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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.

 

 

     “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

13

 

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

15

 

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

25

 

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

26

 

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

27

 

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

28

 

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

44

 

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.

45

 

     (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

46

 

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

47

 

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

48

 

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

 

     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:	 	 

 

 

	 	 	 	 	 	 	 
	 	 	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	 	 

 

 

	 	 	 	 	 	 	 
	 	 	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	 	 

 

 

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

 

 

	 	 	 	 	 
	

	 	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	%

 

 

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,

 

 

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: Directorexv10w1

 

Exhibit 10.1

EXECUTION

VERSION

NOTE PURCHASE AGREEMENT

by and between

COMSTOCK HOMEBUILDING COMPANIES, INC.

and

KODIAK WAREHOUSE LLC

 

Dated as of May 4, 2006

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	1.

	 	Definitions. This Purchase
Agreement, the Indenture and the Notes
are collectively referred to herein as
the “Operative Documents.” All other
capitalized terms used but not defined
in this Purchase Agreement shall have
the respective meanings ascribed
thereto in the Indenture.
	 	 	1	 
	 
	 	 	 	 	 	 
	2

	 	Purchase and Sale of the Notes.
	 	 	1	 
	 
	 	 	 	 	 	 
	3.

	 	Conditions. The obligations of
the parties under this Purchase
Agreement are subject to the following
conditions:
	 	 	2	 
	 
	 	 	 	 	 	 
	4.

	 	Representations and Warranties
of the Company. The Company represents
and warrants to, and agrees with the
Purchaser, as of the date hereof and
as of the Closing Date, as follows:
	 	 	3	 
	 
	 	 	 	 	 	 
	5.

	 	Representations and Warranties
of the Purchaser. The Purchaser
represents and warrants to, and agrees
with, the Company as follows:
	 	 	11	 
	 
	 	 	 	 	 	 
	6.

	 	Covenants and Agreements of the
Company. The Company covenants and
agrees with the Purchaser as follows:
	 	 	12	 
	 
	 	 	 	 	 	 
	7.

	 	Payment of Expenses. The
Company agrees to pay all costs and
expenses incident to the performance
of the obligations of the Company
under this Purchase Agreement, whether
or not the transactions contemplated
herein are consummated or this
Purchase Agreement is terminated,
including all costs and expenses
incident to (i) the fees and expenses
of qualifying the Notes under the
securities laws of the several
jurisdictions as provided in Section 6(b),
(iii) the fees and expenses of
the counsel, the accountants and any
other experts or advisors retained by
the Company, (iv) the fees and all
reasonable expenses of the Trustee and
any other trustee or paying agent
appointed under the Operative
Documents, including the fees and
disbursements of counsel for such
trustees or paying agent, which fees
shall not exceed a $2,000 acceptance
fee, $4,000 in administrative fees
annually and the fees and expenses of
Potter Anderson & Corroon LLP, (v) the
fees and expenses of Winston & Strawn
LLP, special counsel retained by the
Purchaser, not to exceed $30,000 and
(vi) a due diligence fee in an amount
equal to $12,500 payable as the
Purchaser directs.
	 	 	15	 
	 
	 	 	 	 	 	 
	8.

	 	Indemnification. (a) The
Company agrees to indemnify and hold
harmless the Purchaser, the
Purchaser’s Affiliates and Kodiak
Capital Management Company LLC
(collectively, the “Indemnified Parties”),
each person, if any, who
“controls” any of the Indemnified
Parties within the meaning of either
the Securities Act or the Exchange
Act, and the Indemnified Parties’
respective directors, officers,
employees and agents, against any and
all losses, claims, damages or
liabilities, joint or several, to
which the Indemnified Parties or any
of them may become subject under the
Securities Act, the Exchange Act or
other federal or state statutory law
or regulation, at common law or
otherwise, insofar as such losses,
claims, damages or liabilities
(or	 	 	 	 

i

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 

	 	actions in respect thereof) arise out of, are based
upon or connected with (i) any untrue statement or alleged untrue
statement of a material fact contained in any information or
documents furnished or made available to the Purchaser by or on
behalf of the Company, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iii) the breach or
alleged breach of any representation, warranty or agreement of the
Company contained herein or (iv) the execution and delivery by the
Company of this Purchase Agreement or any of the other Operative
Documents and/or the consummation of the transactions contemplated
hereby and thereby, and agrees to reimburse each such Indemnified
Party, as incurred, for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such
loss, claim, damage, liability or action. The indemnity agreements
contained in this Section 8 are in addition to any liability which
the Company may otherwise have.
	 	 	15	 
	 
	 	 	 	 	 	 
	9.

	 	Termination; Representations and Indemnities to Survive. This
Purchase Agreement shall be subject to termination in the absolute discretion
of the Purchaser, by notice given to the Company prior to delivery of and
payment for the Notes, if prior to such time (i) a downgrading shall have
occurred in the rating accorded the Company’s debt securities by any
“nationally recognized statistical rating organization,” as that term is used
by the Commission in Rule 15c3-l(c)(2)(vi)(F) under the Exchange Act, or such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of the Company’s debt
securities, (ii) the Company shall be unable to sell and deliver to the
Purchaser at least Thirty Million Dollars ($30,000,000) in aggregate principal
amount of the Notes, (iii) a
suspension or material limitation in trading in securities
generally shall have occurred on the New York Stock Exchange, (iv) a
suspension or material limitation in trading in any of the Company’s
securities shall have occurred on the exchange or quotation system
upon which the Company’ securities are traded, if any, (v) a general
moratorium on commercial business activities shall have been
declared either by federal or Delaware authorities or (vi) there
shall have occurred any outbreak or escalation of hostilities, or
declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is
such as to make it, in the Purchaser’s judgment, impracticable or
inadvisable to proceed with the offering or purchase of the Notes.
The respective agreements, representations, warranties, indemnities
and other statements of the Company or its officers or trustees and
of the Purchaser set forth in or made pursuant to this Purchase
Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Purchaser or the Company
or any of the their respective officers, directors or controlling
persons, and will survive delivery of and payment for the Notes. The
provisions of Sections 7 and 8 shall survive the termination or
cancellation of this Purchase Agreement.
	 	 	16	 
	 
	 	 	 	 	 	 
	10.

	 	Amendments. This Purchase Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement by each of the parties hereto.
	 	 	17	 

 

 

	 	 	 	 	 	 	 
	 	 	 	 	Page
	11.

	 	Notices. All
communications hereunder
shall be in writing and
effective only on receipt,
and shall be mailed,
delivered by hand or
courier or sent by
facsimile and confirmed:
	 	 	17	 
	 
	 	 	 	 	 	 
	12.

	 	Parties in
Interest; Successors and
Assigns. This Purchase
Agreement will inure to
the benefit of and be
binding upon the parties
hereto and their
respective successors and
permitted assigns. Nothing
expressed or mentioned in
this Purchase Agreement is
intended or shall be
construed to give any
person other than the
parties hereto and the
affiliates, directors,
officers, employees,
agents and controlling
persons referred to in
Section 8 and their
successors, assigns, heirs
and legal representatives,
any right or obligation
hereunder. None of the
rights or obligations of
the Company under this
Purchase Agreement may be
assigned, whether by
operation of law or
otherwise, without the
Purchaser’s prior written
consent. The rights and
obligations of the
Purchaser under this
Purchase Agreement may be
assigned by the Purchaser
without the Company’s
consent; provided, that
the assignee assumes the
obligations of the
Purchaser under this
Purchase Agreement.
	 	 	18	 
	 
	 	 	 	 	 	 
	13.

	 	Applicable Law.
This Purchase Agreement
will be governed by and
construed and enforced in
accordance with the law of
the State of New York
without reference to
principles of conflicts of
law (other than Section
5-1401 of the General
Obligations Law).
	 	 	18	 
	 
	 	 	 	 	 	 
	14.

	 	Submission to
Jurisdiction. ANY LEGAL
ACTION OR PROCEEDING BY OR
AGAINST ANY PARTY HERETO
OR WITH RESPECT TO OR
ARISING OUT OF THIS
PURCHASE AGREEMENT MAY BE
BROUGHT IN OR REMOVED TO
THE COURTS OF THE STATE OF
NEW YORK, IN AND FOR THE
COUNTY OF NEW YORK, OR OF
THE UNITED STATES OF
AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK (IN
EACH CASE SITTING IN THE
BOROUGH OF MANHATTAN). BY
EXECUTION AND DELIVERY OF
THIS PURCHASE AGREEMENT,
EACH PARTY ACCEPTS, FOR
ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE
JURISDICTION OF THE
AFORESAID COURTS (AND
COURTS OF APPEALS
THEREFROM) FOR LEGAL
PROCEEDINGS ARISING OUT OF
OR IN CONNECTION WITH THIS
PURCHASE AGREEMENT.
	 	 	18	 
	 
	 	 	 	 	 	 
	15.

	 	Counterparts and
Facsimile. This Purchase
Agreement may be executed
by any one or more of the
parties hereto in any
number of counterparts,
each of which shall be
deemed to be an original,
but all such counterparts
shall together constitute
one and the same
instrument. This Purchase
Agreement may be executed
by any one or more of the
parties hereto by
facsimile.
	 	 	19	 

SCHEDULES AND EXHIBITS

	 	 	 	 	 
	Schedule 4(1)

	 	—
	 	List of Significant
Subsidiaries; Certain Prohibitions
Against the Payment of Distributions,
the Repayment of Debt or the Transfer
of Assets
	 
	 	 	 	 
	Schedule 4(p)

	 	—
	 	Legal Proceedings

 

 

	 	 	 	 	 
	Schedule 4(u)

	 	—
	 	Certain Documents Subject to Future Filing as Exhibits to 1934 Act
Reports
	 
	 	 	 	 
	Schedule 4(x)

	 	—
	 	Claims Against Real Property
	 
	 	 	 	 
	Schedule 4(ee)

	 	—
	 	Environmental Matters
	 
	 	 	 	 
	Exhibit A

	 	—
	 	Form of Company Counsel’s Opinion Pursuant to Section 3(b)(i)
	 
	 	 	 	 
	Exhibit B

	 	—
	 	Form of General Counsel Opinion or Officers’ Certificate Pursuant to
Section 3(b)(ii)
	 
	 	 	 	 
	Exhibit C

	 	—
	 	Form of Tax Counsel Opinion Pursuant to Section 3(c)
	 
	 	 	 	 
	Exhibit D

	 	—
	 	Form of Trustee Counsel Opinion Pursuant to Section 3(d)
	 
	 	 	 	 
	Exhibit E

	 	—
	 	Form of Officer’s Financial Certificate Pursuant to Section 6(h)

 

 

NOTE PURCHASE AGREEMENT

     This NOTE PURCHASE AGREEMENT, dated as of May 4, 2006 (this “Purchase Agreement”), is
entered into by and between Comstock Homebuilding Companies, Inc., a Delaware corporation (the
“Company”), and Kodiak Warehouse LLC, a Delaware limited liability company, or its
assignee (the “Purchaser”).

W I T N E S S E T H:

     WHEREAS, the Company proposes to issue and sell to the Purchaser Thirty Million Dollars
($30,000,000) in aggregate principal amount of the Company’s junior subordinated notes, bearing
interest at a fixed rate of 9.72% per annum through the interest payment date in June, 2011 and
thereafter at a variable rate, reset quarterly, equal to LIBOR (as defined in the Indenture (as
defined below)) plus 4.20% per annum (the “Notes”); and

     WHEREAS, the Notes will be issued pursuant to a Junior Subordinated Indenture, dated as of
the Closing Date (the “Indenture”), between the Company and Wells Fargo Bank, N.A., as
indenture trustee (in such capacity, the “Trustee”).

     NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and subject to
the terms and conditions herein set forth, the parties hereto agree as follows:

          1. Definitions. This Purchase Agreement, the Indenture and the Notes are
collectively referred to herein as the “Operative Documents.” All other capitalized terms
used but not defined in this Purchase Agreement shall have the respective meanings ascribed thereto
in the Indenture.

          2. Purchase and Sale of the Notes.

          (a) The Company agrees to sell to the Purchaser, and the Purchaser agrees to purchase from the
Company, Thirty Million Dollars ($30,000,000) in aggregate principal amount of the Notes for an
amount (the “Purchase Price”) equal to Thirty Million Dollars ($30,000,000). The Purchaser
shall be responsible for the rating agency costs and expenses.

          (b) Delivery or transfer of, and payment for, the Notes shall be made at 10:00 A.M. Chicago
time (11:00 A.M. New York City time), on May 4, 2006 or such later date (not later than June 4,
2006) as the parties may designate (such date and time of delivery and payment for the Notes being
herein called the “Closing Date”). The Notes shall be transferred and delivered to the
Purchaser against the payment of the Purchase Price to the Company made by wire transfer in
immediately available funds on the Closing Date to a U.S. account designated in writing by the
Company at least two Business Days prior to the Closing Date.

          (c) Delivery of the Notes shall be made at such location, and in such names and denominations,
as the Purchaser shall designate at least two Business Days in advance of the Closing Date. The
Company agrees to have the Notes available for inspection and checking by the Purchaser in Chicago,
Illinois, not later than 1:00 P.M., Chicago time (2:00 P.M. New York City time), on the Business
Day prior to the Closing Date. The closing for the purchase and sale

 

 

of the Notes (the “Closing”) shall occur at the offices of Winston & Strawn LLP, 35 West
Wacker Drive, Chicago, Illinois 60601, or such other place as the parties hereto shall agree.

          3. Conditions. The obligations of the parties under this Purchase Agreement
are subject to the following conditions:

          (a) The representations and warranties contained herein shall be accurate as of the date of
delivery of the Notes.

          (b) (i) Greenberg Traurig LLP, counsel for the Company (the “Company Counsel”), shall
have delivered an opinion, dated the Closing Date, addressed to the Purchaser, its successors and
assigns and the Trustee, in substantially the form set out in Exhibit A hereto and (ii) the
Company shall have furnished to the Purchaser the opinion of the Company’s General Counsel or a
certificate signed by the Company’s Chief Executive Officer, President or an Executive Vice
President and the Company’s Chief Financial Officer, Treasurer or Assistant Treasurer, dated the
Closing Date, addressed to the Purchaser, in substantially the form set out in Exhibit B
hereto. In rendering their opinion, the Company Counsel may rely as to factual matters upon
certificates or other documents furnished by officers and directors of the Company and by
government officials (provided, however, that copies of any such certificates or
documents are delivered to the Purchaser) and by and upon such other documents as such counsel may,
in their reasonable opinion, deem appropriate as a basis for the Company Counsel’s opinion. The
Company Counsel may specify the jurisdictions in which they are admitted to practice and that they
are not admitted to practice in any other jurisdiction and are not experts in the law of any other
jurisdiction. Such Company Counsel opinions shall not state that they are to be governed or
qualified by, or that they are otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).

          (c) The Purchaser shall have been furnished the opinion of Winston & Strawn LLP, special tax
counsel for the Purchaser, dated the Closing Date, addressed to the Purchaser and the Trustee,
addressing the matters set out in Exhibit C hereto (subject to customary assumptions and
qualifications).

          (d) The Purchaser shall have received the opinion of Potter Anderson & Corroon LLP, special
counsel for the Trustee, dated the Closing Date, addressed to the Purchaser and its successors and
assigns, in substantially the form set out in Exhibit D hereto.

          (e) The Company shall have furnished to the Purchaser a certificate of the Company, signed by
the Chief Executive Officer, President or an Executive Vice President, and Chief Financial Officer
or Treasurer of the Company, dated the Closing Date, as to clauses (i) and (ii) below:

          (i) the representations and warranties of the Company in this Purchase Agreement are
true and correct on and as of the Closing Date with the same effect as if made on the
Closing Date, and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing Date; and

2

 

          (ii) since the date of the Financial Statements (as defined in Section 4(r)),
there has been no occurrence that has or would prospectively result in a material adverse
change in or had or would prospectively result in a material adverse effect on the
condition (financial or otherwise), earnings, business, liabilities or assets of the
Company and its subsidiaries, whether or not arising from transactions occurring in the
ordinary course of business (a “Material Adverse Effect”).

          (f) Subsequent to the execution of this Purchase Agreement, there shall not have been any
change in or affecting the condition (financial or otherwise), earnings, business, liabilities or
assets of the Company and its subsidiaries, whether or not occurring in the ordinary course of
business, the effect of which is, in the Purchaser’s judgment, so material and adverse as to make
it impractical or inadvisable to proceed with the purchase of the Notes.

          (g) The purchase of and payment for the Notes as described in this Purchase Agreement shall
(a) not be prohibited by any applicable law or governmental regulation, (b) not subject the
Purchaser to any penalty or, in the reasonable judgment of the Purchaser, other onerous conditions
under or pursuant to any applicable law or governmental regulation and (c) be permitted by the laws
and regulations of the jurisdictions to which the Purchaser is subject.

          (h) The Company shall have received all consents, permits and other authorizations, and made
all such filings and declarations, as may be required on or before the Closing Date from any
person or entity pursuant to any law, statute, regulation or rule (federal, state, local and
foreign), or pursuant to any agreement, order or decree to which the Company is a party or to
which it is subject, in connection with the transactions contemplated by this Purchase Agreement.

          (i) Prior to the Closing Date, the Company shall have furnished to the Purchaser and its
counsel such further information, certificates and documents as the Purchaser or its counsel may
reasonably request.

          If any of the conditions specified in this Section 3 shall not have been fulfilled
when and as required by this Purchase Agreement, or if any of the opinions, certificates and
documents mentioned above or elsewhere in this Purchase Agreement shall not be reasonably
satisfactory in form and substance to the Purchaser or its counsel, this Purchase Agreement and all
the Purchaser’s obligations hereunder may be canceled at, or at any time prior to, the Closing Date
by the Purchaser. Notice of such cancellation shall be given to the Company in writing or by
telephone or facsimile confirmed in writing.

          Each certificate signed by any officer of the Company and delivered to the Purchaser or the
Purchaser’s counsel in connection with the Operative Documents and the transactions contemplated
hereby and thereby shall be deemed to be a representation and warranty of the Company and not by
such officer in any individual capacity.

          4. Representations and Warranties of the Company. The Company represents and warrants
to, and agrees with the Purchaser, as of the date hereof and as of the Closing Date, as follows:

3

 

          (a) Neither the Company nor any of its “Affiliates” (as defined in Rule 501(b) of Regulation D
(“Regulation D”) under the Securities Act (as defined below)), nor any person acting on its
or their behalf, has, directly or indirectly, made offers or sales of any security, or solicited
offers to buy any security, under circumstances that would require the registration of any of the
Notes under the Securities Act of 1933, as amended (the “Securities Act”).

          (b) Neither the Company nor any of its Affiliates, nor any person acting on its or their
behalf, has (i) offered for sale or solicited offers to purchase the Notes or (ii) engaged in any
form of “general solicitation” or “general advertising” (within the meaning of Regulation D) in
connection with any offer or sale of any of the Notes.

          (c) The Notes (i) are not and have not been listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or quoted on a U.S. automated inter-dealer quotation system and (ii) are not of an
open-end investment company, unit investment trust or face-amount certificate company that is, or
is required to be, registered under Section 8 of the Investment Company Act of 1940, as amended
(the “Investment Company Act”), and the Notes otherwise satisfy the eligibility
requirements of Rule 144A(d)(3) promulgated pursuant to the Securities Act
(“Rule 144A(d)(3)”).

          (d) Neither the Company nor any of its Affiliates, nor any person acting on its or their
behalf, has engaged, or will engage, in any “directed selling efforts” within the meaning of
Regulation S under the Securities Act with respect to the Notes.

          (e) The Company is not, and, immediately following consummation of the transactions
contemplated hereby and the other Operative Documents and the application of the net proceeds
therefrom, will not be, an “investment company” or an entity “controlled” by an “investment
company,” in each case within the meaning of Section 3(a) of the Investment Company Act.

          (f) The Company has not paid or agreed to pay to any person or entity, directly or indirectly,
any fees or other compensation for soliciting another to purchase any of the Notes, except for the
fee the Company has agreed to pay to TBC Securities, LLC pursuant to the letter agreement between
the Company and TBC Securities, LLC, dated March 31, 2006.

          (g) The Indenture has been duly authorized by the Company and, on the Closing Date, will have
been duly executed and delivered by the Company and, assuming due authorization, execution and
delivery thereof by the Trustee, will be a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors’ rights generally and to general principles of
equity (the “Enforceability Exceptions”).

          (h) The Notes have been duly authorized by the Company and, on the Closing Date, will have
been duly executed and delivered to the Trustee for authentication in accordance with the Indenture
and, when authenticated in the manner provided for in the Indenture and delivered to the Purchaser
against payment therefor in accordance with this Purchase Agreement, will constitute legal, valid
and binding obligations of the Company entitled to the benefits of the

4

 

Indenture, enforceable against the Company in accordance with their terms, subject to the
Enforceability Exceptions.

          (i) This Purchase Agreement has been duly authorized, executed and delivered by the Company
and is a legal, valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to the Enforceability Exceptions and the effect of any
applicable public policy against the enforcement of the indemnification provisions of this
Purchase Agreement set forth in Section 8.

          (j) Neither the issue and sale of the Notes, nor the execution and delivery of and compliance
with the Operative Documents by the Company, nor the consummation of the transactions contemplated
hereby or thereby, or the use of the proceeds therefrom, (i) will conflict with or constitute a
violation or breach of the charter or bylaws or similar organizational documents of the Company or
any subsidiary of the Company or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, governmental authority, agency or instrumentality or court,
domestic or foreign (collectively, the “Governmental Entities”), or of any arbitrator, in
each case having jurisdiction over the Company or any of its subsidiaries or their respective
properties or assets, (ii) will conflict with or constitute a violation or breach of, or a default
or Repayment Event (as defined below) under, or result in the creation or imposition of any pledge,
security interest, claim, lien or other encumbrance of any kind (each, a “Lien”) upon any
property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to which (A) the Company or
any of its subsidiaries is a party or by which it or any of them may be bound, or (B) any of the
property or assets of the Company or any of its subsidiaries is subject, except, in the case of
this clause (ii), for such conflicts, violations, breaches, defaults, Repayment Events or Liens
which (X) would not, singly or in the aggregate, adversely affect the consummation of the
transactions contemplated by the Operative Documents and (Y) would not, singly or in the aggregate,
have a Material Adverse Effect or (iii) require the consent, approval, authorization or order of
any court or Governmental Entity. As used herein, a “Repayment Event” means any event or
condition which gives the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment
of all or a portion of such indebtedness by the Company or any of its subsidiaries prior to its
scheduled maturity.

          (k) The Company has been duly incorporated and is validly existing as a corporation in good
standing under the laws Delaware, with all requisite corporate power and authority to own, lease
and operate its properties and conduct the business it transacts and proposes to transact, and is
duly qualified to transact business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its activities requires such qualification, except where the
failure of the Company to be so qualified would not, singly or in the aggregate, have a Material
Adverse Effect.

          (1) The Company has no subsidiaries that are material to its business, financial condition or
earnings other than those subsidiaries listed in Schedule 4(1) hereto (collectively, the
“Significant Subsidiaries”). Each Significant Subsidiary has been duly organized and is
validly existing as a corporation, limited liability company, limited partnership or statutory
trust in good standing under the laws of the jurisdiction in which it is chartered,

5

 

organized or formed, with all requisite power and authority to own, lease and operate its
properties and conduct the business it transacts and proposes to transact. Each Significant
Subsidiary is duly qualified to transact business and is in good standing as a foreign
corporation, limited liability company, limited partnership or statutory trust in each
jurisdiction where the nature of its activities requires such qualification, except where the
failure to be so qualified would not, singly or in the aggregate, have a Material Adverse Effect.
Except as set forth on Schedule 4(1) hereto, no subsidiary of the Company is currently
prohibited, directly or indirectly, under any agreement or other instrument to which it is a party
or is subject, from paying any dividends to the Company, from making any other distribution on
such subsidiary’s capital stock or other Equity Interests, from repaying to the Company any loans
or advances to such subsidiary from the Company or from transferring any of such subsidiary’s
properties or assets to the Company or any other subsidiary of the Company.

          (m) The Company and each of the Company’s subsidiaries hold all necessary approvals,
authorizations, orders, licenses, consents, registrations, qualifications, certificates and
permits (collectively, the “Governmental Licenses”) of and from Governmental Entities
necessary to conduct their respective businesses as now being conducted, and neither the Company
nor any of the Company’s subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Government License, except where the failure to be so
licensed or approved or the receipt of an unfavorable decision, ruling or finding, would not,
singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are
valid and in full force and effect, except where the invalidity or the failure of such
Governmental Licenses to be in full force and effect, would not, singly or in the aggregate, have
a Material Adverse Effect; and the Company and its subsidiaries are in compliance with all
applicable laws, rules, regulations, judgments, orders, decrees and consents, except where the
failure to be in compliance would not, singly or in the aggregate, have a Material Adverse Effect.

          (n) All of the issued and outstanding Equity Interests of the Company and each of its
subsidiaries are validly issued, fully paid and nonassessable; all of the issued and outstanding
Equity Interests of each subsidiary of the Company is owned by the Company, directly or through
subsidiaries, free and clear of any Lien, claim or equitable right; and none of the issued and
outstanding Equity Interests of the Company or any subsidiary of the Company was issued in
violation of any preemptive or similar rights arising by operation of law, under the charter,
by-laws, certificate of formation, limited liability company agreement, certificate of limited
partnership, agreement of limited partnership or similar organizational document of such entity or
under any agreement to which the Company or any of its subsidiaries is a party.

          (o) Neither the Company nor any of its subsidiaries is (i) in violation of its respective
charter, by-laws, certificate of formation, limited liability company agreement, certificate of
limited partnership, agreement of limited partnership or similar organizational document or (ii)
in default in the performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which the Company or any such subsidiary is a party or by which it or any of them
may be bound or to which any of the property or assets of any of them is subject, except, in the
case of clause (ii), where such violation or default would not, singly or in the aggregate, have a
Material Adverse Effect.

6

 

          (p) Except as set forth on Schedule 4(p) hereto, there is no action, suit or
proceeding before or by any Governmental Entity or arbitrator, now pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of the Company’s subsidiaries,
except for such actions, suits or proceedings that, if adversely determined, would not, singly or
in the aggregate, adversely affect the consummation of the transactions contemplated by the
Operative Documents or have a Material Adverse Effect; and the aggregate of all pending legal or
governmental proceedings to which the Company or any of its subsidiaries is a party or of which
any of their respective properties or assets is subject, including ordinary routine litigation
incidental to the Company’s and its subsidiaries’ business, are not expected to result in a
Material Adverse Effect.

          (q) The accountants of the Company who certified the Financial Statements are independent
public accountants of the Company and its subsidiaries within the meaning of the Securities Act,
and the rules and regulations of the Securities and Exchange Commission (the “Commission”)
thereunder.

          (r) The audited consolidated financial statements (including the notes thereto) and schedules
of the Company and its consolidated subsidiaries for the three (3) fiscal years ended December 31,
2005 (the “Financial Statements”) provided to the Purchaser are the most recent available
audited and unaudited consolidated financial statements of the Company and its consolidated
subsidiaries, respectively, and fairly present in all material respects, in accordance with U.S.
generally accepted accounting principles (“GAAP’’), the financial position of the Company
and its consolidated subsidiaries, and the results of operations and changes in financial
condition as of the dates and for the periods therein specified. Such consolidated financial
statements and schedules have been prepared in accordance with GAAP consistently applied
throughout the periods involved (except as otherwise noted therein).

          (s) Neither the Company nor any of its subsidiaries has any material liability, whether known
or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any
liability for taxes (and there is no past or present fact, situation, circumstance, condition or
other basis for any present or future action, suit, proceeding, hearing, charge, complaint, claim
or demand against the Company or its subsidiaries that could give rise to any such liability),
except for (i) liabilities set forth in the Financial Statements and (ii) normal fluctuations in
the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of
business of the Company and its subsidiaries since the date of the most recent balance sheet
included in such Financial Statements.

          (t) Since the date of the Financial Statements, there has not been (A) any Material Adverse
Effect or (B) any dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock.

          (u) The documents of the Company filed with the Commission in accordance with the Exchange
Act, from and including the commencement of the fiscal year covered by the Company’s most recent
Annual Report on Form 10-K, at the time they were or hereafter are filed by the Company with the
Commission (collectively, the “1934 Act Reports”), complied and will comply in all material
respects with the requirements of the Exchange Act and the rules and

7

 

regulations of the Commission thereunder (the “1934 Act Regulations”), and, at the date of
this Purchase Agreement and on the Closing Date, do not and will not include an untrue statement
of a material fact or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they were made, not
misleading; and other than such instruments, agreements, contracts and other documents as are
filed as exhibits to the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or
Current Reports on Form 8-K, there are no instruments, agreements, contracts or other documents of
a character described in Item 601 of Regulation S-K promulgated by the Commission to which the
Company or any of its subsidiaries is a party, and which the Company is required to file, other
than such as are permitted to be filed with the Company’s next periodic report under the 1934 Act
Regulations, and set forth on Schedule 4(u) attached hereto. The Company is in compliance
with all currently applicable requirements of the Exchange Act and the currently applicable rules
and regulations promulgated thereunder that were added by or resulted from the Sarbanes-Oxley Act
of 2002.

          (v) No labor dispute with the employees of the Company or any of its subsidiaries exists or,
to the knowledge of the executive officers of the Company, is imminent, except those which would
not, singly or in the aggregate, have a Material Adverse Effect.

          (w) No filing with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any Governmental Entity, other than those that have been made or
obtained, is necessary or required for the performance by the Company of its obligations under the
Operative Documents or the consummation by the Company of the transactions contemplated by the
Operative Documents.

          (x) Except as set forth on Schedule 4(x), the Company and each Significant Subsidiary
have (a) good and marketable title in fee simple to all real property owned by them, (b) good and
marketable title to all real property-related interests owned by them and (c) good and marketable
title to all personal property owned by them, in each case free and clear of all Liens and defects,
except such as do not materially affect the value of such property and do not interfere with the
use made and proposed to be made by the Company and the Significant Subsidiaries; and all of the
leases and subleases under which the Company or any subsidiary of the Company holds properties are
in full force and effect, except where the failure of such leases and subleases to be in full force
and effect would not, singly or in the aggregate, have a Material Adverse Effect, and none of the
Company or any subsidiary of the Company has any notice of any claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any subsidiary of the Company under any
such leases or subleases, or affecting or questioning the rights of such entity to the continued
possession of the leased or subleased premises under any such lease or sublease, except for such
claims that would not, singly or in the aggregate, have a Material Adverse Effect.

          (y) The Company and each of the Significant Subsidiaries have timely and duly filed all Tax
Returns (as defined below) required to be filed by them, and all such Tax Returns are true,
correct and complete in all material respects. The Company and each of the Significant
Subsidiaries have timely and duly paid in full all material Taxes required to be paid by them
(whether or not such amounts are shown as due on any Tax Return). To the knowledge of the Company,
there are no federal, state or other Tax audits or deficiency assessments

8

 

proposed or pending with respect to the Company or any of the Significant Subsidiaries. As used
herein, the terms “Tax” or “Taxes” mean (i) all federal, state, local and foreign
taxes, and other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax or penalties applicable thereto imposed by
any Governmental Entity, and (ii) all liabilities in respect of such amounts arising as a result
of being a member of any affiliated, consolidated, combined, unitary or similar group, as a
successor to another person or by contract. As used herein, the term “Tax Returns” means
all federal, state, local and foreign Tax returns, declarations, statements, reports, schedules,
forms and information returns and any amendments thereto filed or required to be filed with any
Governmental Entity.

          (z) Interest payable by the Company on the Notes is deductible by the Company for United
States federal income tax purposes. There are no rulemaking or similar proceedings before the
United States Internal Revenue Service or comparable federal, state, local or foreign government
bodies which involve or affect the Company or any of its subsidiaries, which, if the subject of an
action unfavorable to the Company or any such subsidiary, could result in a Material Adverse
Effect.

          (aa) The books, records and accounts of the Company and its subsidiaries accurately and
fairly reflect, in reasonable detail, the transactions in, and dispositions of, the assets of, and
the results of operations of, the Company and its subsidiaries. The Company and each of its
subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.

          (bb) The Company and the Significant Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts in all material respects
as are customary in the businesses in which they are engaged. All policies of insurance and
fidelity or surety bonds insuring the Company or any of the Significant Subsidiaries or the
Company’s or Significant Subsidiaries’ respective businesses, assets, employees, officers and
directors are in full force and effect. The Company and each of the subsidiaries are in compliance
with the terms of such policies and instruments in all material respects. Neither the Company nor
any Significant Subsidiary has reason to believe that it will not be able to renew its existing
insurance coverage in all material respects as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at a cost that would
not have a Material Adverse Effect. Within the past twelve months, neither the Company nor any
Significant Subsidiary has been denied any insurance coverage which it has sought or for which it
has applied.

          (cc) The Company and its subsidiaries or any person acting on behalf of the Company and its
subsidiaries including, without limitation, any director, officer, agent or employee of the
Company or its subsidiaries has not, directly or indirectly, while acting on behalf of the Company
and its subsidiaries (i) used any corporate funds for unlawful contributions, gifts, entertainment
or other unlawful expenses relating to political activity, (ii)

9

 

made any unlawful payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds, (iii) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any other unlawful payment.

          (dd) The information provided by the Company pursuant to this Purchase Agreement, the other
Operative Documents and the transactions contemplated hereby and thereby does not, as of the date
hereof, and will not as of the Closing Date, contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

          (ee) Except as set forth on Schedule 4(ee) hereto, (i) the Company and its
subsidiaries have been and are in material compliance with applicable Environmental Laws (as
defined below), (ii) none of the Company, any of its subsidiaries or, to the best of the Company’s
knowledge, any other owners of any of the real properties currently or previously owned, leased or
operated by the Company or any of its subsidiaries (collectively, the “Properties”) at any
time or any other party, has at any time “released” (as such term is defined in CERCLA (as defined
below)) or otherwise disposed of a material quantity of Hazardous Materials (as defined below) on,
to, in, under or from the Properties, (iii) neither the Company nor any of its subsidiaries has
used or intends to use the Properties or any subsequently acquired properties, other than in
material compliance with applicable Environmental Laws, (iv) neither the Company nor any of its
subsidiaries has received any notice of, or has any knowledge of any occurrence or circumstance
which, with notice or passage of time or both, would give rise to a material claim under or
pursuant to any Environmental Law with respect to the Properties or their respective assets or
arising out of the conduct of the Company or its subsidiaries, (v) none of the Properties are
included or, to the best of the Company’s knowledge, proposed for inclusion on the National
Priorities List issued pursuant to CERCLA by the United States Environmental Protection Agency or,
to the best of the Company’s knowledge, proposed for inclusion on any similar list or inventory
issued pursuant to any other Environmental Law or issued by any other Governmental Entity, (vi)
none of the Company, any of its subsidiaries or agents or, to the best of the Company’s knowledge,
any other person or entity for whose conduct any of them is or may be held responsible, has
generated, manufactured, refined, transported, treated, stored, handled, disposed, transferred,
produced or processed any Hazardous Material at any of the Properties, except in material
compliance with all applicable Environmental Laws, and has not transported or arranged for the
transport of any Hazardous Material from the Properties to another property, except in material
compliance with all applicable Environmental Laws, (vii) no lien has been imposed on the Properties
by any Governmental Entity in connection with the presence on or off such Property of any Hazardous
Material or with respect to an Environmental Law, and (viii) none of the Company, any of its
subsidiaries or, to the best of the Company’s knowledge, any other person or entity for whose
conduct any of them is or may be held responsible, has entered into or been subject to any consent
decree, compliance order, or administrative order with respect to material liabilities or
violations at the Properties or any facilities or improvements or any operations or activities
thereon.

          As used herein, “Hazardous Material” shall include, without limitation, any flammable
materials, explosives, radioactive materials, hazardous materials, hazardous substances, hazardous
wastes, toxic substances or related materials, asbestos, petroleum,

10

 

petroleum products and any hazardous material as defined by any federal, state or local
environmental law, statute, ordinance, rule or regulation, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. §§ 9601-9675 (“CERCLA”), the Hazardous Materials Transportation Act, as amended, 49
U.S.C. §§ 5101-5127, the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §§
6901-6992k, the Emergency Planning and Community Right-to-Know Act of 1986, as amended, 42 U.S.C.
§§ 11001-11050, the Toxic Substances Control Act, as amended, 15 U.S.C. §§ 2601-2692, the Federal
Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. §§ 136-136y, the Clean Air Act,
as amended, 42 U.S.C. §§ 7401-7642, the Clean Water Act, as amended (Federal Water Pollution
Control Act), 33 U.S.C. §§ 1251-1387, the Safe Drinking Water Act, as amended, 42 U.S.C. §§
300f-300j-26, and the Occupational Safety and Health Act, as amended, 29 U.S.C. §§ 651-678, and
any analogous state laws, as any of the above may be amended from time to time and in the
regulations promulgated pursuant to each of the foregoing (including environmental statutes and
laws not specifically defined herein) (individually, an “Environmental Law” and
collectively, the “Environmental Laws”) or by any Governmental Entity.

          (ff) In the ordinary course of its business, the Company periodically reviews the effect of
Environmental Laws on the business, operations and properties of the Company and its subsidiaries,
and periodically identifies and evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any related constraints on
operating activities and any potential liabilities to third parties). On the basis of such reviews
and the amount of its established reserves, the Company has reasonably concluded that such
associated costs and liabilities would not, individually or in the aggregate, result in a Material
Adverse Effect.

          5. Representations and Warranties of the Purchaser. The Purchaser represents and
warrants to, and agrees with, the Company as follows:

          (a) The Purchaser is aware that the Notes have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or to “U.S. persons” (as
defined in Regulation S under the Securities Act) except in accordance with Rule 903 of Regulation
S under the Securities Act or pursuant to an exemption from the registration requirements of the
Securities Act.

          (b) The Purchaser is an “accredited investor,” as such term is defined in Rule 501 (a) of
Regulation D under the Securities Act.

          (c) Neither the Purchaser, nor any of the Purchaser’s Affiliates, nor any person acting on the
Purchaser’s or the Purchaser’s Affiliate’s behalf has engaged, or will engage, in any form of
“general solicitation” or “general advertising” (within the meaning of Regulation D promulgated
under the Securities Act) in connection with any offer or sale of the Notes.

          (d) The Purchaser understands and acknowledges that (i) no public market exists for any of the
Notes and that it is unlikely that a public market will ever exist for the Notes, (ii) the
Purchaser is purchasing the Notes for its own account, for investment and not with

11

 

a view to, or for offer or sale in connection with, any distribution thereof in violation of the
Securities Act or other applicable securities laws, subject to any requirement of law that the
disposition of its property be at all times within its control and subject to its ability to
resell such Notes pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption therefrom or in a transaction not subject thereto, and the Purchaser
agrees to the legends and transfer restrictions applicable to the Notes contained in the
Indenture, and (iii) the Purchaser has had the opportunity to ask questions of, and receive
answers and request additional information from, the Company and is aware that it may be required
to bear the economic risk of an investment in the Notes.

          (e) The Purchaser is a limited liability company duly formed, validly existing and in good
standing under the laws of the State of Delaware with all requisite limited liability company power
and authority to execute, deliver and perform the Operative Documents to which it is a party, to
make the representations and warranties specified herein and therein and to consummate the
transactions contemplated herein.

          (f) This Purchase Agreement has been duly authorized, executed and delivered by the
Purchaser and no filing with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any governmental body, agency or court having jurisdiction over the
Purchaser, other than those that have been made or obtained, is necessary or required for the
performance by the Purchaser of its obligations under this Purchase Agreement or to consummate the
transactions contemplated herein.

          6. Covenants and Agreements of the Company. The Company covenants and
agrees with the Purchaser as follows:

          (a) During the period from the date of this Purchase Agreement to the Closing Date, the
Company shall use its best efforts and take all action necessary or appropriate to cause its
representations and warranties contained in Section 4 to be true as of the Closing Date,
after giving effect to the transactions contemplated by this Purchase Agreement, as if made on and
as of the Closing Date.

          (b) The Company will arrange for the qualification of the Notes for sale under the laws of
such jurisdictions as the Purchaser may designate and will maintain such qualifications in effect
so long as required for the sale of the Notes. The Company will promptly advise the Purchaser of
the receipt by the Company of any notification with respect to the suspension of the qualification
of the Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose.

          (c) The Company will not, nor will it permit any of its Affiliates to, nor will the Company
permit any person acting on its behalf (other than the Purchaser and its Affiliates) to, directly
or indirectly, resell any Notes that have been acquired by any of them.

          (d) The Company will not, nor will it permit any of its Affiliates or any person acting on its
behalf (other than the Purchaser and its Affiliates) to, engage in any “directed selling efforts”
within the meaning of Regulation S under the Securities Act with respect to the Notes.

12

 

          (e) The Company will not, nor will it permit any of its Affiliates or any person acting on
its behalf to, directly or indirectly, (i) sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities Act) that would or
could be integrated with the sale of the Notes in any manner that would require the registration
of the Notes under the Securities Act or (ii) make offers or sales of any security, or solicit
offers to buy any security, under circumstances that would require the registration of any of the
Notes under the Securities Act.

          (f) The Company will not, nor will it permit any of its Affiliates or any person acting on
its behalf (other than the Purchaser and its Affiliates) to, engage in any form of “general
solicitation” or “general advertising” (within the meaning of Regulation D) in connection with any
offer or sale of the any of the Notes.

          (g) So long as any of the Notes are outstanding, (i) the Notes shall not be listed on a
national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S.
automated inter-dealer quotation system, (ii) the Company shall not be an open-end investment
company, unit investment trust or face-amount certificate company that is, or is required to be,
registered under Section 8 of the Investment Company Act, and, the Notes shall otherwise satisfy
the eligibility requirements of Rule 144A(d)(3) and (iii) the Company shall not engage, nor permit
any of its subsidiaries to engage, in any activity that would cause it or any such subsidiary to
be an “investment company” under the provisions of the Investment Company Act.

          (h) The Company shall furnish to (i) the holder, and subsequent holders, of the Notes, (ii)
Kodiak Capital Management Company LLC, 2107 Wilson Boulevard, Suite 450, Arlington, Virginia 22201,
Attention: Robert M. Hurley, or such other address as designated by Kodiak Capital Management
Company LLC) and (iii) any beneficial owner of the Notes reasonably identified to the Company
(which identification may be made by either such beneficial owner or by Kodiak Capital Management
Company LLC), a duly completed and executed officer’s financial certificate in the form attached
hereto as Exhibit E, including the financial statements referenced in such Exhibit, which
certificate and financial statements shall be so furnished by the Company not later than forty-five
(45) days after the end of each of the first three fiscal quarters of each fiscal year of the
Company and not later than ninety (90) days after the end of each fiscal year of the Company, or,
if applicable, such shorter respective periods as may then be required by the Commission for the
filing by the Company of Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

          (i) During any period in which the Company is not subject to and in compliance with Section
13 or 15(d) of the Exchange Act, or the Company is not exempt from such reporting requirements
pursuant to and in compliance with Rule 12g3-2(b) under the Exchange Act, the Company shall
provide to each holder of the Notes and to each prospective purchaser (as designated by such
holder) of the Notes, upon the request of such holder or prospective purchaser, any information
required to be provided by Rule 144A(d)(4) under the Securities Act, if applicable. Any
information provided by the Company pursuant to this Section 6(i) will not, at the date
thereof, contain any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under which they were
made, not misleading. If the Company is required to register under the

13

 

Exchange Act, such reports filed in compliance with Rule 12g3-2(b) shall be sufficient information
as required above. This covenant is intended to be for the benefit of the Purchaser, the holders
of the Notes, and the prospective purchasers designated by the Purchaser and such holders, from
time to time, of the Notes.

          (j) The Company covenants and agrees with Purchaser that the Company will not, without the
prior written consent of Purchaser, offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of, directly or indirectly, (i) any Notes or junior subordinated notes or trust
preferred securities or (ii) any other securities convertible into, or exercisable or exchangeable
for, any Notes or junior subordinated notes or trust preferred securities unless the aggregate
amount of Notes outstanding together with such Notes or junior subordinated notes, trust preferred
securities or other securities proposed to be offered, sold, contracted for sale, granted or
otherwise disposed of does not exceed twenty-five percent (25%) of the aggregate of (x) the
Company’s Consolidated Tangible Net Worth (after taking into account such Notes, junior
subordinated notes, trust preferred securities or other securities proposed to be offered, sold,
granted or otherwise disposed of). For purposes hereof, “Consolidated Tangible Net Worth”
shall mean (i) the consolidated net worth of the Company and its consolidated subsidiaries minus
(ii) the consolidated intangibles of the Company and its consolidated subsidiaries including,
without limitation, goodwill, trademarks, trade names, copyrights, patents, patent applications,
licenses, and rights in any of the foregoing and other items treated as intangibles in accordance
with generally accepted accounting principles, as reported in the Company’s balance sheet
contained in its most recent 1934 Act Report.

          (k) The Company will not identify any of Indemnified Parties (as defined below) in a press
release or any other public statement without the consent of such Indemnified Party.

          (l) The Purchaser shall have the right under this Purchase Agreement and the Indenture to
request the substitution of new notes for all or a portion of the Notes held by the Purchaser (the
“Replacement Notes”). The Replacement Notes shall bear terms identical to the Notes with
the sole exception of interest payment dates (and corresponding redemption date and maturity
date), which will be specified by the Purchaser. In no event will the interest payment dates (and
corresponding redemption date and maturity date) on the Replacement Notes vary by more than sixty
(60) calendar days from the original interest payment dates (and corresponding redemption date and
maturity date) under the Notes. The Company agrees to cooperate with all reasonable requests of
the Purchaser in connection with any of the foregoing; provided, that no action requested
of the Company in connection with such cooperation shall materially increase the obligations or
materially decrease the rights of the Company pursuant to such documents.

          (m) Notwithstanding anything to the contrary otherwise contained herein or in any other
Operative Document, prior to earlier of (i) the date eighteen (18) months from the date hereof and
(ii) the occurrence of a Change-in-Control (as defined in the Indenture), the Company shall not
offer to issue any other Debt (as such term is defined in the Indenture) which ranks pari passu with
the Notes (including the Notes, any junior subordinated notes, trust preferred securities or
securities convertible into, or exercisable or exchangeable for the same) to any other Person,
unless the Company shall first offer to Purchaser the opportunity to purchase such Debt, and shall
first provide to Purchaser a written notice thereof stating the proposed terms and

14

 

conditions (the “Offered Terms”). The Purchaser shall have the right to accept the Offered
Terms by written notice to the Company given within ten (10) days after the Purchaser’s receipt of
the Offered Terms. If the Purchaser does not accept the Offered Terms within such period, the
Purchaser shall be deemed to have rejected the Offered Terms and the Company may consummate such
issuance of Debt during the sixty (60) month period beginning on the date of the expiration of the
applicable period; provided, that such issuance of Debt shall be consummated on
substantially the same terms as the Offered Terms and shall otherwise be in accordance with the
terms hereof, including Section 6(j). If such issuance of Debt is not consummated within
such sixty (60) month period, the provisions of this Section 6(m) shall again apply in
respect of any issuance of Debt which ranks pari passu with the Notes whether made during such
sixty (60) month period or thereafter.

          7. Payment of Expenses. The Company agrees to pay all costs and expenses incident to
the performance of the obligations of the Company under this Purchase Agreement, whether or not the
transactions contemplated herein are consummated or this Purchase Agreement is terminated,
including all costs and expenses incident to (i) the fees and expenses of qualifying the Notes
under the securities laws of the several jurisdictions as provided in Section 6(b), (iii)
the fees and expenses of the counsel, the accountants and any other experts or advisors retained by
the Company, (iv) the fees and all reasonable expenses of the Trustee and any other trustee or
paying agent appointed under the Operative Documents, including the fees and disbursements of
counsel for such trustees or paying agent, which fees shall not exceed a $2,000 acceptance fee,
$4,000 in administrative fees annually and the fees and expenses of Potter Anderson & Corroon LLP,
(v) the fees and expenses of Winston & Strawn LLP, special counsel retained by the Purchaser, not
to exceed $30,000 and (vi) a due diligence fee in an amount equal to $12,500 payable as the
Purchaser directs.

          If the sale of the Notes provided for in this Purchase Agreement is not consummated because
any condition set forth in Section 3 to be satisfied by the Company is not satisfied,
because this Purchase Agreement is terminated pursuant to Section 9 or because of any
failure, refusal or inability on the part of the Company to perform all obligations and satisfy
all conditions on its part to be performed or satisfied hereunder other than by reason of a
default by the Purchaser, the Company will reimburse the Purchaser upon demand for all reasonable
out-of-pocket expenses (including the fees and expenses of the Purchaser’s counsel specified in
clause (v) and the due diligence fee specified in clause (vi), in each case, of the immediately
preceding paragraph) that shall have been incurred by the Purchaser in connection with the
proposed purchase and sale of the Notes.

          8.
Indemnification. (a) The Company agrees to indemnify and hold harmless the
Purchaser, the Purchaser’s Affiliates and Kodiak Capital Management Company LLC (collectively, the
“Indemnified Parties”), each person, if any, who “controls” any of the Indemnified Parties
within the meaning of either the Securities Act or the Exchange Act, and the Indemnified Parties’
respective directors, officers, employees and agents, against any and all losses, claims, damages
or liabilities, joint or several, to which the Indemnified Parties or any of them may become
subject under the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of, are based upon or connected with (i) any untrue statement
or alleged untrue statement of a material fact contained in any information or

15

 

documents furnished or made available to the Purchaser by or on behalf of the Company, (ii) the
omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (iii) the breach or alleged breach of any
representation, warranty or agreement of the Company contained herein or (iv) the execution and
delivery by the Company of this Purchase Agreement or any of the other Operative Documents and/or
the consummation of the transactions contemplated hereby and thereby, and agrees to reimburse each
such Indemnified Party, as incurred, for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage, liability or action. The
indemnity agreements contained in this Section 8 are in addition to any liability which
the Company may otherwise have.

          (b) Promptly after receipt by an Indemnified Party under this Section 8 of notice of
the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to
be made against the Company under this Section 8, promptly notify the Company in writing
of the commencement thereof; but the failure so to notify the Company (i) will not relieve the
Company from liability under paragraph (a) above unless and to the extent that such failure
results in the forfeiture by the Company of material rights and defenses and (ii) will not, in any
event, relieve the Company from any obligations to any Indemnified Party other than the
indemnification obligation provided in paragraph (a) above. The Purchaser shall be entitled to
appoint counsel to represent the Indemnified Party in any action for which indemnification is
sought. The Company may participate at its own expense in the defense of any such action;
provided, that counsel to the Company shall not (except with the consent of the
Indemnified Party) also be counsel to the Indemnified Party. In no event shall the Company be
liable for fees and expenses of more than one counsel (in addition to any local counsel) separate
from its own counsel for all Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same general allegations or
circumstances, unless an Indemnified Party believes that his, her or its interests are not aligned
with the interests of another Indemnified Party or that a conflict of interest might result. The
Company will not, without the prior written consent of the Indemnified Parties, settle or
compromise or consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not the Indemnified Parties are actual or potential parties to such claim, action,
suit or proceeding) unless such settlement, compromise or consent includes an unconditional
release of each Indemnified Party from all liability arising out of such claim, action, suit or
proceeding.

          9.
Termination; Representations and Indemnities to Survive; This Purchase Agreement
shall be subject to termination in the absolute discretion of the Purchaser, by notice given to the
Company prior to delivery of and payment for the Notes, if prior to such time (i) a downgrading
shall have occurred in the rating accorded the Company’s debt securities by any “nationally
recognized statistical rating organization,” as that term is used by the Commission in Rule
15c3-l(c)(2)(vi)(F) under the Exchange Act, or such organization shall have publicly announced that
it has under surveillance or review, with possible negative implications, its rating of the
Company’s debt securities, (ii) the Company shall be unable to sell and deliver to the Purchaser at
least Thirty Million Dollars ($30,000,000) in aggregate principal amount of the Notes, (iii) a
suspension or material limitation in trading in securities generally shall have occurred on the New
York Stock Exchange, (iv) a suspension or material limitation in trading in any of the Company’s
securities shall have occurred on the exchange or quotation system upon

16

 

which the Company’ securities are traded, if any, (v) a general moratorium on commercial business
activities shall have been declared either by federal or Delaware authorities or (vi) there shall
have occurred any outbreak or escalation of hostilities, or declaration by the United States of a
national emergency or war or other calamity or crisis the effect of which on financial markets is
such as to make it, in the Purchaser’s judgment, impracticable or inadvisable to proceed with the
offering or purchase of the Notes. The respective agreements, representations, warranties,
indemnities and other statements of the Company or its officers or trustees and of the Purchaser
set forth in or made pursuant to this Purchase Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Purchaser or the Company or any of the
their respective officers, directors or controlling persons, and will survive delivery of and
payment for the Notes. The provisions of Sections 7 and
8 shall survive the termination or
cancellation of this Purchase Agreement.

          10. Amendments. This Purchase Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement by each of the parties
hereto.

          11. Notices. All communications hereunder shall be in writing and effective only on
receipt, and shall be mailed, delivered by hand or courier or sent by facsimile and confirmed:

          If to the Purchaser, to:

c/o Kodiak Capital Management Company, LLC

2107 Wilson Boulevard

Suite 450

Arlington, Virginia 22201

Attention: Robert M. Hurley

Facsimile: (703) 351-7901

          with a copy to:

Winston
& Strawn LLP 
35 West Wacker Drive 
Chicago, Illinois 60601 

Attention: Wayne D. Boberg 
Facsimile:
(312) 558-5700

          if to the Company, to:

Comstock Homebuilding Companies, Inc.

11465 Sunset Hills Road

Suite 510

Reston, Virginia 20190

Facsimile: (703) 760-1520

Attention: Bruce Labovitz, Chief Financial Officer

17

 

          with a copy to:

Greenberg Traurig, LLP

800 Connecticut Avenue, NW

Suite 500

Washington, D.C. 20006

Facsimile: (202) 331-3101

Attention: Stephen A. Riddick, Esq.

          All such notices and communications shall be deemed to have been duly given (i) at the time
delivered by hand, if personally delivered, (ii) five (5) Business Days after being deposited in
the mail, postage prepaid, if mailed, (iii) the next Business Day after being telecopied or (iv)
the next Business Day after timely delivery to a courier, if sent by overnight air courier
guaranteeing next-day delivery. From and after the Closing, the foregoing notice provisions shall
be superseded by any notice provisions of the Operative Documents under which notice is given. The
Purchaser and the Company, and their respective counsel, may change their respective notice
addresses, from time to time, by written notice to all of the foregoing persons.

          12. Parties in Interest; Successors and Assigns. This Purchase Agreement will inure to
the benefit of and be binding upon the parties hereto and their respective successors and permitted
assigns. Nothing expressed or mentioned in this Purchase Agreement is intended or shall be
construed to give any person other than the parties hereto and the affiliates, directors, officers,
employees, agents and controlling persons referred to in Section 8 and their successors,
assigns, heirs and legal representatives, any right or obligation hereunder. None of the rights or
obligations of the Company under this Purchase Agreement may be assigned, whether by operation of
law or otherwise, without the Purchaser’s prior written consent. The rights and obligations of the
Purchaser under this Purchase Agreement may be assigned by the Purchaser without the Company’s
consent; provided, that the assignee assumes the obligations of the Purchaser under this
Purchase Agreement.

          13. Applicable Law. This Purchase Agreement will be governed by and construed and
enforced in accordance with the law of the State of New York without reference to principles of
conflicts of law (other than Section 5-1401 of the General Obligations Law).

          14. Submission to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY
PARTY HERETO OR WITH RESPECT TO OR ARISING OUT OF THIS PURCHASE AGREEMENT MAY BE BROUGHT IN OR
REMOVED TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE SITTING IN THE
BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS PURCHASE AGREEMENT, EACH PARTY
ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS
ARISING OUT OF OR IN CONNECTION WITH THIS PURCHASE AGREEMENT.

18

 

          15. Counterparts and Facsimile. This Purchase Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same instrument. This
Purchase Agreement may be executed by any one or more of the parties hereto by facsimile.

[signature page follows]

19

 

     IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement as of
the day and year first written above.

	 	 	 	 	 	 	 	 	 
	 	 	COMSTOCK HOMEBUILDING COMPANIES, INC.
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Bruce Labovitz	 	 
	 	 	 	 	 	 	 
	 	 	Name: Bruce Labovitz	 	 
	 	 	Title:   Chief Financial Officer	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	KODIAK WAREHOUSE LLC	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	Kodiak Funding, LP	 	 
	 	 	 	 	Its: Sole Member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	Kodiak Funding Company, Inc.	 	 
	 

	 	 	 	 	 	Its: General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Robert M. Hurley	 	 
	 	 	 	 	 	 	 
	 	 	Name: Robert M. Hurley	 	 
	 	 	Title: Chief Financial Officer	 	 

 

 

Schedule 4(1)

List of Significant Subsidiaries

	 	 	 
	 	 	State of lncorporation
	Name	 	or Organization
	1. Buckhead Overlook, LLC

	 	Georgia
	2. Comstock Acquisitions, L.C.

	 	Virginia
	3. Comstock Station View, L.C.

	 	Virginia
	4. Comstock Aldie, L.C.

	 	Virginia
	5. Comstock Barrington Park, L.C.

	 	Virginia
	6. Comstock Bellemeade, L.C.

	 	Virginia
	7. Comstock Belmont Bay 5, L.C.

	 	Virginia
	8. Comstock Belmont Bay 89, L.C.

	 	Virginia
	9. Comstock East Capitol, L.L.C.

	 	Virginia
	10. Comstock Blooms Mill II, L.C.

	 	Virginia
	11. Comstock Brandy Station, L.C.

	 	Virginia
	12. Comstock Carter Lake, L.C.

	 	Virginia
	13. Comstock Cascades, L.C.

	 	Virginia
	14. Comstock Communities, L.C.

	 	Virginia
	15. Comstock Countryside, L.C.

	 	Virginia
	16. Comstock Culpeper, L.C.

	 	Virginia
	17. Comstock Delta Ridge II, L.L.C.

	 	Virginia
	18. Comstock Emerald Farm, L.C.

	 	Virginia
	19. Comstock Fairfax I, L.C.

	 	Virginia
	20. Comstock Flynn’s Crossing, L.C.

	 	Virginia
	21. Comstock Hamlets of Blue Ridge, L.C.

	 	Virginia
	22. Comstock Holland Road, L.L.C.

	 	Virginia
	23. Comstock Homes of North Carolina, L.L.C.

	 	North Carolina
	24. Comstock Homes of Raleigh, L.L.C.

	 	North Carolina
	25. Comstock Homes of Washington, L.C.

	 	Virginia
	26. Comstock Investors III, L.P.

	 	Virginia
	27. Comstock Investors V, L.C.

	 	Virginia
	28. Comstock Investors VI, L.C.

	 	Virginia
	29. Comstock Kelton II, L.C.

	 	Virginia
	30. Comstock Lake Pelham, L.C.

	 	Virginia
	31. Comstock Landing, L.L.C.

	 	Virginia
	32. Comstock Loudoun Condos 1, L.C.

	 	Virginia
	33. Comstock North Carolina, L.L.C.

	 	North Carolina
	34. Comstock Penderbrook, L.C.

	 	Virginia
	35. Comstock Potomac Yard, L.C.

	 	Virginia
	36. Comstock Ryan Park, L.C.

	 	Virginia
	37. Comstock Sherbrooke, L.C.

	 	Virginia
	38. Comstock Summerland, L.C.

	 	Virginia
	39. Comstock Wakefield, L.L.C.

	 	Virginia
	40. Comstock Wakefield II, L.L.C.

	 	Virginia
	41. Highland Avenue Properties, LLC

	 	Georgia
	42. Highland Station Partners, LLC

	 	Georgia
	43. Mathis Partners, LLC

	 	Georgia

 

 

	 	 	 
	44. North Shore Investors, L.L.C.

	 	Virginia
	45. North Shore Raleigh, L.L.C.

	 	Virginia
	46. North Shore Raleigh II, L.L.C.

	 	Virginia
	47. Parker-Chandler Homes, Inc.

	 	Georgia
	48. Parker Chandler Homes/Florida, LLC

	 	Florida
	49. Parker Chandler Homes/North Carolina, LLC

	 	North Carolina
	50. Parker Chandler Homes/South Carolina, LLC

	 	South Carolina
	51. Parker Chandler Realty, LLC

	 	Georgia
	52. PCH Development, LLC

	 	Georgia
	53. PCH James Road, LLC

	 	Georgia
	54. Post Preserve, LLC

	 	Georgia
	55. Raleigh Resolution, L.L.C.

	 	Virginia
	56. Settlement Title Services, L.L.C.

	 	Virginia
	57. TCG Debt Fund II, L.C.

	 	Virginia
	58. TCG Fund I, L.C.

	 	Virginia
	59. Tribble Road Development, LLC

	 	Georgia

Certain Prohibitions Against the Payment of

Distributions, the Repayment of Debt or

the Transfer of Assets

[to follow, if any]

2

 

Schedule 4(p)

Legal Proceedings

None.

 

 

Schedule 4(u)

Certain Documents Subject to Future

Filing as Exhibits to 1934 Act Reports

None.

 

 

Schedule 4(x)

Claims Against Real Property

The Company is involved in a disagreement with its 50% joint venture partner in the North Shore
project located in Raleigh, North Carolina, whereby the Company’s joint venture partner has filed a
lis pendens asserting a right to the Company’s membership interest in the joint venture.

 

 

Schedule 4(ee)

Environmental Matters 

None.

 

 

Exhibit A

FORM OF COMPANY COUNSEL’S OPINION

          Pursuant to Section 3(b)(i) of the Note Purchase Agreement, Greenberg Traurig LLP, special
counsel for the Company, shall deliver an opinion to the effect that:

          (i) the Company and each Significant Subsidiary is validly existing as a corporation,
limited liability company, limited partnership or statutory trust in good standing under the
laws of the jurisdiction in which it is chartered or organized; each of the Company and the
Significant Subsidiaries has full corporate, limited liability company, limited partnership
or statutory trust power and authority to own or lease its properties and to conduct its
business as such business is currently conducted in all material respects; all outstanding
shares of capital stock, equity or membership interests of the Significant Subsidiaries have
been duly authorized and validly issued, and are fully paid and nonassessable and owned of
record and beneficially, directly or indirectly by the Company; the Company has the
corporate, limited liability company, limited partnership or statutory trust power and
authority to (A) execute and deliver, and to perform its obligations under, the Operative
Documents to which it is a party and (B) issue and perform its obligations under the Notes;

          (ii) neither the issue and sale of the Notes, nor the execution and delivery of and
compliance with the Operative Documents by the Company nor the consummation of the
transactions contemplated thereby will constitute a breach or violation of the charter,
by-laws, certificate of formation, limited liability company agreement, certificate of
limited partnership or agreement of limited partnership, as applicable, of the Company;

          (iii) the Indenture has been duly authorized, executed and delivered by the Company
and, assuming it has been duly authorized, executed and delivered by the Trustee,
constitutes a legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors’ rights generally and to general principles of equity;

          (iv) the Notes have been duly authorized and executed by the Company and delivered to
the Trustee for authentication in accordance with the Indenture and, when authenticated by
the Trustee in accordance with the provisions of the Indenture and delivered to the
Purchaser against payment therefor, will constitute legal, valid and binding obligations
of the Company entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors’ rights generally and to general principles of equity;

          (v) the Company is not, and, following the issuance of the Notes and the consummation
of the transactions contemplated by the Operative Documents and the application of the
proceeds therefrom, the Company will not be, an “investment

A-1

 

company” or, to such counsel’s knowledge, an entity “controlled” by an “investment company,” in
each case within the meaning of Section 3(a) of the Investment Company Act of 1940, as amended;

          (vi) assuming the truth and accuracy of the representations and warranties of the Purchaser
in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of
the Notes to register the Notes under the Securities Act of 1933, as amended, under the
circumstances contemplated in the Purchase Agreement, or to require qualification of the Indenture
under the Trust Indenture Act of 1939, as amended;

          (vii) the Purchase Agreement has been duly authorized, executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors’ rights generally and to general principles of equity and the effect of
any applicable public policy against the enforcement of the indemnification provisions of the
Purchase Agreement set forth in Section 8 thereof;

          (viii) the execution and delivery by the Company of, and the performance by the Company of
its obligations under, the Operative Documents and the consummation of the transactions
contemplated by the Purchase Agreement and the other Operative Documents, do not and will not (A)
result in the creation or imposition of any lien, claim, charge, encumbrance or restriction upon
any property or assets of the Company or the Significant Subsidiaries, or (B) conflict with,
constitute a breach or violation of, or constitute a default under, with or without notice or
lapse of time or both, any of the terms, provisions or conditions of (x) the charter, by-laws or
similar organizational documents of the Company or any Significant Subsidiary, or (y) any material
contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease, franchise,
license or any other agreement or instrument to which the Company or any Significant Subsidiary is
a party or by which any of them or any of their respective properties may be bound or (z) any
order, decree, judgment, franchise, license, permit, rule or regulation known to such counsel of
any court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign,
having jurisdiction over the Company or any Significant Subsidiary or any of their respective
properties;

          (ix) except for filings, registrations or qualifications that may be required by applicable
federal securities laws, no authorization, approval, consent or order of, or filing, registration
or qualification with, any person (including, without limitation, any court, governmental body or
authority) is required under the laws of the State of Delaware in connection with the transactions
contemplated by the Operative Documents (including the offer and sale of the Notes); and

          (x) to such counsel’s knowledge, (A) no action, suit or proceeding at law or in equity is
pending or threatened to which the Company or any Significant Subsidiary is or may be a party, and
(B) no action, suit or proceeding is pending or threatened against or affecting the Company or the
Significant Subsidiaries or any of

A-2

 

their respective properties, before or by any court or governmental official, commission,
board or other administrative agency, authority or body, or any arbitrator, wherein an
unfavorable decision, ruling or finding could reasonably be expected to have a material
adverse effect on (x) the consummation of the transactions contemplated by the Operative
Documents or the issuance and sale of the Notes as contemplated therein or (y) the condition
(financial or otherwise), earnings, business, liabilities, assets or results of operations
of the Company and the Significant Subsidiaries on a consolidated basis.

          In rendering such opinions, such counsel may (A) provide for customary assumptions and
qualifications and (B) rely as to matters of fact, to the extent deemed appropriate, on
certificates of responsible officers of the Company and public officials.

A-3

 

Exhibit B

FORM OF GENERAL COUNSEL OPINION

OR OFFICERS’ CERTIFICATE

     Pursuant to Section 3(b)(ii) of the Note Purchase Agreement, General Counsel for the Company
shall deliver an opinion, or the [CHIEF EXECUTIVE OFFICER/PRESIDENT/EXECUTIVE VICE PRESIDENT] and
the [CHIEF FINANCIAL OFFICER/TREASURER/ASSISTANT TREASURER] of the Company shall provide an
Officers’ Certificate, to the effect that:

          (i) all of the issued and outstanding shares of capital stock, equity or membership
interests of each Significant Subsidiary are owned of record by the Company;

          (ii) no consent, approval, authorization or order of any court or Governmental Entity
is required for the issue and sale of the Notes, the execution and delivery of and
compliance with the Operative Documents by the Company or the consummation of the
transactions contemplated in the Operative Documents, except such approvals (specified in
such certificate) as have been obtained;

          (iii) to the knowledge of such officers, there is no action, suit or proceeding before
or by any government, governmental instrumentality, arbitrator or court, domestic or
foreign, now pending or threatened against or affecting the Company or any Significant
Subsidiary that could adversely affect the consummation of the transactions contemplated by
the Operative Documents or could have a Material Adverse Effect; and

          (iv) the execution and delivery by the Company of, and the performance by the Company
of its obligations under, the Operative Documents and the consummation by the Company of the
transactions contemplated by the Operative Documents, (i) will not result in any violation
of the charter or bylaws of the Company, the charter, bylaws or similar organizational
documents of the Company’s subsidiaries, and (ii) will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or result in the
creation or imposition of any lien, charge and encumbrance upon any assets or properties of
the Company or any Significant Subsidiary under, (a) any agreement, indenture, mortgage or
instrument that the Company or any Significant Subsidiary of the Company is a party to or by
which it may be bound or to which any of its assets or properties may be subject, or (b) any
existing applicable law, rule or administrative regulation of any court or governmental
agency or authority having jurisdiction over the Company or any Significant Subsidiary of
the Company or any of their respective assets or properties, except in case of (ii), where
any such violation, conflict, breach, default, lien, charge or encumbrance, would not have a
material adverse effect on the assets, liabilities, properties, business, results of
operations or condition (financial or otherwise) of the Company and its subsidiaries, taken
as whole.

B-1

 

Exhibit C

FORM OF TAX COUNSEL OPINION

     Pursuant to Section 3(c) of the Note Purchase Agreement, Winston & Strawn LLP, special tax
counsel for the Purchaser shall deliver an opinion to the effect that, for United States federal
income tax purposes, the Notes will constitute indebtedness of the Company.

     In rendering such opinion, such counsel may (A) provide for customary assumptions and
qualifications, (B) state that its opinion is limited to the federal income tax laws of the United
States and (C) rely as to matters of fact, to the extent deemed appropriate, on certificates of
responsible officers of the Company and public officials.

C-1

 

Exhibit D

FORM OF TRUSTEE COUNSEL OPINION

     Pursuant to Section 3(d) of the Note Purchase Agreement, special counsel for the Trustee
shall deliver an opinion to the effect that:

          (i) Wells Fargo Bank, N.A. is a national banking association with trust powers, duly
and validly existing under the laws of the United States of America, with corporate power
and authority to execute, deliver and perform its obligations under the Indenture and to
authenticate and deliver the Notes, and is duly eligible and qualified to act as Trustee
under the Indenture pursuant to Section 6.1 thereof;

          (ii) the Indenture has been duly authorized, executed and delivered by Wells Fargo
Bank, N.A. and constitutes the valid and binding obligation of Wells Fargo Bank, N.A.,
enforceable against it in accordance with its terms except (A) as may be limited by
bankruptcy, fraudulent conveyance, fraudulent transfer, insolvency, reorganization,
liquidation, receivership, moratorium or other similar laws now or hereafter in effect
relating to creditors’ rights generally, and by general equitable principles, regardless of
whether considered in a proceeding in equity or at law and (B) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor may be
brought;

          (iii) neither the execution or delivery by Wells Fargo Bank, N.A. of the Indenture, the
authentication and delivery of the Notes by Wells Fargo Bank, N.A. pursuant to the terms of
the Indenture, nor the performance by Wells Fargo Bank, N.A. of its obligations under the
Indenture (A) requires the consent or approval of, the giving of notice to or the
registration or filing with, any Governmental Entity or agency under any existing law of the
State of New York governing the banking or trust powers of Wells Fargo Bank, N.A. or (B)
violates or conflicts with the Charter or By-laws of Wells Fargo Bank, N.A. or any law or
regulation of the State of New York governing the banking or trust powers of Wells Fargo
Bank, N.A.; and

          (iv) the Notes have been duly authenticated and delivered by Wells Fargo Bank, N.A..

     In rendering such opinions, such counsel may (A) provide for customary assumptions and
qualifications, (B) state that its opinion is limited to the laws of the State of New York and (C)
rely as to matters of fact, to the extent deemed proper, on certificates of responsible officers of
Wells Fargo Bank, N.A., the Company and public officials.

D-1

 

Exhibit E

FORM OF OFFICER’S FINANCIAL CERTIFICATE

     The undersigned, the [CHAIRMAN/VICE CHAIRMAN/CHIEF EXECUTIVE OFFICER/PRESIDENT/ VICE
PRESIDENT/CHIEF FINANCIAL
OFFICER/TREASURER]   of  [COMPANY] (the “Company”), hereby certifies, pursuant to Section 6(h) of the
Note Purchase Agreement, dated as of May 4, 2006, by and between the Company and Kodiak Warehouse
LLC, that, as of [DATE], [YEAR], the Company and its subsidiaries had the following ratios and
balances:

As of [QUARTERLY/ANNUAL FINANCIAL DATE], [YEAR]

	 	 	 	 	 
	Senior secured indebtedness for borrowed money (“Debt”)
	 	$	                    	 
	 
	 	 	 	 
	Senior unsecured Debt
	 	$	                    	 
	 
	 	 	 	 
	Subordinated Debt
	 	$	                    	 
	 
	 	 	 	 
	Total Debt
	 	$	                    	 
	 
	 	 	 	 
	Ratio of (x) senior secured and unsecured Debt to (y) total Debt
	 	 	                    	%

[FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial statements
(including the balance sheet, income statement and statement of cash flows, and notes thereto,
together with the report of the independent accountants thereon) of the Company and its
consolidated subsidiaries for the three years ended [DATE], [YEAR].]

[FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated and consolidating
financial statements (including the balance sheet and income statement) of the Company and its
consolidated subsidiaries for the fiscal quarter ended [DATE],
[YEAR].]

The financial statements fairly present in all material respects, in accordance with U.S. generally
accepted accounting principles (“GAAP”), the financial position of the Company and its
consolidated subsidiaries, and the results of operations and changes in financial condition as of
the date, and for the [QUARTER] [YEAR] ended [DATE], [YEAR], and such financial statements have
been prepared in accordance with GAAP consistently applied throughout the period involved (expect
as otherwise noted therein).

There has been no monetary default with respect to any indebtedness owed by the Company and/or its
subsidiaries (other than those defaults cured within thirty (30) days of the occurrence of the
same) [except as set forth below:].

Attached hereto is a current organizational chart of the Company and its subsidiaries as of the
date hereof.

[signature page follows]

E-1

 

     IN WITNESS WHEREOF, the undersigned has executed this Officer’s Financial Certificate as of
this [DAY]  of [MONTH], [YEAR].

	 	 	 	 	 	 	 	 	 
	 	 	COMSTOCK HOMEBUILDING COMPANIES, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	Comstock Homebuilding Companies, Inc.	 	 
	 	 	 	 	11465 Sunset Hills Road	 	 
	 	 	 	 	Suite 510	 	 
	 	 	 	 	Reston, Virginia 20190	 	 
	 	 	 	 	(703) 883-1700	 	 

E-2

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