corporation or
other Person owned or controlled (through stock or capital ownership or
otherwise) by any of the foregoing, whether domestic or foreign.
     “Guarantee” by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise), or
(b) entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided, however, that
the term Guarantee shall not include endorsements for collection or deposit in
the Ordinary Course of Business. The term “Guarantee” used as a verb has a
corresponding meaning.
     “Guarantor” means any Credit Party that has executed or delivered, or shall
in the future execute or deliver, any Guarantee of any portion of the
Obligations.
     “Hazardous Materials” means (a) any “hazardous substance” as defined in
CERCLA, (b) any “hazardous waste” as defined by the Resource Conservation and
Recovery Act, (c) asbestos, (d) polychlorinated biphenyls, (e) petroleum, its
derivatives, by-products and other hydrocarbons, (f) mold, and (g) any other
pollutant, toxic, radioactive, caustic or otherwise hazardous substance
regulated under Environmental Laws.
     “Healthcare Ventures” means, collectively, HealthCare Ventures V, L.P.,
HealthCare Ventures VI, L.P. and HealthCare Ventures VII, L.P.
     “Intellectual Property” means, with respect to any Person, all Patents,
Trademarks, trade names, trade styles, trade dress, service marks, logos and
other business identifiers, Copyrights, technology, know-how and processes,
computer hardware and software and all applications and licenses therefor, used
in or necessary for the conduct of business by such Person.
     “Inventory” has the meaning given in the UCC.
     “Investment” means any investment in any Person, whether by means of
acquiring (whether for cash, property, services, securities or otherwise) or
holding securities, capital contributions, loans, time deposits, advances,
Guarantees or otherwise. The amount of any Investment shall be the original cost
of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect thereto, minus any actual cash returns paid to a
Borrower.
     “Invoiced Products” means the aggregate invoiced value of Inventory sold by
Borrowers in the Ordinary Course of Business (determined based upon the
published wholesale acquisition cost ) and shipped to its customers during the
applicable fiscal quarter.
     “IP Proceeds” has the meaning set forth in Schedule 8.1.
     “Laws” means any and all federal, state, local and foreign statutes, laws,
judicial decisions, regulations, guidances, guidelines, ordinances, rules,
judgments, orders, decrees, codes, plans, injunctions, permits, concessions,
grants, franchises, governmental agreements and governmental restrictions,
whether now or hereafter in effect, which are applicable to any Credit Party in
any particular circumstance. “Laws” includes, without limitation, Specific Laws
and Environmental Laws.
     “LC Issuer” means one or more banks, trust companies or other Persons in
each case expressly identified by Agent from time to time, in its sole
discretion, as an LC Issuer for purposes of issuing one or more Letters of
Credit hereunder. Without limitation of Agent’s discretion to identify any
Person as an LC Issuer, no Person shall be designated as an LC Issuer unless
such Person maintains reporting systems acceptable to Agent with respect to
letter of credit exposure and agrees to provide regular reporting to Agent
satisfactory to it with respect to such exposure.

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     “Lender” means each of (a) Merrill Lynch, (b) each other Person party
hereto in its capacity as a lender, (c) each other Person that becomes a party
hereto as Lender pursuant to Section 11.6, and (d) the respective successors of
all of the foregoing, and “Lenders” means all of the foregoing.
     “Lender Letter of Credit” means a Letter of Credit issued by an LC Issuer
that is also, at the time of issuance of such Letter of Credit, a Lender.
     “Letter of Credit” means a standby letter of credit issued for the account
of any Borrower by an LC Issuer which expires by its terms within one year after
the date of issuance and in any event at least thirty (30) days prior to the
Commitment Expiry Date. Notwithstanding the foregoing, a Letter of Credit may
provide for automatic extensions of its expiry date for one or more successive
one (1) year periods provided that the LC Issuer that issued such Letter of
Credit has the right to terminate such Letter of Credit on each such annual
expiration date and no renewal term may extend the term of the Letter of Credit
to a date that is later than the thirtieth (30th) day prior to the Commitment
Expiry Date.
     “Letter of Credit Liabilities” means, at any time of calculation, the sum
of (a) without duplication, the amount then available for drawing under all
outstanding Lender Letters of Credit and all Supported Letters of Credit, in
each case without regard to whether any conditions to drawing thereunder can
then be met, plus (b) without duplication, the aggregate unpaid amount of all
reimbursement obligations in respect of previous drawings made under all such
Lender Letters of Credit and Supported Letters of Credit.
     “Lien” means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement and the
other Financing Documents, any Borrower or any Subsidiary shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
     “Litigation” means any action, suit or proceeding before any court,
mediator, arbitrator or Governmental Authority.
     “Loan Account” has the meaning set forth in Section 2.5(b).
     “Loans” means the Term Loan, the Revolving Loans, or any combination of the
foregoing, as the context may require. All references herein to the “making” of
a Loan or words of similar import shall mean, with respect to the Term Loan, the
making of any advance in respect of a Term Loan.
     “Lockbox” has the meaning set forth in Section 2.9.
     “Lockbox Account” means an account or accounts maintained at the Lockbox
Bank into which collections of Accounts are paid.
     “Lockbox Bank” has the meaning set forth in Section 2.9.
     “Material Adverse Effect” means any event, act, condition or occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition or
conditions, occurrence or occurrences, whether or not related, resulting in a
material adverse change in, or a material adverse effect upon, any of (i) the
condition (financial or otherwise), operations, business or properties of the
Credit Parties taken as a whole, (ii) the rights and remedies of Agent or
Lenders under any Financing Document, or the ability of any Credit Party to
perform any of its obligations under any Financing Document to which it is a
party, (iii) the legality, validity or enforceability of any Financing Document,
or (iv) the existence, perfection or priority of any security interest granted
in any Financing Document or the value of any material Collateral; provided that
none of the following,

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either alone or in combination, shall be considered in determining whether there
has been a “Material Adverse Effect”: (a) any event relating to Advancis’s
current phase III clinical trial of the Amoxicillin PULSYS drug; (b) the results
of Advancis’s current phase III clinical trial of the Amoxicillin PULSYS drug;
or (c) any Federal Drug Administration of other Governmental Authority approval,
non-approval or other action with respect to such trial or results of such
trial.
     “M&T Letters of Credit” means (a) that certain letter of credit in the face
amount of $564,480.00 dated as of July 31, 2002 issued by Manufacturers and
Traders Trust Company for the account of Advancis and for the benefit of Seneca
Meadows Corporate Center II LLC and (b) that certain letter of credit in the
face amount of $305,944.73 dated as of August 13, 2004 issued by Manufacturers
and Traders Trust Company for the account of Advancis and for the benefit of
Large Scale Biology Corp.
     “Material Contracts” has the meaning set forth in Section 3.15.
     “Merrill Lynch” means Merrill Lynch Capital, a division of Merrill Lynch
Business Financial Services Inc., and its successors.
     “Minimum Liquidity” means the sum of cash, cash equivalents and marketable
securities, which are (a) owned by Borrower, (b) not subject to any Lien other
than a Lien in favor of Agent, (c) not held by Agent to secure a specified
Obligation, and (d) not held by Agent as an escrow or reserve required under
this Agreement.
     “Multiemployer Plan” means a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA to which any Borrower or any other member of the
Controlled Group (or any Person who in the last five years was a member of the
Controlled Group) is making or accruing an obligation to make contributions or
has within the preceding five plan years (as determined on the applicable date
of determination) made contributions.
     “Non-Funding Lender” means a Lender that has delivered a notice to the
Agent stating that such Lender shall cease making Revolving Loans and/or
advances in respect of the Term Loan due to the non-satisfaction of one or more
conditions set forth in Article 7, and specifying any such non-satisfied
conditions; provided, however, that any Lender delivering any such notice shall
be a Non-Funding Lender solely over the period commencing on the Business Day
following receipt by Agent of such notice, and terminating on such date that
such Lender has either revoked the effectiveness of such notice or acknowledged
to Agent the satisfaction of the condition specified in such notice.
     “Notes” means the Term Note, the Revolving Loan Notes, or any combination
of the foregoing, as the context may require.
     “Notice of Borrowing” means a notice of a Responsible Officer of Borrower,
appropriately completed and substantially in the form of Exhibit D hereto.
     “Notice of LC Credit Event” means a notice from a Responsible Officer of
Borrower to Agent with respect to any issuance, increase or extension of a
Letter of Credit specifying: (a) the date of issuance or increase of a Letter of
Credit; (b) the identity of the LC Issuer with respect to such Letter of Credit,
(c) the expiry date of such Letter of Credit; (d) the proposed terms of such
Letter of Credit, including the face amount; and (e) the transactions that are
to be supported or financed with such Letter of Credit or increase thereof.
     “Obligations” means all obligations, liabilities and indebtedness (monetary
(including post-petition interest, whether or not allowed) or otherwise) of each
Credit Party under this Agreement or any other Financing Document, in each case
howsoever created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due. In addition to,
but without duplication of, the foregoing, the Obligations shall include,
without limitation, all obligations, liabilities and indebtedness arising from
or in connection with (a) all Support Agreements, and (b) all Lender Letters of
Credit.
     “OFAC” means the U.S. Department of Treasury Office of Foreign Assets
Control.

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     “OFAC Lists” means, collectively, the Specially Designated Nationals and
Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224,
66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other
restricted Persons maintained pursuant to any of the rules and regulations of
OFAC or pursuant to any other applicable Executive Orders.
     “Operative Documents” means the Financing Documents, the Subordinated Debt
Documents and any documents effecting any purchase or sale or other transaction
that is closing contemporaneously with the closing of the financing under this
Agreement.
     “Ordinary Course of Business” means, in respect of any transaction
involving any Credit Party, the ordinary course of business of the Credit
Parties, as conducted by the Credit Parties in accordance with past practices.
     “Orderly Liquidation Value” means the net amount (after all costs of sale),
expressed in terms of money, which Agent, in its good faith discretion,
estimates can be realized from a sale, as of a specific date, given a reasonable
period to find a purchaser(s), with the seller being compelled to sell on an
as-is/where-is basis.
     “Organizational Documents” means, with respect to any Person other than a
natural person, the documents by which such Person was organized (such as a
certificate of incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of designation
for preferred stock or other forms of preferred equity) and which relate to the
internal governance of such Person (such as by-laws, a partnership agreement or
an operating, limited liability or members agreement).
     “Payment Account” means the account specified on the signature pages hereof
into which all payments by or on behalf of each Borrower to Agent under the
Financing Documents shall be made, or such other account as Agent shall from
time to time specify by notice to Borrower.
     “Payment Notification” means a written notification substantially in the
form of Exhibit E hereto.
     “PBGC” means the Pension Benefit Guaranty Corporation and any Person
succeeding to any or all of its functions under ERISA.
     “Permits” means all governmental licenses, authorizations, provider
numbers, drug authorizations and approvals, supplier numbers, registrations,
permits, certificates, franchises, qualifications, accreditations, consents and
approvals required under all applicable Laws and required in order to carry on
its business as now conducted.
     “Permitted Affiliate” means with respect to any Person (a) any Person that
directly or indirectly controls such Person, and (b) any Person which is
controlled by or is under common control with such controlling Person. As used
in this definition, the term “control” of a Person means the possession,
directly or indirectly, of the power to vote eighty percent (80%) or more of any
class of voting securities of such Person or to direct or cause the direction of
the management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
     “Permitted Contest” means, with respect to any tax obligation or other
obligation allegedly or potentially owing from any Borrower to any governmental
tax authority or other third party, a contest maintained in good faith by
appropriate proceedings promptly instituted and diligently conducted and with
respect to which such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made on the books and
records and financial statements of the applicable Borrower(s); provided,
however, that (a) compliance with the obligation that is the subject of such
contest is effectively stayed during such challenge; (b) Borrowers’ title to,
and its right to use, the Collateral is not adversely affected thereby and
Agent’s Lien and priority on the Collateral are not adversely affected, altered
or impaired thereby; (c) Borrowers have given prior written notice to Agent of
Borrowers’ intent to so contest the obligation if the obligation exceeds
$25,000; (d) the Collateral or any part thereof or any interest therein shall
not be in any danger of being sold, forfeited or lost by reason of such contest
by Borrowers; (e) if the amount in controversy exceeds $25,000, Borrowers have
given Agent notice of the commencement of such contest and upon request by
Agent, from time to time, notice of the status of such contest by

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Borrowers and/or confirmation of the continuing satisfaction of this definition;
and (f) upon a final determination of such contest, Borrowers shall promptly
comply with the requirements thereof.
     “Permitted Indebtedness” means: (a) Borrower’s Debt to Agent and each
Lender under this Agreement and the other Financing Documents; (b) Subordinated
Debt; (c) unsecured Debt to trade creditors incurred in the Ordinary Course of
Business; (d) Debt incurred as a result of endorsing negotiable instruments
received in the Ordinary Course of Business; (e) purchase money Debt not to
exceed $500,000 at any time (whether in the form of a loan or a lease) used
solely to acquire equipment used in the Ordinary Course of Business and secured
only by such equipment; (f) Debt existing on the date of this Agreement and
described on Schedule 5.1 (but not including any refinancings, extensions,
increases or amendments to such Debt) and (g) Debt of the type set for in clause
(h) of the definition of “Debt” to the extent such Debt constitutes (i) trade
accounts payable arising and paid on a timely basis and in the Ordinary Course
of Business or (ii) profit sharing, incentive bonuses and similar arrangements
provided as sales incentives to sales representatives in connection with the
sale of a product in the Ordinary Course of Business.
     “Permitted Investments” means: (a) Investments shown on Schedule 5.7 and
existing on the Closing Date; (b) (i) cash equivalents, and (ii) any similar
Investments permitted by Borrowers’ investment policy which have an original
maturity of less than two (2) years, as such investment policy is amended from
time to time, provided that such investment policy (and any such amendment
thereto) has been approved by Agent; (c) Investments consisting of the
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of Borrowers; (d) Investments consisting of
(i) travel advances and employee relocation loans and other employee loans and
advances in the Ordinary Course of Business, and (ii) loans to employees,
officers or directors relating to the purchase of equity securities of Borrowers
or their Subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrowers’ Board of Directors (or other governing body);
(e) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the Ordinary Course of Business; (f) Investments consisting of notes
receivable of, or prepaid royalties and other credit extensions, to customers
and suppliers who are not Affiliates, in the Ordinary Course of Business;
provided that this clause (f) shall not apply to Investments of Borrowers in any
Subsidiary; (g) Investments consisting of deposit accounts in which Agent has a
security interest; (h) Investments by any Borrower in any other Borrower; and
(h) other Investments in an amount not exceeding $1,000,000 in the aggregate
(less the amount of acquisitions made by Borrowers pursuant to Section 5.7(a)
hereof).
     “Permitted Liens” means: (a) Liens on Collateral, other than Accounts, for
taxes or other governmental charges not at the time delinquent or thereafter
payable without penalty or the subject of a Permitted Contest; (b) attachments,
appeal bonds, judgments and other similar Liens on Collateral other than
Accounts, for sums not exceeding $25,000 in the aggregate arising in connection
with court proceedings; provided, however, that the execution or other
enforcement of such Liens is effectively stayed and the claims secured thereby
are the subject of a Permitted Contest; (c) Liens in favor of Agent under the
Financing Documents; (d) Liens on Collateral other than Accounts existing on the
date hereof and set forth on Schedule 5.2; (e) Liens in favor of other financial
institutions arising in connection with Borrowers’ deposit and/or securities
accounts held at such institutions, provided that Agent has a perfected security
interest in the amounts held in such deposit and/or securities accounts; (f) any
Lien on equipment securing Debt permitted under subpart (e) of the definition of
Permitted Indebtedness; (g) statutory Liens of landlords and Liens of carriers,
customs and revenue authorities, warehousemen, mechanics, materialmen and
suppliers and other Liens imposed by law or pursuant to customary reservations
or retentions of title arising in the Ordinary Course of Business, provided that
such Liens (y) are Liens on Collateral, other than Accounts, and (z) secure only
amounts not yet due and payable or, if due and payable, are unfiled and no other
action has been taken to enforce the same or are being contested in good faith
by appropriate proceedings (and as to which the Property subject to any such
Lien is not yet subject to foreclosure, sale or loss on account thereof); (h)
Liens on Collateral, other than Accounts, incurred or deposits made in the
Ordinary Course of Business in connection with workers’ compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, statutory obligations (excluding Liens under ERISA),
bids, leases, government contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of borrowed
money), (i) easements, rights-of-way, covenants, restrictions (including zoning
restrictions), defects or irregularities in title and other similar charges or
encumbrances not, in any material respect, impairing the use of the property for
its intended purposes; (j) leases or subleases granted to others not interfering
in any material respect with the business of any

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Borrower; and (k) any interest or title of a lessor under, and Liens on
Collateral, other than Accounts, arising from UCC financing statements (or
equivalent filings, registrations or agreements in foreign jurisdictions)
relating to, leases permitted by this Agreement.
     “Person” means any natural person, corporation, limited liability company,
professional association, limited partnership, general partnership, joint stock
company, joint venture, association, company, trust, bank, trust company, land
trust, business trust or other organization, whether or not a legal entity, and
any Governmental Authority.
     “Phama Rider” means that certain Pharma Rider dated as of even date
herewith by and among Borrowers, Lenders and Agent, made a part hereof and
incorporated by reference herein.
     “Plan” means an employee pension benefit plan (other than a Multiemployer
Plan) which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code, and either (a) is maintained, or
contributed to, by any Borrower or any other member of the Controlled Group for
employees of any Borrower or any other member of the Controlled Group or (b) has
at any time within the preceding five years (as determined on the applicable
date of determination) been maintained or been contributed to by any Person
which at such time was a member of the Controlled Group for employees of any
Person which was at the time a member of the Controlled Group.
     “Positive Cash Flow” means, for the applicable measurement period (the
“Defined Period”) (i) the amount of cash flow from operating activities (as
determined in accordance with GAAP) for the Defined Period minus (ii) the sum of
(x) unfinanced capital expenditures for the Defined Period and (y) scheduled
payments of principal for the Defined Period with respect to all Debt (including
the portion of scheduled payments under capital leases allocable to principal
but excluding mandatory prepayments required by Section 2.1(a)(ii)(B) and
excluding scheduled repayments of Revolving Loans and other Debt subject to
reborrowing to the extent not accompanied by a concurrent and permanent
reduction of the Revolving Loan Commitment (or equivalent loan commitment)) is
greater than $0.
     “Pro Rata Share” means (a) with respect to a Lender’s obligation to make
advances in respect of a Term Loan and such Lender’s right to receive payments
of principal and interest with respect to the Term Loans, the Term Loan
Commitment Percentage of such Lender, (b) with respect to a Lender’s obligation
to make Revolving Loans, such Lender’s right to receive payments of principal
and interest with respect thereto, such Lender’s right to receive the unused
line fee described in Section 2.2(b), and such Lender’s obligation to share in
Letter of Credit Liabilities and to receive the related Letter of Credit fee
described in Section 2.4(b), the Revolving Loan Commitment Percentage of such
Lender, and (c) for all other purposes with respect to any Lender, the
percentage obtained by dividing (i) the sum of the Revolving Loan Commitment
Amount and Term Loan Commitment Amount of such Lender (or, in the event the
Revolving Loan Commitment or Term Loan Commitment shall have been terminated,
such Lender’s then existing Revolving Loan Outstandings and then outstanding
principal amount of the Term Loan, as applicable), by (ii) the sum of the
Revolving Loan Commitment and Term Loan Commitment Amount (or, in the event the
Revolving Loan Commitment or Term Loan Commitment shall have been terminated,
the then existing Revolving Loan Outstandings and then outstanding principal
amount of the Term Loan, as applicable) of all Lenders.
     “Reimbursement Obligations” means, at any date, the obligations of each
Borrower then outstanding to reimburse (a) Agent for payments made by Agent
under a Support Agreement, and/or (b) any LC Issuer, for payments made by such
LC Issuer under a Lender Letter of Credit.
     “Required Lenders” means at any time Lenders holding (a) sixty-six and two
thirds percent (66 2/3%) or more of the sum of the Revolving Loan Commitment and
the Term Loan Commitment (taken as a whole), or (b) if the Revolving Loan
Commitment or Term Loan Commitment has been terminated, sixty-six and two thirds
percent (66 2/3%) or more of the sum of (x) the then aggregate outstanding
principal balance of the Loans plus (y) the then aggregate amount of Letter of
Credit Liabilities.
     “Responsible Officer” means any of the Chief Executive Officer or Chief
Financial Officer of the applicable Borrower.

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     “Restricted Distribution” means as to any Person (a) any dividend or other
distribution (whether in cash, securities or other property) on any equity
interest in such Person (except those payable solely in its equity interests of
the same class), (b) any payment on account of (i) the purchase, redemption,
retirement, defeasance, surrender, cancellation, termination or acquisition of
any equity interests in such Person or any claim respecting the purchase or sale
of any equity interest in such Person or (ii) any option, warrant or other right
to acquire any equity interests in such Person, (c) any management fees,
salaries or other fees or compensation to any Person holding an equity interest
in a Borrower (other than payments of salaries to individuals in the Ordinary
Course of Business and consistent with past practices), an Affiliate of Borrower
or an Affiliate of any Subsidiary of Borrower, (d) any lease or rental payments
to an Affiliate or Subsidiary of Borrower, or (e) repayments of or debt service
on loans or other indebtedness held by an Investor, an Affiliate of Borrower or
an Affiliate of any Subsidiary of Borrower.
     “Revenue” means the revenue of Borrowers as reported on their financial
statements prepared in accordance with GAAP in accordance with the terms hereof.
     “Revolving Lender” means each Lender having a Revolving Loan Commitment
Amount in excess of zero (or, in the event the Revolving Loan Commitment shall
have been terminated at any time, each Lender at such time having Revolving Loan
Outstandings in excess of zero).
     “Revolving Loan Availability” means, at any time, the Revolving Loan Limit
less the Revolving Loan Outstandings.
     “Revolving Loan Borrowing” means a borrowing of a Revolving Loan.
     “Revolving Loan Commitment” means the sum of each Lender’s Revolving Loan
Commitment Amount.
     “Revolving Loan Commitment Amount” means, as to any Lender, the dollar
amount set forth opposite such Lender’s name on the Commitment Annex under the
column “Revolving Loan Commitment Amount” (if such Lender’s name is not so set
forth thereon, then the dollar amount on the Commitment Annex for the Revolving
Loan Commitment Amount for such Lender shall be deemed to be zero), as such
amount may be adjusted from time to time by any “Amounts Assigned” (with respect
to such Lender’s portion of Revolving Loans outstanding and its commitment to
make Revolving Loans) pursuant to the terms of any and all effective Assignment
Agreements to which such Lender is a party.
     “Revolving Loan Commitment Percentage” means, as to any Lender, (a) on the
Closing Date, the percentage set forth opposite such Lender’s name on the
Commitment Annex under the column “Revolving Loan Commitment Percentage” (if
such Lender’s name is not so set forth thereon, then, on the Closing Date, such
percentage for such Lender shall be deemed to be zero), and (b) on any date
following the Closing Date, the percentage equal to the Revolving Loan
Commitment Amount of such Lender on such date divided by the Revolving Loan
Commitment on such date.
     “Revolving Loan Limit” means, at any time, the lesser of (a) the Revolving
Loan Commitment and (b) the Borrowing Base.
     “Revolving Loan Note” has the meaning set forth in Section 2.3.
     “Revolving Loan Outstandings” means at any time of calculation the sum of
the then existing aggregate outstanding principal amount of Revolving Loans and
the then existing Letter of Credit Liabilities.
     “Revolving Loans” has the meaning set forth in Section 2.1(b).
     “RHO Ventures” means, collectively, Rho Ventures V, L.P. and Rho Ventures V
Affiliates, L.L.C.
     “SEC” means the United States Securities and Exchange Commission
     “Securities Account” means a “securities account” (as defined in Article 9
of the UCC), an investment

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account, or other account in which investment property or securities are held or
invested for credit to or for the benefit of any Borrower.
     “Security Document” means this Agreement and any other agreement, document
or instrument executed concurrently herewith or at any time hereafter pursuant
to which one or more Credit Parties or any other Person either (a) Guarantees
payment or performance of all or any portion of the Obligations, and/or
(b) provides, as security for all or any portion of the Obligations, a Lien on
any of its assets in favor of Agent for its own benefit and the benefit of the
Lenders, as any or all of the same may be amended, supplemented, restated or
otherwise modified from time to time.
     “Solvent” means, with respect to any Person, that such Person (a) owns and
will own assets the fair saleable value of which are (i) greater than the total
amount of its liabilities (including Contingent Obligations), and (ii) greater
than the amount that will be required to pay the probable liabilities of its
then existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to it;
(b) has capital that is not unreasonably small in relation to its business as
presently conducted or after giving effect to any contemplated transaction; and
(c) does not intend to incur and does not believe that it will incur debts
beyond its ability to pay such debts as they become due. The amount of
contingent liabilities at any time shall be computed as the amount that, in
light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or mature liability.
     “Subordinated Debt” means any Debt of Borrowers incurred pursuant to the
terms of the Subordinated Debt Documents, and with the prior written consent of
the Required Lenders, all of which documents must be in form and substance
acceptable to Agent in its sole discretion.
     “Subordinated Debt Documents” means any documents evidencing and/or
securing Debt governed by a Subordination Agreement.
     “Subordination Agreement” means any agreement between Agent and another
creditor of Borrowers, as the same may be amended, supplemented, restated or
otherwise modified from time to time in accordance with the terms thereof,
pursuant to which the Debt owing from any Borrower(s) and/or the Liens securing
such Debt granted by any Borrower(s) to such creditor are subordinated in any
way to the Obligations and the Liens created under the Security Documents, the
terms and provisions of which such Subordination Agreements have been agreed to
by and are acceptable to Agent in the exercise of its sole discretion.
     “Subsidiary” means, with respect to any Person, (a) any corporation of
which an aggregate of more than 50% of the outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, capital stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person or one or more
Subsidiaries of such Person, or with respect to which any such Person has the
right to vote or designate the vote of more than 50% of such capital stock
whether by proxy, agreement, operation of law or otherwise, and (b) any
partnership or limited liability company in which such Person and/or one or more
Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than 50% or
of which any such Person is a general partner or may exercise the powers of a
general partner. Unless the context otherwise requires, each reference to a
Subsidiary shall be a reference to a Subsidiary of a Borrower.
     “Support Agreement” has the meaning set forth in Section 2.4(a).
     “Supported Letter of Credit” means a Letter of Credit issued by an LC
Issuer in reliance on one or more Support Agreements.
     “Taxes” has the meaning set forth in Section 2.7.
     “Term Loan” has the meaning set forth in Section 2.1(a).

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     “Term Loan Commitment” means the sum of each Lender’s Term Loan Commitment
Amount.
     “Term Loan Commitment Amount” means, as to any Lender, the dollar amount
set forth opposite such Lender’s name on the Commitment Annex under the column
“Term Loan Commitment Amount” (if such Lender’s name is not so set forth
thereon, then the dollar amount on the Commitment Annex for the Term Loan
Commitment Amount for such Lender shall be deemed to be zero), as such amount
may be adjusted from time to time by any “Amounts Assigned” (with respect to
such Lender’s portion of Term Loans outstanding and its commitment to make
advances in respect of the Term Loan) pursuant to the terms of any and all
effective Assignment Agreements to which such Lender is a party.
     “Term Loan Commitment Percentage” means, as to any Lender, (a) on the
Closing Date, the percentage set forth opposite such Lender’s name on the
Commitment Annex under the column “Term Loan Commitment Percentage” (if such
Lender’s name is not so set forth thereon, then, on the Closing Date, such
percentage for such Lender shall be deemed to be zero), and (b) on any date
following the Closing Date, the percentage equal to the principal amount of the
Term Loan held by such Lender on such date divided by the aggregate principal
amount of the Term Loan on such date.
     “Term Loan Expiry Date” means the earlier to occur of (a) June 30, 2009,
(b) the Termination Date or (c) Agent’s and Lenders’ funding obligations in
respect of the Revolving Loan Commitment under this Agreement terminate for any
reason (whether by voluntary termination by Borrowers, by reason of the
occurrence of an Event of Default or otherwise).
     “Term Note” has the meaning set forth in Section 2.3.
     “Termination Date” means the earlier to occur of (a) the Commitment Expiry
Date, or (b) any date on which Agent accelerates the maturity of the Loans
pursuant to Section 9.2.
     “UCC” means the Uniform Commercial Code of the State of New York or of any
other state the laws of which are required to be applied in connection with the
perfection of security interests in any Collateral.
     “United States” means the United States of America.
     Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder (including, without limitation, determinations made
pursuant to the exhibits hereto) shall be made, and all financial statements
required to be delivered hereunder shall be prepared on a consolidated basis in
accordance with GAAP applied on a basis consistent with the most recent audited
consolidated financial statements of each Borrower and its Consolidated
Subsidiaries delivered to Agent and each of the Lenders on or prior to the
Closing Date. If at any time any change in GAAP would affect the computation of
any financial ratio or financial requirement set forth in any Financing
Document, and either Borrowers or the Required Lenders shall so request, the
Agent, the Lenders and Borrowers shall negotiate in good faith to amend such
ratio or requirement to preserve the original intent thereof in light of such
change in GAAP (subject to the approval of the Required Lenders); provided,
however, that until so amended, (a) such ratio or requirement shall continue to
be computed in accordance with GAAP prior to such change therein and
(b) Borrowers shall provide to the Agent and the Lenders financial statements
and other documents required under this Agreement which include a reconciliation
between calculations of such ratio or requirement made before and after giving
effect to such change in GAAP. All amounts used for purposes of financial
calculations required to be made herein shall be without duplication.
     Section 1.3 Other Definitional Provisions. References in this Agreement to
“Articles”, “Sections”, “Annexes”, “Exhibits” or “Schedules” shall be to
Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement
unless otherwise specifically provided. Any term defined herein may be used in
the singular or plural. “Include”, “includes” and “including” shall be deemed to
be followed by “without limitation”. Except as otherwise specified or limited
herein, references to any Person include the successors and assigns of such
Person. References “from” or “through” any date mean, unless otherwise
specified, “from and including” or “through and including”, respectively.
References to any statute or act shall include all related current regulations
and all amendments and

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any successor statutes, acts and regulations. References to any statute or act,
without additional reference, shall be deemed to refer to federal statutes and
acts of the United States. References to any agreement, instrument or document
shall include all schedules, exhibits, annexes and other attachments thereto.
References to capitalized terms that are not defined herein, but are defined in
the UCC, shall have the meanings given them in the UCC.
     Section 1.4 Funding and Settlement Currency. Unless otherwise specified
herein, the settlement of all payments and fundings hereunder between or among
the parties hereto shall be made in lawful money of the United States and in
immediately available funds.
     Section 1.5 Riders. All Riders attached hereto are hereby incorporated
herein by this reference and made a part hereof.
ARTICLE 2 — LOANS AND LETTERS OF CREDIT
     Section 2.1 Loans.
     (a) Term Loans.
          (i) Term Loan Amounts. On the terms and subject to the conditions set
forth herein, the Lenders hereby agree to make to Borrowers a term loan in an
original principal amount equal to $8,000,000 (“Term Loan”). Each Lender’s
obligation to fund the Term Loan shall be limited to such Lender’s Term Loan
Commitment Percentage, and no Lender shall have any obligation to fund any
portion of any Term Loan required to be funded by any other Lender, but not so
funded. No Borrower shall have any right to reborrow any portion of the Term
Loan that is repaid or prepaid from time to time. The Term Loan may be funded in
multiple advances, but no advances under the Term Loan shall be made after
December 31, 2006, Agent shall have no obligation to make more than one (1)
advance in respect of the Term Loan per calendar month and Agent shall have no
obligation to make any advance of the Term Loan that is less than $250,000.
Borrowers shall deliver to Agent a Notice of Borrowing with respect to each
proposed Term Loan advance, such Notice of Borrowing to be delivered no later
than noon (Chicago time) two (2) Business Days prior to such proposed borrowing.
          (ii) Mandatory Prepayments; Optional Prepayments.
               (A) There shall become due and payable, and Borrowers shall repay
the Term Loan through, scheduled payments on each date set forth on Schedule 2.1
attached hereto. Notwithstanding the payment schedules set forth above, the
outstanding principal amount of the Term Loan shall become immediately due and
payable in full on the Term Loan Expiry Date.
               (B) There shall become due and payable and Borrowers shall prepay
the Term Loan in the following amounts and at the following times: (i) on the
date on which any Credit Party (or Agent as loss payee or assignee) receives any
casualty proceeds of assets upon which Agent maintained a Lien, an amount equal
to one hundred percent (100%) of such proceeds (net of expenses, reserves,
estimated taxes and repayment of secured debt permitted under clause (e) of the
definition of Permitted Indebtedness) if such net proceeds exceed $300,000, or
such lesser portion as Agent shall elect to apply to the Obligations; (ii) an
amount equal to any interest that is deemed to be in excess of the Maximum
Lawful Rate and is required to be applied to the reduction of the principal
balance of the Loans by any Lender as provided for in Section 2.6; (iii) upon
receipt by any Credit Party of the proceeds of any asset disposition in excess
of $300,000, an amount equal to one hundred percent (100%) of the net cash
proceeds (net of expenses, reserves, estimated taxes and repayment of secured
debt permitted under clause (e) of the definition of Permitted Indebtedness) of
such asset disposition not made in the Ordinary Course of Business; and
(iv) upon receipt by any Credit Party of any Extraordinary Receipts, an amount
equal to one hundred percent (100%) of such Extraordinary Receipts.
Notwithstanding the foregoing and so long as no Event of Default or Default then
exists, the casualty proceeds (other than with respect to Inventory) may be used
by Borrowers within ninety (90) days from the receipt of such proceeds to
replace or repair any assets in respect of which such proceeds were paid so long
as (x) prior to the receipt of such proceeds, Borrowers have delivered to Agent
a reinvestment plan detailing such replacement or repair acceptable to Agent in
its reasonable discretion and (y) such proceeds are deposited into an account
with Agent promptly upon receipt by such Borrower.

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               (C) Borrowers may from time to time, with at least two
(2) Business Days prior delivery to Agent of an appropriately completed Payment
Notification, prepay any Term Loan in whole or in part subject to payment of any
applicable prepayment fee as and if provided for in Section 2.2(f) below;
provided, however, that any such partial prepayment shall be in an amount equal
to $100,000 or a higher integral multiple of $25,000.
          (iii) All Prepayments. Except as this Agreement may specifically
provide otherwise, all prepayments of the Term Loan shall be applied by Agent to
the Obligations in inverse order of maturity. No prepayment, whether mandatory
or optional, shall alter the Schedule 2.1 except as otherwise provided for
herein or therein.
     (b) Revolving Loans.
          (i) Revolving Loans and Borrowings. On the terms and subject to the
conditions set forth herein, each Lender severally agrees to make Loans to
Borrowers from time to time as set forth herein (each a “Revolving Loan”, and
collectively, “Revolving Loans”) equal to such Lender’s Revolving Loan
Commitment Percentage of Revolving Loans requested by Borrower hereunder,
provided, however, that after giving effect thereto, the Revolving Loan
Outstandings shall not exceed the Revolving Loan Limit. Borrowers shall deliver
to Agent a Notice of Borrowing with respect to each proposed Revolving Loan
Borrowing, such Notice of Borrowing to be delivered no later than noon (Chicago
time) two (2) Business Days prior to such proposed borrowing. Each Borrower and
each Revolving Lender hereby authorizes Agent to make Revolving Loans on behalf
of Revolving Lenders, at any time in its sole discretion, (A) as provided in
Section 2.4(c), with respect to obligations arising under Support Agreements
and/or Lender Letters of Credit, and (B) to pay principal owing in respect of
the Loans and interest, fees, expenses and other charges of any Credit Party
from time to time arising under this Agreement or any other Financing Document.
The Borrowing Base shall be determined by Agent based on the most recent
Borrowing Base Certificate delivered to Agent in accordance with this Agreement
and such other information as may be available to Agent. Without limiting any
other rights and remedies of Agent hereunder or under the other Financing
Documents, the Revolving Loans shall be subject to Agent’s continuing right to
withhold from the Borrowing Base reserves (including, without limitation, a
reserve in connection with the standard return policy of any Borrower), and to
increase and decrease such reserves from time to time, if and to the extent that
in Agent’s good faith credit judgment and discretion, such reserves are
necessary.
          (ii) Mandatory Revolving Loan Repayments and Prepayments.
               (A) The Revolving Loan Commitment shall terminate on the
Termination Date. On such Termination Date, there shall become due, and
Borrowers shall pay, the entire outstanding principal amount of each Revolving
Loan, together with accrued and unpaid interest thereon to, but excluding, the
Termination Date.
               (B) If at any time the Revolving Loan Outstandings exceed the
Revolving Loan Limit, then, on the next succeeding Business Day, Borrowers shall
repay the Revolving Loans or cash collateralize Letter of Credit Liabilities in
the manner specified in Section 2.4(e) or cancel outstanding Letters of Credit,
or any combination of the foregoing, in an aggregate amount equal to such
excess.
               (C) Principal payable on account of Revolving Loans shall be
payable by Borrowers to Agent (A) immediately upon the receipt by any Borrower
or Agent of any payments on or proceeds from any of the Accounts, to the extent
of such payments or proceeds, as further described in Section 2.9 below, and
(B) in full on the Termination Date.
          (iii) Optional Prepayments. Borrowers may from time to time prepay the
Revolving Loans in whole or in part; provided, however, that any such partial
prepayment shall be in an amount equal to $100,000 or a higher integral multiple
of $25,000.
     Section 2.2 Interest, Interest Calculations and Certain Fees.
     (a) Interest. From and following the Closing Date, the Loans and the other
Obligations shall bear

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interest at the sum of the Base Rate plus the applicable Base Rate Margin. For
purposes of calculating interest, all funds transferred from the Payment Account
for application to any Revolving Loans or Term Loan shall be subject to a three
(3) Business Day clearance period.
     (b) Unused Line Fee. From and following the Closing Date, Borrowers shall
pay Agent, for the benefit of all Lenders committed to make Revolving Loans, in
accordance with their respective Pro Rata Shares, a fee in an amount equal to
(i) (A) the Revolving Loan Commitment minus (B) the average daily balance of the
sum of the Revolving Loan Outstandings during the preceding month, multiplied by
(ii) 0.045% per month. Such fee is to be paid monthly in arrears on the first
day of each month.
     (c) RESERVED
     (d) Commitment Fee. Contemporaneous with Borrowers’ execution of this
Agreement, Lenders shall have fully earned a nonrefundable commitment fee in an
amount equal to $120,000 which commitment fee shall be payable as follows:
(i) on the Closing Date, Borrowers shall pay Agent, for the benefit of all
Lenders, committed to make Revolving Loans on the Closing Date, in accordance
with their respective Pro Rata Shares as of the Closing Date $60,000 of such
commitment fee and (ii) on the earlier of June 30, 2007 or the occurrence of an
Event of Default or Default, Borrowers shall pay Agent, for the benefit of all
Lenders, committed to make Revolving Loans on such date, in accordance with
their respective Pro Rata Shares as of such date the remaining $60,000 of such
commitment fee.
     (e) Deferred Commitment Fee. If Agent’s and Lenders’ funding obligations in
respect of the Revolving Loan Commitment under this Agreement terminate for any
reason (whether by voluntary termination by Borrowers, by reason of the
occurrence of an Event of Default or otherwise) prior to the Commitment Expiry
Date, Borrowers shall pay to Agent, for the benefit of all Lenders committed to
make Revolving Loans, a fee (the “Deferred Commitment Fee”) as compensation for
the costs of such Lenders being prepared to make funds available to Borrowers
under this Agreement, equal to an amount determined by multiplying the Revolving
Loan Commitment by the following applicable percentage amount: two percent
(2.0%) for the first year following the Closing Date, one and one quarter
percent (1.25%) for the second year following the Closing Date, three quarters
of one percent (0.75%) for the third year following the Closing Date and one
quarter of one percent (0.25%) thereafter through and including (1) month prior
to the Commitment Expiry Date.
     (f) Prepayment Fee. If the Term Loan is prepaid, in whole or in part, for
any reason during any Closed Period (whether by voluntary prepayment by
Borrowers, by reason of the occurrence of an Event of Default or otherwise),
Borrowers shall pay to Agent, for the benefit of all Lenders, as compensation
for the costs of such Lenders making funds available to Borrowers under this
Agreement for a fixed period of time, a prepayment fee (the “Prepayment Fee”)
calculated in accordance with this subsection. If the prepayment is made during
any Closed Period, the Prepayment Fee shall be equal to the Term Loan Commitment
multiplied by the following applicable percentage amount: two percent (2.0%) for
the first year following the Closing Date, one and one quarter percent (1.25%)
for the second year following the Closing Date, and three quarters of one
percent (0.75%) thereafter. The term “Closed Period” shall mean the period from
the Closing Date through the Commitment Expiry Date.
     (g) Audit Fees. Borrowers shall pay to Agent, for its own account and not
for the benefit of any other Lenders, all fees and expenses in connection with
audits of Borrowers’ books and records, audits, valuations or appraisals of the
Collateral, audits of Borrowers’ compliance with applicable Laws and such other
matters as Agent shall deem appropriate, which shall be due and payable on the
first Business Day of the month following the date of issuance by Agent of a
written request for payment thereof to Borrowers; provided, that so long as no
Event of Default or Default has occurred, Borrowers shall be liable for such
fees and expenses for no more than four (4) such audits in any given calendar
year.
     (h) Wire Fees. Borrowers shall pay to Agent, for its own account and not
for the account of any other Lenders, on written demand, any and all fees, costs
or expenses which Agent pays to a bank or other similar institution (including,
without limitation, any fees paid by Agent to any other Lender) arising out of
or in connection with (i) the forwarding to Borrowers or any other Person on
behalf of Borrowers, by Agent, of proceeds of the Loans made by any Lender to
Borrowers pursuant to this Agreement, and (ii) the depositing for collection, by
Agent, of any check or item of payment received or delivered to Agent on account
of Obligations.

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     (i) Late Charges. If payments of principal (other than a final installment
of principal upon the Termination Date), interest due on the Obligations, or any
other amounts due hereunder or under the other Financing Documents are not
timely made and remain overdue for a period of five (5) days, Borrowers, without
notice or demand by Agent, promptly shall pay to Agent, for its own account and
not for the benefit of any other Lenders, as additional compensation to Agent in
administering the Obligations, an amount equal to five percent (5%) of each
delinquent payment.
     (j) Computation of Interest and Related Fees; Payment of Interest. All
interest and fees under each Financing Document shall be calculated on the basis
of a 360-day year for the actual number of days elapsed. The date of funding of
Loan shall be included in the calculation of interest. The date of payment of a
Loan shall be excluded from the calculation of interest. If a Loan is repaid on
the same day that it is made, one (1) day’s interest shall be charged. Interest
on all Loans is payable in arrears on the first day of each month and on the
maturity of such Loans, whether by acceleration or otherwise.
     (k) Automated Clearing House Payments. If Agent so elects, monthly payments
of interest and amortization shall be paid to Agent by Automated Clearing House
debit of immediately available funds from the financial institution account
designated by Borrowers in the Automated Clearing House debit authorization
executed by Borrowers in connection with this Agreement, and shall be effective
upon receipt. Borrowers shall execute any and all forms and documentation
necessary from time to time to effectuate such automatic debiting. In no event
shall any such payments be refunded to Borrowers.
     Section 2.3 Notes. The portion of the Term Loan made by each Lender shall
be evidenced, if so requested by such Lender, by a promissory note executed by
Borrowers on a joint and several basis (a “Term Loan Note”) in an original
principal amount equal to such Lender’s Pro Rata Share of the Term Loan
Commitment. The portion of the Revolving Loans made by each Lender shall be
evidenced, if so requested by such Lender, by a promissory note executed by
Borrowers on a joint and several basis (a “Revolving Loan Note”) in an original
principal amount equal to such Lender’s Pro Rata Share of the Revolving Loan
Commitment.
     Section 2.4 Letters of Credit and Letter of Credit Fees.
     (a) Letter of Credit. On the terms and subject to the conditions set forth
herein, the Revolving Loan Commitment may be used by Borrowers, in addition to
the making of Revolving Loans hereunder, for the issuance, prior to the
Termination Date, by (i) Agent, of letters of credit, Guarantees or other
agreements or arrangements (each, a “Support Agreement”) to induce an LC Issuer
to issue or increase the amount of, or extend the expiry date of, one or more
Letters of Credit and (ii) a Lender, identified by Agent, as an LC Issuer, of
one or more Lender Letters of Credit, so long as, in each case:
          (i) Agent shall have received a Notice of LC Credit Event at least
five (5) Business Days before the relevant date of issuance, increase or
extension; and
          (ii) after giving effect to such issuance, increase or extension,
(A) the aggregate Letter of Credit Liabilities under all Letters of Credit do
not exceed $1,000,000, and (B) the Revolving Loan Outstandings do not exceed the
Revolving Loan Limit.
Nothing in this Agreement shall be construed to obligate any Lender to issue,
increase the amount of or extend the expiry date of any letter of credit, which
act or acts, if any, shall be subject to agreements to be entered into from time
to time between Borrowers and such Lender. Each Lender that is an LC Issuer
hereby agrees to give Agent prompt written notice of each issuance of a Lender
Letter of Credit by such Lender and each payment made by such Lender in respect
of Lender Letters of Credit issued by such Lender.
     (b) Letter of Credit Fee. Borrowers shall pay to Agent, for the benefit of
the Revolving Lenders in accordance with their respective Pro Rata Shares, a
letter of credit fee with respect to the Letter of Credit Liabilities for each
Letter of Credit, computed for each day from the date of issuance of such Letter
of Credit to the date that is the last day a drawing is available under such
Letter of Credit, at a rate per annum equal to the Base Rate Margin then
applicable to Revolving Loans. Such fee shall be payable in arrears on the last
day of each calendar month

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prior to the Termination Date and on such date. In addition, Borrowers agree to
pay promptly to the LC Issuer any fronting or other fees that it may charge in
connection with any Letter of Credit.
     (c) Reimbursement Obligations of Borrowers. If either (i) Agent shall make
a payment to an LC Issuer pursuant to a Support Agreement, or (ii) any Lender
shall honor any draw request under, and make payment in respect of, a Lender
Letter of Credit, (A) the applicable Borrower shall reimburse Agent or such
Lender, as applicable, for the amount of such payment by the end of the day on
which Agent or such Lender shall make such payment and (B) Borrowers shall be
deemed to have immediately requested that Revolving Lenders make a Revolving
Loan, in a principal amount equal to the amount of such payment (but solely to
the extent such Borrower shall have failed to directly reimburse Agent or, with
respect to Lender Letters of Credit, the applicable LC Issuer, for the amount of
such payment). Agent shall promptly notify Revolving Lenders of any such deemed
request and each Revolving Lender (other than any such Revolving Lender that was
a Non-Funding Lender at the time the applicable Supported Letter of Credit or
Lender Letter of Credit was issued) hereby agrees to make available to Agent not
later than noon (Chicago time) on the Business Day following such notification
from Agent such Revolving Lender’s Pro Rata Share of such Revolving Loan. Each
Revolving Lender (other than any applicable Non-Funding Lender specified above)
hereby absolutely and unconditionally agrees to fund such Revolving Lender’s Pro
Rata Share of the Loan described in the immediately preceding sentence,
unaffected by any circumstance whatsoever, including, without limitation,
(x) the occurrence and continuance of a Default or Event of Default, (y) the
fact that, whether before or after giving effect to the making of any such
Revolving Loan, the Revolving Loan Outstandings exceed or will exceed the
Revolving Loan Limit, and/or (z) the non-satisfaction of any conditions set
forth in Section 7.2. Agent hereby agrees to apply the gross proceeds of each
Revolving Loan deemed made pursuant to this Section 2.4(c) in satisfaction of
Borrowers’ reimbursement obligations arising pursuant to this Section 2.4(c).
Borrowers shall pay interest, on demand, on all amounts so paid by Agent
pursuant to any Support Agreement or to any applicable Lender in honoring a draw
request under any Lender Letter of Credit for each day from the date of such
payment until Borrowers reimburse Agent or the applicable Lender therefore
(whether pursuant to clause (A) or (B) of the first sentence of this subsection
(c)) at a rate per annum equal to the sum of two percent (2%) plus the interest
rate applicable to Revolving Loans for such day.
     (d) Reimbursement and Other Payments by Borrowers. The obligations of each
Borrower to reimburse Agent and/or the applicable LC Issuer pursuant to
Section 2.4(c) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including the following:
          (i) any lack of validity or enforceability of, or any amendment or
waiver of or any consent to departure from, any Letter of Credit or any related
document;
          (ii) the existence of any claim, set-off, defense or other right which
any Borrower may have at any time against the beneficiary of any Letter of
Credit, the LC Issuer (including any claim for improper payment), Agent, any
Lender or any other Person, whether in connection with any Financing Document or
any unrelated transaction, provided, however, that nothing herein shall prevent
the assertion of any such claim by separate suit or compulsory counterclaim;
          (iii) any statement or any other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
          (iv) any affiliation between the LC Issuer and Agent; or
          (v) to the extent permitted under applicable law, any other
circumstance or happening whatsoever, whether or not similar to any of the
foregoing.
     (e) Deposit Obligations of Borrowers. In the event any Letters of Credit
are outstanding at the time that Borrowers prepay or are required to repay the
Obligations or the Revolving Loan Commitment is terminated, Borrowers shall
(i) deposit with Agent for the benefit of all Revolving Lenders cash in an
amount equal to one hundred and ten percent (110%) of the aggregate outstanding
Letter of Credit Liabilities to be available to Agent, for its benefit and the
benefit of issuers of Letters of Credit, to reimburse payments of drafts drawn
under such Letters

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of Credit and pay any fees and expenses related thereto, and (ii) prepay the fee
payable under Section 2.4(b) with respect to such Letters of Credit for the full
remaining terms of such Letters of Credit assuming that the full amount of such
Letters of Credit as of the date of such repayment or termination remain
outstanding until the end of such remaining terms. Upon termination of any such
Letter of Credit and provided no Event of Default has occurred and is
continuing, the unearned portion of such prepaid fee attributable to such Letter
of Credit shall be refunded to Borrowers, together with the deposit described in
the preceding clause (i) to the extent not previously applied by Agent in the
manner described herein.
     Section 2.5 General Provisions Regarding Payment; Loan Account.
     (a) All payments to be made by each Borrower under any Financing Document,
including payments of principal and interest made hereunder and pursuant to any
other Financing Document, and all fees, expenses, indemnities and
reimbursements, shall be made without set-off, recoupment or counterclaim, in
lawful money of the United States and in immediately available funds. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension (it being understood and agreed that,
solely for purposes of calculating financial covenants and computations
contained herein and determining compliance therewith, if payment is made, in
full, on any such extended due date, such payment shall be deemed to have been
paid on the original due date without giving effect to any extension thereto).
Any payments received in the Payment Account before noon (Chicago time) on any
date shall be deemed received by Agent on such date, and any payments received
in the Payment Account after noon (Chicago time) on any date shall be deemed
received by Agent on the next succeeding Business Day.
     (b) Agent shall maintain a loan account (the “Loan Account”) on its books
to record Loans and other extensions of credit made by the Lenders hereunder or
under any other Financing Document, and all payments thereon made by each
Borrower. All entries in the Loan Account shall be made in accordance with
Agent’s customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded in Agent’s books and records at any
time shall be conclusive and binding evidence of the amounts due and owing to
Agent by each Borrower absent clear and convincing evidence to the contrary;
provided, however, that any failure to so record or any error in so recording
shall not limit or otherwise affect any Borrower’s duty to pay all amounts owing
hereunder or under any other Financing Document. Agent shall endeavor to provide
Borrowers with a monthly statement regarding the Loan Account (but neither Agent
nor any Lender shall have any liability if Agent shall fail to provide any such
statement). Unless any Borrower notifies Agent of any objection to any such
statement (specifically describing the basis for such objection) within sixty
(60) days after the date of receipt thereof, it shall be deemed final, binding
and conclusive upon Borrowers in all respects as to all matters reflected
therein.
     Section 2.6 Maximum Interest. In no event shall the interest charged with
respect to the Notes (if any) or any other obligations of any Borrower under any
Financing Document exceed the maximum amount permitted under the laws of the
State of New York or of any other applicable jurisdiction. Notwithstanding
anything to the contrary herein or elsewhere, if at any time the rate of
interest payable hereunder or under any Note or other Financing Document (the
“Stated Rate”) would exceed the highest rate of interest permitted under any
applicable law to be charged (the “Maximum Lawful Rate”), then for so long as
the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the Stated Rate is less than the Maximum Lawful Rate, each Borrower
shall, to the extent permitted by law, continue to pay interest at the Maximum
Lawful Rate until such time as the total interest received is equal to the total
interest which would have been received had the Stated Rate been (but for the
operation of this provision) the interest rate payable. Thereafter, the interest
rate payable shall be the Stated Rate unless and until the Stated Rate again
would exceed the Maximum Lawful Rate, in which event this provision shall again
apply. In no event shall the total interest received by any Lender exceed the
amount which it could lawfully have received had the interest been calculated
for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the
prior sentence, any Lender has received interest hereunder in excess of the
Maximum Lawful Rate, such excess amount shall be applied to the reduction of the
principal balance of the Loans or to other amounts (other than interest) payable
hereunder, and if no such principal or other amounts are then outstanding, such
excess or part thereof remaining shall be paid to Borrowers. In computing
interest payable with reference to the Maximum Lawful Rate applicable to any
Lender, such interest shall be calculated at a daily rate equal to the Maximum
Lawful Rate divided by the

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number of days in the year in which such calculation is made.
     Section 2.7 Capital Adequacy; Taxes.
     (a) If any Lender shall determine in its commercially reasonable judgment
that the adoption or taking effect of, or any change in, any applicable Law
regarding capital adequacy, in each instance, after the Closing Date, or any
change after the Closing Date in the interpretation, administration or
application thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation, administration or application thereof,
or the compliance by any Lender or any Person controlling such Lender with any
request, guideline or directive regarding capital adequacy (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency adopted or otherwise taking effect after the Closing Date, has
or would have the effect of reducing the rate of return on such Lender’s or such
controlling Person’s capital as a consequence of such Lender’s obligations
hereunder or under any Support Agreement or Lender Letter of Credit to a level
below that which such Lender or such controlling Person could have achieved but
for such adoption, taking effect, change, interpretation, administration,
application or compliance (taking into consideration such Lender’s or such
controlling Person’s policies with respect to capital adequacy) then from time
to time, upon written demand by such Lender (which demand shall be accompanied
by a statement setting forth the basis for such demand and a calculation of the
amount thereof in reasonable detail, a copy of which shall be furnished to
Agent), Borrowers shall promptly pay to such Lender such additional amount as
will compensate such Lender or such controlling Person for such reduction, so
long as such amounts have accrued on or after the day which is ninety (90) days
prior to the date on which such Lender first made demand therefor.
     (b) All payments of principal and interest on the Loans and all other
amounts payable hereunder shall be made free and clear of and without deduction
for any present or future income, excise, stamp, documentary, payroll,
employment, property or franchise taxes and other taxes, fees, duties, levies,
assessments, withholdings or other charges of any nature whatsoever (including
interest and penalties thereon) imposed by any taxing authority, excluding taxes
imposed on or measured by Agent’s or any Lender’s net income or capital by the
jurisdiction under which Agent or such Lender is organized or conducts business
(other than solely as the result of entering into any of the Financing Documents
or taking any action thereunder) (all non-excluded items being called “Taxes”).
If any withholding or deduction from any payment to be made by any Borrower
hereunder is required in respect of any Taxes pursuant to any applicable Law,
then Borrowers will: (i) pay directly to the relevant authority the full amount
required to be so withheld or deducted; (ii) promptly forward to Agent an
official receipt or other documentation satisfactory to Agent evidencing such
payment to such authority; and (iii) pay to Agent for the account of Agent and
Lenders such additional amount or amounts as is necessary to ensure that the net
amount actually received by Agent and each Lender will equal the full amount
Agent and such Lender would have received had no such withholding or deduction
been required. If any Taxes are directly asserted against Agent or any Lender
with respect to any payment received by Agent or such Lender hereunder, Agent or
such Lender may pay such Taxes and Borrowers will promptly pay such additional
amounts (including any penalty, interest or expense) as is necessary in order
that the net amount received by such Person after the payment of such Taxes
(including any Taxes on such additional amount) shall equal the amount such
Person would have received had such Taxes not been asserted so long as such
amounts have accrued on or after the day which is ninety (90) days prior to the
date on which Agent or such Lender first made written demand therefor. The
obligations of Borrowers under this paragraph shall survive payment in full of
the Obligations and termination of this Agreement.
     (c) Each Lender that (i) is organized under the laws of a jurisdiction
other than the United States and (ii)(A) is a party hereto on the Closing Date
or (B) purports to become an assignee of an interest pursuant to Section 11.6(a)
after the Closing Date (unless such Lender was already a Lender hereunder
immediately prior to such assignment) (each such Lender a “Foreign Lender”)
shall execute and deliver to each of Borrower and Agent one or more (as Borrower
or Agent may reasonably request) United States Internal Revenue Service Forms
W-8ECI, W-8BEN, W-8IMY (as applicable) and other applicable forms, certificates
or documents prescribed by the United States Internal Revenue Service or
reasonably requested by Agent certifying as to such Lender’s entitlement to a
complete exemption from withholding or deduction of Taxes. Borrower shall not be
required to pay additional amounts to any Lender pursuant to this Section 2.7
with respect to United States withholding and income Taxes to the extent that
the obligation to pay such additional amounts would not have arisen but for the
failure of such Lender to comply with this paragraph other than as a result of a
change in law.

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     (d) If any Lender requests compensation under this Section 2.7, or if
Borrowers are required to pay any additional amount to any Lender or any
Governmental Authority for account of any Lender pursuant to this Section 2.7,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant thereto in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling Borrowers to require such
assignment and delegation cease to apply.
     Section 2.8 Joint and Several Liability. Borrowers are defined collectively
to include all Persons constituting the Borrowers; provided, however, that any
references herein to “any Borrower”, “each Borrower” or similar references,
shall be construed as a reference to each individual Person named as one of the
Borrowers herein. Each Person so named shall be jointly and severally liable for
all of the obligations of Borrowers under this Agreement. Each Borrower,
individually, expressly understands, agrees and acknowledges, that the Credit
Facilities would not be made available on the terms herein in the absence of the
collective credit of all of the Persons constituting the Borrowers, the joint
and several liability of all such Persons, and the cross-collateralization of
the collateral of all such Persons. Accordingly, each Borrower, individually
acknowledges that the benefit to each of the Persons comprising the Borrower as
a whole constitutes reasonably equivalent value, regardless of the amount of the
Credit Facilities actually borrowed by, advanced to, or the amount of collateral
provided by, any individual Borrower. In addition, each entity comprising
Borrowers hereby acknowledges and agrees that all of the representations,
warranties, covenants, obligations, conditions, agreements and other terms
contained in this Agreement shall be applicable to and shall be binding upon and
measured and enforceable individually against each Person comprising Borrowers
as well as all such Persons when taken together. By way of illustration, but
without limiting the generality of the foregoing, the terms of Section 9.1 of
this Agreement are to be applied to each individual Person comprising the
Borrowers (as well as to all such Persons taken as a whole), such that the
occurrence of any of the events described in Section 9.1 of this Agreement as to
any Person comprising the Borrowers shall constitute an Event of Default even if
such event has not occurred as to any other Persons comprising the Borrowers or
as to all such Persons taken as a whole.
     Section 2.9 Collections and Lockbox Account.
     (a) Borrowers shall maintain a lockbox (the “Lockbox”) with a United States
depository institution designated from time to time by Agent (and reasonably
acceptable to Advancis) (the “Lockbox Bank”), subject to the provisions of this
Agreement, and shall execute with the Lockbox Bank a Deposit Account Control
Agreement and such other agreements related to such Lockbox as Agent may
require. Borrowers shall ensure that all collections of Accounts (other than
Accounts for which the Account Debtor is a Governmental Account Debtor) are paid
directly from Account Debtors into the Lockbox for deposit into the Lockbox
Account and/or directly into the Lockbox Account; provided, however, unless
Agent shall otherwise direct by written notice to Borrowers, Borrowers shall be
permitted to cause Account Debtors who are individuals to pay Accounts directly
to Borrowers, which Borrowers shall then administer and apply in the manner
required below.
     (b) All funds deposited into a Lockbox Account shall be transferred into
the Payment Account by the close of each Business Day.
     (c) Notwithstanding anything in any lockbox agreement or Deposit Account
Control Agreement to the contrary, Borrowers agree that they shall be liable for
any fees and charges in effect from time to time and charged by the Lockbox Bank
in connection with the Lockbox and the Lockbox Account, and that Agent shall
have no liability therefor. Borrowers hereby indemnify and agree to hold Agent
harmless from any and all liabilities, claims, losses and demands whatsoever,
including reasonable attorneys’ fees and expenses, arising from or relating to
actions of Agent or the Lockbox Bank pursuant to this Section or any lockbox
agreement or Deposit Account Control Agreement, except to the extent of such
losses solely arising from Agent’s gross negligence or willful misconduct.
     (d) Agent shall apply, on a daily basis, all funds transferred into the
Payment Account pursuant to this

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Section to reduce the outstanding Revolving Loans in such order of application
as Agent shall elect. Agent shall have no obligation to apply any funds
transferred into the Payment Account pursuant to this Section to reduce the
outstanding Term Loan, but Agent shall have the option to apply such funds to
any Term Loan to the extent of any payments (whether of principal, interest or
otherwise) due and payable in respect thereof. If as the result of collections
of Accounts pursuant to the terms and conditions of this Section a credit
balance exists with respect to the Payment Account, such credit balance shall
not accrue interest in favor of Borrowers, but shall be available to Borrowers
upon request of Borrowers at any time or times for so long as no Event of
Default or Default exists.
     (e) To the extent that any collections of Accounts (which arise from
services rendered or goods sold, rents or license fees) or proceeds of other
Collateral are not sent directly to the Lockbox but are received by any
Borrower, such collections shall be held in trust for the benefit of Agent
pursuant to an express trust created hereby and immediately remitted, in the
form received, to applicable Lockbox and Lockbox Account. No such funds received
by any Borrower shall be commingled with other funds of the Borrowers.
     (f) Borrowers acknowledge and agree that compliance with the terms of this
Section is essential, and that Agent and Lenders will suffer immediate and
irreparable injury and have no adequate remedy at law, if any Borrower, through
acts or omissions, causes or permits Account Debtors to send payments other than
to the Lockbox, or if any Borrower fails to immediately deposit collections of
Accounts or proceeds of other Collateral in the Lockbox Account as herein
required. Accordingly, in addition to all other rights and remedies of Agent and
Lenders hereunder, Agent shall have the right to seek specific performance of
the Borrowers’ obligations under this Section, and any other equitable relief as
Agent may deem necessary or appropriate, and Borrowers waive any requirement for
the posting of a bond in connection with such equitable relief.
     (g) Borrowers shall not, and Borrowers shall not suffer or permit any
Credit Party to, (i) withdraw any amounts from any Lockbox Account, (ii) change
the procedures or sweep instructions under the agreements governing any Lockbox
Accounts, or (iii) send to or deposit in any Lockbox Account any funds other
than payments made with respect to and proceeds of Accounts or other Collateral.
Borrowers shall, and shall cause each Credit Party to, cooperate with Agent in
the identification and reconciliation on a daily basis of all amounts received
in or required to be deposited into the Lockbox Accounts. If more than five
percent (5%) of the collections of Accounts received by Borrowers during any
given fifteen (15) day period is not identified or reconciled to the reasonable
satisfaction of Agent within ten (10) Business Days of receipt, Agent shall not
be obligated to make further advances under this Agreement until such amount is
identified or is reconciled to the reasonable satisfaction of Agent, as the case
may be. In addition, if any such amount cannot be identified or reconciled to
the satisfaction of Agent, Agent may utilize its own staff or, if it deems
necessary, engage an outside auditor, in either case at Borrowers’ expense
(which in the case of Agent’s own staff shall be in accordance with Agent’s then
prevailing customary charges (plus expenses)), to make such examination and
report as may be necessary to identify and reconcile such amount.
     (h) If any Borrower breaches its obligation to direct payments of the
proceeds of the Collateral to the Lockbox Account, Agent, as the irrevocably
made, constituted and appointed true and lawful attorney for Borrowers, may, by
the signature or other act of any of Agent’s officers (without requiring any of
them to do so), direct any Account Debtor to pay proceeds of the Collateral to
Borrowers by directing payment to the Lockbox Account.
     Notwithstanding the provisions of this Section 2.9 above to the contrary,
Agent shall permit funds deposited into a Lockbox Account to be transferred to
an account designated by Borrowers until the earlier of (i) the occurrence of an
Event of Default or a Default and (ii) the date of the initial Revolving Loan.
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES
     To induce Agent and Lenders to enter into this Agreement and to make the
Loans and other credit accommodations contemplated hereby, each Borrower hereby
represents and warrants to Agent and each Lender that:
     Section 3.1 Existence and Power. Each Credit Party is an entity as
specified on Schedule 3.1, is duly organized, validly existing and in good
standing under the laws of the jurisdiction specified on Schedule 3.1, has the
same legal name as it appears in such Credit Party’s Organizational Documents
and an organizational

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identification number (if any), in each case as specified on Schedule 3.1, and
has all powers and all Permits necessary or desirable in the operation of its
business as presently conducted or as proposed to be conducted, except where the
failure to have such Permits could not reasonably be expected to have a Material
Adverse Effect. Each Credit Party is qualified to do business as a foreign
entity in each jurisdiction in which it is required to be so qualified, which
jurisdictions as of the Closing Date are specified on Schedule 3.1, except where
the failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.1, no Credit Party
(a) has had, over the five (5) year period preceding the Closing Date, any name
other than its current name, or (b) was incorporated or organized under the laws
of any jurisdiction other than its current jurisdiction of incorporation or
organization.
     Section 3.2 Organization and Governmental Authorization; No Contravention.
The execution, delivery and performance by each Credit Party of the Operative
Documents to which it is a party are within its powers, have been duly
authorized by all necessary action pursuant to its Organizational Documents,
require no further action by or in respect of, or filing with, any Governmental
Authority and do not violate, conflict with or cause a breach or a default under
(a) any Law applicable to any Credit Party or any of the Organizational
Documents of any Credit Party, or (b) any agreement or instrument binding upon
it, except for such violations, conflicts, breaches or defaults as could not,
with respect to this clause (b), reasonably be expected to have a Material
Adverse Effect.
     Section 3.3 Binding Effect. Each of the Operative Documents to which any
Credit Party is a party constitutes a valid and binding agreement or instrument
of such Credit Party, enforceable against such Credit Party in accordance with
its respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws relating to the enforcement of
creditors’ rights generally and by general equitable principles.
     Section 3.4 Capitalization. The authorized equity securities of each of the
Credit Parties as of the Closing Date is as set forth on Schedule 3.4. All
issued and outstanding equity securities of each of the Credit Parties are duly
authorized and validly issued, fully paid, nonassessable, free and clear of all
Liens other than those in favor of Agent for the benefit of Agent and Lenders,
and such equity securities were issued in compliance with all applicable Laws.
The identity of the holders of the equity securities of each of the Credit
Parties (other than Advancis) and the percentage of their fully diluted
ownership of the equity securities of each of the Credit Parties (other than
Advancis) as of the Closing Date is set forth on Schedule 3.4. No shares of the
capital stock or other equity securities of any Credit Party (other than
Advancis), other than those described above, are issued and outstanding as of
the Closing Date. Except as set forth on Schedule 3.4, as of the Closing Date,
there are no preemptive or other outstanding rights, options, warrants,
conversion rights or similar agreements or understandings for the purchase or
acquisition from any Credit Party (other than Advancis) of any equity securities
of any such entity. As of the Closing Date, Advancis is an entity publicly
traded on the NASDAQ Stock Market.
     Section 3.5 Financial Information. All consolidated financial statements
for Borrower and any of its Subsidiaries delivered to Agent fairly present in
all material respects Borrower’s consolidated financial condition and Borrower’s
consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Agent.
     Section 3.6 Litigation. Except as set forth on Schedule 3.6 as of the
Closing Date, and except as hereafter disclosed to Agent in writing, there is no
Litigation pending against, or to such Borrower’s knowledge threatened against
or affecting, any Credit Party or, to such Borrower’s knowledge, any party to
any Operative Document other than a Credit Party. There is no Litigation pending
in which an adverse decision could reasonably be expected to have a Material
Adverse Effect or which in any manner draws into question the validity of any of
the Operative Documents.
     Section 3.7 Ownership of Property. Each Borrower and each of its
Subsidiaries is the lawful owner of, has good and marketable title to and is in
lawful possession of, or has valid leasehold interests in, all properties and
other assets (real or personal, tangible, intangible or mixed) purported or
reported to be owned or leased (as the case may be) by such Person.
     Section 3.8 No Default. No Event of Default, or to such Borrower’s
knowledge, Default, has

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occurred and is continuing. No Credit Party is in breach or default under or
with respect to any contract, agreement, lease or other instrument to which it
is a party or by which its property is bound or affected, which breach or
default could reasonably be expected to have a Material Adverse Effect.
     Section 3.9 Labor Matters. As of the Closing Date, there are no strikes or
other labor disputes pending or, to such Borrower’s knowledge, threatened
against any Credit Party. Hours worked and payments made to the employees of the
Credit Parties have not been in violation of the Fair Labor Standards Act or any
other applicable Law dealing with such matters. All payments due from the Credit
Parties, or for which any claim may be made against any of them, on account of
wages and employee and retiree health and welfare insurance and other benefits
have been paid or accrued as a liability on their books, as the case may be. The
consummation of the transactions contemplated by the Financing Documents and the
other Operative Documents will not give rise to a right of termination or right
of renegotiation on the part of any union under any collective bargaining
agreement to which it is a party or by which it is bound.
     Section 3.10 Regulated Entities. No Credit Party is an “investment company”
or a company “controlled” by an “investment company” or a “subsidiary” of an
“investment company,” all within the meaning of the Investment Company Act of
1940.
     Section 3.11 Margin Regulations. None of the proceeds from the Loans have
been or will be used, directly or indirectly, for the purpose of purchasing or
carrying any “Margin Stock” (as defined in Regulation U of the Federal Reserve
Board), for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry any “Margin Stock” or for any other
purpose which might cause any of the Loans to be considered a “purpose credit”
within the meaning of Regulation T, U or X of the Federal Reserve Board.
     Section 3.12 Compliance With Laws; Anti-Terrorism Laws.
          (a) Each Credit Party is in compliance with the requirements of all
applicable Laws, except for such Laws the noncompliance with which could not
reasonably be expected to have a Material Adverse Effect.
          (b) None of the Credit Parties, their Affiliates or any of their
respective agents acting or benefiting in any capacity in connection with the
transactions contemplated by this Agreement is (i) in violation of any
Anti-Terrorism Law, (ii) engages in or conspires to engage in any transaction
that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in any Anti-Terrorism Law, or
(iii) is a Blocked Person. No Credit Party nor, to the knowledge of any Credit
Party, any of its Affiliates or agents acting or benefiting in any capacity in
connection with the transactions contemplated by this Agreement, (x) conducts
any business or engages in making or receiving any contribution of funds, goods
or services to or for the benefit of any Blocked Person, or (y) deals in, or
otherwise engages in any transaction relating to, any property or interest in
property blocked pursuant to Executive Order No. 13224, any similar executive
order or other Anti-Terrorism Law.
     Section 3.13 Taxes. All federal, state for each Borrower’s state of
organization and location of its chief executive office, withholding tax and all
other material state and local tax returns, reports and statements required to
be filed by or on behalf of each Credit Party have been filed with the
appropriate Governmental Authorities in all jurisdictions in which such returns,
reports and statements are required to be filed and, except to the extent
subject to a Permitted Contest, all Taxes (including real property Taxes) and
other charges shown to be due and payable in respect thereof have been timely
paid prior to the date on which any fine, penalty, interest, late charge or loss
may be added thereto for nonpayment thereof. Except to the extent subject to a
Permitted Contest, all state sales and use Taxes for each Borrower’s state of
organization and location of its chief executive office and all other material
state and local sales and use Taxes required to be paid by each Credit Party
have been paid. All federal, state returns for each Borrower’s state of
organization and location of its chief executive office, withholding tax returns
and all other material state returns have been filed by each Credit Party for
all periods for which returns were due with respect to employee income tax
withholding, social security and unemployment taxes, and, except to the extent
subject to a Permitted Contest, the amounts shown thereon to be due and payable
have been paid in full or adequate provisions therefor have been made.
     Section 3.14 Pensions. Each Borrower and each other member of the
Controlled Group is in

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compliance with ERISA and the Code with respect to each Plan, including the
minimum funding standards of ERISA, and each Benefit Arrangement. Each Benefit
Arrangement and Plan which is intended to be qualified under Section 401(a) of
the Code is so qualified and the IRS has issued a favorable determination letter
which may be currently relied on with respect to each such Benefit Arrangement
and Plan. Other than as listed on Schedule 3.14, no Borrower nor any other
member of the Controlled Group maintains or contributes, or has in the last five
years maintained or contributed to, any Plan or Multiemployer Plan. Neither any
Borrower nor any other member of the Controlled Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement that has resulted or could result
in the imposition of a Lien or the posting of a bond or other security under
ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other
than a liability to the PBGC for premiums under Section 4007 of ERISA
     Section 3.15 Material Contracts. Except for the Operative Documents and the
other agreements set forth on Schedule 3.15 (collectively with the Operative
Documents, the “Material Contracts”), as of the Closing Date there are no
(a) agreements required to be disclosed to the SEC pursuant to or under the
Securities Exchange Act of 1934 or (b) any other agreements or instruments to
which any Credit Party is a party, and the breach, nonperformance or
cancellation of which, or the failure of which to renew, could reasonably be
expected to have a Material Adverse Effect. The consummation of the transactions
contemplated by the Financing Documents and the other Operative Documents will
not give rise to a right of termination in favor of any party to any Material
Contract (other than any Credit Party), except for such Material Contracts the
termination of which would not reasonably be expected to have a Material Adverse
Effect.
     Section 3.16 Compliance with Environmental Requirements; No Hazardous
Materials.
     Except in each case as set forth on Schedule 3.16:
     (a) no notice, notification, demand, request for information, citation,
summons, complaint or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending, or to such
Borrower’s knowledge, threatened by any Governmental Authority or other Person
with respect to any (i) alleged violation by any Credit Party of any
Environmental Law, (ii) alleged failure by any Credit Party to have any Permits
required in connection with the conduct of its business or to comply with the
terms and conditions thereof, (iii) any generation, treatment, storage,
recycling, transportation or disposal of any Hazardous Materials, or
(iv) release of Hazardous Materials; and
     (b) no property now owned or leased by any Credit Party and, to the
knowledge of such Borrower, no such property previously owned or leased by any
Credit Party, to which any Credit Party has, directly or indirectly, transported
or arranged for the transportation of any Hazardous Materials, is listed or, to
such Borrower’s knowledge, proposed for listing, on the National Priorities List
promulgated pursuant to CERCLA, or CERCLIS (as defined in CERCLA) or any similar
state list or is the subject of federal, state or local enforcement actions or,
to the knowledge of such Borrower, other investigations which may lead to claims
against any Credit Party for clean-up costs, remedial work, damage to natural
resources or personal injury claims, including, without limitation, claims under
CERCLA;
For purposes of this Section 3.16, each Credit Party shall be deemed to include
any business or business entity (including a corporation) that is, in whole or
in part, a predecessor of such Credit Party.
     Section 3.17 Intellectual Property. Each Credit Party owns, is licensed to
use or otherwise has the right to use, all Intellectual Property that is
material to the condition (financial or other), business or operations of such
Credit Party. All such Intellectual Property existing as of the Closing Date and
registered with any United States or foreign Governmental Authority is set forth
on Schedule 3.17. All Intellectual Property of each Credit Party is fully
protected and/or duly and properly registered, filed or issued in the
appropriate office and jurisdictions for such registrations, filings or
issuances, except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect. Borrowers are not a party to, nor are bound by,
any material license or other agreement with respect to which any Borrower is
the licensee that prohibits or otherwise restricts such Borrower from granting a
security interest in such Borrower’s interest in such license or agreement or
other property. To such Borrower’s knowledge, each Credit Party conducts its
business without infringement or claim of infringement of

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any Intellectual Property rights of others and there is no infringement or claim
of infringement by others of any Intellectual Property rights of any Credit
Party, which infringement or claim of infringement could reasonably be expected
to have a Material Adverse Effect.
     Section 3.18 Solvency. Each Borrower and each additional Credit Party is
Solvent.
     Section 3.19 Full Disclosure. None of the written information (financial or
otherwise) furnished by or on behalf of any Credit Party to Agent or any Lender
in connection with the consummation of the transactions contemplated by the
Operative Documents, contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which such statements
were made. All financial projections delivered to Agent and the Lenders by
Borrowers (or their agents) have been prepared on the basis of the assumptions
stated therein. Such projections represent each Borrower’s best estimate of such
Borrower’s future financial performance and such assumptions are believed by
such Borrower to be fair and reasonable in light of current business conditions;
provided, however, that Borrowers can give no assurance that such projections
will be attained.
     Section 3.20 Subsidiaries. Borrowers do not own any stock, partnership
interests, limited liability company interests or other equity securities except
for Permitted Investments.
     Section 3.21 Representations and Warranties Incorporated from Operative
Documents. As of the Closing Date, each of the representations and warranties
made in the Operative Documents by each of the parties thereto is true and
correct in all material respects, and such representations and warranties are
hereby incorporated herein by reference with the same effect as though set forth
in their entirety herein, as qualified therein, except to the extent that such
representation or warranty relates to a specific date, in which case such
representation and warranty shall be true as of such earlier date.
ARTICLE 4 — AFFIRMATIVE COVENANTS
     Each Borrower agrees that, so long as any Credit Exposure exists:
     Section 4.1 Financial Statements and Other Reports. Each Borrower will
deliver to Agent: (1) as soon as available, but no later than forty-five
(45) days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Advancis’s consolidated operations
during the period certified by a Responsible Officer and in a form acceptable to
Agent; (2) as soon as available, but no later than one hundred twenty (120) days
after the last day of Advancis’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Agent in its reasonable discretion;
(3) within five (5) days of delivery, copies of all statements, reports and
notices made available to Advancis’s security holders or to any holders of
Subordinated Debt and copies of all reports and other filings made by Advancis
with any stock exchange on which any securities of Advancis are traded and/or
the SEC; (4) a prompt report of any legal actions pending or threatened against
Borrower or any of its Subsidiaries that could result in damages or costs to
Borrower or any of its Subsidiaries of Three Hundred Thousand Dollars ($300,000)
or more; (5) prompt written notice of an event that materially and adversely
affects the value of any Intellectual Property; and (6) budgets, sales
projections, operating plans and other financial information reasonably
requested by Agent from time to time. Each Borrower will, within forty-five
(45) days after the last day of each month, deliver to Agent with the monthly
financial statements, a duly completed Compliance Certificate signed by a
Responsible Officer setting forth calculations showing compliance with the
financial covenants set forth in this Agreement. Each Borrower will, within
fifteen (15) days after the last day of each month, deliver to Agent a duly
completed Borrowing Base Certificate signed by a Responsible Officer, with aged
listings of accounts receivable and accounts payable (by invoice date).
     Section 4.2 Payment and Performance of Obligations. Each Borrower (a) will
pay and discharge, and cause each Subsidiary to pay and discharge, at or before
maturity, all of their respective obligations and liabilities, including tax
liabilities, except for such obligations and/or liabilities (i) that may be the
subject of a Permitted Contest, and (ii) the nonpayment or nondischarge of which
could not reasonably be expected to have a Material Adverse Effect, (b) will
maintain, and cause each Subsidiary to maintain, in accordance with GAAP,
appropriate reserves for the accrual of all of their respective obligations and
liabilities, and (c) will not breach or

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permit any Subsidiary to breach, or permit to exist any default under, the terms
of any lease, commitment, contract, instrument or obligation to which it is a
party, or by which its properties or assets are bound, except for such breaches
or defaults which could not reasonably be expected to have a Material Adverse
Effect.
     Section 4.3 Maintenance of Existence. Each Borrower will preserve, renew
and keep in full force and effect, and will cause each Subsidiary to preserve,
renew and keep in full force and effect, their respective existence and their
respective rights, privileges and franchises necessary or desirable in the
normal conduct of business.
     Section 4.4 Maintenance of Property; Insurance.
     (a) Each Borrower will keep, and will cause each Subsidiary to keep, all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted. If all or any part of the Collateral
useful and necessary in its business becomes damaged or destroyed, each Borrower
will, and will cause each Subsidiary to, promptly and completely repair and/or
restore the affected Collateral in a good and workmanlike manner, regardless of
whether Agent agrees to disburse insurance proceeds or other sums to pay costs
of the work of repair or reconstruction.
     (b) Upon completion of any Permitted Contest, Borrowers shall, and will
cause each Subsidiary to, promptly pay the amount due, if any, and deliver to
Agent proof of the completion of the contest and payment of the amount due, if
any, following which Agent shall return the security, if any, deposited with
Agent pursuant to the definition of Permitted Contest.
     (c) Each Borrower will maintain, and will cause each Subsidiary to
maintain, (i) all insurance described on Schedule 4.4, upon the terms and with
the coverages and rights in favor of Agent and Lenders as described in
Schedule 4.4, and (ii) such other insurance coverage in such amounts and with
respect to such risks as Agent may reasonably from time to time request. In the
event any Borrower fails to provide Agent with evidence of the insurance
coverage required by this Agreement, Agent may purchase insurance at Borrowers’
expense to protect Agent’s interests in the Collateral. At all times, Agent
shall be named as lenders loss payee and/or additional insured (as applicable)
with respect to all such insurance required pursuant to this paragraph, pursuant
to endorsements in form and substance acceptable to Agent, which endorsements
shall include provisions requiring the applicable insurers to provide Agent with
at least thirty (30) days prior written notice prior to any cancellation,
termination or expiration of any such insurance, and such policies shall contain
standard mortgage clauses.
     Section 4.5 Compliance with Laws. Each Borrower will comply, and cause each
Subsidiary to comply, with the requirements of all applicable Laws, except to
the extent that failure to so comply could not reasonably be expected to
(a) have a Material Adverse Effect, or (b) result in any Lien upon either (i) a
material portion of the assets of any such Person in favor of any Governmental
Authority, or (ii) any Accounts or Inventory.
     Section 4.6 Inspection of Property, Books and Records. Each Borrower will
keep, and will cause each Subsidiary to keep, proper books of record and account
in accordance with GAAP in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities; and
will permit, and will cause each Subsidiary to permit, at the sole cost of the
applicable Borrower or any applicable Subsidiary, representatives of Agent and
of any Lender (but at such Lender’s expense unless such visit or inspection is
made concurrently with Agent) to visit and inspect any of their respective
properties, to examine and make abstracts or copies from any of their respective
books and records, to conduct a collateral audit and analysis of their
respective operations and the Collateral, to verify the amount and age of the
Accounts, the identity and credit of the respective Account Debtors, to review
the billing practices of Borrower and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants as often as may reasonably be desired. In the absence of an
Event of Default, Agent or any Lender exercising any rights pursuant to this
Section 4.6 shall give the applicable Borrower or any applicable Subsidiary
commercially reasonable prior notice of such exercise and Borrowers shall have
the right to be present during any such inspection or audit. No notice shall be
required during the existence and continuance of any Event of Default.
     Section 4.7 Use of Proceeds. Borrowers will use the proceeds of the Term
Loan on the Closing Date for the refinancing of all Debt owed to Manufacturers
and Traders Trust Company other than with respect to the

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M&T Letters of Credit. The proceeds of additional Term Loans and Revolving Loans
shall be used by Borrowers solely for working capital needs of Borrowers and
their Subsidiaries. No portion of the proceeds of the Loans will be used for
family, personal, agricultural or household use.
     Section 4.8 Hazardous Materials; Remediation.
     (a) If any release or disposal of Hazardous Materials shall occur or shall
have occurred on any real property or any other assets of any Borrower or any
other Credit Party, such Borrower will cause, or direct the applicable Credit
Party to cause, the prompt containment and removal of such Hazardous Materials
and the remediation of such real property or other assets as is necessary to
comply with all Environmental Laws and to preserve the value of such real
property or other assets. Without limiting the generality of the foregoing, each
Borrower shall, and shall cause each other Credit Party to, comply with each
Environmental Law requiring the performance at any real property by any Borrower
or any other Credit Party of activities in response to the release or threatened
release of a Hazardous Material.
     (b) Borrowers will provide Agent within thirty (30) days after written
demand therefor with a bond, letter of credit or similar financial assurance
evidencing to the reasonable satisfaction of Agent that sufficient funds are
available to pay the cost of removing, treating and disposing of any Hazardous
Materials or Hazardous Materials Contamination and discharging any assessment
which may be established on any property as a result thereof, such demand to be
made, if at all, upon Agent’s reasonable business determination that the failure
to remove, treat or dispose of any Hazardous Materials or Hazardous Materials
Contamination, or the failure to discharge any such assessment could reasonably
be expected to have a Material Adverse Effect.
     Section 4.9 Further Assurances.
     (a) Each Borrower will, and will cause each Subsidiary to, at its own cost
and expense, cause to be promptly and duly taken, executed, acknowledged and
delivered all such further acts, documents and assurances as may from time to
time be necessary or as Agent or the Required Lenders may from time to time
reasonably request in order to carry out the intent and purposes of the
Financing Documents and the transactions contemplated thereby, including all
such actions to (i) establish, create, preserve, protect and perfect a first
priority Lien (subject only to Permitted Liens) in favor of Agent for the
benefit of the Lenders on the Collateral (including Collateral acquired after
the date hereof), including on any and all assets of each Credit Party, whether
now owned or hereafter acquired, and (ii) cause all Subsidiaries of Borrowers to
be jointly and severally obligated with the other Borrowers under all covenants
and obligations under this Agreement, including the obligation to repay the
Obligations.
     (b) Upon receipt of an affidavit of an officer of Agent or a Lender as to
the loss, theft, destruction or mutilation of any Note or any other Financing
Document which is not of public record, and, in the case of any such mutilation,
upon surrender and cancellation of such Note or other applicable Financing
Document, Borrowers will issue, in lieu thereof, a replacement Note or other
applicable Financing Document, dated the date of such lost, stolen, destroyed or
mutilated Note or other Financing Document in the same principal amount thereof
and otherwise of like tenor.
     (c) Upon the formation or acquisition of a new Subsidiary, Borrowers shall
(i) pledge, have pledged or cause or have caused to be pledged to the Agent
pursuant to a pledge agreement in form and substance satisfactory to the Agent,
all of the outstanding shares of equity interests or other equity interests of
such new Subsidiary owned directly or indirectly by any Borrower, along with
undated stock or equivalent powers for such certificates, executed in blank;
(ii) cause the new Subsidiary to take such other actions (including entering
into or joining any Security Documents) as are necessary or advisable in the
reasonable opinion of the Agent in order to grant the Agent, acting on behalf of
the Lenders, a first priority Lien on all real and personal property and
leasehold estates of such Subsidiary in existence as of such date and in all
after acquired property, which first priority Liens are required to be granted
pursuant to this Agreement; (iii) cause such new Subsidiary to either (at the
election of Agent in its sole discretion) become a Borrower hereunder with joint
and several liability for all obligations of Borrowers hereunder and under the
other Financing Documents pursuant to a joinder agreement or other similar
agreement in form and substance satisfactory to Agent or to become a Guarantor
of the obligations of Borrowers hereunder and under the other Financing
Documents pursuant to a guaranty and suretyship agreement in form and substance
satisfactory to Agent; and (iv) cause the new Subsidiary to deliver certified
copies of such Subsidiary’s

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certificate or articles of incorporation, together with good standing
certificates, by-laws (or other operating agreement or governing documents),
resolutions of the Board of Directors or other governing body, approving and
authorize the execution and delivery of the Security Documents, incumbency
certificates and to execute and/or deliver such other documents and legal
opinions or to take such other actions as may be requested by the Agent, in each
case, in form and substance satisfactory to the Agent.
     (d) Upon the request of Agent, Borrowers shall obtain a landlord’s
agreement or mortgagee agreement, as applicable, from the lessor of each leased
property or mortgagee of owned property with respect to any business location
where any portion of the Collateral included in or proposed to be included in
the Borrowing Base, or the records relating to such Collateral and/or software
and equipment relating to such records or Collateral, is stored or located,
which agreement or letter shall be reasonably satisfactory in form and substance
to Agent. Borrowers shall timely and fully pay and perform its obligations under
all leases and other agreements with respect to each leased location where any
Collateral, or any records related thereto, is or may be located.
     Section 4.10 Notices of Litigation and Default, Application for Generic
Drug. Borrowers will give prompt written notice to Agent of any:
     (a) litigation or governmental proceedings pending or threatened (in
writing) against Borrowers or any Subsidiary or other Credit Party which would
reasonably be expected to have a Material Adverse Effect with respect to
Borrowers, any Subsidiary or any other Credit Party. Without limiting or
contradicting any other more specific provision of this Agreement, promptly (and
in any event within three (3) Business Days) upon any Borrower becoming aware of
the existence of any Default or Event of Default, Borrowers shall give written
notice to Agent of such occurrence, which such notice shall include a reasonably
detailed description of such Default or Event of Default.
     (b) notice received by Advancis that a Person has filed an application with
the FDA (as defined in the Pharma Rider) requesting permission to sell a generic
version of 750mg cephalexin. Without limiting or contradicting any other more
specific provision of this Agreement, promptly (and in any event within three
(3) Business Days) upon any Borrower becoming aware of such application,
Advancis shall give written notice to Agent of such occurrence, which such
notice shall include a reasonably detailed description of such application.
     Section 4.11 Updates of Representations. Borrowers shall deliver to Agent
within ten (10) days of the written request of Agent an Officer’s Certificate
updating all of the representations and warranties contained in this Agreement
and the other Financing Documents and certifying that all of the representations
and warranties contained in this Agreement and the other Financing Documents, as
updated pursuant to such Officer’s Certificate, are true, accurate and complete
as of the date of such Officer’s Certificate.
     Section 4.12 Power of Attorney. Each of the officers of Agent is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrowers (without requiring any of them to act as such) with full power of
substitution to do the following: (a) endorse the name of Borrowers upon any and
all checks, drafts, money orders, and other instruments for the payment of money
that are payable to Borrowers and constitute collections on Borrowers’ Accounts;
(b) so long as Agent has provided not less than three (3) Business Days’ prior
written notice to Borrower to perform the same and Borrower has failed to take
such action, execute in the name of Borrowers any financing statements,
schedules, assignments, instruments, documents, and statements that Borrowers
are obligated to give Agent under this Agreement; (c) after the occurrence and
during the continuance of a Default, take any action Borrowers are required to
take under this Agreement; (d) so long as Agent has provided not less than three
(3) Business Days’ prior written notice to Borrower to perform the same and
Borrower has failed to take such action, do such other and further acts and
deeds in the name of Borrowers that Agent may deem necessary or desirable to
enforce any Account or other Collateral or perfect Agent’s security interest or
Lien in any Collateral; and (e) after the occurrence and during the continuance
of an Event of Default, do such other and further acts and deeds in the name of
Borrowers that Agent may deem necessary or desirable to enforce its rights with
regard to any Account or other Collateral. This power of attorney shall be
irrevocable and coupled with an interest.
     Section 4.13 Borrowing Base Collateral Administration.
     (a) All data and other information relating to Accounts or other intangible
Collateral shall at all times

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be kept by Borrowers at their respective principal offices and shall not be
moved from such locations without (i) providing prior written notice to Agent,
and (ii) obtaining the prior written consent of Agent, which consent shall not
be unreasonably withheld.
     (b) Whether or not an Event of Default has occurred, any of Agent’s
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Agent or any designee of Agent or Borrowers, to verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph or otherwise, including, without limitation, verification
of Borrowers’ compliance with applicable Laws. Borrowers shall cooperate fully
with Agent in an effort to facilitate and promptly conclude such verification
process. Such verification may include contacts between Agent and applicable
federal, state and local regulatory authorities having jurisdiction over the
Borrowers’ affairs, all of which contacts Borrowers hereby irrevocably
authorize.
     (c) To expedite collection, Borrowers shall endeavor in the first instance
to make collection of Accounts for Agent. Agent shall have the right at any time
to notify Account Debtors that Agent has been granted a Lien upon all Accounts,
that Accounts have been assigned to Agent and, following the occurrence of a
Default, that payment of such Accounts shall be made directly by such Account
Debtors to Agent (and once such notice has been given to an Account Debtor,
Borrowers shall not give any contrary instructions to such Account Debtor
without Agent’s prior written consent). Borrowers shall provide prompt written
notice to each Person who either is currently an Account Debtor or becomes an
Account Debtor at any time following the date of this Agreement that directs
each Account Debtor to make payments into the Lockbox, and hereby authorizes
Agent, upon Borrowers’ failure to send such notices within ten (10) days after
the date of this Agreement (or ten (10) days after the Person becomes an Account
Debtor), to send any and all similar notices to such Person.
ARTICLE 5 — NEGATIVE COVENANTS
     Each Borrower agrees that, so long as any Credit Exposure exists:
     Section 5.1 Debt. No Borrower will, or will permit any Subsidiary to,
directly or indirectly, create, incur, assume, guarantee or otherwise become or
remain directly or indirectly liable with respect to, any Debt, except for
Permitted Indebtedness.
     Section 5.2 Liens. No Borrower will, or will permit any Subsidiary to,
directly or indirectly, create, assume or suffer to exist any Lien on any asset
now owned or hereafter acquired by it, except for Permitted Liens. Without
limiting the generality of the foregoing, no Borrower will, or will permit any
Subsidiary to, directly or indirectly, create, assume or suffer to exist any
Lien on any of its or their copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, patent applications and
like protections, including improvements, divisions, continuations, renewals,
reissues, extensions, and continuations-in-part of the same, trademarks, service
marks and, to the extent permitted under applicable law, any applications
therefor, whether registered or not, and the goodwill of the business of
Borrowers and their Subsidiaries connected with and symbolized thereby,
know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing.
     Section 5.3 Restricted Distributions. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Distribution; provided, however, that the following
Restricted Distributions may be paid (each, an “Allowed Distribution”): (a) at
any time, dividends may be paid by any Borrower that is a Subsidiary of another
Borrower to such parent Borrower (and/or to any intermediate Subsidiary of such
Borrower); (b) Borrower may pay dividends solely in common stock; and
(c) Borrower may repurchase the stock of former employees, directors or
consultants pursuant to stock repurchase agreements so long as an Event of
Default does not exist at the time of such repurchase and would not exist after
giving effect to such repurchase, provided that in the aggregate, such
repurchase does not exceed $50,000 per fiscal year.
     Section 5.4 Restrictive Agreements. No Borrower will, or will permit any
Subsidiary to, directly or indirectly (a) enter into or assume any agreement
(other than the Financing Documents, the Subordinated Debt Documents and any
agreements for purchase money permitted under clause (e) of the definition of
“Permitted

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Indebtedness” or licensing agreement permitted hereunder, if any) prohibiting
the creation or assumption of any Lien upon its properties or assets, whether
now owned or hereafter acquired, or (b) create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
(except as provided by the Financing Documents and Subordinated Debt Documents,
if any) on the ability of any Subsidiary to: (i) pay or make Restricted
Distributions to any Borrower or any Subsidiary; (ii) pay any Debt owed to any
Borrower or any Subsidiary; (iii) make loans or advances to any Borrower or any
Subsidiary; or (iv) transfer any of its property or assets to any Borrower or
any Subsidiary.
     Section 5.5 Payments and Modifications of Subordinated Debt. No Borrower
will, or will permit any Subsidiary to, directly or indirectly, declare, pay,
make or set aside any amount for payment in respect of Subordinated Debt unless
permitted pursuant to the applicable Subordination Agreement
     Section 5.6 Consolidations, Mergers and Sales of Assets; Change in Control.
No Borrower will, or will permit any Subsidiary to, directly or indirectly
(a) consolidate or merge with or into any other Person, or (b) consummate any
asset dispositions other than (i) dispositions of inventory in the Ordinary
Course of Business, (ii) dispositions of personal property assets (other than
Accounts) for cash and fair value that the applicable Borrower determines in
good faith is no longer used or useful in the business of such Borrower and its
Subsidiaries, and (iii) the granting of non-exclusive licenses (or exclusive
licenses limited to a particular geographic range or field of use). No Borrower
will suffer or permit to occur any Change in Control with respect to itself, any
Subsidiary or any Guarantor.
     Section 5.7 Purchase of Assets, Investments. No Borrower will, or will
permit any Subsidiary to, directly or indirectly (a) other than for acquisitions
with an aggregate purchase price not to exceed $1,000,000 (less the amount of
outstanding Investments permitted under clause (h) of the definition of
Permitted Investments), acquire or enter into any agreement to acquire any
assets other than in the Ordinary Course of Business; (b) engage or enter into
any agreement to engage in any joint venture or partnership with any other
Person; or (c) acquire or own or enter into any agreement to acquire or own any
Investment in any Person other than Permitted Investments.
     Section 5.8 Transactions with Affiliates. Except as otherwise disclosed on
Schedule 5.8, and except for transactions that are disclosed to Agent in advance
of being entered into and which contain terms that are no less favorable to the
applicable Borrower or any Subsidiary, as the case may be, than those which
might be obtained from a third party not an Affiliate of any Credit Party, no
Borrower will, or will permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
any Borrower.
     Section 5.9 Modification of Organizational Documents. Advancis will not
directly or indirectly, amend or otherwise modify any of its Organizational
Documents, except for such amendments or other modifications required (a) under
this Agreement or (b) by applicable Law and fully disclosed to Agent. No other
Borrower will, or will permit any Subsidiary to, directly or indirectly, amend
or otherwise modify any Organizational Documents of such Person in a manner
which would materially and adversely impact Agent and Lenders, except for such
amendments or other modifications required (a) under this Agreement or (b) by
applicable Law and fully disclosed to Agent.
     Section 5.10 Modification of Certain Agreements. No Borrower will, or will
permit any Subsidiary to, directly or indirectly, amend or otherwise modify any
Operative Document, which amendment or modification in any case: (a) is contrary
to the terms of this Agreement or any other Financing Document; (b) could
reasonably be expected to be adverse to the rights, interests or privileges of
the Agent or the Lenders or their ability to enforce the same; (c) results in
the imposition or expansion in any material respect of any restriction or burden
on any Borrower or any Subsidiary; or (d) reduces in any material respect any
rights or benefits of any Borrower or any Subsidiaries (it being understood and
agreed that any such determination shall be in the discretion of the Agent).
Each Borrower shall, prior to entering into any amendment or other modification
of any of the foregoing documents, deliver to Agent reasonably in advance of the
execution thereof, any final or execution form copy of amendments or other
modifications to such documents, and, if approval of Required Lenders is
required by the terms of this Section 5.10 prior to the taking of any such
action, such Borrower agrees not to take, nor permit any of its Subsidiaries to
take, any such action with respect to any such documents without obtaining such
approval from Required Lenders.

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     Section 5.11 Conduct of Business. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, engage in any line of business other than
those businesses engaged in on the Closing Date and described on Schedule 5.11
and businesses reasonably related thereto.
     Section 5.12 Lease Payments. No Borrower will, or will permit any
Subsidiary to, directly or indirectly, incur or assume (whether pursuant to a
Guarantee or otherwise) any liability for rental payments except in the Ordinary
Course of Business.
     Section 5.13 Limitation on Sale and Leaseback Transactions. No Borrower
will, or will permit any Subsidiary to, directly or indirectly, enter into any
arrangement with any Person whereby, in a substantially contemporaneous
transaction, any Borrower or any Subsidiaries sells or transfers all or
substantially all of its right, title and interest in an asset and, in
connection therewith, acquires or leases back the right to use such asset.
     Section 5.14 Bank Accounts. No Borrower will, or will permit any Subsidiary
to, directly or indirectly, establish any new bank account, Deposit Account or
Securities Account without prior written notice to Agent and unless Agent, such
Borrower or such Subsidiary and the bank, financial institution or securities
intermediary at which the account is to be opened enter into a control agreement
regarding such account pursuant to which such bank, financial institution or
securities intermediary acknowledges the security interest of Agent in such
account, agrees to comply with instructions originated by Agent directing
disposition of the funds or investment property or securities in the account
without further consent from any Borrower, and agrees to subordinate and limit
any security interest the bank, financial institution or securities intermediary
may have in the account on terms satisfactory to Agent.
     Section 5.15 Compliance with Anti-Terrorism Laws. Agent hereby notifies
Borrowers that pursuant to the requirements of Anti-Terrorism Laws, and Agent’s
policies and practices, Agent is required to obtain, verify and record certain
information and documentation that identifies Borrowers and its principals,
which information includes the name and address of each Borrower and its
principals and such other information that will allow Agent to identify such
party in accordance with Anti-Terrorism Laws. No Borrower will, or will permit
any Subsidiary to, directly or indirectly, knowingly enter into any Operative
Documents or Material Contracts with any Blocked Person or Person listed on the
OFAC Lists. Each Borrower shall immediately notify Agent if such Borrower has
knowledge that any Borrower or any additional Credit Party becomes a Blocked
Person or becomes listed on the OFAC Lists or (a) is convicted on, (b) pleads
nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on
charges involving money laundering or predicate crimes to money laundering. No
Borrower will, or will permit any Subsidiary to, directly or indirectly,
(i) conduct any business or engage in any transaction or dealing with any
Blocked Person, including, without limitation, the making or receiving of any
contribution of funds, goods or services to or for the benefit of any Blocked
Person, (ii) deal in, or otherwise engage in any transaction relating to, any
property or interests in property blocked pursuant to Executive Order No. 13224,
any similar executive order or other Anti-Terrorism Law, or (iii) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in Executive Order No. 13224 or other Anti-Terrorism Law.
ARTICLE 6 — FINANCIAL COVENANTS
     Borrowers agree that, so long as any Credit Exposure exists:
     Section 6.1 Revenue/Invoiced Products. For the fiscal quarter ending
September 30, 2006, Borrowers shall have either (a) Revenue of at least
$2,000,000 or (b) Invoiced Products of at least $4,000,000. For the fiscal
quarter ending December 31, 2006 and for each fiscal quarter thereafter,
Borrowers shall have Revenue of at least $5,000,000.
     Section 6.2 Minimum Liquidity. Until Borrowers achieve Positive Cash Flow
for either three (3) consecutive months or one (1) fiscal quarter, Borrowers
will not permit the Minimum Liquidity to be less than $5,000,000 at any time;
provided however, notwithstanding the foregoing and irrespective of whether
Borrowers achieve Positive Cash Flow, if (a) Advancis’s current phase III
clinical trial of the Amoxicillin PULSYS drug fails and (b) Advancis receives
such notice as described in Section 4.10(b), then Borrowers will not permit the
Minimum Liquidity to be less than $4,000,000 at any time.

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     Section 6.3 Evidence of Compliance. Borrowers shall furnish to Agent,
together with the financial reporting required of Borrower in Section 4.1
hereof, evidence (in form and content satisfactory to Lender) of Borrowers’
compliance with the covenants in this Article and evidence that no Event of
Default specified in this Article has occurred. Such evidence shall include,
without limitation, (a) a statement and report, on a form approved by Agent,
detailing Borrowers’ calculations, and (b) if requested by Agent, back-up
documentation (including, without limitation, invoices, receipts and other
evidence of costs incurred during such quarter as Agent shall reasonably
require) evidencing the propriety of the calculations.
ARTICLE 7 — CONDITIONS
     Section 7.1 Conditions to Closing. The obligation of each Lender to make
the initial Loans, of Agent to issue any Support Agreements on the Closing Date
and of any LC Issuer to issue any Lender Letter of Credit on the Closing Date
shall be subject to the receipt by Agent of each agreement, document and
instrument set forth on the closing checklist prepared by Agent or its counsel,
each in form and substance satisfactory to Agent, and to the satisfaction of the
following conditions precedent, each to the satisfaction of Agent and Lenders in
their sole discretion:
     (a) evidence of the consummation of the transactions (other than the
funding of the Loans and the closing of any acquisition for which the proceeds
of the Loans are purchase money) contemplated by the Operative Documents,
including, without limitation, the funding of any and all investments
contemplated by the Subordinated Debt Documents;
     (b) the payment of all fees, expenses and other amounts due and payable
under each Financing Document;
     (c) the absence, since December 31, 2005, of any material adverse change in
any aspect of the business, operations, properties, prospects or condition
(financial or otherwise) of any Credit Party or any seller of any assets or
business to be purchased by any Borrower contemporaneous with the Closing Date,
or any event or condition which could reasonably be expected to result in such a
material adverse change;
     (d) the receipt of the initial Borrowing Base Certificate, prepared as of
the Closing Date; and
     (e) receipt by Agent of such other documents, instruments and/or agreements
as Agent may reasonably request.
     Section 7.2 Conditions to Each Loan, Support Agreement and Lender Letter of
Credit.
     The obligation of the Lenders to make a Loan (other than Revolving Loans
made pursuant to Section 2.4(c)) or an advance in respect of any Loan, of Agent
to issue any Support Agreement or of any LC Issuer to issue any Lender Letter of
Credit (including, in each case, on the Closing Date) is subject to the
satisfaction of the following additional conditions:
     (a) in the case of a Revolving Loan Borrowing, receipt by Agent of a Notice
of Borrowing (or telephonic notice if permitted by this Agreement) and updated
Borrowing Base Certificate, in the case of any Support Agreement or Lender
Letter of Credit, receipt by Agent of a Notice of LC Credit Event in accordance
with Section 2.4(a), and in the case of a Term Loan advance, receipt by Agent of
a Notice of Borrowing;
     (b) the fact that, immediately after such borrowing and after application
of the proceeds thereof or after such issuance, the Revolving Loan Outstandings
will not exceed the Revolving Loan Limit;
     (c) the fact that, immediately before and after such borrowing or issuance,
no Default or Event of Default shall have occurred and be continuing;
     (d) the fact that the representations and warranties of each Credit Party
contained in the Financing

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Documents shall be true, correct and complete on and as of the date of such
borrowing or issuance, except to the extent that any such representation or
warranty relates to a specific date in which case such representation or
warranty shall be true and correct as of such earlier date; and
     (e) the fact that no material adverse change in the condition (financial or
otherwise), properties, business, or operations of Borrowers and their
Subsidiaries taken as a whole shall have occurred and be continuing since the
date of this Agreement; provided that none of the following, either alone or in
combination, shall be considered in determining whether there has been a
material adverse change: (a) any event relating to Advancis’s current phase III
clinical trial of the Amoxicillin PULSYS drug; (b) the results of Advancis’s
current phase III clinical trial of the Amoxicillin PULSYS drug; or (c) any
Federal Drug Administration of other Governmental Authority approval,
non-approval or other action with respect to such trial or results of such
trial.
     Each giving of a Notice of LC Credit Event hereunder, each giving of a
Notice of Borrowing hereunder and each acceptance by any Borrower of the
proceeds of any Loan made hereunder shall be deemed to be (y) a representation
and warranty by each Borrower on the date of such notice or acceptance as to the
facts specified in this Section, and (z) a restatement by each Borrower that
each and every one of the representations made by it in any of the Financing
Documents is true and correct in all material respects (except to the extent
that such representations and warranties expressly relate solely to an earlier
date).
     Section 7.3 Searches. Before the Closing Date, and thereafter (as and when
determined by Agent in its discretion), Agent shall have the right to perform,
all at Borrowers’ expense, the searches described in clauses (a), (b), (c) and
(d) below against Borrowers and any other Credit Party, the results of which are
to be consistent with Borrowers’ representations and warranties under this
Agreement and the satisfactory results of which shall be a condition precedent
to all advances of Loan proceeds, all issuances of Lender Letters of Credit and
all undertakings in respect of Support Agreements: (a) UCC searches with the
Secretary of State and local filing offices of each jurisdiction where the
applicable Person maintains its executive offices, a place of business, or
assets and the jurisdiction in which the applicable Person is organized; (b)
Judgment, pending litigation, federal tax lien, personal property tax lien, and
corporate and partnership tax lien searches, in each jurisdiction searched under
clause (a) above; (c) Real property title and lien searches in each jurisdiction
in which any real property Collateral is located; and (d) Searches of applicable
corporate, limited liability company, partnership and related records to confirm
the continued existence, organization and good standing of the applicable Person
and the exact legal name under which such Person is organized.
     Section 7.4 Post Closing Requirements. Borrowers shall complete each of the
post closing obligations and/or provide to Agent each of the documents,
instruments, agreements and information listed on Schedule 7.4 attached hereto
on or before the date set forth for each such item thereon, each of which shall
be completed or provided in form and substance satisfactory to Agent.
ARTICLE 8 — SECURITY AGREEMENT
     Section 8.1 Generally. As security for the payment and performance of the
Obligations, and without limiting any other grant of a Lien and security
interest in any Security Document, Borrowers hereby assign and grant to Agent a
continuing first priority Lien on and security interest in, upon, and to the
Collateral as defined on Schedule 8.1 attached hereto and made a part hereof.
     Section 8.2 Representations and Warranties and Covenants Relating to
Collateral.
     (a) As of the Closing Date, Schedule 8.2 sets forth all of the addresses at
which any of the Collateral in excess of $50,000 is located and/or books and
records of Borrowers regarding any of the Collateral are kept, which such
Schedule 8.2 indicates in each case which Borrower(s) have Collateral and/or
books and records located at such address, and, in the case of any such address
not owned by one or more of the Borrower(s), indicates the nature of such
location (e.g., leased business location operated by Borrower(s), third party
warehouse, consignment location, processor location, etc.) and the name and
address of the third party owning and/or operating such location.
     (b) Without limiting the generality of Section 3.2, no authorization,
approval or other action by, and

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no notice to or filing with, any Governmental Authority or consent of any other
Person is required for (i) the grant by each Borrower to Agent of the security
interests and Liens in the Collateral provided for under this Agreement and the
other Financing Documents (if any), or (ii) the exercise by Agent of its rights
and remedies with respect to the Collateral provided for under this Agreement
and the other Financing Documents or under any applicable Law, including the
UCC, and neither any such grant of Liens in favor of Agent or exercise of rights
by Agent shall violate or cause a default under any agreement between any
Borrower and any other Person relating to any such collateral.
     (c) As of the Closing Date, no Borrower has any ownership interest in any
Chattel Paper, letter of credit rights, commercial tort claims, instruments,
documents or investment property in excess of $50,000 (other than Permitted
Investments disclosed on Schedule 5.7 or any equity interests in any Subsidiary
which is a co-Borrower hereunder). Except for the Lien of Manufacturers and
Traders Trust Company listed on Schedule 5.2, no Person other than Agent or (if
applicable) any Lender has “control” (as defined in Article 9 of the UCC) over
any Deposit Account, investment property (including Securities Accounts and
commodities account), letter of credit rights or electronic chattel paper in
which any Borrower has any interest (except for such control arising by
operation of law in favor of any bank or securities intermediary or commodities
intermediary with whom any Deposit Account, Securities Account or commodities
account of Borrowers is maintained).
     (d) Borrowers shall not take any of the following actions or make any of
the following changes unless Borrowers have given at least thirty (30) days
prior written notice to Agent of Borrowers’ intention to take any such action
(which such written notice shall include an updated version of any Schedule
impacted by such change) and have executed any and all documents, instruments
and agreements and taken any other actions with Agent may request after
receiving such written notice in order to protect and preserve the Liens, rights
and remedies of Agent with respect to the Collateral: (i) change the legal name
or organizational identification number of any Borrower, (ii) change the
jurisdiction of incorporation or formation of any Borrower or allow any Borrower
to designate any jurisdiction as an additional jurisdiction of incorporation for
such Borrower, or (iii) move any material amount of Collateral (other than any
books and/or records) to or place any material amount of Collateral (other than
any books and/or records) on any location that is not then listed on the
Schedules and/or establish any business location at any location that is not
then listed on the Schedules.
     (e) Borrowers shall not adjust, settle or compromise the amount or payment
of any Account, or release wholly or partly any Account Debtor, or allow any
credit or discount thereon (other than credits and discounts in the Ordinary
Course of Business and in amounts which are not material with respect to the
Account) if after giving effect thereto, such action would cause the Borrowing
Base to be less than the Revolving Loan Outstandings without the prior written
consent of Agent. Without limiting the generality of this Agreement or any other
provisions of any of the Financing Documents relating to the rights of Agent
after the occurrence and during the continuance of an Event of Default, Agent
shall have the right at any time after the occurrence and during the continuance
of an Event of Default to: (i) exercise the rights of Borrowers with respect to
the obligation of any Account Debtor to make payment or otherwise render
performance to Borrowers and with respect to any property that secures the
obligations of any Account Debtor or any other Person obligated on the
Collateral, and (ii) adjust, settle or compromise the amount or payment of such
Accounts.
     (f) Without limiting the generality of Sections 8.2(c) and 8.2(e):
          (i) Borrowers shall deliver to Agent all tangible Chattel Paper and
all Instruments in excess of $50,000 owned by any Borrower and constituting part
of the Collateral duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent.
Borrowers shall provide Agent with “control” (as defined in Article 9 of the
UCC) of all electronic Chattel Paper owned by any Borrower and constituting part
of the Collateral by having Agent identified as the assignee of the records
pertaining to the single authoritative copy thereof and otherwise complying with
the applicable elements of control set forth in the UCC. Borrowers also shall
deliver to Agent all security agreements securing any such Chattel Paper and
securing any such Instruments. Borrowers will mark conspicuously all such
Chattel Paper and all such Instruments with a legend, in form and substance
satisfactory to Agent, indicating that such Chattel Paper and such Instruments
are subject to the security interests and Liens in favor of Agent created
pursuant to this Agreement and the Security Documents.
          (ii) Borrowers shall deliver to Agent all letters of credit in excess
of $50,000 on which any

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Borrower is the beneficiary and which give rise to letter of credit rights owned
by such Borrower which constitute part of the Collateral in each case duly
endorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to Agent. Borrowers shall take any and
all actions as may be necessary or desirable, or that Agent may request, from
time to time, to cause Agent to obtain exclusive “control” (as defined in
Article 9 of the UCC) of any such letter of credit rights in a manner acceptable
to Agent.
          (iii) Borrowers shall promptly advise Agent upon any Borrower becoming
aware that it has any interests in any commercial tort claim in excess of
$50,000 that constitutes part of the Collateral, which such notice shall include
descriptions of the events and circumstances giving rise to such commercial tort
claim and the dates such events and circumstances occurred, the potential
defendants with respect such commercial tort claim and any court proceedings
that have been instituted with respect to such commercial tort claims, and
Borrowers shall, with respect to any such commercial tort claim, execute and
deliver to Agent such documents as Agent shall request to perfect, preserve or
protect the Liens, rights and remedies of Agent with respect to any such
commercial tort claim.
          (iv) No Accounts or Inventory or other Collateral in excess of $50,000
shall at any time be in the possession or control of any warehouse, consignee,
bailee or any of Borrowers’ agents or processors without prior written notice to
Agent and the receipt by Agent, if Agent has so requested, of warehouse
receipts, consignment agreements or bailee lien waivers (as applicable)
satisfactory to Agent prior to the commencement of such possession or control.
Borrower has notified Agent that Inventory is currently located at the locations
set forth on Schedule 8.2. Borrowers shall, upon the request of Agent, notify
any such warehouse, consignee, bailee, agent or processor of the security
interests and Liens in favor of Agent created pursuant to this Agreement and the
Security Documents, instruct such Person to hold all such Collateral for Agent’s
account subject to Agent’s instructions and shall obtain an acknowledgement from
such Person that such Person holds the Collateral for Lender’s benefit.
          (v) Borrowers shall cause all equipment and other tangible Personal
Property other than Inventory to be maintained and preserved in the same
condition, repair and in working order as when new, ordinary wear and tear
excepted, and shall promptly make or cause to be made all repairs, replacements
and other improvements in connection therewith that are necessary or desirable
to such end. Upon request of Agent, Borrowers shall promptly deliver to Agent
any and all certificates of title, applications for title or similar evidence of
ownership of all such tangible Personal Property and shall cause Agent to be
named as lienholder on any such certificate of title or other evidence of
ownership. Borrowers shall not permit any such tangible Personal Property to
become fixtures to real estate.
          (vi) Each Borrower hereby authorizes Agent to file without the
signature of such Borrower one or more UCC financing statements relating to all
or any part of the Collateral, which financing statements may list Agent as the
“secured party” and such Borrower as the “debtor” and which describe and
indicate the collateral covered thereby as all or any part of the Collateral
under the Financing Documents, in such jurisdictions as Agent from time to time
determines are appropriate, and to file without the signature of such Borrower
any continuations of or amendments to any such financing statements, in any such
case in order for Agent to perfect, preserve or protect the Liens, rights and
remedies of Agent with respect to the Collateral.
          (vii) As of the Closing Date, no Borrower holds, and after the Closing
Date, Borrowers shall promptly notify Agent in writing upon creation or
acquisition by any Borrower of any Collateral which constitutes a claim against
any Governmental Authority, including, without limitation, the federal
government of the United States or any instrumentality or agency thereof, the
assignment of which claim is restricted by any applicable Law, including,
without limitation, the federal Assignment of Claims Act and any other
comparable Law. Upon the request of Agent, Borrowers shall take such steps as
may be necessary or desirable, or that Agent may request, to comply with any
such applicable Law.
          (viii) Borrowers shall furnish to Agent from time to time any
statements and schedules further identifying or describing the Collateral and
any other information, reports or evidence concerning the Collateral as Agent
may reasonably request from time to time.
     Section 8.3 UCC Remedies.

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     (a) Upon the occurrence of and during the continuance of an Event of
Default under this Agreement or the other Financing Documents, Agent, in
addition to all other rights, options, and remedies granted to Agent under this
Agreement or at law or in equity, may exercise, either directly or through one
or more assignees or designees, all rights and remedies granted to it under all
Financing Documents and under the UCC in effect in the applicable
jurisdiction(s) and under any other applicable law; including, without
limitation:
          (i) The right to take possession of, send notices regarding, and
collect directly the Collateral, with or without judicial process;
          (ii) The right to (by its own means or with judicial assistance) enter
any of Borrowers’ premises and take possession of the Collateral, or render it
unusable, or to render it usable or saleable, or dispose of the Collateral on
such premises in compliance with subsection (iii) below and to take possession
of Borrowers’ original books and records, to obtain access to Borrowers’ data
processing equipment, computer hardware and software relating to the Collateral
and to use all of the foregoing and the information contained therein in any
manner Agent deems appropriate, without any liability for rent, storage,
utilities, or other sums, and Borrowers shall not resist or interfere with such
action (if Borrowers’ books and records are prepared or maintained by an
accounting service, contractor or other third party agent, Borrowers hereby
irrevocably authorize such service, contractor or other agent, upon notice by
Agent to such Person that an Event of Default has occurred and is continuing, to
deliver to Agent or its designees such books and records, and to follow Agent’s
instructions with respect to further services to be rendered);
          (iii) The right to require Borrowers at Borrowers’ expense to assemble
all or any part of the Collateral and make it available to Agent at any place
designated by Lender;
          (iv) The right to notify postal authorities to change the address for
delivery of Borrowers’ mail to an address designated by Agent and to receive,
open and dispose of all mail addressed to any Borrower.
          (v) The right to enforce Borrowers’ rights against Account Debtors and
other obligors, including, without limitation, the right to collect Accounts
directly in Agent’s own name (as agent for Lenders) and to charge the collection
costs and expenses, including attorneys’ fees, to Borrowers.
     (b) Each Borrower agrees that a notice received by it at least ten
(10) days before the time of any intended public sale, or the time after which
any private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Collateral which threatens to speedily decline
in value or which is sold on a recognized market may be sold immediately by
Agent without prior notice to Borrowers. At any sale or disposition of
Collateral, Agent may (to the extent permitted by applicable law) purchase all
or any part of the Collateral, free from any right of redemption by Borrowers,
which right is hereby waived and released. Each Borrower covenants and agrees
not to interfere with or impose any obstacle to Agent’s exercise of its rights
and remedies with respect to the Collateral. Agent shall have no obligation to
clean-up or otherwise prepare the Collateral for sale. Agent may comply with any
applicable state or federal law requirements in connection with a disposition of
the Collateral and compliance will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral. Agent may sell the
Collateral without giving any warranties as to the Collateral. Agent may
specifically disclaim any warranties of title or the like. This procedure will
not be considered to adversely affect the commercial reasonableness of any sale
of the Collateral. If Agent sells any of the Collateral upon credit, Borrowers
will be credited only with payments actually made by the purchaser, received by
Agent and applied to the indebtedness of the purchaser. In the event the
purchaser fails to pay for the Collateral, Agent may resell the Collateral and
Borrowers shall be credited with the proceeds of the sale. Borrowers shall
remain liable for any deficiency if the proceeds of any sale or disposition of
the Collateral are insufficient to pay all Obligations.
     (c) Without restricting the generality of the foregoing and for the
purposes aforesaid, each Borrower hereby appoints and constitutes Agent its
lawful attorney-in-fact with full power of substitution in the Collateral to use
unadvanced funds remaining under this Agreement or which may be reserved,
escrowed or set aside for any purposes hereunder at any time, or to advance
funds in excess of the face amount of the Notes, to pay, settle or compromise
all existing bills and claims, which may be Liens or security interests, or to
avoid such bills and claims becoming Liens against the Collateral; to execute
all applications and certificates in the name of such Borrower and

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to prosecute and defend all actions or proceedings in connection with the
Collateral; and to do any and every act which such Borrower might do in its own
behalf; it being understood and agreed that this power of attorney shall be a
power coupled with an interest and cannot be revoked.
     (d) Agent and each Lender is hereby granted a non-exclusive, royalty-free
license or other right to use, without charge, Borrowers’ labels, patents,
copyrights, mask works, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any similar property as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Agent’s exercise of its
rights under this Article, Borrowers’ rights under all licenses and all
franchise agreements inure to Agent’s and each Lender’s benefit.
ARTICLE 9 — EVENTS OF DEFAULT
     Section 9.1 Events of Default.
     For purposes of the Financing Documents, the occurrence of any of the
following conditions and/or events, whether voluntary or involuntary, by
operation of law or otherwise, shall constitute an “Event of Default”:
     (a) any Borrower shall fail to pay when due any principal, interest,
premium or fee under any Financing Document or any other amount payable under
any Financing Document and such failure shall continue for five (5) days, or
there shall occur any default in the performance of or compliance with any of
the following sections of this Agreement: Article 5; Article 6; Section 4.4; and
Section 2.9;
     (b) any Credit Party defaults in the performance of or compliance with any
term contained in this Agreement or in any other Financing Document (other than
occurrences described in other provisions of this Section 9.1 for which a
different grace or cure period is specified or for which no grace or cure period
is specified and thereby constitute immediate Events of Default) and such
default is not remedied or waived within thirty (30) days;
     (c) any representation, warranty, certification or statement made by any
Credit Party or any other Person in any Financing Document or in any
certificate, financial statement or other document delivered pursuant to any
Financing Document is incorrect in any respect (or in any material respect if
such representation, warranty, certification or statement is not by its terms
already qualified as to materiality) when made (or deemed made);
     (d) any Credit Party shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect, including, without limitation, the Bankruptcy Code, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to any
such relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any corporate action to authorize
any of the foregoing;
     (e) an involuntary case or other proceeding shall be commenced against any
Credit Party seeking liquidation, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of forty-five (45) days; or an order for
relief shall be entered against any Credit Party under the federal bankruptcy
laws as now or hereafter in effect;
     (f) one or more judgments or orders for the payment of money (not paid or
fully covered by insurance maintained in accordance with the requirements of
this Agreement and as to which the relevant insurance company has acknowledged
coverage) aggregating in excess of $25,000 shall be rendered against any or all
Credit Parties and either (i) enforcement proceedings shall have been commenced
by any creditor upon any such judgments or orders, or (ii) there shall be any
period of twenty (20) consecutive days during which a stay of enforcement of any
such judgments or orders, by reason of a pending appeal, bond or otherwise,
shall not be in effect;

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     (g) (i) the occurrence of any breach, default, condition or event with
respect to any Debt of any Credit Party (other than the Loans) having an
individual principal amount in excess of $300,000 or having an aggregate
principal amount in excess of $300,000, if the effect of such failure or
occurrence is to cause or to permit the holder or holders of any such Debt to
become or be declared due prior to its stated maturity; or (ii) the occurrence
of any breach or default under any terms or provisions of any Subordinated Debt
Document or under any agreement subordinating the Subordinated Debt to all or
any portion of the Obligations or the occurrence of any event requiring the
prepayment of any Subordinated Debt;
     (h) (i) institution of any steps by any Person to terminate a a Plan if as
a result of such termination any Credit Party or any member of the Controlled
Group could be required to make a contribution to such Plan, or could incur a
liability or obligation to such Plan, in excess of $300,000, (ii) a contribution
failure occurs with respect to any Plan sufficient to give rise to a Lien under
Section 302(f) of ERISA or otherwise under applicable laws, or (iii) there shall
occur any withdrawal or partial withdrawal from any Multiemployer Plan and the
withdrawal liability (without unaccrued interest) to such Multiemployer Plan as
a result of such withdrawal (including any outstanding withdrawal liability that
any Credit Party or any member of the Controlled Group have incurred on the date
of such withdrawal) exceeds $300,000;
     (h) any Lien created by any of the Security Documents shall at any time
fail to constitute a valid and perfected Lien on all of the Collateral purported
to be secured thereby, subject to no prior or equal Lien except Permitted Liens,
or any Credit Party shall so assert;
     (i) the institution by any Governmental Authority of criminal proceedings
against any Credit Party;
     (j) a default or event of default occurs under any Financing Document
Guarantee;
     (k) any Borrower makes any payment on account of any Debt that has been
subordinated to any of the Obligations, other than payments specifically
permitted by the terms of such subordination;
     (l) the occurrence of any fact, event or circumstance that could reasonably
be expected to result in a Material Adverse Effect, if such default shall have
continued unremedied for a period of ten (10) days after written notice from
Agent;
     (m) Agent determines, based on information available to it and in its
reasonable judgment, that there is a reasonable likelihood that Borrowers shall
fail to comply with one or more financial covenants in Article 6 during the next
succeeding financial reporting period; or
     (n) the Company shall cease to be an entity whose common stock is publicly
traded on and registered with a public securities exchange in the United States.
     All cure periods provided for in this Section shall run concurrently with
any cure period provided for in any applicable Financing Documents under which
the default occurred.
     Section 9.2 Acceleration and Suspension or Termination of Revolving Loan
Commitment and Term Loan Commitment. Upon the occurrence and during the
continuance of an Event of Default, Agent may, and shall if requested by
Required Lenders, (a) by notice to Borrowers suspend or terminate the Revolving
Loan Commitment and Term Loan Commitment and the obligations of Agent and the
Lenders with respect thereto, in whole or in part (and, if in part, such
reduction shall be pro rata among the Lenders having a Revolving Loan Commitment
Percentage or Term Loan Commitment Percentage), and/or (b) by notice to
Borrowers declare the Obligations to be, and the Obligations shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower and
Borrowers will pay the same; provided, however, that in the case of any of the
Events of Default specified in Section 9.1(d) or 9.1(e) above, without any
notice to any Borrower or any other act by Agent or the Lenders, the Revolving
Loan Commitment and Term Loan Commitment and the obligations of Agent and the
Lenders with respect thereto shall thereupon terminate and all of the
Obligations shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Borrower and Borrowers will pay the same.

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     Section 9.3 Cash Collateral. If (a) any Event of Default specified in
Section 9.1(d) or 9.1(e) shall occur, (b) the Obligations shall have otherwise
been accelerated pursuant to Section 9.2, or (c) the Revolving Loan Commitment
and the obligations of Agent and the Lenders with respect thereto shall have
been terminated pursuant to Section 9.2, then without any request or the taking
of any other action by Agent or the Lenders, Borrowers shall immediately comply
with the provisions of Section 2.4(e) with respect to the deposit of cash
collateral to secure the existing Letter of Credit Liability and future payment
of related fees.
     Section 9.4 Default Rate of Interest. At the election of Agent or Required
Lenders, after the occurrence of an Event of Default and for so long as it
continues, (a) the Loans and other Obligations shall bear interest at rates that
are two percent (2.0%) per annum in excess of the rates otherwise payable under
this Agreement, and (b) the fee described in Section 2.4(b) shall increase by a
rate that is two percent (2.0%) in excess of the rate otherwise payable under
such Section.
     Section 9.5 Setoff Rights. During the continuance of any Event of Default,
each Lender is hereby authorized by each Borrower at any time or from time to
time, with reasonably prompt subsequent notice to such Borrower (any prior or
contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (a) balances held by such Lender or any of
such Lender’s Affiliates at any of its offices for the account of such Borrower
or any of its Subsidiaries (regardless of whether such balances are then due to
such Borrower or its Subsidiaries), and (b) other property at any time held or
owing by such Lender to or for the credit or for the account of such Borrower or
any of its Subsidiaries, against and on account of any of the Obligations;
except that no Lender shall exercise any such right without the prior written
consent of Agent. Any Lender exercising a right to set off shall purchase for
cash (and the other Lenders shall sell) interests in each of such other Lender’s
Pro Rata Share of the Obligations as would be necessary to cause all Lenders to
share the amount so set off with each other Lender in accordance with their
respective Pro Rata Share of the Obligations. Each Borrower agrees, to the
fullest extent permitted by law, that any Lender and any of such Lender’s
Affiliates may exercise its right to set off with respect to the Obligations as
provided in this Section 9.5.
     Section 9.6 Application of Proceeds. Notwithstanding anything to the
contrary contained in this Agreement, upon the occurrence and during the
continuance of an Event of Default, (a) each Borrower irrevocably waives the
right to direct the application of any and all payments at any time or times
thereafter received by Agent from or on behalf of such Borrower or any Guarantor
of all or any part of the Obligations, and, as between Borrowers on the one hand
and Agent and Lenders on the other, Agent shall have the continuing and
exclusive right to apply and to reapply any and all payments received against
the Obligations in such manner as Agent may deem advisable notwithstanding any
previous application by Agent, and (b) the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be applied: first, to
all fees, costs, indemnities, liabilities, obligations and expenses incurred by
or owing to Agent with respect to this Agreement, the other Financing Documents
or the Collateral; second, to all fees, costs, indemnities, liabilities,
obligations and expenses incurred by or owing to any Lender with respect to this
Agreement, the other Financing Documents or the Collateral; third, to accrued
and unpaid interest on the Obligations (including any interest which, but for
the provisions of the Bankruptcy Code, would have accrued on such amounts);
fourth, to the principal amount of the Obligations outstanding; and fifth to any
other indebtedness or obligations of Borrowers owing to Agent or any Lender
under the Financing Documents. Any balance remaining shall be delivered to
Borrowers or to whoever may be lawfully entitled to receive such balance or as a
court of competent jurisdiction may direct. In carrying out the foregoing, (x)
amounts received shall be applied in the numerical order provided until
exhausted prior to the application to the next succeeding category, and (y) each
of the Persons entitled to receive a payment in any particular category shall
receive an amount equal to its pro rata share of amounts available to be applied
pursuant thereto for such category.
     Section 9.7 Waivers.
     (a) Except as otherwise provided for in this Agreement and to the fullest
extent permitted by applicable law, each Borrower waives: (i) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Financing Documents, the Notes or
any other notes, commercial paper, accounts, contracts, documents, Instruments,
Chattel Paper and Guarantees at any time held by Lenders on which any Borrower
may in

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any way be liable, and hereby ratifies and confirms whatever Lenders may do in
this regard; (ii) all rights to notice and a hearing prior to Agent’s or any
Lender’s taking possession or control of, or to Agent’s or any Lender’s replevy,
attachment or levy upon, any Collateral or any bond or security which might be
required by any court prior to allowing Agent or any Lender to exercise any of
its remedies; and (iii) the benefit of all valuation, appraisal and exemption
Laws. Each Borrower acknowledges that it has been advised by counsel of its
choices and decisions with respect to this Agreement, the other Financing
Documents and the transactions evidenced hereby and thereby.
     (b) Each Borrower for itself and its successors and assigns, (i) agrees
that its liability shall not be in any manner affected by any indulgence,
extension of time, renewal, waiver, or modification granted or consented to by
Lender; (ii) consents to any indulgences and all extensions of time, renewals,
waivers, or modifications that may be granted by Agent or any Lender with
respect to the payment or other provisions of the Financing Documents, and to
any substitution, exchange or release of the Collateral, or any part thereof,
with or without substitution, and agrees to the addition or release of any
Borrower, endorsers, guarantors, or sureties, or whether primarily or
secondarily liable, without notice to any other Borrower and without affecting
its liability hereunder; (iii) agrees that its liability shall be unconditional
and without regard to the liability of any other Borrower, Agent or any Lender
for any tax on the indebtedness; and (iv) to the fullest extent permitted by
law, expressly waives the benefit of any statute or rule of law or equity now
provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing.
     (c) To the extent that Agent or any Lender may have acquiesced in any
noncompliance with any requirements or conditions precedent to the closing of
the Loans or to any subsequent disbursement of Loan proceeds, such acquiescence
shall not be deemed to constitute a waiver by Agent or any Lender of such
requirements with respect to any future disbursements of Loan proceeds and Agent
may at any time after such acquiescence require Borrowers to comply with all
such requirements. Any forbearance by Agent or Lender in exercising any right or
remedy under any of the Financing Documents, or otherwise afforded by applicable
law, including any failure to accelerate the maturity date of the Loans, shall
not be a waiver of or preclude the exercise of any right or remedy nor shall it
serve as a novation of the Notes or as a reinstatement of the Loans or a waiver
of such right of acceleration or the right to insist upon strict compliance of
the terms of the Financing Documents. Agent’s or any Lender’s acceptance of
payment of any sum secured by any of the Financing Documents after the due date
of such payment shall not be a waiver of Agent’s and such Lender’s right to
either require prompt payment when due of all other sums so secured or to
declare a default for failure to make prompt payment. The procurement of
insurance or the payment of taxes or other Liens or charges by Agent as the
result of an Event of Default shall not be a waiver of Agent’s right to
accelerate the maturity of the Loans, nor shall Agent’s receipt of any
condemnation awards, insurance proceeds, or damages under this Agreement operate
to cure or waive any Credit Party’s default in payment of sums secured by any of
the Financing Documents.
     (d) Without limiting the generality of anything contained in this Agreement
or the other Financing Documents, each Borrower agrees that if an Event of
Default is continuing (i) Agent and Lenders are not subject to any “one action”
or “election of remedies” law or rule, and (ii) all Liens and other rights,
remedies or privileges provided to Agent or Lenders shall remain in full force
and effect until Agent or Lenders have exhausted all remedies against the
Collateral and any other properties owned by Borrowers and the Financing
Documents and other security instruments or agreements securing the Loans have
been foreclosed, sold and/or otherwise realized upon in satisfaction of
Borrowers’ obligations under the Financing Documents.
     (e) Nothing contained herein or in any other Financing Document shall be
construed as requiring Agent or any Lender to resort to any part of the
Collateral for the satisfaction of any of Borrowers’ obligations under the
Financing Documents in preference or priority to any other Collateral, and Agent
may seek satisfaction out of all of the Collateral or any part thereof, in its
absolute discretion in respect of Borrowers’ obligations under the Financing
Documents. In addition, Agent shall have the right from time to time to
partially foreclose upon any Collateral in any manner and for any amounts
secured by the Financing Documents then due and payable as determined by Agent
in its sole discretion, including, without limitation, the following
circumstances: (i) in the event any Borrower defaults beyond any applicable
grace period in the payment of one or more scheduled payments of principal
and/or interest, Agent may foreclose upon all or any part of the Collateral to
recover such delinquent payments, or (ii) in the event Agent elects to
accelerate less than the entire outstanding principal balance of the Loans,
Agent may foreclose all or any part of the Collateral to recover so much of the
principal balance of the Loans as Lender may accelerate and such other sums
secured by one or more of the Financing Documents as Agent may

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elect. Notwithstanding one or more partial foreclosures, any unforeclosed
Collateral shall remain subject to the Financing Documents to secure payment of
sums secured by the Financing Documents and not previously recovered.
     (f) To the fullest extent permitted by law, each Borrower, for itself and
its successors and assigns, waives in the event of foreclosure of any or all of
the Collateral any equitable right otherwise available to any Credit Party which
would require the separate sale of the any of the Collateral or require Agent or
Lenders to exhaust their remedies against any part of the Collateral before
proceeding against any other part of the Collateral; and further in the event of
such foreclosure each Borrower does hereby expressly consent to and authorize,
at the option of Lender, the foreclosure and sale either separately or together
of each part of the Collateral.
     Section 9.8 Injunctive Relief. The parties acknowledge and agree that, in
the event of a breach or threatened breach of any Credit Party’s obligations
under any Financing Documents, Agent and Lenders may have no adequate remedy in
money damages and, accordingly, shall be entitled to an injunction (including,
without limitation, a temporary restraining order, preliminary injunction, writ
of attachment, or order compelling an audit) against such breach or threatened
breach, including, without limitation, maintaining the cash management and
collection procedure described herein. However, no specification in this
Agreement of a specific legal or equitable remedy shall be construed as a waiver
or prohibition against any other legal or equitable remedies in the event of a
breach or threatened breach of any provision of this Agreement. Each Credit
Party waives, to the fullest extent permitted by law, the requirement of the
posting of any bond in connection with such injunctive relief. By joining in the
Financing Documents as a Credit Party, each Credit Party specifically joins in
this Section as if this Section were a part of each Financing Documents executed
by the Credit Party.
     Section 9.9 Marshalling. Agent and Lenders shall have no obligation to
marshal any assets in favor of any Credit Party, or against or in payment of any
of the other Obligations or any other obligation owed to Agent or Lenders by any
Credit Party.
ARTICLE 10 — AGENT
     Section 10.1 Appointment and Authorization. Each Lender hereby irrevocably
appoints and authorizes Agent to enter into each of the Financing Documents to
which it is a party (other than this Agreement) on its behalf and to take such
actions as Agent on its behalf and to exercise such powers under the Financing
Documents as are delegated to Agent by the terms thereof, together with all such
powers as are reasonably incidental thereto. Subject to the terms of the other
Financing Documents, Agent is authorized and empowered to amend, modify, or
waive any provisions of this Agreement or the other Financing Documents on
behalf of Lenders. The provisions of this Article 10 are solely for the benefit
of Agent and Lenders and neither any Borrower nor any other Credit Party shall
have any rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, Agent shall act solely
as agent of Lenders and does not assume and shall not be deemed to have assumed
any obligation toward or relationship of agency or trust with or for any
Borrower or any other Credit Party. Agent may perform any of its duties
hereunder, or under the Financing Documents, by or through its agents or
employees.
     Section 10.2 Right to Perform, Preserve and Protect. If any Credit Party
fails to perform any obligation hereunder or under any other Financing Document,
Agent itself may, but shall not be obligated to, cause such obligation to be
performed at Borrowers’ expense. Agent is further authorized by Borrowers and
the Lenders to make expenditures from time to time which Agent, in its
reasonable business judgment, deems necessary or desirable to (a) preserve or
protect the Collateral or any portion thereof, (b) following the occurrence of
an Event of Default or Default, preserve or protect the business conducted by
Borrowers or any portion thereof and/or (c) following the occurrence of an Event
of Default or Default, enhance the likelihood of, or maximize the amount of,
repayment of the Loans and other Obligations. Each Borrower hereby agrees to
reimburse Agent on demand for any and all costs, liabilities and obligations
incurred by Agent pursuant to this Section 10.2, together with interest thereon
at the applicable default rate hereunder.
ARTICLE 11 — MISCELLANEOUS
     Section 11.1 Survival. All agreements, representations and warranties made
herein and in every other

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Financing Document shall survive the execution and delivery of this Agreement
and the other Financing Documents and the other Operative Documents. The
provisions of Sections 2.7 and Articles 10 and 11 shall survive the payment of
the Obligations (both with respect to any Lender and all Lenders collectively)
and any termination of this Agreement.
     Section 11.2 No Waivers. No failure or delay by Agent or any Lender in
exercising any right, power or privilege under any Financing Document shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein and therein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
Any reference in any Financing Document to the “continuing” nature of any Event
of Default shall not be construed as establishing or otherwise indicating that
any Borrower or any other Credit Party has the independent right to cure any
such Event of Default, but is rather presented merely for convenience should
such Event of Default be waived in accordance with the terms of the applicable
Financing Documents.
     Section 11.3 Notices.
     (a) All notices, requests and other communications to any party hereunder
shall be in writing (including prepaid overnight courier, facsimile transmission
or similar writing) and shall be given to such party at its address, facsimile
number or e-mail address set forth on the signature pages hereof (or, in the
case of any such Lender who becomes a Lender after the date hereof, in an
Assignment Agreement or in a notice delivered to Borrowers and Agent by the
assignee Lender forthwith upon such assignment) or at such other address,
facsimile number or e-mail address as such party may hereafter specify for the
purpose by notice to Agent and Borrowers; provided, however, that notices,
requests or other communications shall be permitted by electronic means only in
accordance with the provisions of Section 11.3(b) and (c). Each such notice,
request or other communication shall be effective (i) if given by facsimile,
when such notice is transmitted to the facsimile number specified by this
Section and the sender receives a confirmation of transmission from the sending
facsimile machine, or (ii) if given by mail, prepaid overnight courier or any
other means, when received or when receipt is refused at the applicable address
specified by this Section 11.3(a).
     (b) Notices and other communications to the parties hereto may be delivered
or furnished by electronic communication (including e-mail and Internet or
intranet websites) pursuant to procedures approved from time to time by Agent,
provided, however, that the foregoing shall not apply to notices sent directly
to any Lender if such Lender has notified the Agent that it is incapable of
receiving notices by electronic communication. The Agent or Borrowers may, in
their discretion, agree to accept notices and other communications to them
hereunder by electronic communications pursuant to procedures approved by it,
provided, however, that approval of such procedures may be limited to particular
notices or communications.
     (c) Unless the Agent otherwise prescribes, (i) notices and other
communications sent to an e-mail address shall be deemed received upon the
sender’s receipt of an acknowledgment from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other
written acknowledgment), and (ii) notices or communications posted to an
Internet or intranet website shall be deemed received upon the deemed receipt by
the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communication is available and
identifying the website address therefor, provided, however, that if any such
notice or other communication is not sent or posted during normal business
hours, such notice or communication shall be deemed to have been sent at the
opening of business on the next Business Day.
     Section 11.4 Severability. In case any provision of or obligation under
this Agreement or any other Financing Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
     Section 11.5 Amendments and Waivers. No provision of this Agreement or any
other Financing Document may be amended, waived or otherwise modified unless
such amendment, waiver or other modification is in writing and is signed or
otherwise approved by Borrowers, the Agent and the Lenders.
     Section 11.6 Assignments; Participations.

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     (a) Assignments by Lenders.
          (i) Each Lender may at any time assign or grant participations in all
or any portion of such Lender’s Loans and interest in the Revolving Loan
Commitment, together with all related obligations of such Lender hereunder;
provided, however, so long as no Event of Default or Default has occurred,
Borrowers shall not be required to pay the fees set forth in Section 2.2(e) or
Section 2.2(f) to a successor lender if Merrill Lynch assigns greater than 51%
of the Loans and interest in the Revolving Loan Commitment, together with all
related obligations, to such successor lender. Each Lender may at any time
pledge or assign a security interest in all or any portion of its rights under
this Agreement to secure obligations of such Lender, including any pledge or
assignment to secure obligations to a Federal Reserve Bank; provided, however,
that no such pledge or assignment shall release such Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
          (ii) Agent, acting solely for this purpose as an agent of Borrowers,
shall maintain at its offices located in Chicago, Illinois a copy of each
Assignment Agreement delivered to it and a register for the recordation of the
names and addresses of each Lender, and the commitments of, and principal amount
of the Loans owing to, such Lender pursuant to the terms hereof. The entries in
such register shall be conclusive, and Borrowers, Agent and Lenders may treat
each Person whose name is recorded therein pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to
the contrary. Such register shall be available for inspection by any Borrower
and any Lender, at any reasonable time upon reasonable prior notice to Agent.
     (b) Credit Party Assignments. No Credit Party may assign, delegate or
otherwise transfer any of its rights or other obligations hereunder or under any
other Financing Document without the prior written consent of Agent and each
Lender.
     Section 11.7 Headings. Headings and captions used in the Financing
Documents (including the Exhibits, Schedules and Annexes hereto and thereto) are
included for convenience of reference only and shall not be given any
substantive effect.
     Section 11.8 Confidentiality. Agent and each Lender shall hold all
non-public information regarding the Credit Parties and their respective
businesses and obtained by Agent or any Lender pursuant to the requirements
hereof in accordance with such Person’s customary procedures for handling
information of such nature, except that disclosure of such information may be
made (a) to their respective agents, employees, Subsidiaries, Affiliates,
attorneys, auditors, professional consultants, rating agencies, insurance
industry associations and portfolio management services, (b) to prospective
transferees or purchasers of any interest in the Loans, and to prospective
contractual counterparties (or the professional advisors thereto) in swap
contracts or other derivative obligations permitted hereby, provided, however,
that any such Persons shall have agreed to be bound by the provisions of this
Section 11.8, (c) as required by Law, subpoena, judicial order or similar order
and in connection with any litigation, (d) as may be required in connection with
the examination, audit or similar investigation of such Person, and (e) to a
Person that is a trustee, investment advisor, collateral manager, servicer,
noteholder or secured party in a Securitization (as hereinafter defined) in
connection with the administration, servicing and reporting on the assets
serving as collateral for such Securitization. For the purposes of this Section,
“Securitization” shall mean a public or private offering by a Lender or any of
its Affiliates or their respective successors and assigns, of securities which
represent an interest in, or which are collateralized, in whole or in party, by
the Loans. Confidential information shall not include information that either:
(i) is in the public domain, or becomes part of the public domain after
disclosure to such Person through no fault of such Person, or (ii) is disclosed
to such Person by a Person other than a Credit Party, provided, however, Agent
does not have actual knowledge that such Person is prohibited from disclosing
such information. The obligations of Agent and Lenders under this Section 11.8
shall supersede and replace the obligations of Agent and Lenders under any
confidentiality agreement in respect of this financing executed and delivered by
Agent or any Lender prior to the date hereof.
     Section 11.9 Waiver of Consequential and Other Damages. To the fullest
extent permitted by applicable law, no Borrower shall assert, and each Borrower
hereby waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or
actual damages) arising out of, in connection with, or as a result of this
Agreement, any other Financing Document or any

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agreement or instrument contemplated hereby or thereby, the transactions
contemplated hereby or thereby, any Loan or Letter of Credit or the use of the
proceeds thereof. No Indemnitee shall be liable for any damages arising from the
use by unintended recipients of any information or other materials distributed
by it through telecommunications, electronic or other information transmission
systems in connection with this Agreement or the other Financing Documents or
the transactions contemplated hereby or thereby.
     Section 11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT,
EACH NOTE AND EACH OTHER FINANCING DOCUMENT, AND ALL MATTERS RELATING HERETO OR
THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR
OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES. EACH BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER FINANCING DOCUMENTS
SHALL BE LITIGATED IN SUCH COURTS. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS
TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH BORROWER BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH
BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE
COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
     Section 11.11 WAIVER OF JURY TRIAL. EACH BORROWER, AGENT AND THE LENDERS
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH BORROWER, AGENT AND
EACH LENDER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO
A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO
THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AND THAT EACH WILL CONTINUE TO
RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH BORROWER, AGENT AND
EACH LENDER WARRANTS AND REPRESENTS THAT IT HAS HAD THE OPPORTUNITY OF REVIEWING
THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS.
     Section 11.12 Publication; Advertisement.
     (a) Publication. No Credit Party will directly or indirectly publish,
disclose or otherwise use in any public disclosure, advertising material,
promotional material, press release or interview, any reference to the name,
logo or any trademark of Merrill Lynch or any of its Affiliates or any reference
to this Agreement or the financing evidenced hereby, in any case except (i) as
required by Law, subpoena or judicial or similar order, in which case, to the
extent legally permitted to do so, the applicable Credit Party shall give Agent
prior written notice of such publication or other disclosure, or (ii) with
Merrill Lynch’s prior written consent.
     (b) Advertisement. Each Lender and each Credit Party hereby authorizes
Merrill Lynch to publish the name of such Lender and Credit Party, the existence
of the financing arrangements referenced under this Agreement, the primary
purpose and/or structure of those arrangements, the amount of credit extended
under each facility, the title and role of each party to this Agreement, and the
total amount of the financing evidenced hereby in any “tombstone”, comparable
advertisement or press release which Merrill Lynch elects to submit for
publication. In addition, each Lender and each Credit Party agrees that Merrill
Lynch may provide lending industry trade organizations with information
necessary and customary for inclusion in league table measurements after the
Closing Date. With respect to any of the foregoing, Merrill Lynch shall provide
Borrowers with an opportunity to review and confer with Merrill Lynch regarding
the contents of any such tombstone, advertisement or information, as applicable,
prior to its submission for publication and, following such review period,
Merrill Lynch may, from time to time, publish such information in any media form
desired by Merrill Lynch, until such time that Borrowers

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shall have requested Merrill Lynch cease any such further publication.
     Section 11.13 Counterparts; Integration. This Agreement and the other
Financing Documents may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. Signatures by facsimile shall bind the
parties hereto. This Agreement and the other Financing Documents constitute the
entire agreement and understanding among the parties hereto and supersede any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof.
     Section 11.14 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
     Section 11.15 Time. Time is of the essence in each Borrower’s and each
other Credit Party’s performance under this Agreement and all other Financing
Documents.
     Section 11.16 Lender Approvals. Unless expressly provided herein to the
contrary, any approval, consent, waiver or satisfaction of Agent or Lenders with
respect to any matter that is the subject of this Agreement, the other Financing
Documents may be granted or withheld by Agent and Lenders in their sole and
absolute discretion and credit judgment.
     Section 11.17 Expenses; Taxes; Indemnity
     (a) Borrowers agree to pay all reasonable legal, audit and appraisal fees
and all other reasonable out-of-pocket charges and expenses incurred by Agent in
connection with the negotiation, preparation, legal review and execution of each
of the Financing Documents, including but not limited to UCC and judgment lien
searches and UCC filings and fees for post-closing UCC and judgment lien
searches. In addition, Borrowers shall pay all such fees and expenses associated
with any amendments, modifications and terminations to the Financing Documents
following closing. If Agent uses in-house counsel for any of these purposes,
Borrowers further agree that the Obligations include reasonable charges for such
work commensurate with the fees that would otherwise be charged by outside legal
counsel selected by Agent for the work performed.
     (b) Borrowers agree to pay all out-of-pocket charges and expenses incurred
by Agent (including the fees and expenses of Agent’s counsel, advisers and
consultants) in connection with the administration of this Agreement and the
other Financing Documents and the credit facilities provided hereunder and the
administration, enforcement, protection or preservation of any right or claim of
Agent, the termination of this Agreement, the termination of any Liens of Agent
on the Collateral, or the collection of any amounts due under the Financing
Documents, including any such charges and expenses incurred in connection with
any “work-out” or with any proceeding under the Bankruptcy Code or any similar
insolvency proceeding with respect to any Credit Party. If Agent uses in-house
counsel for any of these purposes (i.e., for any task in connection with the
enforcement, protection or preservation of any right or claim of Agent and
Lenders and the collection of any amounts due under the Financing Documents),
Borrowers further agree that the Obligations include reasonable charges for such
work commensurate with the fees that would otherwise be charged by outside legal
counsel selected by Agent for the work performed.
     (c) [RESERVED]
     (d) Borrowers hereby indemnify and agree to defend (with counsel acceptable
to Agent) and hold harmless Agent and Lenders, their partners, officers, agents
and employees (collectively in the singular, “Indemnitee”) from and against any
liability, loss, cost, expense (including reasonable attorneys’ fees and
expenses for both in-house and outside counsel), claim, damage, suit, action or
proceeding ever suffered or incurred by any Indemnitee or in which an Indemnitee
may ever be or become involved (whether as a party, witness or otherwise)
(a) arising from any Credit Party’s failure to observe, perform or discharge any
of its covenants, obligations, agreements or duties under the Financing
Documents, (b) arising from the breach of any of the representations or
warranties contained in any Financing Document, (c) arising by reason of this
Agreement, the other Financing

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Documents or the transactions contemplated hereby or thereby, or (d) relating to
claims of any Person with respect to the Collateral; provided however, Borrowers
shall not be liable under this Section 11.17(d) to the extent such loss is
solely related to Indemnitee’s gross negligence or willful misconduct.
     (e) Notwithstanding any contrary provision in this Agreement, the
obligation of Borrower under this Section 11.17 shall survive the payment in
full of the Obligations and the termination of this Agreement. NO INDEMNITEE
PERSON SHALL BE RESPONSIBLE OR LIABLE TO THE BORROWERS OR TO ANY OTHER PARTY TO
ANY FINANCING DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR
ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF
CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY
OTHER FINANCING DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.
     Section 11.18 Confession of Judgment. UPON THE OCCURRENCE OF AN EVENT OF
DEFAULT, EACH BORROWER AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY
COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON
BEHALF OF SUCH BORROWER IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY
CLERK THEREOF OR PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT
AGAINST BORROWER IN FAVOR OF AGENT (FOR THE BENEFIT OF ALL LENDERS) IN THE FULL
AMOUNT DUE ON THIS AGREEMENT (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND
ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS’ FEES EQUAL TO TEN PERCENT (10%) OF
THE AMOUNT DUE (EXCEPT THAT AGENT SHALL NOT SEEK TO COLLECT AN AMOUNT IN EXCESS
OF ITS ACTUAL ATTORNEYS’ FEES), PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR
OPPORTUNITY OF SUCH BORROWER FOR PRIOR HEARING. EACH BORROWER AGREES AND
CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE CIRCUIT COURT OF ANY
COUNTY OF THE STATE OF NEW YORK OR OF THE CITY OF NEW YORK, NEW YORK, OR IN THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE
AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST A BORROWER SHALL
NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE
THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;
SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO
TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS AGENT SHALL DEEM
NECESSARY, CONVENIENT, OR PROPER.
     Section 11.19 Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition or other proceeding be
filed by or against any Credit Party for liquidation or reorganization, should
any Credit Party become insolvent or make an assignment for the benefit of any
creditor or creditors or should an interim receiver, receiver, receiver and
manger or trustee be appointed for all or any significant part of any Credit
Party’s assets, and shall continue to be effective or to be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a fraudulent preference reviewable transaction or otherwise, all as
though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
[SIGNATURES APPEAR ON FOLLOWING PAGES]

49

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

                  BORROWERS:    
 
                ADVANCIS PHARMACEUTICAL CORPORATION    
 
           
 
  By:   /s/ ROBERT C. LOW    
 
     
 
Name: Robert C. Low    
 
      Title: Vice President, Finance, Acting Chief    
 
      Financial Officer and Treasurer    
 
                Address:    
 
           
 
      20425 Seneca Meadows Parkway    
 
      Germantown, Maryland 20876    
 
      Attn: Mr. Robert Low    
 
      Facsimile: (301) 944-6700    
 
      E-Mail: rlow@advancispharm.com    
 
                Borrower’s Account Designation:    

 

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                  AGENT:    
 
                MERRILL LYNCH CAPITAL, a division of Merrill Lynch        
Business Financial Services Inc., as Agent    
 
           
 
  By:   /s/ WILLIAM D. GOULD    
 
     
 
Name: William D. Gould    
 
      Title: Director    
 
                Address:    
 
           
 
      222 N. LaSalle Street, 16th Floor    
 
      Chicago, Illinois 60601    
 
      Attn: Account Manager for MLC-HCF Advancis Pharmaceutical Corporation
transaction    
 
      Facsimile: (866) 251-2944    
 
           
 
      E-Mail: MLC_HCF_ABL2@ml.com    
 
                With copies to:    
 
                Merrill Lynch Capital         222 N. LaSalle Street, 16th Floor
        Chicago, Illinois 60601         Attn: Group Senior Transaction Attorney,
Healthcare Finance         Facsimile Number: (312) 499-3245    
 
                Merrill Lynch Capital         7700 Wisconsin Ave., Suite 400    
    Bethesda, Maryland 20814         Attn: Group Senior Transaction Attorney,
Healthcare Finance         Facsimile Number: (866) 341-9053    
 
                And with an additional copy to:    
 
           
 
      Blank Rome LLP    
 
      One Logan Square    
 
      Philadelphia, Pennsylvania 19103    
 
      Attn: Lawrence F. Flick II Esq.    
 
      Facsimile: (215) 832-5556    
 
      E-Mail: flick@blankrome.com    

 

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                  Payment Account Designation:    
 
           
 
      LaSalle Bank    
 
      200 West Monroe    
 
      Chicago, IL 60606    
 
      ABA #: 071000505    
 
      Account Name: MLBFS Healthcare Finance    
 
      Account #: 5800395088    
 
      Attention: Advancis Pharmaceutical Corporation    
 
                LENDER:    
 
                MERRILL LYNCH CAPITAL, a division of Merrill         Lynch
Business Financial Services Inc., as Lender    
 
           
 
  By:   /s/ WILLIAM D. GOULD    
 
     
 
Name: William D. Gould    
 
      Title: Director    
 
                Address:    
 
           
 
      222 N. LaSalle Street, 16th Floor    
 
      Chicago, Illinois 60601    
 
      Attn: Account Manager for MLC-HCF Advancis Pharmaceutical Corporation
transaction    
 
      Facsimile: (866) 251-2944    
 
           
 
      E-Mail: MLC_HCF_ABL2@ml.com    
 
                With copies to:    
 
                Merrill Lynch Capital         222 N. LaSalle Street, 16th Floor
        Chicago, Illinois 60601         Attn: Group Senior Transaction Attorney,
Healthcare Finance         Facsimile Number: (312) 499-3245    
 
                Merrill Lynch Capital         7700 Wisconsin Ave., Suite 400    
    Bethesda, Maryland 20814         Attn: Group Senior Transaction Attorney,
Healthcare Finance         Facsimile Number: (866) 341-9053    

 

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ANNEXES, EXHIBITS, RIDERS AND SCHEDULES

     
ANNEXES
   
 
   
Annex A
  Commitment Annex
 
   
EXHIBITS
   
 
   
Exhibit A
  Assignment Agreement
Exhibit B
  Compliance Certificate
Exhibit C
  Borrowing Base Certificate
Exhibit D
  Notice of Borrowing
Exhibit E
  Payment Notification
 
   
RIDERS
   
 
   
Pharma Rider
   
 
   
SCHEDULES
   
 
   
Schedule 2.1
  Amortization Schedule
Schedule 3.1
  Existence, Organizational ID Numbers, Foreign Qualification, Prior Names
Schedule 3.4
  Capitalization
Schedule 3.6
  Litigation
Schedule 3.14
  Pensions
Schedule 3.15
  Material Contracts
Schedule 3.16
  Environmental Compliance
Schedule 3.17
  Intellectual Property
Schedule 4.4
  Insurance
Schedule 5.1
  Debt
Schedule 5.2
  Liens
Schedule 5.7
  Investments
Schedule 5.8
  Affiliate Transactions
Schedule 5.11
  Business Description
Schedule 7.4
  Post-Closing Obligations
Schedule 8.1
  Collateral
Schedule 8.2
  Location of Collateral

 

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(MERRILL LYNCH LOGO) [w23962w2396201.gif]
  Annex A to Credit Agreement (Commitment Annex)    

                                              Revolving Loan           Term Loan
    Revolving Loan   Commitment   Term Loan   Commitment Lender   Commitment
Amount   Percentage   Commitment Amount   Percentage
Merrill Lynch Capital
  $ 4,000,000       100 %   $ 8,000,000       100 %
TOTALS
  $ 4,000,000       100 %   $ 8,000,000       100 %

 

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(MERRILL LYNCH LOGO) [w23962w2396201.gif]
PHARMA RIDER
     This Pharma Rider is made a part of and is incorporated by reference into
that certain Credit and Security Agreement (the “Credit Agreement”) dated
June 30, 2006 by and among Advancis Pharmaceutical Corporation, a Delaware
corporation (“Advancis”) and any additional Borrower that may hereafter be added
to the Credit Agreement (Advancis and each other Borrower hereafter added to the
Credit Agreement, individually as a Borrower and collectively as Borrowers),
MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business Financial Services
Inc., individually as a Lender, and as Agent, and the financial institutions or
other entities from time to time parties hereto, each as a Lender.
     In consideration of the premises and the agreements, provisions and
covenants herein contained and in the Credit Agreement, Borrowers, Lenders and
Agent agree as follows:
     Section 1 Definitions. All capitalized terms not otherwise defined in this
Rider shall have the meanings given them in the Credit Agreement.
     Section 1.1 Additional Defined Terms. The following additional definitions
are hereby appended to Section 1.1 of the Credit Agreement:
     “Correction” means repair, modification, adjustment, relabeling,
destruction or inspection (including patient monitoring) of a product without
its physical removal to some other location.
     “DEA” means the Drug Enforcement Administration of the United States of
America and any successor agency thereof.
     “Drug Application” means a new drug application, an abbreviated drug
application, or a product license application for any Product, as appropriate,
as those terms are defined in the FDCA.
     “FDA” means the Food and Drug Administration of the United States of
America or any successor entity thereto.
     “FDCA” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C.
Section 301 et seq. and all regulations promulgated thereunder.
     “Good Manufacturing Practices” means current good manufacturing practices,
as set forth in 21 C.F.R. Parts 210 and 211.
     “Market Withdrawal” means a Person’s Removal or Correction of a distributed
product which involves a minor violation that would not be subject to legal
action by the FDA or which involves no violation, e.g., normal stock rotation
practices, routine equipment adjustments and repairs, etc.
     “Permits” means licenses, certificates, accreditations, product clearances
or approvals, provider numbers or provider authorizations, marketing
authorizations, other authorizations, registrations, permits, consents and
approvals required in connection with the conduct of any Borrower’s or any
Subsidiary’s business or to comply with any applicable Laws, including, without
limitation, drug listings and drug establishment registrations under 21 U.S.C.
Section 510, registrations issued by DEA under 21 U.S.C. Section 823 (if
applicable to any Product), and those issued by State governments for the
conduct of any Borrower’s or any Subsidiary’s business.
     “Products” means any products manufactured, sold, developed, tested or
marketed by any Borrower or any of its Subsidiaries, including without
limitation, those products set forth on Exhibit F.

 

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

 

     “Recall” means a Person’s Removal or Correction of a marketed product that
the FDA considers to be in violation of the laws it administers and against
which the FDA would initial legal action, e.g., seizure.
     “Required Permit” means a Permit (a) issued or required under Laws
applicable to the business of any Borrower or any of its Subsidiaries or
necessary in the manufacturing, importing, exporting, possession, ownership,
warehousing, marketing, promoting, sale, labeling, furnishing, distribution or
delivery of goods or services under Laws applicable to the business of any
Borrower or any of its Subsidiaries or any Drug Application (including without
limitation, at any point in time, all licenses, approvals and permits issued by
the FDA or any other applicable Governmental Entity necessary for the testing,
manufacture, marketing or sale of any Product by any applicable Borrower(s) as
such activities are being conducted by such Borrower(s) with respect to such
Product at such time), and (b) issued by any Person from which Borrower or any
of its Subsidiaries has, as of the Closing Date, received an accreditation.
     “Specific Laws” means all applicable Laws relating to the operation of
private label and other drug distributions, and the possession, control,
warehousing, marketing, sale and distribution of pharmaceuticals, including,
without limitation, all federal and state laws governing the sale and
distribution of drugs, biologicals and supplements, including the Controlled
Substances Act (21 U.S.C. §§ 801 et seq.), the Food, Drug and Cosmetic Act of
1938 (21 U.S.S. §§ 801 et seq.), the Dietary Supplement Health and Education Act
(P.L. 103-417 (1994) and the Omnibus Budget and Reconciliation Act of 1990 (P.
L. 101-508 (1990)), and also the Generic Drug Enforcement Act of 1992.
     “Stock Recovery” means a Person’s Removal or Correction of a product that
has not been marketed or that has not left the direct control of the firm, i.e.,
the product is located on the premises owned by, or under the control of, the
firm and no portion of the lot has been released for sale or use.
     Section 2 Additional Representations and Warranties. The following is
hereby appended to the Credit Agreement as new Section 3.21:
     Section 3.21 Compliance of Products.
          (a) Each Credit Party:
          (i) has obtained all Required Permits, or has contracted with third
parties holding Required Permits, necessary for compliance with all Laws and all
such Required Permits are current;
          (ii) has not used the services of any Person debarred under the
provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. Section 335a
(a) or (b);
          (iii) warrants and represents that none of its officers, directors,
employees, shareholders, their agents or affiliates has been convicted of any
crime or engaged in any conduct for which debarment is mandated by 21 U.S.C.
Section 335a (a) or authorized by 21 U.S. Section 335a (b);
          (iv) warrants and represents that none of its officers, directors,
employees, shareholders, their agents or affiliates has made an untrue statement
of material fact or fraudulent statement to the FDA or failed to disclose a
material fact required to be disclosed to the FDA, committed an act, made a
statement, or failed to make a statement that could reasonably be expected to
provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities,” set forth in 56
Fed. Regulation 46191 (September 10, 1991);
          (v) has not received any written notice that any Governmental
Authority, including without limitation the FDA, the DEA, the Office of the
Inspector General of HHS or the United States Department of Justice has
commenced or threatened to initiate any action against a Credit Party, any
action to enjoin a Credit Party, their officers, directors, employees,
shareholders or their agents and Affiliates, from conducting their businesses at
any facility owned or used by them or for any material civil penalty,
injunction, seizure or criminal action;

 

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

 

          (vi) except as set forth on Schedule 3.12, has not received from the
FDA or the DEA, at any time since January 1, 2003, a Warning Letter, Form
FDA-483, “Untitled Letter,” other correspondence or notice setting forth
allegedly objectionable observations or alleged violations of laws and
regulations enforced by the FDA or the DEA, or any comparable correspondence
from any state or local authority responsible for regulating drug products and
establishments, or any comparable correspondence from any foreign counterpart of
the FDA or DEA, or any comparable correspondence from any foreign counterpart of
any state or local authority with regard to any Product or the manufacture,
processing, packing, or holding thereof; and
          (vii) except as set forth on Schedule 3.12, has not engaged in any
Recalls, Market Withdrawals, or other forms of product retrieval from the
marketplace of any Products since January 1, 2003.
     (b) None of the Credit Parties, their Affiliates or any of their respective
agents acting or benefiting in any capacity in connection with the transactions
contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law,
(ii) engages in or conspires to engage in any transaction that evades or avoids,
or has the purpose of evading or avoiding, or attempts to violate, any of the
prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person.
No Credit Party nor, to the knowledge of any Credit Party, any of its Affiliates
or agents acting or benefiting in any capacity in connection with the
transactions contemplated by this Agreement, (x) conducts any business or
engages in making or receiving any contribution of funds, goods or services to
or for the benefit of any Blocked Person, or (y) deals in, or otherwise engages
in any transaction relating to, any property or interest in property blocked
pursuant to Executive Order No. 13224, any similar executive order or other
Anti-Terrorism Law.
     (c) With respect to Products:
          (i) All Products are listed on Exhibit F and Borrowers have delivered
to Agent on or prior to the Closing Date all Required Permits relating to such
Products issued or outstanding as of the Closing Date; provided, however, that,
if after the Closing Date, any Borrower wishes to manufacture, sell, develop,
test or market any new Product, Borrowers shall give prior written notice to
Agent of such intention (which shall include a brief description of such
Product, plus copies of all Required Permits relating to such new Product and/or
the applicable Borrower’s manufacture, sale, development, testing or marketing
thereof issued or outstanding as of the date of such notice) along with a copy
of an amended and restated Exhibit F; and further, provided, that, if Borrower
shall at any time obtain any new or additional Required Permits from the FDA,
DEA, or parallel state or local authorities, or foreign counterparts of the FDA,
DEA, or parallel state or local authorities, with respect to any Product which
has previously been disclosed to Agent, Borrower shall promptly give written
notice to Agent of such new or additional Required Permits, along with a copy
thereof);
          (ii) Each Product is not adulterated or misbranded within the meaning
of the FDCA;
          (iii) Each Product is not an article prohibited from introduction into
interstate commerce under the provisions of Sections 404, 505 or 512 of the
FDCA;
          (iv) Each Product that is sold pursuant to a Credit Party’s belief
that it is not a “new drug”, as that term is defined in 21 U.S.C.
Section 321(p), is generally recognized by qualified experts as safe and
effective for its intended uses as those terms have been interpreted by FDA and
the United States Supreme Court, and has been used for a material extent and for
a material time for such uses;
          (v) Each Product for which a Drug Efficacy Study Implementation
(DESI) Notice has been published in the Federal Register and each Product that
is identical to, related to, or similar to such a drug conforms with the
requirements set forth in such DESI Notice;

 

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

 

          (vi) Each Product has been and/or shall be manufactured, imported,
possessed, owned, warehoused, marketed, promoted, sold, labeled, furnished,
distributed and marketed in accordance with all applicable Permits and Laws;
          (vii) Each Product has been and/or shall be manufactured in accordance
with Good Manufacturing Practices;
          (viii) Without limiting the generality of Section 3.12(a)(i) above,
with respect to any Product being tested or manufactured by any Borrower,
Borrower has received, and such Product shall be the subject of, all Required
Permits needed in connection with the testing or manufacture of such Product as
such testing is currently being conducted by or on behalf of Borrower, and
Borrowers have not received any notice from any applicable Government Authority,
specifically including the FDA, that such Government Authority is conducting an
investigation or review of (A) Borrowers’ manufacturing facilities and processes
for such Product which have disclosed any material deficiencies or violations of
Laws (including Healthcare laws) and/or the Required Permits related to the
manufacture of such Product, or (B) any such Required Permit or that any such
Required Permit has been revoked or withdrawn, nor has any such Governmental
Authority issued any order or recommendation stating that the development,
testing and/or manufacturing of such Product by Borrower should cease;
          (ix) Without limiting the generality of Section 3.12(a)(i) above, with
respect to any Product marketed or sold by any Borrower, Borrower shall have
received, and such Product shall be the subject of, all Required Permits needed
in connection with the marketing and sales of such Product as currently being
marketed or sold by Borrower, and Borrowers have not received any notice from
any applicable Governmental Authority, specifically including the FDA, that such
Governmental Authority is conducting an investigation or review of any such
Required Permit or approval or that any such Required Permit has been revoked or
withdrawn, nor has any such Governmental Authority issued any order or
recommendation stating that such marketing or sales of such Product cease or
that such Product be withdrawn from the marketplace; and
          (x) Borrowers have not (since the Closing Date) experienced any
significant failures in their manufacturing of any Product such that the amount
of such Product successfully manufactured by Borrower in accordance with all
specifications thereof and the Required Payments related thereto in any month
shall decrease significantly with respect to the quantities of such Product
produced in the prior month.
     Section 3 Additional Affirmative Covenants. The following is hereby
appended to the Credit Agreement as new Section 4.14:
     Section 4.14 Covenants Regarding Products and Compliance with Required
Permits
     (a) Without limiting the generality of Section 4.5, in connection with the
development, testing, manufacture, marketing or sale of each and any Product by
any Borrower, Borrowers shall comply fully and completely in all respects with
all Required Permits at all times issued by any Government Authority,
specifically including the FDA, with respect to such development, testing,
manufacture, marketing or sales of such Product by Borrower as such activities
are at any such time being conducted by Borrowers.
     (b) Without limiting the generality of Section 4.11 above, Borrowers shall
immediately and in any case within three (3) Business Days give written notice
to Agent upon any Borrower becoming aware that any of the representations and
warranties set forth in Section 3.21 with respect to any Product have become
incorrect in any respect (provided that, for the avoidance of doubt, the giving
of such notice shall not cure or result in the automatic waiver of any Default
or Event of Default that may have resulted from such breach of such
representation or warranty).
     Section 4 Permitted Investments. The definition of Permitted Investments as
used in the Credit Agreement is hereby modified to include the following:
purchases by Borrowers of the rights to test, develop,

 

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manufacture, sell or market any new pharmaceutical, drug or medical device
(and/or any Intellectual Property related thereto) that will upon such purchase
become a Product of Borrowers (provided that, nothing in the foregoing shall be
interpreted or construed to contradict or limit any of Borrowers’ obligations
under Section 3.21 above, particularly including without limitation the
obligations of Borrowers to give prior written notice to Agent of Borrowers’
intentions to begin testing, developing, manufacturing, selling or marketing any
new Product).
     Section 5 Events of Default. In addition to the events listed in
Section 9.1, the occurrence of any of the following conditions and/or events,
whether voluntary or involuntary, by operation of law or otherwise, shall
constitute an “Event of Default” under the Credit Agreement:
     (a) the institution of any proceeding by FDA or similar Governmental
Authority to order the withdrawal of any Product or Product category from the
market or to enjoin Credit Party or any representative of a Credit Party from
manufacturing, marketing, selling or distributing any Product or Product
category;
     (c) the institution of any action or proceeding by any DEA, FDA, or any
other Governmental Authority to revoke, suspend, reject, withdraw, limit, or
restrict any Required Permit held by a Credit Party or any representative of a
Credit Party;
     (d) the commencement of any enforcement action against any Credit Party by
DEA, FDA, or any other Governmental Authority;
     (e) the recall of any Products from the market, the voluntary withdrawal of
any Products from the market, or actions to discontinue the sale of any
Products;
     (f) a change in Law, including a change in FDA or DEA policies or
procedures, occurs which could reasonably be expected to have a Material Adverse
Effect; or
     (g) the termination of any agreements with manufacturers that supply any
Products or any components of any Products or any changes to any agreements with
manufacturers that supply any Products or any components of any Products that
could reasonably be expected to have a Material Adverse Effect.

 

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

 

          BORROWERS:    
 
        ADVANCIS PHARMACEUTICAL CORPORATION    
 
       
By:
  /s/ ROBERT C. LOW    
 
 
 
Name: Robert C. Low    
 
  Title: Vice President, Finance, Acting Chief Financial Officer and Treasurer  
 
 
        AGENT AND LENDER:    
 
        MERRILL LYNCH CAPITAL, a division of Merrill Lynch     Business
Financial Services Inc., as Agent and a Lender    
 
       
By:
  /s/ WILLIAM D. GOULD    
 
 
 
Name: William D. Gould    
 
  Title: Director