Document:

ex4_1.htm

    
      

    

    
      Exhibit
4.1

      

      Execution
Version

      

      

      

      FORD
MOTOR COMPANY

      

      And

      

      THE BANK
OF NEW YORK MELLON

      

      
        as
Trustee

         

        
          
            

          

        THIRD
SUPPLEMENTAL INDENTURE

         

        Dated as
of November 9, 2009

         

        
          
            

          

        Creating
a Series of Securities Designated

      

      4.25%
Senior Convertible Notes due November 15, 2016

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      THIRD
SUPPLEMENTAL INDENTURE, dated as of November 9, 2009, between FORD MOTOR
COMPANY, a corporation duly organized and existing under the laws of the State
of Delaware (hereinafter sometimes called the “Company”), and THE BANK OF NEW
YORK MELLON (as successor trustee to JPMorgan Chase Bank), a corporation duly
organized and existing under the laws of the State of New York, as trustee
(hereinafter sometimes called the “Trustee”).

       

      RECITALS
OF THE COMPANY

       

      WHEREAS, the Company and the
Trustee have duly executed and delivered an Indenture, dated as of
January 30, 2002 (such indenture is hereinafter called the “Indenture”), providing for the
issuance from time to time of unsecured and senior or subordinated debentures,
notes or other evidences of indebtedness, which may be convertible into or
exchangeable for any securities of any person (including the Company), to be
issued in one or more series by the Company (the “Securities”);

       

      WHEREAS, pursuant to the terms
of the Indenture, the Company desires to provide for the establishment of a new
series of Securities known as its 4.25% Senior Convertible Notes due November
15, 2016 (the “Notes”)
to be issued under the Indenture initially in an aggregate principal amount of
up to $2,875,000,000, which may be authenticated and delivered as provided in
the Indenture;

       

      WHEREAS, the Company desires
to supplement the provisions of the Indenture to provide for the issuance of the
Notes under the terms of the Indenture as supplemented hereby;

       

      WHEREAS, Section 9.01 of
the Indenture expressly permits the Company and the Trustee to enter into one or
more indentures supplemental thereto for the purpose of establishing the form or
terms of Notes to be issued under the Indenture without the consent of the
Holders of any Outstanding Securities;

       

      WHEREAS, for the purposes
hereinabove recited, and pursuant to due corporate action, the Company has duly
determined to execute and deliver to the Trustee the Third Supplemental
Indenture; and

       

      WHEREAS, all conditions and
requirements necessary to make the Third Supplemental Indenture a valid, legal
and binding instrument in accordance with its terms have been done and
performed, and the execution and delivery hereof have been in all respects duly
authorized.

       

      NOW, THEREFORE, in
consideration of the premises, the Company and the Trustee mutually covenant and
agree as follows:

       

      ARTICLE
ONE

      

      DEFINITIONS

       

      Section
1.01  All terms contained in the Third Supplemental Indenture shall,
except as specifically provided herein or except as the context may otherwise
require, have the meanings given to such terms in the Indenture.  In
the event of any inconsistency between the Indenture and the Third Supplemental
Indenture, the Third Supplemental Indenture shall govern.  The words
“herein,” “hereof,” “hereunder,” and words of similar import shall refer to the
Third Supplemental Indenture.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Section
1.02  Solely with respect to the Notes, the following definitions
shall be added to Section 1.01 of the Indenture and replace any existing
definitions (as applicable) in the Indenture, each in appropriate alphabetical
order.  Unless the context otherwise requires, the following terms
shall have the following meanings:

       

      “Additional Shares” has the
meaning set forth in Section 5.08(a) of the
Third Supplemental Indenture.

       

      “Applicable Price” means, for
any Designated Event, (1) with respect to any Designated Event described in
clause (iii) of the definition of Designated Event, if the consideration paid to
holders of Common Stock in connection with such transaction consists exclusively
of Cash, the amount of such Cash per share of Common Stock, and (2) in all
other cases, the average of the Closing Sale Prices per share of Common Stock
for the five consecutive Trading Days immediately preceding the Effective Date
of such Designated Event.

       

      “Applicable Settlement Value”
means, with respect to shares of Common Stock, the greater of (1) the
average of the Closing Sale Prices per share of Common Stock for the five
consecutive Trading Days immediately preceding the Repurchase Date multiplied by 99% or
(2) $4.96 per share of Common Stock. Such dollar amount shall be subject to
adjustment on any date on which the Conversion Rate of the Notes is
adjusted.  The adjusted amount shall equal the amount immediately
prior to such adjustment multiplied by a fraction the
numerator of which is the Conversion Rate in effect immediately prior to such
adjustment and the denominator of which is the Conversion Rate immediately
following such adjustment.  In the case of a Designated Event in which
the shares of Common Stock have been, as of the Effective Date, converted into
or exchanged for the right to receive other securities or property, the
“Applicable Settlement Value” per security or unit of property shall be
calculated as follows:

       

      (i)           for
securities that are traded on a U.S.  national securities exchange or
other similar market, the average of the Closing Sale Prices per security of
such securities for the five consecutive Trading Days immediately preceding the
Repurchase Date, or

       

      (ii)           for
other consideration that Holders shall have the right to receive, the value per
security or unit of property determined by the Board of Directors in good
faith.

       

      “Bid Solicitation Agent” means
such Person as may be appointed, from time to time, by the Company to solicit
market bid quotations for the Trading Price of the Notes in accordance with
Section 5.01(b)(ii). The
Trustee shall initially act as the Bid Solicitation Agent.

       

      “Business Day” means any day
(i) other than a Saturday or Sunday or (ii) other than a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close.

       

      “Capital Stock” means any and
all shares, interests, participations or other equivalents (however designated)
of capital stock of the Company and all warrants or options to acquire such
capital stock.

       

      “Cash” or “cash” means such coin or
currency of the United States as at any time of payment is legal tender for the
payment of public and private debts.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Cash Settlement” has the
meaning set forth in Section
5.04(a) of the Third Supplemental Indenture.

       

      “Cash Settlement Averaging
Period” with respect to any Note surrendered for conversion
means:

       

      (i)           subject
to clause (ii) below, if the relevant Conversion Date occurs on or after October
15, 2016, the 20 consecutive Trading-Day period beginning on, and including, the
22nd Business Day immediately preceding November 15, 2016; and

       

      (ii)           if
the relevant Conversion Date occurs on or after the date on which the Company
notifies Holders of its election to terminate the conversion rights of Holders
pursuant to Section 5.02
of the Third Supplemental Indenture, the 20 consecutive Trading-Day period
beginning on, and including, the 22nd Business Day immediately preceding the
effective date of such termination; and

       

      (iii)           in
all other cases, the 20 consecutive Trading-Day period beginning on, and
including, the third Trading Day after the relevant Conversion
Date.

       

      “Certificated Note” means
permanent certificated Note in registered form issued in denominations of $1,000
principal amount and multiples thereof.

       

      “Change in Control” means
either of the following:

      

      (i)           more
than 50% of the voting power of the Company’s Voting Stock being held by a
Person or Persons (other than Permitted Holders) who “act as a partnership,
limited partnership, syndicate or other group for the purpose of acquiring,
holding or disposing of securities” of the Company (within the meaning of
Section 13(d)(3) of the Exchange Act); or

       

      (ii)           Continuing
Directors cease to constitute at least a majority of the Board of
Directors.

       

      Solely
for purposes of clause (ii) of the definition of “Change in Control,” the phrase
“or any committee of such board” in the definition of “Board of Directors” shall
be disregarded.

       

      “Close of Business” means 5:00
p.m.  New York City time.

       

      “Closing Sale Price” means, on
any date, the last reported per share sales price of a share of Common Stock or
any other security (or, if no last sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported on The New York
Stock Exchange, or if the Common Stock or such other security is not listed on
The New York Stock Exchange, as reported by the principal United States national
or regional securities exchange or quotation system on which the Common Stock or
such other security is then listed or quoted; provided, however, that in the absence
of such quotations, the Board of Directors shall make a good faith determination
of the Closing Sale Price.

       

      If during
a period applicable for calculating Closing Sale Price, an issuance,
distribution, subdivision, combination or other transaction or event occurs that
requires an adjustment to the Conversion Rate pursuant to Section 5.09 of the Third
Supplemental Indenture, Closing Sale Price shall be calculated for such period
in a manner determined by the Company to appropriately reflect the impact of
such issuance, distribution, subdivision or combination on the price of the
Common Stock during such period.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      “Combination Settlement” has
the meaning set forth in Section 5.04(a) of the Third
Supplemental Indenture.

       

      “Common Stock” means the common
stock, par value $0.01 per share, of the Company, or such other capital stock
into which the Company’s common stock is reclassified or changed.  For
the avoidance of doubt, the term “Common Stock” shall not include the Class B
stock, par value $0.01 per share, of the Company.

       

      “Continuing Director” means at
any date, an individual (a) who is a member of the Board of Directors on
the date of the Third Supplemental Indenture, (b) who has been elected as a
member of the Board of Directors with a majority of the total votes of Permitted
Holders that were cast in such election voted in favor of such member or
(c) who has been nominated to be a member of the Board of Directors by a
majority of the other Continuing Directors then in office. Solely for purposes
of this definition, the phrase “or any committee of such board” in the
definition of “Board of Directors” shall be disregarded.

       

      “Conversion Agent” means
initially the Trustee or such other office or agency subsequently designated by
the Company where Notes may be presented for conversion.

       

      “Conversion Date” has the
meaning set forth in Section 5.03(a) of the
Third Supplemental Indenture.

       

      “Conversion Notice” has the
meaning set forth in Section 5.03(a) of
the Third Supplemental Indenture.

       

      “Conversion Obligation” has the
meaning set forth in Section 5.04(a) of the
Third Supplemental Indenture.

       

      “Conversion Price” means at any
time an amount equal to $1,000 principal amount of Notes divided by the then current
Conversion Rate.

       

      “Conversion Rate” has the
meaning set forth in Section 5.01(d) of the
Third Supplemental Indenture.

       

      “Conversion Rights Termination
Date” has the meaning set forth in Section 5.02(a) of the
Third Supplemental Indenture.

       

      “Current Market Price” means,
on any day, the average of the Closing Sale Prices of the Common Stock for each
of the 10 consecutive Trading Days ending on the earlier of the day in question
and the day before the Ex-Date with respect to the issuance or distribution
requiring such computation.

       

      “Daily Conversion Value” means, for
each of the 20 consecutive Trading Days during the applicable Cash Settlement
Averaging Period, 5% of the product of (1) the applicable Conversion Rate on
such Trading Day and (2) the Daily VWAP of the Common Stock on such Trading
Day.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      “Daily Measurement Value” means
the Specified Dollar Amount (if any), divided by 20.

       

      “Daily Settlement Amount,” for
each of the 20 consecutive Trading Days during the applicable Cash Settlement
Averaging Period, shall consist of:

       

      (i)           cash
equal to the lesser of (i) the Daily Measurement Value and (ii) the
Daily Conversion Value; and

       

      (ii)           to
the extent the Daily Conversion Value exceeds the Daily Measurement Value, a
number of shares of Common Stock equal to (i) the difference between the
Daily Conversion Value and the Daily Measurement Value, divided by (ii) the
Daily VWAP of the Common Stock for such Trading Day.

       

      “Daily VWAP” of the Common
Stock means, for each of the 20 consecutive Trading Days during the applicable
Cash Settlement Averaging Period, the per share volume-weighted average price as
displayed under the heading “Bloomberg VWAP” on Bloomberg page “F.N
<equity> AQR” (or its equivalent successor if such page is not available)
in respect of the period from the scheduled opening of trading until the
scheduled close of trading of the primary trading session on such Trading Day
(or if such volume-weighted average price is unavailable, the market value of
one share of the Common Stock (or one unit of Reference Property consisting of
marketable equity securities) on such Trading Day using a volume-weighted
average price method (or, in the case of Reference Property consisting of cash,
the amount thereof or in the case of Reference Property other than marketable
equity securities or cash, the market value thereof), in each case as determined
by a nationally recognized independent investment banking firm retained for this
purpose by the Company).  The “Daily VWAP” shall be determined without
regard to after-hours trading or any other trading outside of the regular
trading session trading hours.

       

       “Default” means, with respect
to the Notes, any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default with respect to the
Notes.

       

      “Designated Event” means any of
the following:

       

      (i)           more
than 50% of the voting power of the Company’s Voting Stock being held by a
Person or Persons (other than Permitted Holders) who “act as a partnership,
limited partnership, syndicate or other group for the purpose of acquiring,
holding or disposing of securities” of the Company (within the meaning of
Section 13(d)(3) of the Exchange Act);

       

      (ii)           more
than 50% of the voting power of the Company’s Voting Stock being held by a
Person or Persons who “act as a partnership, limited partnership, syndicate or
other group for the purpose of acquiring, holding or disposing of securities” of
the Company (within the meaning of Section 13(d)(3) of the Exchange Act),
where such Person or Persons are Permitted Holders, resulting in the Common
Stock (or other securities or property into which the Notes are then
convertible) no longer being listed or approved for trading on The New York
Stock Exchange or listed,  approved for trading or quoted on any other
U.S. national securities exchange or other similar market; or

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      (iii)           the
Company consolidates or merges with or into another Person (other than a
subsidiary of the Company), or conveys, sells, transfers or leases all or
substantially all of the Company’s assets to another Person (other than a
subsidiary of the Company), or any Person (other than a subsidiary of the
Company) merges into or consolidates with the Company, and the outstanding
Common Stock is reclassified into, converted for or converted into the right to
receive any property or security, provided that no such
transaction shall constitute a Designated Event if Persons that beneficially own
(as determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act
or any successor provisions) Common Stock immediately prior to the transaction
beneficially own, directly or indirectly, common stock representing at least a
majority of the voting power of all the common stock of the surviving Person
after the transaction in substantially the same proportion as their voting power
immediately prior to the transaction.

       

      “Determination Date” has the
meaning set forth in Section
5.09(o) of the Third Supplemental Indenture.

       

      “Effective Date” means the date
on which a transaction that constitutes a Designated Event becomes
effective.

       

      “Exchange Act” means the
Securities and Exchange Act of 1934, as amended.

       

      “Existing Debt Securities”
means the subordinated and senior unsecured notes of the Company issued pursuant
to the Existing Debt Indentures.

       

      “Existing Debt Indentures”
means collectively, (a) the indenture dated as of February 1, 1990 between Ford
Holdings, Inc., the Company and Manufacturer's Hanover Trust Company, as
trustee, (b) the indenture dated as of August 15, 1991 between the Company and
Bankers Trust Company, as trustee, (c) the indenture dated as of
February 15, 1992 between the Company and The Bank of New York Mellon, as
trustee and (d) the Indenture, as amended.

       

      “Expiration Date” has the
meaning set forth in Section
5.09(a)(5) of the Third Supplemental Indenture.

       

      “Expiration Time” has the
meaning set forth in Section
5.09(a)(5) of the Third Supplemental Indenture.

       

      “Ex-Date” means, in connection
with any dividend, issuance or distribution, the first date on which the shares
of Common Stock trade on the applicable exchange or in the applicable market,
regular way, without the right to receive such issuance or
distribution.

       

      “Financial Institution” has the
meaning set forth in Section
5.11 of the Third Supplemental Indenture.

       

      “Global Note” means any Note
that is a Global Security.

       

      “Interest Payment Date” has the
meaning set forth in Section
2.01(14) of the Third Supplemental Indenture.

       

      “Irrevocable Election” has the
meaning set forth in Section
5.04(d) of the Third Supplemental Indenture.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      “Market Disruption Event”
means, for purposes of determining amounts due upon conversion, (i) a
failure by the primary United States national or regional securities exchange or
market on which the Common Stock is listed or admitted for trading to open for
trading during its regular trading session or (ii) the occurrence or
existence prior to 1:00 p.m., New York City time, on any Scheduled Trading Day
for the Common Stock for more than one-half hour period in the aggregate during
regular trading hours of any suspension or limitation imposed on trading (by
reason of movements in price exceeding limits permitted by the relevant stock
exchange or otherwise) in the Common Stock or in any options, contracts or
future contracts relating to the Common Stock.

       

      “Measurement Period” has the
meaning set forth in Section
5.01(b)(ii) of the Third Supplemental Indenture.

       

      “Notes” has the meaning set
forth in the second recital of the Third Supplemental Indenture.

       

      “Open of Business” means 9:00
a.m. New York City time.

       

      “Permitted Holders” means
holders of the Company’s Class B stock on the date of the Third Supplemental
Indenture and such other holders of such Class B stock from time to time; provided that any such holder
satisfies the qualification set forth in clauses (i) through (vii) of
subsection 2.2 of Article Fourth of the Company’s restated certificate of
incorporation as in effect on the date of the Third Supplemental
Indenture.

       

      “Physical Settlement” has the
meaning set forth in Section
5.04(a) of the Third Supplemental Indenture.

       

      “Prospectus Supplement” means
the preliminary prospectus supplement, as supplemented by the related pricing
term sheet for the offering of the Notes, dated November 2, 2009.

       

      “Purchased Shares” has the
meaning set forth in Section
5.09(a)(5) of the Third Supplemental Indenture.

       

      “Record Date” means, for
purposes of Section 5.09 of the Third Supplemental Indenture, with respect to
any dividend, distribution or other transaction or event in which the holders of
Common Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the date
fixed for determination of holders of Common Stock entitled to receive such
cash, securities or other property (whether such date is fixed by the Board of
Directors or by statute, contract or otherwise).

       

      “Reference Property” has the
meaning set forth in Section
5.10 of the Third Supplemental Indenture.

       

      “Regular Record Date” has the
meaning set forth in Section
2.01(14) of the Third Supplemental Indenture.

       

      “Repurchase Date” has the
meaning set forth in Section 4.01(a) of the
Third Supplemental Indenture.

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      “Repurchase Notice” has the
meaning set forth in Section 4.01(c) of the
Third Supplemental Indenture.

       

      “Repurchase Price” has the
meaning set forth in Section 4.01(a) of the
Third Supplemental Indenture.

       

      “Rights Plan” has the meaning
set forth in Section
5.09(f) of the Third Supplemental Indenture.

       

      “Scheduled Trading Day” means a
day that is scheduled to be a Trading Day on the primary United States national
or regional securities exchange or market on which the Common Stock is listed or
admitted for trading. If the Common Stock is not so listed or admitted for
trading, “Scheduled Trading Day” means a Business Day.

      

      “Settlement Amount” means the sum of the
Daily Settlement Amounts for each of the 20 consecutive Trading Days during the
relevant Cash Settlement Averaging Period.

      “Settlement Method” means, with
respect to any conversion of Notes, Physical Settlement, Cash Settlement or
Combination Settlement, as elected (or deemed to have been elected) by the
Company.

      

      “Settlement Notice Period” has
the meaning set forth in Section 5.04(b) of the
Third Supplemental Indenture.

      “Specified Dollar Amount” means the dollar amount per $1,000
principal amount of converted Notes as specified in the notice specifying the
Company’s chosen Settlement Method.

      “Spin-off” has the meaning set
forth in Section
5.09(a)(3) of the Third Supplemental Indenture.

      

      “Stated Maturity” means
November 15, 2016.

       

      “Termination Notice” has the
meaning set forth in Section 5.02(a) of the
Third Supplemental Indenture.

       

      “Third Supplemental Indenture”
means the Third Supplemental Indenture, dated as of November 9, 2009, to the
Indenture.

       

      “Trading Day” means (x) if
the applicable security is listed on The New York Stock Exchange, a day on which
trades may be made thereon or (y) if the applicable security is listed or
admitted for trading on the American Stock Exchange, The NASDAQ Global Select
Market, The NASDAQ Global Market or another national securities exchange or
market, a day on which the American Stock Exchange, The NASDAQ Global Select
Market, The NASDAQ Global Market or another national securities exchange or
market is open for business or (z) if the applicable security is not so
listed, admitted for trading or quoted, any Business Day.  For
purposes of determining amounts due upon conversion only, “Trading Day” means a
day on which (i) there is no Market Disruption Event and (ii) trading
in the Common Stock generally occurs on The New York Stock Exchange, or if the
Common Stock is not then listed on The New York Stock Exchange, on the principal
other United States national or regional securities exchange on which the Common
Stock is then listed or, if the Common Stock is not then listed on a United
States national or regional securities exchange, on the principal other market
on which the Common Stock is then traded; provided that if the Common
Stock (or other security for which a Daily VWAP must be determined) is not so
listed or traded, “Trading Day” shall have the same meaning as Business
Day.

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      “Trading Price” with respect to
the Notes, on any date of determination, means the average of the secondary
market bid quotations obtained by the Bid Solicitation Agent for $1,000,000
principal amount of Notes at approximately 3:30 p.m. (New York City time) on
such determination date from three independent nationally recognized securities
dealers selected by the Company; provided, however, that if three such
bids cannot reasonably be obtained by the Bid Solicitation Agent, but two such
bids are obtained, then the average of the two bids shall be used, and if only
one such bid can reasonably be obtained, that one bid shall be
used.  If the Bid Solicitation Agent cannot reasonably obtain at least
one bid for $1,000,000 principal amount of Notes from a nationally recognized
securities dealer, then the Trading Price per $1,000 principal amount of Notes
shall be deemed to be less than 98% of the product of the Closing Sale Price of
the Common Stock and the applicable Conversion Rate.

       

      “Trading Price Condition” has
the meaning set forth in Section 5.01(b)(ii) of the
Third Supplemental Indenture.

       

      “Trigger Event” has the meaning
set forth in Section 5.09(e)
of the Third Supplemental Indenture.

       

      “Valuation Period” has the
meaning set forth in Section
5.09(a)(3) of the Third Supplemental Indenture.

       

      “Voting Stock” means, with
respect to any Peron, such Person’s capital stock having the right to vote for
the election of directors (or the equivalent thereof) of such Person under
ordinary circumstances.

       

      Section
1.03  Applicability.  The
provisions contained in the Third Supplemental Indenture shall apply only to the
Notes and not to any other series of Securities issued under the Indenture and
any covenants provided herein are solely for the benefit of the Notes and not
for the benefit of any other series of Securities issued under the
Indenture.

       

      ARTICLE
TWO

      

      GENERAL
TERMS AND CONDITIONS OF THE NOTES

       

      Section
2.01  Terms.

       

      Pursuant
to Section 3.01 of the Indenture, the terms of the Notes shall be as
follows:

       

      (1)           The
Notes shall be senior in rank, and the title of the Notes is “4.25% Senior
Convertible Notes due November 15, 2016.”

       

      (2)           The
aggregate principal amount of Notes that may be authenticated and delivered
under the Indenture is initially limited to $2,875,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or exchange for,
or in lieu of, other Notes pursuant to the Third Supplement
Indenture.  The Company may, without the consent of any Holders,
reopen the Notes and issue additional Notes with the same terms and with the
same CUSIP number (except to the extent necessary for securities law purposes)
as the Notes initially issued in an unlimited aggregate principal amount, which
will form the same series with the Notes initially issued so long as no Event of
Default has occurred and is continuing with respect to the Notes and such
additional Notes shall be fungible with the Notes initially issued for U.S.
federal income tax purposes.

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      (3)           The
principal amount of the Notes shall be due and payable on November 15,
2016.

       

      (4)           Interest
on the Notes will accrue at the rate of 4.25% per annum, from November 9, 2009
until the principal thereof is paid or made available for
payment.  Interest shall be payable on May 15 and
November 15 of each year (each, an “Interest Payment Date”),
commencing May 15, 2010, to the Persons in whose name the Notes are
registered at the Close of Business on the May 1 or November 1,
whether or not a Business Day, immediately preceding the relevant Interest
Payment Date (each, a “Regular
Record Date”).  Interest on the Notes shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.  If
interest or principal is payable on a day that is not a Business Day, the
Company shall make the payment on the next Business Day, and no interest will
accrue as a result of the delay in payment. The Company shall pay the principal
of and interest on any Global Note in immediately available funds to the account
designated by the Depository or its nominee, as the case may be, as the
registered Holder of such Global Note.

       

      (5)           The
principal of and interest, if any, on the Notes shall be payable at the
Corporate Trust Office of the Trustee.

       

      (6)           (a)           Prior
to the Conversion Rights Termination Date, the Notes are not redeemable at the
option of the Company.  Starting on the Conversion Rights Termination
Date and on any Business Day thereafter, in accordance with the Indenture,
including, without limitation, Article Eleven of the Indenture, and the
Third Supplemental Indenture, the Company may redeem all or any portion of the
Notes, for Cash, at once or from time to time, upon at least 30 and not more
than 60 days’ notice, which shall be an irrevocable notice given in the manner
provided in the Indenture, at a Redemption Price equal to 100% of the principal
amount to be redeemed, together with accrued and unpaid interest thereon, up to,
but not including, the Redemption Date (subject to the right of Holders on the
relevant Regular Record Date to receive interest due on the relevant Interest
Payment Date).

       

                      (b)           The
Company or a third party may, to the extent permitted by applicable law, at any
time purchase the Notes in the open market, by tender at any price or by private
agreement. Any Note that the Company purchases or a third party purchases may,
to the extent permitted by applicable law, be re-issued or resold or may, at the
Company’s or such third party’s option, be surrendered to the Trustee for
cancellation in accordance with Section 3.09 of the Indenture. Any Notes
surrendered for cancellation may not be re-issued or resold and shall be
canceled promptly.

       

      (7)           (a)           Subject
to the terms and conditions of the Indenture and the Third Supplemental
Indenture, including, without limitation, Article Four of the Third
Supplemental Indenture, Holders shall have the right to require the Company to
repurchase any Outstanding Notes for shares of Common Stock (or such other
consideration into which the shares of Common Stock have been converted or
exchanged in connection with such Designated Event) upon a Designated Event that
does not constitute a Change in Control.

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      (b)           Subject
to the terms and conditions of the Indenture and the Third Supplemental
Indenture, including, without limitation, Article Four of the Third
Supplemental Indenture, Holders shall have the right to require the Company to
repurchase any Outstanding Notes for Cash upon a Change in Control.

       

      (8)           The
Notes are not entitled to any sinking fund or analogous reserve.

       

      (9)           The
Notes shall be issuable in denominations of $1,000 and integral multiples
thereof.

       

      (10)         The
Securities Registrar, authenticating agent, Conversion Agent and Paying Agent
for the Notes shall initially be the Trustee.

       

      (11)         Payments
of principal and interest on the Notes shall be made in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts.

       

      (12)      
  The Notes will be initially issued in book-entry form and
represented by registered Global Notes substantially in the form attached hereto
as Exhibit A, delivered to the Depository, or a custodian on the
Depository’s behalf, and recorded in the book-entry system maintained by the
Depository.

       

      (13)         From
and after the Conversion Rights Termination Date, the Notes shall be subject to
defeasance in accordance with the provisions of Article Fourteen of the
Indenture.

       

      (14)         Prior
to the Conversion Rights Termination Date, the Notes shall be convertible at the
option of the Holders in accordance with the terms and conditions set forth in
Article Five of the
Third Supplemental Indenture.

       

      Section
2.02  The Notes and the Trustee’s certificate of authentication to be
borne by such Notes shall be substantially in the form set forth in
Exhibit A to the Third Supplemental Indenture.  The terms and
provisions contained in the form of Notes attached as Exhibit A hereto
shall constitute, and are hereby expressly made, a part of the Third
Supplemental Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of the Third Supplemental Indenture,
expressly agree to such terms and provisions and to be bound
thereby.

       

      ARTICLE
THREE

       

      AMENDMENTS
TO INDENTURE SECTIONS

       

      The
following amendments to the Indenture shall apply only to the Notes and not to
any other series of Securities issued under the Indenture and shall be effective
for so long as any Notes remain Outstanding.  The Indenture is amended
by the Third Supplemental Indenture solely with respect to the Notes, as
follows:

       

      Section
3.01  Amendments to
Article Five.

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      (a)           Solely
with respect to the Notes, Section 5.01 of the Indenture shall be amended
and restated in its entirety by inserting the following in lieu
thereof:

       

      “SECTION
5.01.  Events of
Default.  “Event of Default”, wherever used in the Indenture or
the Third Supplemental Indenture with respect to the Notes, shall mean any one
of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

       

      (1)           default
in the payment of any interest upon any Note when it becomes due and payable,
and continuance of such default for a period of 30 days; or

       

      (2)           default
in the payment of the principal of, Redemption Price or Repurchase Price of any
Note, and continuance of such default for five Business Days after such amount
becomes due and payable on such Note; or

       

      (3)           failure
by the Company to provide notice of a Change in Control in accordance with the
terms of Article Four of the Third
Supplemental Indenture; or

       

      (4)           default
in the performance, or breach, of any covenant or warranty of the Company in the
Indenture or the Third Supplemental Indenture (other than a covenant or warranty
a default in whose performance or whose breach is elsewhere in this
Section specifically dealt with or which has expressly been included in the
Indenture solely for the benefit of a series of Securities other than the
Notes), and continuance of such default or breach for a period of 90 days
(subject to reduction pursuant to Section 7.03(a) of the Indenture as
amended by the Third Supplemental Indenture if the 15-day period referred to
therein has been extended as provided therein) after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Notes a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a “Notice of
Default” hereunder;

       

      (5)           the
entry by a court having jurisdiction in the premises of (A) a decree or
order for relief in respect of the Company in an involuntary case or proceeding
under the National Bankruptcy Act or any other similar federal or state law or
(B) a decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under any applicable
federal or state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or of any
substantial part of the property of the Company, or ordering the winding up or
liquidation of the affairs of the Company, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of 90 consecutive days; or

       

      (6)           the
commencement by the Company of a voluntary case or proceeding under the National
Bankruptcy Act or any other similar federal or state law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by the
Company to the entry of a decree or order for relief in respect of the Company
in an involuntary case or proceeding under the National Bankruptcy Act or any
other similar federal or state law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Company, or the filing by the Company
of a petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, or the consent by the Company to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or of any substantial part of the property of the Company, or the making
by the Company of an assignment for the benefit of creditors, or the admission
by the Company in writing of its inability to pay its debts generally as they
become due; or

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      (7)           default
in the delivery when due of all shares of Common Stock and any Cash payable upon
conversion with respect to the Notes, which default continues for 15
days.”

       

      (b)           Solely
with respect to the Notes, Section 5.02 of the Indenture shall be amended
and restated in its entirety by inserting the following in lieu
thereof:

       

      “SECTION
5.02.  Acceleration of Maturity;
Rescission and Annulment .  If an Event of Default, other than
pursuant to Section 5.01(5) and (6) of the Indenture, with respect to
the Notes occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Notes may
declare the principal amount of all of the Notes plus accrued and unpaid
interest, if any, on the Notes accrued through the date of such declaration to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration such principal
amount and accrued interest shall become immediately due and
payable.  In the case of Events of Default occurring under Sections
5.01(5) and (6) of the Indenture, the principal amount of the Notes plus accrued
and unpaid interest, if any, accrued thereon through the occurrence of such
event shall automatically become and be immediately due and
payable.

       

      At any
time after such a declaration of acceleration with respect to the Notes has been
made or occurred and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided,
the Holders of a majority in principal amount of the Outstanding Notes, by
written notice to the Company and the Trustee may waive all defaults and rescind
and annul such declaration and its consequences if:

       

      (8)           the
Company has paid or deposited with the Trustee a sum sufficient to
pay:

       

      (A)           all
overdue interest on all Notes,

       

      (B)           the
principal of (and premium, if any, on) with respect to any Notes which have
become due otherwise than by such declaration of acceleration and interest
thereon at the rate or rates prescribed therefor in the Notes,

       

      (C)           to
the extent that payment of such interest is enforceable under applicable law,
interest upon overdue interest to the date of such payment or deposit at the
rate or rates prescribed therefor in the Notes or, if no such rate or rates are
so prescribed, at the rate borne by the Notes during the period of such default,
and

       

      (D)           all
sums paid or advanced by the Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel;

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      and

       

      (9)           all
Events of Default with respect to Notes, other than the non-payment of the
principal of Notes and accrued interest which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.

       

      No such
waiver or rescission and annulment shall affect any subsequent default or impair
any right consequent thereon.”

       

      Section
3.02  Amendment to
Article Seven.

       

      (a)           Solely
with respect to the Notes, Section 7.03(a) of the Indenture shall be
amended and restated in its entirety by inserting the following text in lieu
thereof:

       

      “(a) The
Company covenants and agrees to furnish to the Trustee copies of the Company’s
annual reports on Form 10-K (or any successor form) and the Company’s quarterly
reports on Form 10-Q (or any successor form) within 15 days after the Company
shall be required to file the same with the Commission; provided that if the Company
is not required to file such reports with the Commission, then within 15 days
after the Company would be required to file these reports with the Commission if
the Company had a security listed on a U.S. national securities
exchange.  Such 15-day period shall automatically be extended to the
earlier of (a) the date that is five days prior to the date of the
occurrence of any event of default (or any comparable term) under any of the
Company’s Existing Debt Securities (other than the Notes) as a result of the
Company’s failure to provide annual or quarterly financial statements to the
extent required under the related indenture and (b) in the case of audited
annual financial statements, within 240 days after the end of the Company’s
fiscal year, and in the case of unaudited quarterly financial statements, within
220 days after the end of the respective quarters for each of the first three
quarterly periods of each fiscal year of the Company.  If the period
for filing any report is automatically extended for 85 or more days as described
above, then the 90 day cure period for the Company’s failure to comply with the
Company’s obligation to file such report shall be reduced to five
days.  If, however, in connection with an event of default under the
Company’s Existing Debt Securities (other than the Notes), the period for filing
such report is automatically extended for less than 85 days, then the number of
days in such cure period shall be reduced to equal the number by which 90
exceeds the number of days of such extension.  It is understood and
agreed that failure to comply with Section 314(a) of the TIA (or any
successor provision thereto) shall not constitute a default or breach for
purposes of Section 5.01(4) of the Indenture as amended by the Third
Supplemental Indenture and, therefore, shall not permit Holders of Notes in such
case to declare the principal amount of the Notes to be due and payable
immediately pursuant to Section 5.02 of the Indenture as amended by the
Third Supplemental Indenture.”

       

      Section
3.03  Amendment to
Article Nine.

       

      (a)           Solely
with respect to the Notes, Section 9.01(2) of the Indenture shall be
amended and restated in its entirety by replacing current clause (2) with
the following text:

       

      “(2) to
add to the covenants of the Company for the benefit of the Holders of Notes or
to surrender any right or power herein conferred upon the Company under the
Indenture or the Third Supplemental Indenture or to make other changes which
would not adversely affect the Holders of the Notes in any material respect;
or”

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      (b)           Solely
with respect to the Notes, Section 9.01 of the Indenture shall be amended
by deleting the period following clause (10) and replacing it with “; or” and
inserting the following:

       

      “(11)        to
comply with the rules of any applicable securities depositary; or

       

      (12)          to
add any guarantor with respect to the Notes.”

       

      (c)           Solely
with respect to the Notes, Section 9.01 of the Indenture shall be amended
by inserting the following immediately after new clause (12)
thereof:

       

      “No
amendment to the Indenture or the Third Supplemental Indenture made solely to
conform the Indenture or the Third Supplemental Indenture to the description of
the Notes contained in the Prospectus Supplement and the accompanying prospectus
shall be deemed to adversely affect the interests of the Holders of
Notes.  Nothing in the Third Supplemental Indenture shall affect the
right of the Company and the Trustee to enter into indentures supplemental to
the Indenture relating to series of Securities other than the
Notes.”

       

      (d)           Solely
with respect to the Notes, Section 9.02 of the Indenture shall be amended
by replacing the first paragraph with the following:

       

      “With the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Notes, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee
may, from time to time and at any time, enter into an indenture or indentures
supplemental hereto (which shall conform to the provisions of the TIA as in
force at the date of execution thereof) for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Indenture or of the Third Supplemental Indenture or of modifying in any manner
the rights of the Holders of the Notes; provided, however, that no such
supplemental indenture shall, without the consent of each Holder of Outstanding
Notes affected thereby:

       

      (i)           change
the Stated Maturity of the principal of (or premium, if any, on), or any
installment of interest, if any, on, any Note;

       

      (ii)           reduce
the principal amount or premium, if any, payable at Stated Maturity or upon
repurchase or redemption of any Note, or reduce the interest rate of any
Note;

       

      (iii)           make
any change that adversely affects the conversion rights or the Conversion Rate
of any Note;

       

      (iv)           make
any change that adversely affects the right of a Holder to require the Company
to repurchase any Note;

       

      (v)           impair
the right of any Holder of Outstanding Notes to convert or receive payment of
principal and interest with respect to any Note or the right to institute suit
for the enforcement of any payment with respect to, or conversion of, any
Note;

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      (vi)           change
the place or currency of payment of principal or interest in respect of any
Note;

       

      (vii)           change
the amendment provisions which require each Holder’s consent; or

       

      (viii)           reduce
the aforesaid percentage in principal amount of the Notes required for any such
supplemental indenture.”

       

      Section
3.04   Inapplicable Provisions of
the Indenture.

       

      (a)           The
provisions of Section 10.04 and Section 10.05 of the Indenture shall not apply
to the Notes.

       

      (b)           The
provisions concerning consolidation, merger and sale of assets set forth in
Article Six of the Third Supplemental Indenture shall, with respect to the
Notes, supersede in their entirety the provisions of Article Eight of the
Indenture, and all references in the Indenture to Article Eight and sections
thereof, shall, with respect to the Notes, be deemed to be references to
consolidation, merger and sale of assets and related matters specified in
Article Six of the Third Supplemental Indenture.

       

      ARTICLE
FOUR

       

      OFFER
TO REPURCHASE UPON A DESIGNATED EVENT OR CHANGE IN CONTROL

       

      Section
4.01  Offer
to Repurchase Upon a Designated Event or Change in Control.

       

      (a)           If
there shall have occurred a Designated Event or Change in Control, each Holder
shall have the right, at such Holder’s option, to require the Company to
repurchase all or any portion of such Holder’s Notes not previously repurchased
or called for redemption in integral multiples of $1,000 principal amount on a
date selected by the Company as specified below (the “Repurchase Date”), at a
repurchase price equal to 100% of the principal amount of the Notes to be
repurchased, plus any accrued but unpaid interest to, but not including, the
Repurchase Date (the “Repurchase Price”), subject to
satisfaction by or on behalf of the Holder of the requirements set forth in
Section 4.01(c) of
the Third Supplemental Indenture; provided that if the
Repurchase Date is after a Regular Record Date and on or prior to the Interest
Payment Date to which it relates, in which case the Company shall instead pay
the full amount of accrued but unpaid interest to the Holders of the Notes on
such Regular Record Date and the Repurchase Price shall be equal to 100% of the
principal amount of the Notes to be repurchased.  With respect to any
event that is a Change in Control, the Company shall pay the Repurchase Price in
Cash.  With respect to any Designated Event that is not a Change in
Control, the Company shall pay the Repurchase Price in shares of Common Stock
(or such other consideration into which the shares of Common Stock have been
converted or exchanged in connection with such Designated Event) as provided in
Section 4.03(b) of
the Third Supplemental Indenture below.

       

      Notwithstanding
the foregoing, Holders will not have the right to require the Company to
repurchase any Notes in connection with a Designated Event or Change in Control,
and the Company shall not be required to deliver a notice of such Designated
Event or Change in Control incidental thereto, if:

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

      (i)           the
Closing Sale Price of Common Stock for any five Trading Days within the period
of ten consecutive Trading Days ending immediately after the later of the Change
in Control or Designated Event or the public announcement thereof, in the case
of an acquisition of Capital Stock or resulting from a change in Continuing
Directors, or the period of ten consecutive Trading Days ending immediately
before the Change in Control or Designated Event, in the case of a merger,
consolidation or asset sale, equals or exceeds 105% of the Conversion Price of
the Notes in effect on each of those five Trading Days; or

       

      (ii)           at
least 90% of the consideration, excluding Cash payments for fractional shares of
Common Stock and Cash payments made pursuant to dissenters’ appraisal rights, in
a transaction otherwise constituting a Change in Control or Designated Event
consists of shares of Common Stock, depositary receipts or other certificates
representing common equity interests traded on a U.S. national securities
exchange or other similar market, or will be so traded immediately following
such transaction, and as a result of such transaction the Notes become
convertible solely into such consideration, subject in all respects to Section 5.04 of the Third
Supplemental Indenture.

       

      (b)           Within
30 days after the occurrence of a Designated Event or Change in Control, the
Company shall mail a written notice of such Designated Event or Change in
Control, as the case may be, by first-class mail to the Trustee and to each
Holder at their addresses shown in the Security Register (and to beneficial
owners as required by applicable law).  The Trustee shall have no duty
or obligation to determine or confirm whether or not a Designated Event or a
Change of Control has occurred, nor shall the Trustee have any duty or
obligation with respect to any of the determinations or calculations set forth
in the second paragraph of Section 4.01(a) of the Third
Supplemental Indenture. The Company shall also
issue a press release through Dow Jones & Company, Inc. or Bloomberg
Business News or other similarly broad public medium that is customary for such
press releases.  The notice shall include a form of Repurchase Notice
to be completed by the Holder and shall state:

       

      (i)          
  briefly, the events causing, and the effective date of, such
Designated Event or Change in Control, as the case may be;

       

      (ii)         
  the date by which the Repurchase Notice pursuant to this Section 4.01 must be
given;

       

      (iii)           the
Repurchase Price, and that the Repurchase Price will be paid in Cash, in the
case of a Change in Control, or shares of Common Stock (or such other
consideration into which the shares of Common Stock have been converted or
exchanged in connection with such Designated Event) in the case of a Designated
Event that is not a Change in Control;

       

      (iv)           the
Repurchase Date, which date shall be the 30th
Business Day after the date of such notice;

       

      (v)           the
name and address of the Paying Agent and the Conversion Agent;

       

      (vi)           the
then-current Conversion Rate and any adjustments thereto;

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

      (vii)         that
Notes with respect to which a Repurchase Notice has been given by the Holder may
not be converted pursuant to Article Five of the Third
Supplemental Indenture;

       

      (viii)        briefly,
the procedures a Holder must follow to exercise its rights under this Section 4.01;

       

      (ix)           that
Notes must be surrendered to the Paying Agent to collect payment of the
Repurchase Price;

       

      (x)            that
the Repurchase Price for any Note as to which a Repurchase Notice has been duly
given, will be paid on the later of the Business Day immediately following the
Repurchase Date and the time of surrender of such Note (provided that if such Note is
surrendered after 12:00 p.m. New York City time, such Note shall be deemed to be
surrendered on the immediately following Business Day);

       

      (xi)           that,
unless the Company defaults in making payment of such Repurchase Price and
interest due, if any, interest on Notes surrendered for repurchase will cease to
accrue on and after the Repurchase Date; and

       

      (xii)           the
CUSIP number of the Notes.

       

      (c)           A
Holder may exercise its rights specified in Section 4.01(a) of the
Third Supplemental Indenture by delivery of an irrevocable written notice of
repurchase (a “Repurchase
Notice”) to the Paying Agent at any time prior to the Close of Business
on the Repurchase Date, stating:

       

      (i)           
 the certificate number of the Note which the Holder will deliver to be
repurchased, if Certificated Notes have been issued, or notice compliant with
the relevant Depository procedures if the Notes are not in certificated
form;

       

      (ii)       
    the portion of the principal amount of the Note which
the Holder will deliver to be repurchased, which portion must be $1,000 or an
integral multiple thereof; and

       

      (iii)           that
such Note shall be repurchased by the Company pursuant to the terms and
conditions specified in Article Four of the Third
Supplemental Indenture.

       

      The
delivery of such Note to the Paying Agent prior to, on or after the Repurchase
Date (together with all necessary endorsements) at the offices of the Paying
Agent shall be a condition to the receipt by the Holder of the Repurchase Price
therefor; provided,
however, that such Repurchase Price shall be so paid pursuant to this
Section 4.01 only
if the Note so delivered to the Paying Agent shall conform in all respects to
the description thereof set forth in the related Repurchase Notice.

       

      The
Company shall repurchase from the Holder thereof, pursuant to this Section 4.01, a portion
of a Note if the principal amount of such portion is $1,000 or an integral
multiple of $1,000.  Provisions of the Indenture and the Third
Supplemental Indenture that apply to the repurchase of all of a Note also apply
to the repurchase of such portion of such Note.

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      Any
repurchase by the Company contemplated pursuant to the provisions of this Section 4.01 shall be
consummated by the delivery of the consideration to be received by the Holder on
or prior to the later of the Business Day immediately following the Repurchase
Date and the time of delivery of the Note to the Paying Agent in accordance with
this Section 4.01.

       

      The
Paying Agent shall promptly notify the Company of the receipt by it of any
Repurchase Notice.

       

      There
shall be no repurchase of any Notes pursuant to this Section 4.01 if there has
occurred (prior to, on or after, as the case may be, the giving, by the Holders
of such Notes, of any Repurchase Notice) and is continuing an Event of Default
(other than a default in the payment of the Repurchase Price).

       

      Section
4.02  Effect
of Repurchase Notice.  (a) Upon receipt by the Paying Agent of
the Repurchase Notice specified in Section 4.01(c) of the
Third Supplemental Indenture, the Holder of the Note in respect of which such
Repurchase Notice was given shall thereafter be entitled to receive solely the
Repurchase Price, with respect to such Note.  Such Repurchase Price
shall be paid to such Holder, subject to receipt of funds by the Paying Agent,
on or prior to the later of (x) the Business Day immediately following the
Repurchase Date, with respect to such Note (provided the conditions in Section 4.01(c) of the
Third Supplemental Indenture have been satisfied) and (y) the time of
delivery of such Note to the Paying Agent by the Holder thereof in the manner
required by Section 4.01(c) of
the Third Supplemental Indenture.  Notes in respect of which a
Repurchase Notice has been given by the Holder thereof may not be converted
pursuant to Article Five of the Third
Supplemental Indenture on or after the date of the delivery of such Repurchase
Notice unless such Repurchase Notice has first been validly withdrawn as
specified in the following paragraph.

       

      (b)           A
Repurchase Notice may be withdrawn by means of a written notice of withdrawal
delivered to the office of the Paying Agent in accordance with the Repurchase
Notice at any time prior to the Close of Business on the Business Day prior to
the Repurchase Date specifying:

       

      (i)            
the certificate number (or numbers) of the Note (or Notes) being withdrawn, if
Certificated Notes have been issued, or notice compliant with the relevant
Depository procedures, if the Notes are not in certificated form,

       

      (ii)            the
aggregate principal amount of the Note (or Notes) with respect to which such
notice of withdrawal is being submitted, and

       

      (iii)           the
principal amount, if any, of such Note (or Notes) which remains subject to the
original Repurchase Notice and which has been or will be delivered for
repurchase by the Company.

       

      The Paying Agent will promptly return
to the respective Holders thereof any Certificated Notes with respect to which a
Repurchase Notice has been withdrawn in compliance with the provisions of this
Section
4.02(b).

       

      The Paying Agent shall promptly notify
the Company of the receipt by it of any written withdrawal of a Repurchase
Notice.

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

      Section
4.03  Deposit of Repurchase
Price.  (a)  Prior to 11:00 a.m. (New York City time)
on or prior to the Business Day immediately following the Repurchase Date in
connection with a Change in Control, the Company shall deposit with the Trustee
or with the Paying Agent (or, if the Company or a Subsidiary or an Affiliate of
either of them is acting as the Paying Agent, shall segregate and hold in trust
as provided in Section 10.03 of the Indenture) an amount of money (in
immediately available funds if deposited on such Business Day) sufficient to pay
the aggregate Repurchase Price of all the Notes or portions thereof which are to
be repurchased as of the Repurchase Date.

       

      If the
Trustee or the Paying Agent holds money sufficient to pay the Repurchase Price
of a Note on the Business Day immediately following such Repurchase Date in
respect of a Change in Control in accordance with the terms hereof, then,
immediately after such Repurchase Date, interest on such Note will cease to
accrue, whether or not the Note is delivered to the Trustee or the Paying Agent,
and all other rights of the Holder shall terminate, other than the right to
receive the Repurchase Price upon delivery of the Note.

       

      (b)           Prior
to 11:00 a.m. (New York City time) on or prior to the Business Day immediately
following the Repurchase Date in connection with a Designated Event that is not
a Change in Control, the Company shall deposit with the Trustee or with the
Paying Agent a number of shares of Common Stock (or other consideration into
which the shares of Common Stock have been converted in connection with the
Designated Event) calculated in accordance with the formula set forth below
sufficient to pay the aggregate Repurchase Price of all the Notes or portions
thereof which are to be repurchased as of the Repurchase Date.  In the
event that holders of Common Stock have the opportunity to elect the form of
consideration to be received in the transaction constituting a Designated Event,
the type, and amount, of consideration that Holders of Notes will receive upon
repurchase will be deemed to be the weighted average of the types and amounts of
consideration received by holders of Common Stock as a result of such Designated
Event.

       

      The
number of shares of Common Stock (or amount of other consideration) to be
delivered upon repurchase in connection with such a Designated Event shall be
determined as follows:

       

      
        	
                Repurchase
      Price

              
	
                Applicable
      Settlement Value

              

      

      

      The
Company will not issue fractional shares of Common Stock (or transfer any
fractional interests in any other consideration).  The Company shall
pay cash for all fractional shares of Common Stock (or fractional interests in
any other consideration) (calculated on an aggregate basis for Notes delivered
for repurchase by any Holder) based on the Applicable Settlement
Value.

       

      Whenever
a payment for fractional shares is to be made by the Trustee or the Conversion
Agent, the Company shall (i) promptly prepare and deliver to the
Trustee/Conversion Agent a certificate setting forth in reasonable detail the
facts related to such payments and the prices and/or formulas utilized in
calculating such payments, and (ii) provide sufficient monies to the
Trustee/Conversion Agent in the form of fully collected funds to make such
payments.  The Trustee/Conversion Agent shall be fully protected in
relying upon such certificate and shall have no duty with respect to, and shall
not be deemed to have knowledge of any payment for fractional shares under any
Section of the Third Supplemental Indenture relating to the payment of
fractional shares unless and until the Trustee/Conversion Agent shall have
received such a certificate and sufficient monies.

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

      All
shares of Common Stock that may be issued upon repurchase of Notes shall upon
issuance be fully paid and nonassessable by the Company and free from all taxes,
liens and charges with respect to the issue thereof.  The Company
covenants to list such Common Stock on the principal national securities
exchange on which the Common Stock is then listed in accordance with the
provisions of such exchange.

       

      If the
Trustee or the Paying Agent holds shares of Common Stock (or other
consideration) sufficient to pay the Repurchase Price of a Note on the Business
Day immediately following the Repurchase Date in respect of a Designated Event
that is not a Change in Control in accordance with the terms hereof, then,
immediately after such Repurchase Date, interest on such Note will cease to
accrue, whether or not the Note is delivered to the Trustee or the Paying Agent,
and all other rights of the Holder shall terminate, other than the right to
receive the Repurchase Price upon delivery of the Note.

       

      Section
4.04  Notes
Repurchased In Part.  Any Note which is to be repurchased only
in part shall be surrendered at the office of the Paying Agent (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder’s attorney duly authorized in writing) and
the Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Note, without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder in aggregate principal
amount equal to, and in exchange for, the portion of the principal amount of the
Note so surrendered that is not repurchased.

       

      Section
4.05  Covenant To Comply With
Securities Laws Upon Repurchase of Notes.  When complying with
the provisions of this Article Four, and subject
to any exemptions available under applicable law, the Company
shall:

       

      (a)           comply
in all material respects with the applicable provisions of Rule 13e-4 and Rule
14e-1 (or any successor provision) and any other issuer tender offer rules under
the Exchange Act, as then applicable;

       

      (b)           file
the related Schedule TO (or any applicable successor schedule, form or report)
if then required, or any other then required schedule, form or report, under the
Exchange Act; and

       

      (c)           otherwise
comply with all federal and state securities laws.

       

      To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of Article Four of the Third
Supplemental Indenture, the Company’s compliance with such laws and regulations
shall not in and of itself cause a breach of its obligations under Article Four of the Third
Supplemental Indenture.

       

      Section
4.06  Repayment to the
Company.  The Trustee and the Paying Agent shall return to the
Company any cash, shares of Common Stock or other property or assets that remain
unclaimed for two years, subject to applicable unclaimed property law, together
with interest, if any, thereon held by them for the payment of the Repurchase
Price; provided
however, that to the extent that the aggregate amount of cash, shares of
Common Stock or other property or assets deposited by the Company pursuant to
Section 4.03 of the
Third Supplemental Indenture exceeds the aggregate Repurchase Price of the Notes
or portions thereof which the Company is obligated to repurchase as of the
Repurchase Date, then on the Business Day immediately following the Repurchase
Date, the Trustee or Paying Agent, as applicable, shall return any such excess
to the Company.  Thereafter, any Holder entitled to payment must look
to the Company for payment as general creditors, unless an applicable abandoned
property law designates another Person.

      
        
           

        

        
          21

          
            

          

        

        
           

        

      

      ARTICLE
FIVE

       

      CONVERSION
OF SECURITIES

       

      Section
5.01  Right
to Convert.

       

      (a)           Upon
compliance with the provisions of the Third Supplemental Indenture, subject to
the Company’s rights to terminate Holders’ conversion rights on or after
November 20, 2014 in accordance with Section 5.02 of the Third
Supplemental Indenture, a Holder shall have the right, at such Holder’s option,
to convert any Note or any portion of the principal amount thereof which is an
integral multiple of $1,000, or of such portion thereof, (i) subject to
satisfaction of one or more of the conditions described in Section 5.01(b), at any time
and from time to time prior to October 15, 2016 under the circumstances and
during the periods set forth in Section 5.01(b), and (ii)
regardless of the conditions described in Section 5.01(b), at any time
on or after October 15, 2016 and prior to the Close of Business on the Business
Day immediately preceding the Stated Maturity, in each case, at the Conversion
Rate in effect at the time of conversion (subject to settlement provisions of
Section 5.04
below).  Unless earlier terminated in accordance with Section 5.02 of the Third
Supplemental Indenture, Holders’ rights to surrender for Notes for conversion
will expire at the Close of Business on the Business Day immediately preceding
the Stated Maturity.

       

      (b)           (i)           Prior
to October 15, 2016, a Holder may surrender all or a portion of its Notes for
conversion during any fiscal quarter (and only during such fiscal quarter)
commencing after the fiscal quarter ending December 31, 2009, if the Closing
Sale Price of the Common Stock for at least 20 Trading Days during the period of
30 consecutive Trading Days ending on the last Trading Day of the immediately
preceding fiscal quarter is greater than or equal to 130% of the applicable
Conversion Price on the applicable Trading Day.

       

      
        (ii)           Prior to
October 15, 2016, a Holder may surrender all or a portion of its Notes for
conversion during the five Business Day period after any five consecutive
Trading Day period (the “Measurement Period”) in which
the Trading Price per $1,000 in principal amount of Notes, as determined
following a request by a Holder of Notes in accordance with the procedures
described below, for each Trading Day of such Measurement Period was less than
98% of the product of the Closing Sale Price of the Common Stock and the
applicable Conversion Rate for the Notes for such Trading Day (the “Trading Price
Condition”).

      

       

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

      
        The Bid
Solicitation Agent shall have no obligation to determine the Trading Price of
the Notes unless the Company has requested such determination in writing from
the Bid Solicitation Agent, such writing to (i) set forth the identity of three
independent nationally recognized securities dealers and (ii) direct the Bid
Solicitation Agent to contact said dealers for the purpose of obtaining the
Trading Price of the Notes, and the Company shall have no obligation to make
such request of the Bid Solicitation Agent unless a Holder of a Note provides
the Company with reasonable evidence that the Trading Price per $1,000 in
principal amount of the Notes would be less than 98% of the product of the
applicable Conversion Rate and the Closing Sale Price of the Common Stock. At
such time, the Company shall instruct the Bid Solicitation Agent to determine
the Trading Price of the Notes beginning on the next Trading Day and on each
successive Trading Day until the Trading Price per $1,000 principal amount of
Notes is greater than or equal to 98% of the product of the applicable
Conversion Rate and the Closing Sale Price of the Common Stock on such Trading
Day.  If the Trading Price Condition has been met, the Company shall
so notify the Holders, the Trustee and the Conversion Agent.  If, at
any time after the Trading Price Condition set forth above has been met, the
Trading Price per $1,000 principal amount of Notes is greater than or equal to
98% of the product of the applicable Conversion Rate and the Closing Sale Price
of the Common Stock on such Trading Day, the Company shall so notify the Holders
of the Notes, the Trustee and the Conversion Agent.

      

       

      
        (iii)          
If, prior
to October 15, 2016, the Company elects to:

      

       

      
        (A)     
issue to
all or substantially all holders of the Common Stock any rights, options or
warrants (in the case of rights issued under the Company’s current Rights Plan
or any future Rights Plan, only following the distribution of separate
certificates evidencing such rights) entitling them for a period expiring 60
days or less from the date of issuance of such rights, options or warrants to
purchase shares of Common Stock (or securities convertible into Common Stock) at
less than (or having a Conversion Price per share less than) the average of the
Closing Sale Prices of the Common Stock for the ten consecutive Trading Day
period ending on, and including, the Trading Day immediately preceding the
Ex-Date for such issuance; or

      

       

      
        (B)     
distribute
to all or substantially all holders of the Common Stock assets of the Company
(including Cash), debt securities or rights to purchase securities of the
Company, which distribution has a per share value (as reasonably determined by
the Board of Directors) exceeding 10% of the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the date of announcement for such
distribution,

      

       

      then, in
each case, the Company shall notify the Holders of Notes and the Trustee at
least 30 Business Days prior to the Ex-Date for such issuance or
distribution.  Once the Company has given such notice, Holders may
surrender all or a portion of their Notes for conversion at any time until the
earlier of the Close of Business on the Business Day immediately preceding the
Ex-Date and the announcement by the Company that such issuance or distribution
will not take place, even if the Notes are not otherwise convertible at such
time.

       

      (iv)           If,
prior to October 15, 2016, a transaction or event that constitutes a Designated
Event occurs, or if the Company is a party to a consolidation, merger, binding
share exchange, or transfer or lease of all or substantially all of the
Company’s assets, pursuant to which the Common Stock would be converted into
cash, securities or other assets, Holders may surrender all or a portion their
Notes for conversion at any time from or after the date that is 30 Business Days
prior to the anticipated effective date of the transaction until 35 Business
Days after the actual effective date of such transaction or, if such transaction
also constitutes a Designated Event or Change in Control, until the Close of
Business on the Business Day immediately preceding the related Repurchase Date
in respect of such Designated Event or Change in Control.  The Company
shall notify the Holders and the Trustee (A) as promptly as practicable
following the date the Company publicly announces such transaction but in no
event less than 30 Business Days prior to the anticipated effective date of such
transaction; or (ii) if the Company does not have knowledge of such transaction
at least 30 Business Days prior to the anticipated effective date of such
transaction, within one Business Day of the date upon which the Company receives
notice, or otherwise becomes aware, of such transaction, but in no event later
than the actual effective date of such transaction.  The Company shall
also issue a press release through Dow Jones & Company, Inc. or Bloomberg
Business News or other similarly broad public medium that is customary for such
press releases.

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

      (v)           Prior
to October 15, 2016, if the Company elects to terminate Holders’ conversion
rights in accordance with Section 5.02 of the Third
Supplemental Indenture, Holders may convert all of a portion of their Notes
during the period from, and including, the date of the Termination Notice, to
the Close of Business on the Business Day prior to the Conversion Rights
Termination Date, even if the Notes are not otherwise convertible at such time,
after which time, the Holders’ right to convert will expire.

       

      (c)           Subject
to Sections 5.02, 5.03 and 5.04 of the Third Supplemental
Indenture, each Note shall be convertible at the office of the Conversion Agent
accompanied by a duly signed and completed Conversion Notice.

       

      (d)           The
rate at which shares of Common Stock shall be delivered upon conversion (the
“Conversion Rate”) shall
be initially 107.5269 shares of Common Stock for each $1,000 principal amount of
Notes, subject to adjustment, in certain instances, as provided in Section 5.09 of the Third
Supplemental Indenture, and further subject to increase in certain instances, as
provided in Section 5.08 of the Third
Supplemental Indenture.

       

      (e)           A
Note in respect of which a Holder has delivered a Repurchase Notice exercising
the option of such Holder to require the Company to repurchase such Note shall
not be converted unless such notice is withdrawn in accordance with Section 4.02(b) of the
Third Supplemental Indenture.

       

      Section
5.02  Right
to Terminate Conversion Rights.

       

      (a)           The
Company may elect, in its sole discretion, upon at least 30 and not more than 60
days’ notice, to terminate the Holders’ rights to convert the Notes on or after
November 20, 2014 (such date of termination of conversion rights is
referred to herein as the “Conversion Rights Termination
Date”), if the Closing Sale Price of Common Stock exceeds 130% of the
then applicable Conversion Price for 20 Trading Days in any consecutive 30
Trading Day period ending on the Trading Day either (a) five calendar days
prior to the mailing of the notice of termination of conversion rights (the
“Termination Notice”),
provided that the
Closing Sale Price of Common Stock on such 30th Trading Day exceeded 130% of the
then applicable Conversion Price, or (b) immediately prior to the mailing
of the Termination Notice, regardless of the Closing Sale Price of Common Stock
on such 30th Trading Day.

       

      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      (b)           If
the Company makes the election pursuant to Section 5.02(a) of the
Third Supplemental Indenture, the Company shall notify the Trustee and the
Holders at their addresses shown in the Security Register and the Company shall,
on a date not less than 30 days prior to the Conversion Rights Termination Date,
disseminate a press release through Dow Jones & Company, Inc. or Bloomberg
Business News or other similarly broad public medium that is customary for such
press releases.

       

      Section
5.03  Conversion
Procedures.

       

      (a)           To
convert a Note that is represented by a Certificated Note, a Holder must
(1) complete and manually sign the Conversion Notice or a facsimile of the
Conversion Notice on the back of the Note in substantially the form set forth in
Exhibit A attached hereto (the “Conversion Notice”) and
deliver such Conversion Notice to the Conversion Agent, (2) surrender the
Note to the Conversion Agent, (3) if required by the Conversion Agent,
furnish appropriate endorsement and transfer documents, (4) if required,
pay all transfer or similar taxes as described in Section 5.06 of the Third
Supplemental Indenture and (5) if required, pay funds equal to the interest
payable on the next Interest Payment Date as described in Section 5.03(e) of the
Third Supplemental Indenture.  To convert a Note represented by a
Global Note, a Holder must convert by book-entry transfer to the Conversion
Agent through the facilities of the Depository and otherwise comply with the
provisions of clauses (3), (4) and (5) above, if applicable.  The date
on which the Holder satisfies all of the requirements is the “Conversion Date.”

       

      (b)           No
payment or adjustment shall be made for dividends on, or other distributions
with respect to, any Common Stock except as provided in this Article Five.  Upon
conversion of a Note, a Holder shall not receive, except as described below, any
Cash payment representing accrued interest.  Upon conversion of a
Note, any accrued and unpaid interest with respect to such Note shall not be
cancelled, extinguished or forfeited but rather shall be deemed paid in full to
the Holder of such Note through the delivery of the Common Stock (together with
the cash payment, if any, in lieu of fractional shares), or cash or a
combination of cash and Common Stock in lieu thereof, in exchange for the Note
being converted pursuant to the provisions hereof, and the fair market value of
the Common Stock (together with the cash payment, if any, in lieu of fractional
shares), or cash or a combination of cash and Common Stock in lieu thereof,
shall be treated as issued, to the extent thereof, first in exchange for any
accrued and unpaid interest, and the balance, if any, of such fair market value
shall be treated as issued in exchange for the principal amount of Notes being
converted pursuant to the provisions hereof.  Notwithstanding the
preceding sentence (but without limiting to Holder’s obligation in Section 5.03(e) of the
Third Supplemental Indenture), upon conversion of a Note during the period from
the Close of Business on any Regular Record Date immediately preceding any
Interest Payment Date to the Open of Business on such Interest Payment Date, the
Holder on such Regular Record Date shall receive the full amount of interest
payable on such Interest Payment Date.

       

      (c)           If
a Holder converts more than one Note at the same time, consideration due upon
the conversion shall be based on the aggregate principal amount of Notes
converted.

       

      (d)           Upon
surrender of a Note that is converted in part, the Company shall execute, and
the Trustee shall authenticate and deliver to the Holder, a new Note equal in
principal amount to the principal amount of the unconverted portion of the Notes
surrendered.

      
        
           

        

        
          25

          
            

          

        

        
           

        

      

      (e)           Notes
or portions thereof surrendered for conversion during the period from the Close
of Business on any Regular Record Date immediately preceding any Interest
Payment Date to the Open of Business on such Interest Payment Date shall be
accompanied by payment to the Company or its order, in New York Clearing House
funds or other funds acceptable to the Company, of an amount equal to the
interest payable on such Interest Payment Date with respect to the principal
amount of Notes or portions thereof being surrendered for conversion; provided that no such payment
need be made with respect to conversions during such period (1) for conversions
following the Regular Record Date immediately preceding the Stated Maturity, (2)
if the Company has given notice of a Designated Event or Change in Control, (3)
if the Company has given notice to terminate the Holders’ conversion rights
pursuant to Section 5.02
of the Third Supplemental Indenture or (4) to the extent of any Defaulted
Interest, if any Defaulted Interest exists at the time of conversion with
respect to such Notes.

       

      (f)           If
the last day on which a Note may be converted is not a Business Day, the Note
may be surrendered for conversion on the next succeeding day that is a Business
Day.

       

      (g)           The
Company has initially appointed the Trustee as Conversion Agent.  The
Company may terminate the appointment of any Conversion Agent or appoint
additional or other Conversion Agents.  Notice of any termination or
appointment and of any change in the office through which any Conversion Agent
will act shall be given in accordance with Section 17.03 of the
Indenture.

       

      Section
5.04  Settlement upon
Conversion.

       

      (a)           Upon
any conversion of any Note, the Company shall deliver to converting Holders, in
respect of each $1,000 principal amount of Notes being converted, at the
Company’s election, in full satisfaction of the Company’s obligation to settle
such conversion, (1) shares of Common Stock, together with cash in lieu of
fractional shares, if any (a “Physical Settlement”),
(2) a Cash payment without any delivery of shares of Common Stock (a “Cash Settlement”) or
(3) a combination of Cash and shares of Common Stock, together with cash in
lieu of fractional shares, if any (a “Combination Settlement”), in
each case, as set forth in Section 5.04(c) below, and the
amount of Cash and/or the number of shares of Common Stock so deliverable upon
conversion of the Notes is referred to herein as the “Conversion
Obligation.”

       

      (b)           All
conversions with a Conversion Date on or after October 15, 2016, and all
conversions during the period from, and including, the date of the Termination
Notice, to the Close of Business on the Business Day prior to the Conversion
Rights Termination Date, shall be settled using the same Settlement
Method.  Prior to October 15, 2016, except for conversions occurring
on or after the date of the Termination Notice, the Company shall treat all
conversions occurring on the same Conversion Date in the same manner by using
the same Settlement Method.  Except as set forth in the second
immediately preceding sentence, however, the Company shall not have any
obligation to settle Conversion Obligations arising on different Trading Days in
the same manner.

       

      Unless the Company has made an
Irrevocable Election pursuant to Section 5.04(d) of the
Third Supplemental Indenture, if the Company elects a Settlement Method, the
Company shall provide to all converting Holders, by notice to the Trustee and
the Conversion Agent, a notice of the chosen Settlement Method no later than the
second Trading Day immediately following the related Conversion Date (or in the
case of conversions occurring on or after (i) the date of the Termination Notice
pursuant to Section 5.02
of the Third Supplemental Indenture, concurrently with such Termination Notice
or (ii) October 15, 2016, no later than October 15, 2016) (such period, the
“Settlement Notice
Period”).  Unless the Company has made an Irrevocable Election
pursuant to Section
5.04(d) of the Third Supplemental Indenture, in respect of any conversion
of Notes, if the Company fails to provide notice of its elected Settlement
Method within the Settlement Notice Period for such conversion, the Company
shall no longer have the right to elect Cash Settlement or Combination
Settlement in respect of such conversion, and the Company shall be deemed to
have elected Physical Settlement to satisfy its Conversion
Obligation.

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

      If the Company has selected Combination
Settlement and provides notice within the Settlement Notice Period, but the
notice electing Combination Settlement does not indicate the Specified Dollar
Amount, the Specified Dollar Amount per $1,000 principal amount of Notes shall
be $1,000.

       

      The Company may, in lieu of sending
individual notices of its election, send one notice to all Holders of the method
the Company chooses to satisfy its Conversion Obligation for conversions
following delivery of a Termination Notice or on or after October 15,
2016.

       

      (c)           With
respect to any Conversion Notice received by the Company, the consideration to
be paid or delivered, as the case may be, for any Note subject to such
Conversion Notice shall be computed as follows:

       

      (i)          
  if the Company has elected (or is deemed to have elected) Physical
Settlement, the Company shall deliver to the converting Holder a number of
shares of Common Stock equal to the product of (A) the aggregate principal
amount of the Notes to be converted, divided by $1,000, and
(B) the applicable Conversion Rate;

       

      (ii)       
    if the Company has elected Cash Settlement, the Company
shall pay to the converting Holder in respect of each $1,000 principal amount of
Notes being converted cash in an amount equal to the sum of the Daily Conversion
Values for each of the 20 consecutive Trading Days during the relevant Cash
Settlement Averaging Period; and

       

      (iii)           if
the Company has elected Combination Settlement, the Company shall pay or
deliver, as the case may be, to the converting Holder in respect of each $1,000
principal amount of Notes being converted the Settlement Amount.

       

      (d)           Notwithstanding
anything to the contrary in the Third Supplemental Indenture, at any time on
prior to the 22nd Business Day immediately preceding the Stated Maturity, the
Company may irrevocably elect (“Irrevocable Election”), in its
sole discretion without the consent of the Holders of the Notes, by written
notice to the Trustee and the Holders of the Notes, to satisfy its Conversion
Obligation for all Notes to be converted after the date of such Irrevocable
Election with a combination of cash and shares of Common Stock, in which case
the Company shall settle all conversions occurring after the date of such
Irrevocable Election as if the Company had elected Combination Settlement with a
Specified Dollar Amount equal to $1,000 per $1,000 principal amount of Notes to
be converted.  If the Company makes such Irrevocable Election, the
Company shall notify the Trustee and the Holders at their addresses shown in the
Security Register.

       

      (e)           The
Company shall settle its Conversion Obligations (i) on the third Business Day
immediately following the relevant Conversion Date, if the Company elects a
Physical Settlement, and (ii) on the third Business Day immediately
following the last Trading Day of the relevant Cash Settlement Averaging Period,
if the Company elects any other Settlement Method (including if the Company has
made an Irrevocable Election pursuant to Section 5.04(d) of the Third
Supplemental Indenture).

      
        
           

        

        
          27

          
            

          

        

        
           

        

      

      (f)           Each
conversion will be deemed to have been effected as to any Notes surrendered for
conversion on the Conversion Date; provided, however, that the
person in whose name any shares of the Common Stock shall be issuable upon such
conversion will become the holder of record of such shares as of the Close of
Business on the Conversion Date (if Physical Settlement applies) or the last
Trading Day of the relevant Cash Settlement Averaging Period (if Combination
Settlement applies or if the Company has made an Irrevocable Election pursuant
to Section
5.04(d)).

       

      Section
5.05  Fractional
Shares.  The Company shall not issue a fractional share of
Common Stock upon conversion of a Note.  However, if any fractional
share of Common Stock would be issuable upon the conversion of any Notes, the
Company shall make payment therefor in cash in lieu of fractional shares of
Common Stock (calculated on an aggregate basis for the Notes surrendered by a
Holder for conversion) based on:

       

      (i)           if
Physical Settlement applies, the Daily VWAP of the Common Stock on the relevant
Conversion Date, and

       

      (ii)           if
Combination Settlement applies or if the Company has made an Irrevocable
Election pursuant to Section
5.04(d) of the Third Supplemental Indenture, the Daily VWAP of the Common
Stock on the last Trading Day of the relevant Cash Settlement Averaging
Period.

       

      Section
5.06  Taxes
on Conversion.  If a Holder converts a Note, the Company shall
pay any taxes or duties relating to the issue or delivery of Common Stock upon
conversion of the Note.  However, the Holder shall pay any such tax
which is due because the Holder requests the shares to be issued in a name other
than the Holder’s name.  The Conversion Agent may refuse to deliver
the certificates representing the Common Stock being issued in a name other than
the Holder’s name until the Conversion Agent receives a sum sufficient to pay
any tax which will be due because the Common Stock is to be delivered in a name
other than the Holder’s name.  Nothing herein shall preclude any tax
withholding required by law or regulations.

       

      Section
5.07  Reservation of Shares,
Shares to be Fully Paid; Listing of Common Stock.

       

      (a)           The
Company shall provide, free from preemptive rights, out of its authorized but
unissued shares or shares held in treasury, sufficient shares of Common Stock to
provide for the conversion of the Notes from time to time as such Notes are
presented for conversion.

       

      (b)           All
shares of Common Stock that may be issued upon conversion of Notes (including
all shares of Common Stock to be delivered by a Financial Institution in the
case of an exchange in lieu of conversion pursuant to Section 5.11 of the Third
Supplemental Indenture) shall upon issuance be fully paid and nonassessable by
the Company and free from all taxes, liens and charges with respect to the issue
thereof.

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

      (c)           The
Company shall, if at any time the Common Stock shall be listed on The New York
Stock Exchange or any other national securities exchange or automated quotation
system, if permitted by the rules of such exchange or automated quotation
system, list and keep listed, so long as the Common Stock shall be so listed on
such exchange or automated quotation system, all Common Stock issuable upon
conversion of the Note; provided, however, that, if
the rules of such exchange or automated quotation system permit the Company to
defer the listing of such Common Stock until the first conversion of the Notes
into Common Stock in accordance with the provisions of the Third Supplemental
Indenture, the Company covenants to list such Common Stock issuable upon
conversion of the Notes in accordance with the requirements of such exchange or
automated quotation system at such time.

       

      Section
5.08  Adjustment to the Conversion
Rate upon a Designated Event.

       

      (a)           Subject
to the terms and conditions of this Section 5.08, if the
Effective Date of a transaction that constitutes a Designated Event occurs on or
prior to the Stated Maturity, and a Holder elects to convert its Notes in
connection with such Designated Event, the Company shall increase the applicable
Conversion Rate for the Notes surrendered for conversion by a number of
additional shares of Common Stock (the “Additional Shares”), as
described in this Section 5.08.  A
conversion of Notes shall be deemed for the purposes of this Section 5.08 to be “in
connection with” a Designated Event if such Notes are surrendered for conversion
during the period commencing on the Effective Date for such Designated Event and
ending on the Repurchase Date in connection with such transaction, if applicable
or, if there is no Repurchase Date, ending on the 30th day
following the Effective Date of such transaction.

       

      Notwithstanding
the foregoing, no increase in the Conversion Rate shall be made in the case of
any Designated Event if at least 90% of the consideration, excluding cash
payments for fractional shares of Common Stock and cash payments made pursuant
to dissenters’ appraisal rights, in a transaction otherwise constituting a
Designated Event consists of shares of common stock, depositary receipts or
other certificates representing common equity interests traded on a U.S.
national securities exchange or other similar market, or will be so traded
immediately following such transaction, and as a result of such transaction the
Notes become convertible solely into such consideration, subject to the
provisions set forth in Section
5.04 of the Third Supplemental Indenture.

       

      (b)           The
Company shall mail a notice to Holders of any Designated Event and issue a press
release with respect to such Designated Event through Dow Jones & Company,
Inc. or Bloomberg Business News or other similarly broad public medium that is
customary for such press releases in accordance with Section 5.01(b)(iv) of the
Third Supplemental Indenture.  The failure to deliver such notice or
issue such press release shall not affect the validity of such
transaction.

       

      (c)           The
number of Additional Shares shall be determined by reference to the table below
in (d)(ii) of this Section and shall be based on the Effective Date and the
Applicable Price for such Designated Event.

       

      (d)           (i)  The Applicable
Prices set forth in the first row of the table below (i.e., the column headers),
shall be adjusted as of any date on which the Conversion Rate of the Notes is
adjusted.  The adjusted Applicable Prices will equal the Applicable
Prices in effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which is the Conversion Rate in effect immediately prior to the
adjustment giving rise to such adjustment and the denominator of which is the
Conversion Rate as so adjusted.  The number of Additional Shares in
the table will be subject to adjustment in the same manner and at the same time
as the Conversion Rate as set forth under Section 5.09 of the Third
Supplemental Indenture.

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

      (ii)           The
following table sets forth the number of Additional Shares to be added to the
Conversion Rate per $1,000 principal amount of Notes for the specified Effective
Dates and Applicable Prices:

       

      
        	 
      	 	
                Applicable
      Price

              	 
	
                Effective Date

              	 	$	7.44	 	 	$	8.00	 	 	$	10.00	 	 	$	12.00	 	 	$	14.00	 	 	$	16.00	 	 	$	18.00	 	 	$	20.00	 	 	$	22.00	 	 	$	24.00	 	 	$	26.00	 	 	$	28.00	 	 	$	30.00	 	 	$	32.00	 
	
                November
      9, 2009

              	 	 	26.8817	 	 	 	25.2632	 	 	 	17.2721	 	 	 	12.5344	 	 	 	9.4742	 	 	 	7.3709	 	 	 	5.8559	 	 	 	4.7246	 	 	 	3.8551	 	 	 	3.1713	 	 	 	2.6236	 	 	 	2.1783	 	 	 	1.8118	 	 	 	1.5071	 
	
                November 15,
      2010

              	 	 	26.8817	 	 	 	25.1001	 	 	 	16.6912	 	 	 	11.8336	 	 	 	8.7745	 	 	 	6.7208	 	 	 	5.2723	 	 	 	4.2099	 	 	 	3.4060	 	 	 	2.7819	 	 	 	2.2871	 	 	 	1.8883	 	 	 	1.5622	 	 	 	1.2926	 
	
                November 15,
      2011

              	 	 	26.8817	 	 	 	24.7086	 	 	 	15.7523	 	 	 	10.7459	 	 	 	7.7045	 	 	 	5.7362	 	 	 	4.3959	 	 	 	3.4441	 	 	 	2.7439	 	 	 	2.2130	 	 	 	1.8004	 	 	 	1.4727	 	 	 	1.2080	 	 	 	0.9910	 
	
                November 15,
      2012

              	 	 	26.8817	 	 	 	24.2489	 	 	 	14.4732	 	 	 	9.2209	 	 	 	6.1930	 	 	 	4.3510	 	 	 	3.1779	 	 	 	2.3984	 	 	 	1.8589	 	 	 	1.4714	 	 	 	1.1824	 	 	 	0.9603	 	 	 	0.7846	 	 	 	0.6424	 
	
                November 15,
      2013

              	 	 	26.8817	 	 	 	23.4136	 	 	 	12.4033	 	 	 	6.7248	 	 	 	3.7297	 	 	 	2.1501	 	 	 	1.3170	 	 	 	0.8714	 	 	 	0.6239	 	 	 	0.4765	 	 	 	0.3808	 	 	 	0.3119	 	 	 	0.2586	 	 	 	0.2148	 
	
                November 15,
      2014

              	 	 	26.8817	 	 	 	22.5755	 	 	 	9.4819	 	 	 	1.8374	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 
	
                November 15,
      2015

              	 	 	26.8817	 	 	 	20.9167	 	 	 	7.5349	 	 	 	1.2560	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 
	
                November 15,
      2016

              	 	 	26.8817	 	 	 	17.4731	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 	 	 	0.0000	 

      

      

      (e)           If
the exact Applicable Price and Effective Date are not set forth in the table
above, then:

       

      (i)        
    if the actual Applicable Price is between two prices in
the table or the Effective Date is between two Effective Dates in the table, the
Additional Shares issued upon conversion of the Notes shall be determined by a
straight-line interpolation between the number Additional Shares set forth for
the higher and lower Applicable Prices and/or the earlier and later Effective
Dates in the table, based on a 365-day year, as applicable;

       

      (ii)      
     if the actual Applicable Price is equal to or in
excess of $32.00 per share (subject to adjustment in the same manner as the
Applicable Prices set forth in the table above), no Additional Shares shall be
added to the Conversion Rate; and

       

      (iii)           if
the Applicable Price is equal to or less than $7.44 per share (subject to
adjustment in the same manner as the Applicable Prices set forth in the table
above), no Additional Shares shall be added to the Conversion Rate.

       

      (f)           Notwithstanding
the foregoing, in no event shall the Company increase the Conversion Rate if the
increase shall cause the Conversion Rate to exceed 134.4086 shares per $1,000
principal amount of Notes, subject to adjustment in the same manner and at the
same time as the Conversion Rate as set forth in Section 5.09(a)(1)
through (a)(4) of
the Third Supplemental Indenture.

       

      Section
5.09   Conversion Rate
Adjustments.

       

      (a)           The
Conversion Rate shall be adjusted for the following events:

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

      (1)           The
issuance of Common Stock as a dividend or distribution to all holders of Common
Stock, or a subdivision or combination of Common Stock, in which event the
Conversion Rate will be adjusted based on the following formula:

       

      
        	
                CR1

              	
                =

              	
                CR0

              	
                x

              	
                
                  OS1

                

              
	 
      	 
      	 
      	 
      	
                OS0

              

      

      

      where,

       

      
        	
                CR
      0

              	
                =

              	
                the
      Conversion Rate in effect immediately prior to the Open of Business on the
      Ex-Date of such dividend or distribution, or immediately prior to the Open
      of Business on the effective date of such subdivision or combination, as
      applicable;

              

      

      
        	
                CR
      1

              	
                =

              	
                the
      Conversion Rate in effect immediately after the Open of Business on such
      Ex-Date or effective date;

              

      

      
        	
                OS
      0

              	
                =

              	
                the
      number of shares of Common Stock outstanding immediately prior to the Open
      of Business on such Ex-Date or effective date;
  and

              

      

      
        	
                OS
      1

              	
                =

              	
                the
      number of shares of Common Stock that would be outstanding immediately
      after, and solely as a result of, such
event.

              

      

       

      Such
adjustment shall become effective immediately after the Open of Business on the
Ex-Date for such dividend or distribution, or immediately after the Open of
Business on the effective date for such subdivision or
combination.  If any dividend or distribution of the type described in
this clause (1) is declared but not so paid or made, or any subdivision or
combination of the type described in this clause (1) is announced by the
outstanding shares of Common Stock are not subdivided or combined, as the case
may be, the Conversion Rate shall be immediately readjusted, effective as of the
date the Board of Directors determines not to pay such dividend or distribution,
or not to subdivide or combine the outstanding shares of Common Stock, as the
case may be, to the Conversion Rate that would then be in effect if such
dividend, distribution, subdivision or combination had not been declared or
announced.

       

      (2)           The
issuance to all holders of Common Stock of rights, options or warrants entitling
them for a period expiring 60 days or less from the date of issuance of such
rights, options or warrants to purchase shares of Common Stock (or securities
convertible into Common Stock) at less than (or having a conversion price per
share less than) the Current Market Price of Common Stock, in which event the
Conversion Rate will be adjusted based on the following formula:

       

      
        	
                CR1

              	
                =

              	
                CR0

              	
                x

              	
                
                  OS0+X

                

              
	 
      	 
      	 
      	 
      	
                OS0+Y

              

      

      

      where,

       

      
        	
                CR
      0

              	
                =

              	
                the
      Conversion Rate in effect immediately prior to the Open of Business on the
      Ex-Date for such issuance;

              

      

      
        	
                CR
      1

              	
                =

              	
                the
      Conversion Rate in effect immediately after the Open of Business on such
      Ex-Date;

              

      

      
        	
                OS
      0

              	
                =

              	
                the
      number of shares of Common Stock outstanding immediately prior to the Open
      of Business on such Ex-Date;

              

      

      
        
           

        

        
          31

          
            

          

        

        
           

        

      

      
        	
                X

              	
                =

              	
                the
      total number of shares of Common Stock issuable pursuant to such rights,
      options or warrants; and

              

      

      
        	
                Y

              	
                =

              	
                the
      aggregate price payable to exercise such rights, options or warrants
      divided by the average of the Closing Sale Prices of Common Stock for the
      ten consecutive Trading Days ending on the Trading Day immediately
      preceding the Ex-Date.

              

      

       

      Any adjustments made under this clause
(2) shall be made successively whenever any such rights, options or warrants are
issued and shall become effective immediately after the Open of Business on the
Ex-Date for such issuance. To the extent such shares of Common Stock are not
delivered after the expiration of such rights, options or warrants, the
Conversion Rate shall be readjusted to the Conversion Rate that would then be in
effect had the adjustments made upon the issuance of such rights, options or
warrants been made on the basis of the delivery of only the number of shares of
Common Stock actually delivered.  In the event that such rights,
options or warrants are not so issued, the Conversion Rate shall again be
adjusted to be the Conversion Rate that would then be in effect if the Ex-Date
for such issuance had not occurred.

       

      For the purposes of this clause (2), in
determining whether any rights, options or warrants entitle the holders to
subscribe for or purchase shares of Common Stock at less than (or having a
conversion price per share less than) the Current Market Price of the Common
Stock, and in determining the aggregate offering price of such shares of Common
Stock, there shall be taken into account any consideration received by the
Company for such rights, options or warrants and any amount payable on the
exercise or conversion thereof, with the value of such consideration, if other
than Cash, to be determined in good faith by the Board of
Directors.

       

      (3)           The
dividend or other distribution to all holders of Common Stock of shares of the
Capital Stock (other than Common Stock) or evidences of the Company’s
indebtedness, rights, options or warrants to purchase the Company’s securities,
or the Company’s assets (excluding any dividend, distribution or issuance
covered by clauses (1) or (2) above or (4) or (5) below), in which event the
Conversion Rate will be adjusted based on the following formula:

       

      
        	
                CR1

              	
                =

              	
                CR0

              	
                x

              	
                
                  SP0

                

              
	 
      	 
      	 
      	 
      	
                SP0-FMV

              

      

      

      where,

       

      
        	
                CR
      0

              	
                =

              	
                the
      Conversion Rate in effect immediately prior to the Open of Business on the
      Ex-Date for such dividend or
distribution;

              

      

      
        	
                CR
      1

              	
                =

              	
                the
      Conversion Rate in effect immediately after the Open of Business on such
      Ex-Date;

              

      

      
        	
                SP
      0

              	
                =

              	
                the
      Current Market Price of Common Stock;
and

              

      

      
        	
                FMV

              	
                =

              	
                the
      fair market value (as determined in good faith by the Board of Directors),
      on the Ex-Date for such dividend or distribution, of the shares of Capital
      Stock, evidences of indebtedness or assets so distributed, expressed as an
      amount per share of Common Stock.

              

      

       

      If “FMV”
(as defined above) is equal to or greater than “SP0” (as
defined above), in lieu of the foregoing adjustment, each Holder of Notes shall
receive, in respect of each $1,000 principal amount of Notes, at the same time
and upon the same terms as holders of the Common Stock, the amount and kind of
Capital Stock, evidences of its indebtedness, other assets or property of the
Company or rights, options or warrants to acquire the Company’s capital stock or
other securities that such Holder would have received as if such Holder owned a
number of shares of Common Stock equal to the Conversion Rate in effect on the
Ex-Date for the dividend or distribution.

      
        
           

        

        
          32

          
            

          

        

        
           

        

      

      Any
adjustment made under the portion of this clause (3) above shall become
effective immediately after the Open of Business on the Ex-Date for such
dividend or distribution.  If such dividend or distribution is not so
paid or made, the Conversion Rate shall be re-adjusted to be the Conversion Rate
that would then be in effect if such dividend or distribution had not been
declared.

       

      If the
transaction that gives rise to an adjustment pursuant to this clause (3) is,
however, one pursuant to which the payment of a dividend or other distribution
on Common Stock consists of shares of capital stock of, or similar equity
interests in, a subsidiary of the Company or other business unit of the Company
(i.e., a spin-off) that
are, or, when issued, will be, traded or quoted on The New York Stock Exchange
or any other national or regional securities exchange or market (a “Spin-off”), then the
Conversion Rate will instead be adjusted based on the following
formula:

       

      
        	
                CR1

              	
                =

              	
                CR0

              	
                x

              	
                
                  FMV0+MP0

                

              
	 
      	 
      	 
      	 
      	
                MP0

              

      

      

      where,

       

      
        	
                CR
      0

              	
                =

              	
                the
      Conversion Rate in effect immediately prior to the Close of Business on
      the last Trading Day of the Valuation Period (as defined
      below);

              

      

      
        	
                CR
      1

              	
                =

              	
                the
      Conversion Rate in effect immediately after the Close of Business on the
      last Trading Day of the Valuation
Period;

              

      

      
        	
                FMV
      0

              	
                =

              	
                the
      average of the Closing Sale Prices of the Capital Stock or similar equity
      interests distributed to holders of Common Stock applicable to one share
      of Common Stock over the 10 consecutive Trading-Day period after, and
      including, the third Trading Day immediately following the Ex-Date of the
      Spin-off (the “Valuation
      Period”); and

              

      

      
        	
                MP
      0

              	
                =

              	
                the
      average of the Closing Sale Prices of Common Stock over the Valuation
      Period.

              

      

       

      The
adjustment to the Conversion Rate under the preceding paragraph shall occur on
the last day of the Valuation Period, but shall be given effect as of the Open
of Business on the Ex-Date for the Spin-off.  If the Ex-Date for the
Spin-off is less than 10 Trading Days prior to, and including, the end of the
Cash Settlement Averaging Period in respect of any conversion, references within
this clause (3) with respect to 10 Trading Days shall be deemed replaced, for
purposes of calculating the affected daily Conversion Rates in respect of that
conversion, with such lesser number of Trading Days as have elapsed from, and
including, the Ex-Date for such Spin-off to, and including, the last Trading Day
of such Cash Settlement Averaging Period.

       

      (4)           Dividends
or other distributions consisting exclusively of cash to all holders of Common
Stock, in which event the Conversion Rate will be adjusted based on the
following formula:

      
        
           

        

        
          33

          
            

          

        

        
           

        

      

       

      
        	
                CR1

              	
                =

              	
                CR0

              	
                x

              	
                
                  SP0

                

              
	 
      	 
      	 
      	 
      	
                SP0 –
      C

              

      

      

      where,

       

      
        	
                CR
      0

              	
                =

              	
                the
      Conversion Rate in effect immediately prior to the Open of Business on the
      Ex-Date for such dividend or
distribution;

              

      

      
        	
                CR
      1

              	
                =

              	
                the
      Conversion Rate in effect immediately after the Open of Business on such
      Ex-Date;

              

      

      
        	
                SP
      0

              	
                =

              	
                the
      Current Market Price of the Common Stock;
and

              

      

      
        	
                C

              	
                =

              	
                the
      amount in Cash per share the Company distributes to holders of Common
      Stock.

              

      

       

      If “C”
(as defined above) is equal to or greater than “SP0” (as
defined above), in lieu of the foregoing adjustment, each Holder of a Note shall
receive, for each $1,000 principal amount of Notes, at the same time and upon
the same terms as holders of shares of Common Stock, the amount of cash that
such Holder would have received as if such Holder owned a number of shares of
Common Stock equal to the Conversion Rate on the Ex-Date for such cash dividend
or distribution.  Such adjustment shall become effective immediately
after the Open of Business on the Ex-Date for such dividend or
distribution.  In the event that such dividend or distribution is not
so paid or made, the Conversion Rate shall again be adjusted to be the
Conversion Rate that would then be in effect if such dividend or distribution
had not been declared.

       

      (5)           The
Company or one or more subsidiaries of the Company make purchases of Common
Stock pursuant to a tender offer or exchange offer (other than offers not
subject to Rule 13e-4 under the Exchange Act) by the Company or a subsidiary of
the Company for the Common Stock to the extent that the cash and value of any
other consideration included in the payment per share of Common Stock validly
tendered or exchanged exceeds the Closing Sale Price per share of Common Stock
on the Trading Day next succeeding the last date on which tenders or exchanges
may be made pursuant to such tender or exchange offer (the “Expiration Date”), in which
event the Conversion Rate will be adjusted based on the following
formula:

       

      
        	
                CR1

              	
                =

              	
                CR0

              	
                x

              	
                
                  FMV
      + (SP1
      x OS1)

                

              
	 
      	 
      	 
      	 
      	
                OS0 x
      SP1

              

      

      

      where,

       

      
        	
                CR
      0

              	
                =

              	
                the
      Conversion Rate in effect immediately prior to the Close of Business on
      the 10th
      Trading Day immediately following the Expiration
  Date;

              

      

      
        	
                CR
      1

              	
                =

              	
                the
      Conversion Rate in effect immediately after the Close of Business on the
      10th
      Trading Day immediately following the Expiration
  Date;

              

      

      
        	
                FMV

              	
                =

              	
                the
      fair market value (as determined by the Board of Directors), on the
      Expiration Date, of the aggregate value of all Cash and any other
      consideration paid or payable for shares validly tendered or exchanged and
      not withdrawn as of the Expiration Date (the “Purchased
      Shares”);

              

      

      
        	
                OS
      1

              	
                =

              	
                the
      number of shares of Common Stock outstanding as of the last time tenders
      or exchanges may be made pursuant to such tender or exchange offer (the
      “Expiration Time”)
      less any Purchased Shares;

              

      

      
        
           

        

        
          34

          
            

          

        

        
           

        

      

      
        	
                OS
      0

              	
                =

              	
                the
      number of shares of Common Stock outstanding at the Expiration Time,
      including any Purchased Shares; and

              

      

      
        	
                SP
      1

              	
                =

              	
                the
      average of the Closing Sale Prices of Common Stock for the 10 consecutive
      Trading Days commencing on, and including, the Trading Day immediately
      following the Expiration Date.

              

      

       

      The adjustment to the Conversion Rate
under this clause (5) shall occur at the Close of Business on the 10th Trading
Day immediately following the Expiration Date, but shall be given effect at the
Open of Business on the Trading Day immediately following the Expiration
Date.  If the Trading Day immediately following the Expiration Date is
less than 10 Trading Days prior to, and including, the end of the Cash
Settlement Averaging Period in respect of any conversion, references within this
clause (5) to 10 Trading Days shall be deemed replaced, for purposes of
calculating the affected daily Conversion Rates in respect of that conversion,
with such lesser number of Trading Days as have elapsed from, and including, the
Trading Day immediately following the Expiration Date to, and including, the
last Trading Day of such Cash Settlement Averaging Period.

      

      In the event that the Company or a
subsidiary of the Company is obligated to purchase shares of Common Stock
pursuant to any such tender offer or exchange offer, but the Company or such
subsidiary is permanently prevented by applicable law from effecting any such
purchases, or all such purchases are rescinded, then the Conversion Rate shall
be re-adjusted to be the Conversion Rate which would then be in effect if such
tender offer or exchange offer had not been made.  Except as set forth
in the preceding sentence, if the application of this Section 5.09(a)(5) to any
tender offer or exchange offer would result in a decrease in the Conversion
Rate, no adjustment shall be made for such tender offer or exchange offer under
this Section 5.09(a)(5).

      

      (b)           In
no event will the Company adjust the Conversion Rate to the extent that the
adjustment would reduce the Conversion Price below the par value per share of
Common Stock.

       

      (c)           Notwithstanding
the foregoing Sections
5.09(a)(1) through (5), if a Conversion Rate
adjustment becomes effective on any Ex-Date as described above, and a Holder
that has converted its Notes on or after such Ex-Date and on or prior to the
related Record Rate would be treated as the record holder of shares of Common
Stock as of the related Conversion Date pursuant to Section 5.04(f) based on the
adjusted Conversion Rate for such Ex-Date, then, notwithstanding the foregoing
Conversion Rate adjustment provisions, the Conversion Rate adjustment relating
to such Ex-Date will not be made for such converting Holder. Instead, such
Holder will be treated as if such Holder were the record owner of shares of
Common Stock on an un-adjusted basis and participate in the related dividend,
distribution or other event giving rise to such adjustment.

       

      (d)           Whenever
any provision of the Third Supplemental Indenture shall require the calculation
of an average of Closing Sale Prices over a span of multiple days, the Company
shall in good faith make appropriate adjustments to account for any adjustment
to the Conversion Rate that becomes effective, or any event requiring an
adjustment to the Conversion Rate where the Ex-Date of the event occurs, at any
time during the period from which the average is to be
calculated.

      
        
           

        

        
          35

          
            

          

        

        
           

        

      

      (e)           Rights,
options or warrants distributed by the Company to all holders of Common Stock
entitling the holders thereof to subscribe for or purchase shares of the
Company’s Capital Stock (either initially or under certain circumstances), which
rights, options or warrants, until the occurrence of a specified event or events
(“Trigger
Event”):  (i) are deemed to be transferred with such shares of
Common Stock; (ii) are not exercisable; and (iii) are also issued in
respect of future issuances of Common Stock, shall be deemed not to have been
distributed for purposes of Section 5.09 of the Third
Supplemental Indenture (and no adjustment to the Conversion Rate under Section 5.09 of the Third
Supplemental Indenture will be required) until the occurrence of the earliest
Trigger Event, whereupon such rights, options and warrants shall be deemed to
have been distributed and an appropriate adjustment (if any is required) to the
Conversion Rate shall be made under Section 5.09 of the Third
Supplemental Indenture, except as set forth in Section 5.09(e) of the
Third Supplemental Indenture.  If any such right, option or warrant
are subject to events, upon the occurrence of which such rights, options or
warrants become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and each
such event shall be deemed to be the date of distribution and Ex-Date with
respect to new rights, options or warrants with such rights, except as set forth
in Section 5.09(e)
of the Third Supplemental Indenture.  In addition, except as set forth
in Section 5.09(e)
of the Third Supplemental Indenture, in the event of any distribution (or deemed
distribution) of rights, options or warrants, or any Trigger Event or other
event (of the type described in the preceding sentence) with respect thereto
that was counted for purposes of calculating a distribution amount for which an
adjustment to the Conversion Rate under Section 5.09 of the Third
Supplemental Indenture was made (including any adjustment contemplated in Section 5.09(e) of the
Third Supplemental Indenture), (1) in the case of any such rights, options
or warrants that shall all have been redeemed or repurchased without exercise by
the holders thereof, the Conversion Rate shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Trigger Event,
as the case may be, as though it were a Cash distribution, equal to the per
share redemption or repurchase price received by a holder or holders of Common
Stock with respect to such rights, options or warrants (assuming such holder had
retained such rights, options or warrants), made to all holders of Common Stock
as of the date of such redemption or repurchase, and (2) in the case of
such rights, options or warrants that shall have expired or been terminated
without exercise by the holders thereof, the Conversion Rate shall be readjusted
as if such rights, options and warrants had not been issued.

       

      (f)           If
a shareholders rights plan under which any rights are issued (a “Rights Plan”) provides that
each share of Common Stock issued upon conversion of Notes at any time prior to
the distribution of separate certificates representing such rights shall be
entitled to receive such rights, there shall not be any adjustments to the
conversion privilege or Conversion Rate.  If prior to any conversion
of a Note, the rights have separated from the Common Stock, the Conversion Rate
shall be adjusted at the time of separation as if the Company distributed to all
holders of Common Stock, the Company’s assets, debt securities or rights as
described in clause (a)(3) above, subject to readjustment in the event of the
expiration, termination or redemption of such rights.

       

      (g)           No
adjustment shall be made in the Conversion Rate for any of the transactions
described in this Section 5.09 if the
Company makes provisions for Holders to participate in any such transaction
without conversion on a basis and with notice that the Board of Directors
determines to be fair and appropriate.

       

      (h)           Except
in accordance with this Section 5.09, the
Conversion Rate will not be adjusted for the issuance of Common Stock or any
securities convertible into or exchangeable for Common Stock or carrying the
right to purchase any of the foregoing.  No adjustment to the
Conversion Rate shall be made for a change in the par value or no par value of
the Common Stock or any rights to purchase Common Stock pursuant to a Company
plan for reinvestment of dividends.

      
        
           

        

        
          36

          
            

          

        

        
           

        

      

      (i)           Notwithstanding
anything in this Section 5.09 to the
contrary, the Conversion Rate as adjusted in accordance with this Section 5.09 shall not
exceed 134.4086 shares per $1,000 principal amount of Notes, other than on
account of adjustments to the Conversion Rate in the manner set forth in clauses
(a)(1) through (a)(4) of Section 5.09 of the Third
Supplemental Indenture.

       

      (j)           For
purposes of Sections 5.09(a)(1),
(2) and (3) of the Third Supplemental
Indenture, any dividend or distribution to which Section 5.09(a)(3) of the
Third Supplemental Indenture is applicable that also includes shares of Common
Stock, or rights, options or warrants to subscribe for or purchase shares of
Common Stock (or both), shall be deemed instead to be (1) a dividend or
distribution of the indebtedness, assets or shares of Capital Stock other than
such shares of Common Stock or rights, options or warrants (and any Conversion
Rate adjustment required by Section 5.09(a)(3) of the
Third Supplemental Indenture with respect to such dividend or distribution shall
then be made) immediately followed by (2) a dividend or distribution of
such shares of Common Stock or such rights, options or warrants (and any further
Conversion Rate adjustment required by Section 5.09 of the Third
Supplemental Indenture with respect to such dividend or distribution shall then
be made), except any shares of Common Stock included in such dividend or
distribution shall not be deemed “outstanding immediately prior to the Open of
Business on such Ex-Date.”

       

      (k)           No
adjustment shall be made to the Conversion Rate unless the adjustment would
result in a change of at least 1% of the Conversion Rate; provided that any adjustments
that are less than 1% of the Conversion Rate shall be carried forward and such
carried forward adjustments, regardless of whether the aggregate adjustment is
less than 1%, shall be made (a) annually, on the anniversary of the first
date of issue of the Notes, and otherwise (b) (i) five Business Days prior to
the Stated Maturity of the Notes or (ii) five Business Days prior to the
Conversion Rights Termination Date or any Repurchase Date, unless such
adjustment has already been made.

       

      (l)           The
Company may from time to time, to the extent permitted by law and subject to
applicable rules of The New York Stock Exchange, increase the Conversion Rate of
the Notes by any amount for any period of at least 20 days.  Whenever
the Conversion Rate is increased pursuant to the preceding sentence, the Company
shall give Holders at least 15 days notice prior to the date the increased
Conversion Rate takes effect, and such notice shall state the increased
Conversion Rate and the period during which it will be in effect.

       

      (m)           The
Company may make such increases in the Conversion Rate, in addition to those set
forth above, as the Board of Directors deems advisable, including to avoid or
diminish any income tax to holders of the Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes.

       

      (n)           For
purposes of this Section 5.09, the number of shares of Common Stock at any
time outstanding shall not include shares held, directly or indirectly, by the
Company, but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock.

      
        
           

        

        
          37

          
            

          

        

        
           

        

      

      (o)           In
any case in which this Section 5.09 provides
that an adjustment shall become effective immediately after (1) the Open of
Business on the Ex-Date for an event or (2) the Open of Business on the
Trading Day immediately following the Expiration Date pursuant to Section 5.09(a)(5) of the
Third Supplemental Indenture (each a “Determination Date”), the
Company may elect to defer, until the later of the date the adjustment to the
Conversion Rate can be definitively determined and the occurrence of the
applicable Adjustment Event (as hereinafter defined), (x) issuing to the
Holder of any Note converted after such Determination Date and before the
occurrence of such Adjustment Event, the additional shares of Common Stock or
other securities or assets issuable upon such conversion, or cash in lieu
thereof, by reason of the adjustment required by such Adjustment Event over and
above the Common Stock issuable upon such conversion, or cash in lieu thereof,
before giving effect to such adjustment and (y) paying to such Holder any
amount in cash in lieu of any fraction pursuant to Section 5.05 of the Third
Supplemental Indenture.  For purposes of this Section 5.09(o), the term
“Adjustment Event” shall
mean:

       

      (i)          
  in any case referred to in clause (1) hereof, the occurrence of
such event, and

       

      (ii)     
      in any case referred to in clause
(2) hereof, the date a sale or exchange of Common Stock pursuant to such
tender or exchange offer is consummated and becomes irrevocable.

       

      Section
5.10  Effect of
Recapitalization, Reclassification and Changes to the Common
Stock.

       

      If any of
the following events occur:

       

      (i)        
    any recapitalization, reclassification or change of the
outstanding share of Common Stock (other than changes resulting from a
subdivision or combination to which Section 5.09(a)(1) of the
Third Supplemental Indenture applies),

       

      (ii)      
     any consolidation, merger or combination involving
the Company,

       

      (iii)           any
sale or conveyance to a third party of all or substantially all of the Company’s
assets, or

       

      (iv)           any
statutory share exchange,

       

      in each
case as a result of which the Common Stock would be converted into, or exchanged
for, stock, other securities, other property or assets (including cash or any
combination thereof), then, at the effective time of the transaction, the right
to convert a Note shall be changed into a right to convert such Note into the
kind and amount of shares of stock, other securities or other property or assets
(including cash or any combination thereof) that a holder of a share of Common
Stock would have owned or been entitled to receive (the “Reference Property”) upon such
transaction; provided,
that at and after the effective time of the transaction (a) the Company shall
continue to have the right to determine the form of consideration to be paid or
delivered, as the case may be, upon conversion of such Notes, pursuant to Section 5.04 of the Third
Supplemental Indenture and (b)(x) any amount payable in cash upon conversion of
the Notes pursuant to Section
5.04 of the Third Supplemental Indenture shall continue to be payable in
cash, (y) any shares of Common Stock that the Company would have been required
to deliver upon conversion of the Notes pursuant to Section 5.04 of the Third
Supplemental Indenture shall instead be deliverable in the amount and type of
Reference Property that a Holder of that number of shares of Common Stock would
have received in such transaction and (z) the Closing Sale Price and the Daily
VWAP of the Common Stock for purposes of Section 5.04 of the Third
Supplemental Indenture shall be calculated based on the value of a unit of
Reference Property that a Holder of one share of Common Stock would have
received in such transaction.  In the event holders of Common Stock
have the opportunity to elect the form of consideration to be received in such
transaction, the type and amount of consideration that Holders of Notes would
have been entitled to receive shall be deemed to be the weighted average of the
types and amounts of consideration received by the holders of Common
Stock.  The Company hereby agrees not to become a party to any such
transaction unless its terms are consistent with the foregoing. Any supplemental
indenture (which shall comply with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture if such supplemental indenture
is then required to so comply) shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article Five.

      
        
           

        

        
          38

          
            

          

        

        
           

        

      

      The above
provisions of this Section 5.10 shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, binding share exchanges, combinations, sales and
transfers.

       

      If this
Section 5.10
applies to any event or occurrence, Section 5.09 of the Third
Supplemental Indenture shall not apply.

       

      Section
5.11  Exchange in Lieu of
Conversion. Notwithstanding anything herein to the
contrary, when a Holder surrenders Notes for conversion, the Company may direct
the Conversion Agent to surrender, on or prior to the second Business Day
immediately following the applicable Conversion Date, such Notes tendered for
conversion to a financial institution (the “Financial
Institution”) designated
by the Company for exchange in lieu of conversion. In order to accept any Notes
surrendered for conversion, the Financial Institution must agree to deliver, in
exchange for the Notes, cash, shares of Common Stock or a combination of cash
and shares of Common Stock, as applicable, equal to the consideration due upon
conversion in accordance with Section 5.04 above. By the Close of Business on the
second Business Day immediately following the applicable Conversion Date, the
Company shall notify the Holder surrendering Notes for conversion that it has
directed the Financial Institution to make an exchange in lieu of conversion and
such Financial Institution shall be required to notify the Conversion Agent
whether it will deliver, upon exchange, cash, shares of Common Stock or a
combination of cash and shares of Common Stock, as applicable, due in respect of
such conversion.

       

      If the
Financial Institution accepts any such Notes, it shall deliver cash, shares of
Common Stock, or combination of cash and Common Stock, as applicable, if any, to
the Conversion Agent, and the Conversion Agent shall deliver such cash, shares
of Common Stock, or combination of cash and Common Stock, as applicable, to the
Holder who has tendered such Notes for conversion on the date such consideration
would otherwise be due as set forth in Section 5.04(e) of the Third
Supplemental Indenture. Any Notes exchanged by the Financial Institution shall
remain Outstanding.  If the Financial Institution agrees to accept any
Notes for exchange but does not timely deliver the related consideration, or if
the Financial Institution does not accept the Notes for exchange, the Company
shall, as promptly as practical thereafter, convert such Notes and pay or
deliver, as the case may be, into cash, shares of Common Stock, or a combination
of cash and shares of Common Stock, if any, as provided in Section 5.04
above.

       

      The
Company’s designation of a Financial Institution to which the Notes may be
submitted for exchange does not require the Financial Institution to accept any
Notes (unless the Financial Institution has separately made an agreement with
the Company). The Company may, but shall not be obligated to, pay any
consideration to, or otherwise enter into any agreement with, the Financial
Institution for or with respect to such designation.

      
        
           

        

        
          39

          
            

          

        

        
           

        

      

      Section
5.12  Notice
of Adjustment.  Whenever the Conversion Rate is adjusted, the
Company shall promptly mail to Holders a notice of the
adjustment.  The Company shall file with the Trustee and the
Conversion Agent such notice and an Officers’ Certificate briefly stating the
facts requiring the adjustment and the manner of computing it.  The
certificate shall be conclusive evidence that the adjustment is
correct.  Neither the Trustee nor any Conversion Agent shall be under
any duty or responsibility with respect to any such certificate except to
exhibit the same to any Holder desiring inspection thereof.

       

      Section
5.13  Company Determination
Final.  The Company shall be responsible for making all
calculations called for hereunder and under the Notes.  These
calculations include, but are not limited to, the Daily Settlement Amount, Daily
Conversion Value, Daily Measurement Value, the Closing Sale Price, the Daily
VWAP, the Conversion Date, the Current Market Value, the Conversion Price, the
applicable Conversion Rate, the number of shares of Common Stock, if any, to be
issued upon conversion of the Notes and the Cash Settlement Averaging
Period.  The Company shall make all these calculations in good faith
and, absent manifest error, the Company’s calculations will be final and binding
on Holders.  The Company shall provide a schedule of the Company’s
calculations to the Trustee, and the Trustee is entitled to rely upon the
accuracy of the Company’s calculations without independent
verification.

       

      Section
5.14  Trustee’s Adjustment
Disclaimer.  The Trustee has no duty to determine when an
adjustment under this Article
Five should be made, how it should be made or what it should be nor shall
the Trustee have any duty or responsibility to confirm or verify any calculation
called for hereunder or under the Notes.  The Trustee has no duty to
determine whether a supplemental indenture under Section 5.10 of the Third
Supplemental Indenture need be entered into or whether any provisions of any
supplemental indenture are correct.  The Trustee shall not be
accountable for and makes no representation as to the validity or value of any
securities or assets issued upon conversion of Notes.  The Trustee
shall not be responsible for the Company’s failure to comply with this Article Five.  Each
Conversion Agent shall have the same protection under this Section 5.14 as the
Trustee.

       

      Section
5.15 Withholding Taxes
for Adjustments in Conversion Rate.  The Company may, at its
option, set-off withholding taxes due with respect to Notes against payments of
Cash and Common Stock on the Notes to the extent required by law.  In
the case of any such set-off against Common Stock delivered upon conversion of
the Notes, such Common Stock shall be valued at the Closing Sale Price of the
Common Stock on the date of setoff.

       

      ARTICLE
SIX

       

      CONSOLIDATION,
MERGER AND SALE OF ASSETS

       

      Section
6.01  Company May Consolidate,
Etc., Only on Certain Terms

       

      . The
Company shall not consolidate with or merge into any other Person, and the
Company shall not sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the Company’s properties and assets to another
Person unless:

       

      (a)           the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by sale, conveyance, assignment, transfer or other
disposition, or which leases all or substantially all of the properties and
assets of the Company (in each case, if other than the Company), shall be an
entity organized and existing under the laws of the United States of America or
any state thereof or the District of Columbia, and shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee, in form and
substance reasonably satisfactory to Trustee, all of the Company’s obligations
under the Notes and the Indenture, as supplemented and amended
by the Third Supplemental Indenture; and

      
        
           

        

        
          40

          
            

          

        

        
           

        

      

      (b)           immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing.

       

      The
Trustee may receive an Officers’ Certificate and an Opinion of Counsel as
conclusive evidence that any such consolidation, merger or sale, conveyance,
assignment, transfer, lease or other disposition, and any such assumption,
complies with the provisions of this Article Six.

       

      Section
6.02  Successor
Substituted

       

      Section
6.03. Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any sale, conveyance, assignment, transfer, lease or
other disposition of all or substantially all of the Company’s assets in
accordance with Section 6.01, the
successor Person (if not the Company) formed by such consolidation or into which
the Company is merged or to which such sale, conveyance, assignment, transfer,
lease or other disposition is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture, as
supplemented and amended by the Third Supplemental Indenture, with the same
effect as if such successor Person had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under the Indenture, as supplemented
and amended by the Third Supplemental Indenture, and the Notes.

       

      ARTICLE
SEVEN

       

      MISCELLANEOUS
PROVISIONS

       

      Section
7.01  The Third Supplemental Indenture is executed by the Company, and by
the Trustee upon the Company’s request, pursuant to the provisions of
Section 9.01 of the Indenture, and the terms and conditions hereof shall be
deemed to be part of the Indenture for all purposes.  The Indenture,
as supplemented and amended by the Third Supplemental Indenture, is in all
respects hereby adopted, ratified and confirmed.  Notwithstanding the
foregoing, to the extent that any of the terms of the Third Supplemental
Indenture are inconsistent with, or conflict with, the terms of the Indenture,
the terms of the Third Supplemental Indenture shall govern.

       

      Section
7.02  The Third Supplemental Indenture may be executed in any number
of counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.

       

      Section
7.03  The Trustee assumes no responsibility for the correctness of the
recitals herein contained, which shall be taken as the statements of the
Company.  The Trustee makes no representations and shall have no
responsibility as to the validity or sufficiency of the Third Supplemental
Indenture or the due authorization and execution hereof by the
Company.

       

      Section
7.04  The Third Supplemental Indenture and each Note shall be deemed
to be a contract made under the laws of the State of New York and for all
purposes shall be governed and construed in accordance with the laws of said
state, without regard to its principles of conflict of laws.

      
        
           

        

        
          41

          
            

          

        

        
           

        

      

      Section
7.05  The Corporate Trust Office of the Trustee as on the date of the
Third Supplemental Indenture is:

       

      101
Barclay Street, Floor 8 West

      New York,
New York 10286

      Attention:  Corporate
Trust Administration.

      
        
           

        

        
          42

          
            

          

        

        
           

        

      

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

       

      
        	 
      	
                FORD
      MOTOR COMPANY

              
	 	 
	 
      	
                By

              	
                /s/ David M. Brandi

              
	 
      	 
      	
                Name:
      David M. Brandi

              
	 
      	 
      	
                Title:
      Assistant Treasurer

              

      

      
        
           

        

        
          43

          
            

          

        

        
           

        

      

       

      
        	 
      	
                THE
      BANK OF NEW YORK MELLON

              
	 	 	 
	 
      	
                By

              	
                /s/ Mary Miselis

              
	 
      	 
      	
                Name:
      Mary Miselis

              
	 
      	 
      	
                Title:  Vice
      President

              

      

      
        
           

        

        
          44

          
            

          

        

        
           

        

      

      EXHIBIT A

       

      [EXCEPT
AS OTHERWISE PROVIDED IN SECTION 2.05 OF THE INDENTURE, THIS SECURITY MAY BE
TRANSFERRED, IN WHOLE BUT NOT IN PART, ONLY TO ANOTHER NOMINEE OF THE DEPOSITORY
OR TO A SUCCESSOR DEPOSITORY OR TO A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY.]

       

      [Unless this Certificate is presented
by an authorized representative of The Depository Trust Company, a New York
corporation (“DTC” or the “Depository”), to the Company (as defined below) or
its agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]

      

      

      

      

      FORD
MOTOR COMPANY

       

      4.25%
SENIOR CONVERTIBLE NOTE DUE NOVEMBER 15, 2016

       

      __________________________________

       

      CUSIP No.
345370 CN8

       

      ISIN
US345370CN85

       

      
        	
                $[
      __________ ]

              	
                No.
      R-[ ___ ]

              

      

      

      FORD
MOTOR COMPANY, a corporation duly organized and existing under the laws of the
State of Delaware (herein called the “Company,” which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to [ __________ ] or registered
assigns, the principal sum of [ __________ ] ($[ __________ ]) on
November 15, 2016, or such lesser amount as may be indicated on Schedule A
hereto, unless earlier redeemed, repurchased or converted as herein provided,
and to pay interest thereon from November 9, 2009, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually on May 15 and November 15 of each year, commencing May
15, 2010, at the rate of 4.25% per annum, until the principal hereof is paid or
made available for payment or converted.  The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the Close of Business on
the Regular Record Date for such interest, which shall be May 1 or
November 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date.  Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on such Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
Close of Business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.

      
        
           

        

        
          45

          
            

          

        

        
           

        

      

      Interest
on this Security shall be computed on the basis of a 360-day year comprised of
twelve 30-day months.  If interest or principal is payable on a day
that is not a Business Day, the Company shall make the payment on the next
Business Day, and no interest will accrue as a result of the delay in
payment.

       

      Payment
of the principal of (and premium, if any, on) and any such interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, the City and State of New York in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts and in immediately available
funds; provided, however, that each
installment of interest on this Security may, at the option of the Company, be
paid by mailing a check for such interest, payable to or upon the written order
of the Person entitled thereto, to the address of such Person as it appears on
the Security Register or by wire transfer to an account of the Person entitled
thereto as such account shall be provided to the Security Registrar and shall
appear on the Security Register.

       

      Reference
is hereby made to the further provisions of this Security set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.

       

      This
Security shall be deemed to be a contract made under the laws of the State of
New York, and for all purposes shall be governed by and construed in accordance
with the laws of said State, without regards to its principles of conflicts of
laws.

       

      Unless
the certificate of authentication hereon has been executed by the Trustee
referred to on the reverse hereof by manual signature, this Security shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.

      
        
           

        

        
          46

          
            

          

        

        
           

        

      

      IN WITNESS WHEREOF, the
Company has caused this Global Security to be signed by its Chairman of the
Board, or its President, or one of its Executive Vice Presidents, or one of its
Group Vice Presidents, or one of its Vice Presidents, and by its Treasurer or
one of its Assistant Treasurers, or its Secretary or one of its Assistant
Secretaries, manually or in facsimile, and a facsimile of its corporate seal to
be imprinted hereon.

       

      Dated:

       

      [Corporate
Seal]

       

      
        	 
      	 
      	 	
                FORD
      MOTOR COMPANY

              
	 	 	 	 
	 	 	 	 
	 
      	 
      	 	
                By

              	 
      
	 
      	 
      	 	 
      	
                Name:

              
	 
      	 
      	 	 
      	
                Title:

              
	 
      	 
      	 	
                By

              	 
      
	 
      	 
      	 	 
      	
                Name:

              
	 
      	 
      	 	 
      	
                Title:

              
	
                Attest:

              	 
      	 	 
      	 
      

      

      
        
           

        

        
          47

          
            

          

        

        
           

        

      

      TRUSTEE’S
CERTIFICATE OF AUTHENTICATION

       

      This is
one of the Securities of the series designated therein referred to in the
within-mentioned Indenture.

       

      
        	 
      	
                THE
      BANK OF NEW YORK MELLON

              
	 	 	 
	 	 	 
	 
      	 
      	
                as
      Trustee

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                By

              	 
      
	 
      	 
      	
                Name:

              
	 
      	 
      	
                Title:

              

      

      Dated:

       

      
        
           

        

        
          48

          
            

          

        

        
           

        

      

      [REVERSE
SIDE OF NOTE]

       

      Ford
Motor Company

       

      
        	
                1.

              	
                Indenture

              

      

       

      This
Security is one of a duly authorized issue of securities of the Company,
designated as its 4.25% Senior Convertible Notes due November 15, 2016 (herein
called the “Securities”), issued
and to be issued in one or more series under an Indenture, dated as of
January 30, 2002 (herein called the “Indenture”), between
the Company and The Bank of New York Mellon (as successor trustee to JPMorgan
Chase Bank), as Trustee (herein called the “Trustee,” which term
includes any successor trustee under the Indenture with respect to the series of
which this Security is a part), as supplemented by the Third Supplemental
Indenture, dated as of November 9, 2009 (the “Supplemental
Indenture”), between the Company and the Trustee, to which Indenture, the
Supplemental Indenture and all other indentures supplemental thereto reference
is hereby made for a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, and the Holders of
the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered.  This Security is a Global Security of
the series designated on the face hereof, initially limited in aggregate
principal amount to $2,875,000,000.  All terms used in this Global
Security which are defined in the Indenture or the Supplemental Indenture shall
have the meanings assigned to them in the Indenture or the Supplemental
Indenture, as applicable.  In the event of any inconsistency between
the Indenture and the Supplemental Indenture, the Supplemental Indenture shall
govern. In the event of any inconsistency between this Security and the
Indenture or the Supplemental Indenture, as the case may be, the Indenture or
the Supplemental Indenture, as the case may be, shall govern.

       

      The
Company may, without the consent of the Holders hereof, issue additional
Securities having the same ranking and the same interest rate, maturity,
conversion rate and other terms as the Securities.  Any additional
Securities will, together with the Securities, constitute a single series under
the Indenture, and such additional Securities shall be fungible with the
Securities initially issued for U.S. federal income tax purposes.  No
additional securities may be issued as part of the same series if an Event of
Default has occurred and is continuing with respect to the
Securities.

       

      
        	
                2.

              	
                Paying Agent,
      Conversion Agent and Security
Registrar

              

      

       

      Initially,
the Trustee will act as Paying Agent, Conversion Agent, Bid Solicitation Agent
and Security Registrar.  The Company may appoint and change any Paying
Agent, Conversion Agent, Security Registrar or co-registrar without notice,
other than notice to the Trustee.  The Company or any of its
Subsidiaries or any of their Affiliates may act as Paying Agent, Conversion
Agent, Bid Solicitation Agent, Security Registrar or
co-registrar.  The Company may maintain deposit accounts and conduct
other banking transactions with the Trustee in the normal course of
business.

      
        
           

        

        
          49

          
            

          

        

        
           

        

      

      
        	
                3.

              	
                Redemption at the
      Option of the Company

              

      

       

      The
Securities of this series are not redeemable by the Company at its option prior
to the Conversion Rights Termination Date. Beginning on the Conversion Rights
Termination Date and on any Business Day thereafter, the Securities of this
series are subject to redemption upon not less than 30 nor more than 60 days’
prior notice given in the manner provided in the Indenture and the Supplemental
Indenture at a redemption price equal to 100% of the principal amount to be
redeemed together with accrued and unpaid interest thereon, up to, but not
including, the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the Close of
Business on the relevant Regular Record Dates referred to on the face hereof,
all as provided in the Indenture and the Supplemental Indenture.

       

      In the
event of redemption of this Security in part only, a new Security or Securities
of this series for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.

       

      
        	
                4.

              	
                [Reserved]

              

      

       

      
        	
                5.

              	
                Repurchase at the
      Option of the Holder upon the Occurrence of a Designated
      Event

              

      

       

      Subject
to the terms and conditions of the Supplemental Indenture, if there shall have
occurred a Designated Event that does not constitute a Change in Control, each
Holder shall have the right, at such Holder’s option, to require the Company to
repurchase for shares of Common Stock (or such other consideration into which
the shares of Common Stock have been converted or exchanged in connection with
such Designated Event) all or any portion of such Holder’s Securities not
previously repurchased or called for redemption in integral multiples of $1,000
principal amount on a date selected by the Company as specified in
Article Four of the Supplemental Indenture, at a Repurchase Price equal to
100% of the principal amount of the Securities to be purchased, plus accrued and
unpaid interest to, but not including, the Repurchase Date, as set forth, and
subject to satisfaction by or on behalf of the Holder of the requirements set
forth, in Article Four of the Supplemental Indenture.

       

      
        	
                6.

              	
                Repurchase at the
      Option of the Holder upon a Change in
  Control

              

      

       

      Subject
to the terms and conditions of the Supplemental Indenture, if there shall have
occurred a Change in Control, each Holder shall have the right, at such Holder’s
option, to require the Company to repurchase for cash all or any portion of such
Holder’s Securities not previously repurchased or called for redemption in
integral multiples of $1,000 principal amount on a date selected by the Company
as specified in Article Four of the Supplemental Indenture, at a Repurchase
Price equal to 100% of the principal amount of the Securities to be repurchased,
plus accrued and unpaid interest to, but not including, the Repurchase Date, as
set forth, and subject to satisfaction by or on behalf of the Holder of the
requirements set forth, in Article Four of the Supplemental
Indenture.

      
        
           

        

        
          50

          
            

          

        

        
           

        

      

      
        	
                7.

              	
                Conversion

              

      

       

      Subject
to the terms of the Supplemental Indenture, including without limitation the
Company’s right to terminate the conversion rights as provided in
Section 5.02 of the Supplemental Indenture, upon satisfaction of one or
more of the conditions set forth in Section 5.01 of the Supplemental Indenture,
the Holder of this Security may, at any time and from time to time, convert this
Security or any portion of the principal amount thereof that is in an integral
multiple of $1,000 into shares of Common Stock at the Conversion Rate (initially
107.5269 shares of Common Stock for each $1,000 principal amount of Securities,
subject to adjustment, in certain instances as provided in Section 5.09 of
the Supplemental Indenture, and further subject to increases in certain
instances, as provided in Section 5.08 of the Supplemental Indenture) as
provided in Article Five of the Supplemental Indenture; provided, however, the
Company may satisfy its obligation with respect to any conversion by delivering
Common Stock, cash or a combination of cash and Common Stock as described in
Section 5.04 of the Supplemental Indenture.  The Conversion Rate for
the Securities on any Conversion Date shall be determined as set forth in the
Supplemental Indenture.  Upon conversion of this Security, the Company
shall, subject to the terms of the Supplemental Indenture, deliver the
consideration due upon conversion within the time periods set forth in
Section 5.04 of the Supplemental Indenture.

       

      The
Company may, in accordance with the terms set forth in the Supplemental
Indenture, irrevocably elect to satisfy its Conversion Obligation with a
combination of Cash and shares of Common Stock, in which case the Company shall
settle all conversions occurring after the date of such Irrevocable Election as
if the Company has elected Combination Settlement with a Specified Dollar Amount
equal to $1,000 per $1,000 principal amount of Notes to be
converted.

       

      No
fractional shares will be issued upon conversion of a Security; the Company
shall deliver cash in lieu of any fractional share of Common Stock as provided
in Section 5.05 of the Supplemental Indenture.

       

      To
convert a Security, a Holder must fulfill the conditions set forth in
Section 5.03 of the Supplemental Indenture.

       

      The
Conversion Rate will be adjusted as set forth in Article Five of the
Supplemental Indenture.

       

      
        	
                8.

              	
                Defeasance

              

      

       

      From and
after the Conversion Rights Termination Date, the Notes shall be subject to the
defeasance provisions set forth in Article Fourteen of the
Indenture.

       

      
        	
                9.

              	
                Event of
      Default

              

      

       

      If an
Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared, or
in certain cases become, due and payable in the manner and with the effect
provided in the Indenture and the Supplemental Indenture.

      
        
           

        

        
          51

          
            

          

        

        
           

        

      

      
        	
                10.

              	
                Amendment and
      Waiver

              

      

       

      The
Indenture and Supplemental Indenture permit, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
this series under the Indenture and the Supplemental Indenture at any time by
the Company and the Trustee with the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities of this
series.  The Indenture and Supplemental Indenture also contain
provisions permitting the Holders of specified percentages in principal amount
of the Outstanding Securities of this series, on behalf of the Holders of all
Outstanding Securities of this series, to waive compliance by the Company with
certain provisions of the Indenture and Supplemental Indenture and certain past
defaults under the Indenture and Supplemental Indenture and their
consequences.  Any such consent or waiver by the Holder of this
Security shall be conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the registration of
transfer hereof or in exchange or in lieu hereof, whether or not notation of
such consent or waiver is made upon this Security.  The Company and
the Trustee may amend the Indenture and the Supplemental Indenture under certain
circumstances without the consent of the Holders, as described in the Indenture
and the Supplemental Indenture.

       

      No
reference herein to the Indenture or the Supplemental Indenture and no provision
of this Security or of the Indenture or Supplemental Indenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the amount of principal of (and premium, if any, on) and interest, if any,
on this Security herein provided, and at the times, place and rate, and in the
coin or currency, herein prescribed.

       

      
        	
                11.

              	
                Miscellaneous

              

      

       

      As
provided in the Indenture and subject to certain limitations therein set forth,
particularly the limitation set forth in Section 2.05(b) of the Indenture,
the transfer of this Security is registrable in the Security Register, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in any place where the principal of (and premium, if any, on) and
interest, if any, on this Security are payable, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series,
of authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees.

       

      No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.

       

      Prior to
due presentment of this Security for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.

       

      Upon the
occurrence of an event described in Section 2.05(c) of the Indenture, the
Holder hereof shall surrender this Global Security to the Trustee for
cancellation whereupon, in accordance with said Section 2.05(c), the
Company will execute and the Trustee will authenticate and deliver Notes in
definitive registered form without coupons, in denominations of $1,000 and any
integral multiple thereof, and in an aggregate principal amount equal to the
aggregate principal amount of this Global Security in exchange for this Global
Security.

       

      Notwithstanding
any other provision of the Indenture or the Supplemental Indenture, so long as
the Securities are in the form of Global Securities, the parties to the
Indenture and the Supplemental Indenture and the Holders of such Securities
shall be bound at all times by the applicable procedures of the
Depository.

      
        
           

        

        
          52

          
            

          

        

        
           

        

      

      SCHEDULE
A

       

      SCHEDULE
OF EXCHANGES OF INTERESTS IN THE GLOBAL SECURITY

       

      The
initial principal amount of this Global Security is
[             ]
($[                ]).  The
following exchanges of a part of this Global Security for an interest in another
Global Security, or exchanges of a part of another Global Security for an
interest in this Global Security, or for Notes in certificated form, have been
made:

       

      
        	
                
                  Date
      of Exchange

                

              	 	
                
                  Amount
      of

                  decrease
      in

                  Principal
      Amount

                  of
      this Global

                  Security

                

              	 	
                
                  Amount
      of

                  increase
      in

                  Principal
      Amount

                  of
      this Global

                  Security

                

              	 	
                
                  Principal
      Amount

                  of
      this Global

                  Security
      following

                  such
      decrease (or

                  increase)

                

              	 	
                
                  Signature
      of

                  authorized
      officer

                  of
      Trustee or

                  Custodian

                

              

      

       

      
        
           

        

        
          53

          
            

          

        

        
           

        

      

      ASSIGNMENT
FORM

       

      To assign
this Security, fill in the form below:

       

      FOR VALUE
RECEIVED, the undersigned registered holder hereby sell(s), assign(s) and
transfer(s) unto _____________________ (Please insert social security or other
Taxpayer Identification No. of assignee) the within Security and all rights
thereunder, and hereby irrevocably constitutes and appoints
_____________________ attorney to transfer said Security on the books of the
Ford Motor Company with full power of substitution in the premises.

       

      Please
print or typewrite name and address including zip code of assignee:

       

      By:                                                                                                           

       

      Date:                                                                                                           

       

      Your

      Signature:                                                                                                           

       

      (Sign
exactly as your name appears on the other side of this Security)

       

      *Signature

      guaranteed
by:                                                                                                           

       

      
        	
                *

              	
                The
      signature must be guaranteed by an institution which is a member of one of
      the following recognized signature guaranty programs: (i) the
      Securities Transfer Agent Medallion Program (STAMP), (ii) the New
      York Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange
      Medallion Program (SEMP); or (iv) such other guaranty program
      acceptable to the Trustee.

              

      

       

      
        
           

        

        
          54

          
            

          

        

        
           

        

      

      CONVERSION
NOTICE

       

      Ford
Motor Company

      4.25%
Senior Convertible Note due November 15, 2016

      CUSIP
No. 345370 CN8

      ISIN
No. US345370CN85

      

      To
convert this 4.25% SENIOR CONVERTIBLE NOTE DUE NOVEMBER 15, 2016 issued by Ford
Motor Company, check the box:  

       

      To
convert only part of this Security, state the principal amount to be converted
(which must be $1,000 or an integral multiple of $1,000 principal
amount):  $ __________________________

       

      If you
want the stock certificate, if any, made out in another person’s name or the
Cash paid to another person, fill in the form below (NOT FOR USE BY DTC
PARTICIPANTS):

       

       

        
          

        

      

      (Insert
other person’s soc. sec. or tax ID no.)

       

       

        
          

        

      

      (Print or
type other person’s name, address and zip code)

       

      and
irrevocably appoint _____________________ agent to transfer this Security on the
books of the Company.  The agent may substitute another to act for him
or her.

       

      USE THE FOLLOWING ONLY FOR
GLOBAL BOOK ENTRY DTC PARTICIPANTS

       

      Please
designate your DTC Participant’s name and Participant Number and provide contact
information below:

       

      Name of
DTC Participant:                                                                                                                                

       

      DTC
Participant Number:                                                                                                                                

       

      Client
Reference No.(optional):                                                                                                                                

       

      DTC
Participant Contact Information

       

      Name:                                                                                                                     

       

      Telephone
No.:                                                        Facsimile
No.:                                                                

       

      Email:                                                                                                                     

       

      Date:                                                                                                                     

       

      Your
Signature:                                                                                                                                

       

      (Sign
exactly as your name appears on the other side of this Security or as an
authorized DTC Participant representative)

       

      *Signature
guaranteed
by:                                                                                                                                

       

      The
signature must be guaranteed by an institution which is a member of one of the
following recognized signature guaranty programs:  (i) the
Securities Transfer Agent Medallion Program (STAMP), (ii) the New York Stock Exchange Medallion Program
(MSP); (iii) the Stock Exchange Medallion Program (SEMP); or (iv) such
other guaranty program acceptable to the Trustee.

      
        
           

        

        
          55

          
            

          

        

        
           

        

      

       

      REPURCHASE
NOTICE UPON A DESIGNATED EVENT OR CHANGE IN CONTROL

       

      Ford
Motor Company

      4.25%
Senior Convertible Note due November 15, 2016

      CUSIP
No. 345370 CN8

      ISIN
No. US345370CN85

       

      
        	
                TO:

              	
                FORD
      MOTOR COMPANY

              

      

      THE BANK
OF NEW YORK MELLON

      

      The
undersigned registered owner of this 4.25% SENIOR CONVERTIBLE NOTE DUE NOVEMBER
15, 2016 hereby irrevocably acknowledges receipt of a notice from Ford Motor
Company (the “Company”)
regarding the right of Holders to elect to require the Company to repurchase the
Securities upon the occurrence of a Designated Event or Change in Control, as
the case may be, and requests and instructs the Company pursuant to
Section 4.01 of the Supplemental Indenture to repurchase the entire
principal amount of this Security, or portion thereof (which is $1,000 principal
amount or an integral multiple thereof) designated below, in accordance with the
terms of the Indenture and the Supplemental Indenture at the price of 100% of
the principal amount or proportional portion thereof, together with accrued and
unpaid interest to, but not including, the Repurchase Date, to the registered
holder hereof.  Capitalized terms used herein but not defined shall
have the meanings ascribed to such terms in the Supplemental Indenture referred
to in such Securities.  The Securities shall be repurchased by the
Company as of the Repurchase Date pursuant to the terms and conditions specified
in the Supplemental Indenture.

       

      Security
Certificate Number (if applicable):                                                                                                                                

       

      Principal
amount to be repurchased (if less than all):                                                                                                                                

       

      Social
Security or Other Taxpayer Identification Number:                                                                                                                                

       

      USE THE FOLLOWING ONLY FOR
GLOBAL BOOK ENTRY DTC PARTICIPANTS

       

      Please
designate your DTC Participant’s name and Participant Number and provide contact
information below:

       

      Name of
DTC Participant:                                                                                                                                

       

      DTC
Participant Number:                                                                                                                                

       

      Client
Reference No.(optional):                                                                                                                                

       

      DTC
Participant Contact Information

       

      Name:                                                                                                                     

       

      Telephone
No.:                                                        Facsimile
No.:                                                                

       

      Email:
                                                                                                                     

       

      Date:                                                                                                                     

       

      Your
Signature:                                                                                                                                

       

      (Sign
exactly as your name appears on the other side of this Security or as an
authorized DTC Participant representative)

       

      *Signature
guaranteed
by:                                                                                                                                

       

      The
signature must be guaranteed by an institution which is a member of one of the
following recognized signature guaranty programs:  (i) the
Securities Transfer Agent Medallion Program (STAMP), (ii) the New York
Stock Exchange Medallion Program (MSP); (iii) the Stock Exchange Medallion
Program (SEMP); or (iv) such other guaranty program acceptable to the
Trustee

       

       

      56exhibit10_10.htm

    
      
        

      

    

    EXHIBIT
10.10

     

    WELLS
FARGO BUSINESS CREDIT

    CREDIT
AND SECURITY AGREEMENT

    
       

      THIS CREDIT AND SECURITY
AGREEMENT (the “Agreement”) is dated November 6, 2009 and is entered into
between Physicians Formula, Inc., a New York corporation (“Company”), and Wells Fargo Bank, National
Association (as more fully defined in Exhibit A,
“Wells Fargo”), acting through its Wells Fargo Business Credit operating
division.

       

      RECITALS

       

      Company
has asked Wells Fargo to provide it with a $25,000,000 revolving line of credit
(the “Line of Credit”) for general corporate purposes in the ordinary course of
business, the repayment of existing indebtedness, and to facilitate the issuance
of letters of credit.  Wells Fargo is agreeable to meeting Company’s
request, provided that Company agrees to the terms and conditions of this
Agreement.

       

      For
purposes of this Agreement, capitalized terms not otherwise defined in the
Agreement shall have the meaning given them in Exhibit A.

       

      
        	
                1.

              	
                AMOUNT
      AND TERMS OF THE LINE OF CREDIT

              

      

       

      1.1           Line of Credit; Limitations on
Borrowings; Termination Date; Use of Proceeds.

       

      (a)           Line of Credit and
Limitations on Borrowing.  Wells Fargo shall make Advances to
Company under the Line of Credit that, together with the L/C Amount, shall not
at any time exceed in the aggregate the lesser of (i) $25,000,000 (the
“Maximum Line Amount”), or (ii) the Borrowing Base set forth in Section 1.2.  Within
these limits, Company may periodically borrow, prepay in whole or in part, and
reborrow.  Wells Fargo has no obligation to make an Advance during a
Default Period or at any time Wells Fargo believes that an Advance would result
in an Event of Default.

       

      (b)           Maturity and Termination
Dates.  Company may request Advances from the date that the
conditions set forth in Section 3 are satisfied until
the earliest of (i) November 6, 2012 (the “Maturity Date”), (ii) the
date Company terminates the Line of Credit in full, or (iii) the date Wells
Fargo terminates the Line of Credit following an Event of Default (the earliest
of such dates, the “Termination Date”).

       

      (c)           Use of Line of Credit
Proceeds.  Company shall use the proceeds of each Advance and
each Letter of Credit to repay borrowings to Union Bank, N.A. (“Existing
Lender”) and for general corporate purposes in the ordinary course of
business.

       

      (d)           Revolving
Note.  Company’s obligation to repay the Advances under the
Line of Credit, regardless of how initiated under Section 1.3, shall be
evidenced by a revolving promissory note (as renewed, amended, substituted or
replaced from time to time, the “Revolving Note”).

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	
                 
      

              	
                1.2

              	
                Borrowing
      Base; Mandatory Prepayment.

              

      

       

      (a)           Borrowing
Base.  The borrowing base (the “Borrowing Base”) is an amount
equal to:

       

      (i)           65%
or such lesser percentage of Eligible Accounts as Wells Fargo in its Permitted
Discretion may deem appropriate; provided that this rate may be (x) reduced
at any time by Wells Fargo in its Permitted Discretion by one percent (1%) for
each percentage point by which Dilution on the date of determination is in
excess of twenty-five percent (25%) or (y) increased at any time by Wells
Fargo in its Permitted Discretion by one percent (1%) for each percentage point
by which Dilution on the date of determination is less than twenty-five percent
(25%), plus

       

      
        	
                 
      

              	
                (ii)

              	
                the
      least
      of:

              

      

       

      
        	
                 
      

              	
                (1)

              	
                $14,000,000;

              

      

       

      
        	
                 
      

              	
                (2)

              	
                the
      sum of (without duplication):

              

      

       

      (i)           the
product of (x) the lesser of 85% of the Net Orderly Liquidation Value Percentage
or 65% (or such lesser percentage as Wells Fargo in its Permitted Discretion may
deem appropriate), and (y) Eligible Inventory consisting of finished goods that
are fully packaged, labeled, and ready for shipping, plus

       

      (ii)           the
product of (x) the lesser of 85% of the Net Orderly Liquidation Value Percentage
or 50% (or such lesser percentage as Wells Fargo in its Permitted Discretion may
deem appropriate), and (y) Eligible Inventory consisting of semi-finished goods
which are ready for packaging and shipping, not to exceed $4,000,000, plus

       

      (iii)           the
product of (x) the lesser of 85% of the Net Orderly Liquidation Value Percentage
or 15% (or such lesser percentage as Wells Fargo in its Permitted Discretion may
deem appropriate), and (y) Eligible Inventory consisting of raw materials, not
to exceed $1,500,000, plus

       

      (iv)           the
product of (x) the lesser of 85% of the Net Orderly Liquidation Value Percentage
or 15% (or such lesser percentage as Wells Fargo in its Permitted Discretion may
deem appropriate), and (y) Eligible Inventory consisting of Blank Components,
not to exceed $1,000,000, plus

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      

      (v)           the
product of (x) the lesser of 85% of the Net Orderly Liquidation Value Percentage
or 50% (or such lesser percentage as Wells Fargo in its Permitted Discretion may
deem appropriate), and (y) of Eligible Inventory consisting of Returned Items,
not to exceed $750,000, plus

       

      (iii)           an
amount equal to the United States Dollar equivalent (as determined by Wells
Fargo) of the Canadian Cash Balance, less

       

      (iv)           the
sum of (without duplication) (x) the Working Capital Reserve plus
(y) the Borrowing Base Reserve, less

       

      (v)           Indebtedness
that is not otherwise described in Section 1, including
Indebtedness that Wells Fargo in its sole discretion finds on the date of
determination to be equal to Wells Fargo’s net credit exposure with respect to
any Rate Hedge Agreement, derivative, foreign exchange, deposit, treasury
management or similar transaction or arrangement extended to Company by Wells
Fargo and any Indebtedness owed by Company to Wells Fargo Merchant Services,
L.L.C.

       

      (b)           Mandatory Prepayment;
Overadvances.  If unreimbursed Advances under the Line of
Credit evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing
Base or the Maximum Line Amount at any time, then Company shall immediately
prepay the Revolving Note in an amount sufficient to eliminate the excess, and
if payment in full of the Revolving Note is insufficient to eliminate this
excess and the L/C Amount continues to exceed the Borrowing Base, then Company
shall deliver cash to Wells Fargo in an amount equal to the remaining excess for
deposit to the Special Account, unless in each case, Wells Fargo has delivered
to Company an Authenticated Record consenting to the Overadvance prior to its
occurrence, in which event the Overadvance shall be temporarily permitted on
such terms and conditions as Wells Fargo in its sole discretion may deem
appropriate, including the payment of additional fees or interest, or
both.

       

      
        	
                 
      

              	
                1.3

              	
                Procedures
      for Line of Credit Advances.

              

      

       

      (a)           Advances Credited to
Operating Account.  All Advances, whether accruing interest at
the Floating Rate (“Floating Rate Advances”) or at the Fixed Rate (“Fixed Rate
Advances”), shall be credited to Company’s demand deposit account maintained
with Wells Fargo (the “Operating Account”), unless the parties agree in an
Authenticated Record to disburse to another account.

       

      (b)           Advances upon Company’s
Request.  Company may request one or more Advances on any
Business Day.  Each request shall be deemed a request for a Floating
Rate Advance unless Company specifically requests that an Advance be funded as a
Fixed Rate Advance as provided in Section 1.5.  No
request for an Advance will be deemed received until Wells Fargo acknowledges
receipt, and Company, if requested by Wells Fargo, confirms the request in an
Authenticated Record.  Company shall repay all Advances, even if the
Person requesting the Advance on behalf of Company lacked
authorization.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      

      (c)           Advances through Loan
Manager.  If Wells Fargo has separately agreed that Company may
use the Wells Fargo Loan Manager service (“Loan Manager”), Line of Credit
Advances will be initiated by Wells Fargo and credited to the Operating Account
as Floating Rate Advances as of the end of each Business Day in an amount
sufficient to maintain an agreed upon ledger balance in the Operating Account,
subject only to Line of Credit availability as provided in Section 1.1(a).  If
Wells Fargo terminates Company’s access to Loan Manager, Company may continue to
request Line of Credit Advances as provided in Section 1.3(b).  Wells
Fargo shall have no obligation to make an Advance through Loan Manager during a
Default Period, or in an amount in excess of Line of Credit availability, and
may terminate Loan Manager at any time in its sole
discretion.  Advances through Loan Manager shall not be made as Fixed
Rate Advances.

       

      (d)           Protective Advances;
Advances to Pay Indebtedness Due.  Wells Fargo may initiate a
Floating Rate Advance on the Line of Credit in its sole discretion for any
reason at any time, without Company’s compliance with any of the conditions of
this Agreement, and (i) disburse the proceeds directly to third Persons in
order to protect Wells Fargo’s interest in Collateral or to perform any of
Company’s obligations under this Agreement, or (ii) apply the proceeds to
the amount of any Indebtedness then due and payable to Wells Fargo.

       

      1.4           Floating Rate
Advances.  Company may request an Advance at the Floating Rate
no later than 9:00 a.m. Pasadena, California Time on the Business Day on which
Company wants the Floating Rate Advance to be funded.  Rate Hedges may
not be used with respect to any Advance that utilizes the Floating
Rate.

       

      
        	
                 
      

              	
                1.5

              	
                Fixed
      Rate Advances and Rate Hedges.

              

      

       

      (a)           Fixed Rates for Fixed Rate
Interest Periods; Quotation of Rates.  Wells Fargo will quote
Company a fixed interest rate based on LIBOR as defined in Section 1.7 (a “Fixed Rate”)
for a three (3) month term (each a “Fixed Rate Interest Period”, as more fully
defined in Exhibit A),
which Fixed Rate Interest Period will commence on the Business Day on which the
Advance is to be funded, provided that the request is received by Wells Fargo no
later than 9:00 a.m. Pasadena, California Time three (3) Business Days prior to
the Business Day that the Advance is to be funded.  If Company does
not promptly accept the quoted Fixed Rate, then the quote shall expire and any
subsequent request for a quote shall be subject to redetermination by Wells
Fargo.

       

      (b)           Procedure for Requesting and
Renewing Fixed Rate Advances.  Company may request a Fixed Rate
Advance, or convert a Floating Rate Advance to a Fixed Rate Advance, or renew an
existing Fixed Rate Advance, provided that Wells Fargo receives the request no
later than 9:00 a.m. Pasadena, California Time three (3) Business Days prior to
the Business Day that will be the first day of the new Fixed Rate Interest
Period.  Each request shall specify the principal amount to be
advanced at the Fixed Rate, or to be converted from the Floating Rate, or to be
renewed, and shall be confirmed in an Authenticated Record if requested by Wells
Fargo.  Each Fixed Rate Advance shall be in multiples of $500,000 and
in the minimum amount of at least $500,000.  No more than four (4)
separate Fixed Rate Advances may be outstanding at any time.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      

      (c)           Expiration of Fixed Rate
Advances.  Unless a Fixed Rate Advance is subject to a Rate
Hedge, or is renewed, paid, or prepaid on or before the expiration of the
related Fixed Rate Interest Period, each Fixed Rate Advance shall automatically
be converted to the Floating Rate upon the expiration of the Fixed Rate Interest
Period.  An expiring Fixed Rate Advance may not be renewed for a new
Fixed Rate Interest Period if a Default Period is in effect, unless a Rate Hedge
applies to the Fixed Rate Advance.

       

      (d)           Fixed Rate Advances Subject
to a Rate Hedge; Interest Rate Floors.  Any Fixed Rate Advance
may be made subject to a Rate Hedge pursuant to the separate agreement of
Company and Wells Fargo.  Any Fixed Rate Advance subject to a Rate
Hedge shall automatically and continuously renew for successive Fixed Rate
Interest Periods until the earlier of the Termination Date or the termination of
the Rate Hedge for any reason, after which time the Advance will accrue interest
at the Floating Rate, and subject to the Default Rate, if
applicable.  If the Floating Rate, which determines Fixed Rate Advance
pricing, is subject to a minimum interest rate floor, the interest rate floor
will not apply to the calculation of interest accruing with respect to any Fixed
Rate Advance at any time that a Rate Hedge is currently in
effect.  Upon termination of any Rate Hedge, the minimum interest rate
floor shall resume application to Fixed Rate Advance borrowings that were
formerly subject to such Rate Hedge.

       

      (e)           Taxes and Regulatory
Costs.  Company shall also pay Wells Fargo with respect to any
Fixed Rate Advance based on LIBOR, all (i) withholdings, interest
equalization taxes, stamp taxes or other taxes (except income and franchise
taxes) imposed by any domestic or foreign governmental authority that are
related to LIBOR, and (ii) future, supplemental, emergency or other changes
in the LIBOR Reserve Percentage, the assessment rates imposed by the Federal
Deposit Insurance Corporation, or similar costs imposed by any domestic or
foreign governmental authority or resulting from compliance by Wells Fargo with
any request or directive (whether or not having the force of law) from any
central bank or other governmental authority that are related to LIBOR but not
otherwise included in the calculation of LIBOR.  In determining which
of these amounts are attributable to an existing Fixed Rate Advance that is
based on LIBOR, any reasonable allocation made by Wells Fargo among its
operations shall be deemed conclusive and binding.

       

      1.6           Collection
of Accounts and Application to Revolving Note.

       

      (a)           The Collection
Account.  Company has granted a security interest to Wells
Fargo in the Collateral, including without limitation, all
Accounts.  Except as otherwise agreed by both parties in an
Authenticated Record, all Proceeds of Accounts and other Collateral (other than
the Separate Collateral Bank Account, so long as no Event of Default has
occurred), upon receipt or collection, shall be deposited each Business Day into
the Collection Account (including, but not limited to, (i) all payments required
to be remitted to Wells Fargo in accordance with the payoff letter executed by
Union Bank, N.A., and (ii) any payments or funds received from Union Bank, N.A.
in connection with the closing of Company’s deposit accounts maintained at Union
Bank, N.A. or as a result of the exercise of any rights or remedies by Wells
Fargo under any control agreements that pertain to Company’s deposit accounts
maintained at Union Bank, N.A.); provided, however, that:

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      

      (i)           Company
shall arrange for all Proceeds of Accounts and other Collateral arising from
Company’s Canadian operations to be paid directly to a lockbox maintained by the
Royal Bank of Canada, and the funds that are received in such lockbox shall be
remitted directly to the Canadian Concentration Account (provided that for the
120-day period after the date of this Agreement, such funds may be remitted to a
Canadian Dollar denominated account maintained by Company with Union Bank, N.A.
(“UB Canadian Account”));

       

      (ii)           Funds
held in the Canadian Concentration Account may be maintained in such account
until such time as:

       

      (1)           During
a Default Period, Wells Fargo may (in Wells Fargo’s sole discretion) direct that
such funds be transferred to the Collection Account;

       

      (2)           So
long as no Default Period is existing, Company may from time to time request
that Wells Fargo arrange for such funds to be transferred to either the
Collection Account or to the Canadian Operating Account, provided that funds
transferred to the Canadian Operating Account shall be limited to the amount
necessary to pay costs and expenses incurred in connection with the Company’s
Canadian operations; and

       

      (3)           Notwithstanding,
the immediately preceding clause (2), if the aggregate amount of funds held in
the UB Canadian Account, Canadian Concentration Account and the Canadian
Operating Account exceeds C$2,000,000 at any time, Company shall, within 10 days
after such occurrence, arrange to transfer to the Collection Account an amount
necessary to reduce the aggregate balance in such accounts below
C$2,000,000;

       

      (iii)           Company
may maintain the Canadian Operating Account, so long as Company only maintains
funds in such account as is necessary to pay costs and expenses incurred in
connection with Company’s Canadian operations and Wells Fargo maintains a first
priority perfected Lien on such account and all funds held in such account and
control over such account pursuant to, if applicable, a control agreement in
form and substance acceptable to Wells Fargo.  During a Default
Period, Wells Fargo may (in Wells Fargo’s sole discretion) arrange to transfer
any funds in the Canadian Operating Account to the Collection Account and apply
such funds to the Indebtedness or continue to hold all or any part of such funds
as collateral for the Indebtedness;

       

      (iv)           During
a Default Period, Wells Fargo may in Wells Fargo’s sole discretion demand that
all funds in the UB Canadian Account be transferred to the Collection Account
(or another account designated by Wells Fargo), in which case Company shall
arrange for the immediate transfer of all such funds to the Wells
Fargo-designated account;

       

      (v)           Company
may continue to maintain its California Lockbox with Union Bank, N.A. for up to
120 days after the date of this Agreement, so long as any funds in the
California Lockbox account are transferred each Business Day to the Collection
Account and Company does not have any control rights over such California
Lockbox account;

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      

      (vi)           Company
may continue to maintain an operating account with Union Bank, N.A. for up to
120 days after the date of this Agreement, so long as Wells Fargo maintains a
first priority perfected Lien on such account and all funds held in such account
and control over such account pursuant to a control agreement in form and
substance acceptable to Wells Fargo; and

       

      (vii)           Company
may continue to maintain the UB Canadian Account for up to 120 days after the
date of this Agreement.

       

      Funds
deposited in the Collection Account (“Account Funds”) may only be withdrawn from
the Collection Account by Wells Fargo.

       

      (b)           Payment of Accounts by
Company’s Account Debtors.  Company shall instruct all account
debtors to make payments either directly to the Lockbox for deposit by Wells
Fargo directly to the Collection Account, or instruct them to deliver such
payments to Wells Fargo by wire transfer, ACH, or other means as Wells Fargo may
direct for deposit to the Collection Account or for direct application to the
Line of Credit; provided that (i) proceeds of Accounts and other Collateral
arising from Company’s Canadian operations may be paid directly to a lockbox
maintained by the Royal Bank of Canada as provided in Section 1.6(a), and
(ii) Company may continue to maintain its California Lockbox with Union Bank,
N.A. for up to 120 days after the date of this Agreement in accordance with
Section
1.6(a).  If Company receives a payment or the Proceeds of
Collateral directly, Company will promptly deposit the payment or Proceeds into
the Collection Account or, if such payment is a Canadian Dollar payment, into
the Canadian Concentration Account.  Until deposited, it will hold all
such payments and Proceeds in trust for Wells Fargo without commingling with
other funds or property.  All deposits held in the Collection Account
or the Canadian Concentration Account shall constitute Proceeds of Collateral
and shall not constitute the payment of Indebtedness.

       

      (c)           Application of Payments to
Revolving Note.  Wells Fargo will withdraw Account Funds
deposited to the Collection Account and pay down borrowings on the Line of
Credit by applying them to the Revolving Note on the first Business Day
following the Business Day of deposit to the Collection Account, or, if payments
are received by Wells Fargo that are not first deposited to the Collection
Account pursuant to any treasury management service provided to Company by Wells
Fargo, such payments shall be applied to the Revolving Note as provided in the
Master Agreement for Treasury Management Services and the relevant service
description.  All payments shall be applied first to any unpaid
Floating Rate Advances, and once paid, to outstanding Fixed Rate
Advances.  If more than one Fixed Rate Advance is outstanding, the
payments shall be applied to such Fixed Rate Advances in the order and in the
amounts as Wells Fargo may deem appropriate, unless Company specifies at the
time of payment how such payments are to be applied.

       

      
        	
                 
      

              	
                1.7

              	
                Interest
      and Interest Related Matters.

              

      

       

      (a)           Interest Rates Applicable to
Line of Credit.  Except as otherwise provided in this
Agreement, the unpaid principal amount of each Line of Credit Advance evidenced
by the Revolving Note shall accrue interest at an annual interest rate
calculated as follows:

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      

      Floating
Rate Pricing

       

      The
“Floating Rate” for Advances under the Line of Credit = An interest rate equal
to Daily Three Month LIBOR plus three and one-half percent (3.50%) per annum,
which interest rate shall change whenever Daily Three Month LIBOR
changes;

       

      Or

       

      Fixed
Rate Pricing

       

      The
“Fixed Rate” for Advances under the Line of Credit = An interest rate equal
to the Floating Rate in effect on the first Business Day of the Fixed Rate
Interest Period (inclusive of the margin applicable to the Floating Rate, and
subject to the minimum interest rate, if applicable, unless a Rate Hedge applies
to the Fixed Rate Advance);

       

      Multiple
Advances under the Line of Credit may simultaneously accrue interest at both the
Floating Rate and at the Fixed Rate, subject to the limitations of Section 1.5(b).

       

      (b)           Minimum Interest
Charge.  Notwithstanding the other terms of Section 1.7 to the contrary,
and except as limited by the usury savings provision of Section 1.7(e), Company shall
pay Wells Fargo at least $25,000 of interest, in arrears, on the first day of
each calendar month (the “Minimum Interest Charge”) during the term of this
Agreement, and Company shall pay any deficiency between the Minimum Interest
Charge and the amount of interest otherwise payable on the first day of each
month and on the Termination Date.  When calculating this deficiency,
the Default Rate set forth in Section 1.7(c), if
applicable, shall be disregarded.

       

      (c)           Default Interest
Rate.  Commencing on the day an Event of Default occurs,
through and including the date identified by Wells Fargo in a Record as the date
that the Event of Default has been cured or waived (each such period a “Default
Period”), or during a time period specified in Section 1.10, or at any time
following the Termination Date, in Wells Fargo’s sole discretion and without
waiving any of its other rights or remedies, the principal amount of the
Revolving Note shall bear interest at a rate that is three percent (3.0%) above
the contractual rate set forth in Section 1.7(a) (the “Default
Rate”), or any lesser rate that Wells Fargo may deem appropriate, starting on
the first day of the month in which the Default Period begins through the last
day of that Default Period, or any shorter time period to which Wells Fargo may
agree in an Authenticated Record.

       

      (d)           Interest Accrual on Payments
Applied to Revolving Note.  Payments received by Wells Fargo
shall be applied to the Revolving Note as provided in Section 1.6(c), but the
principal amount paid down shall continue to accrue interest through the end of
the first Business Day following the Business Day that the payment was applied
to the Revolving Note.

       

      (e)           Usury.  No
interest rate shall be effective which would result in a rate greater than the
highest rate permitted by law.  Payments in the nature of interest and
other charges made under any Loan Documents or any other document or agreement
described in or related to this Agreement that are later determined to be in
excess of the limits imposed by applicable usury law will be deemed to be a
payment of principal, and the Indebtedness shall be reduced by that amount so
that such payments will not be deemed usurious.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      

      
        	
                 
      

              	
                1.8

              	
                Fees.

              

      

       

      (a)           Origination
Fee.  Company shall pay Wells Fargo a one-time origination fee
of $250,000, which shall be fully earned and payable upon the execution of this
Agreement.

       

      (b)           Unused Line
Fee.  Company shall pay Wells Fargo an annual unused line fee
of one-half percent (0.5%) of the sum of (the “Unused Amount”) (i) the daily
average of the Maximum Line Amount, less (ii) the daily average aggregate
outstanding Advances, less (iii) the daily average L/C Amount, from the date of
this Agreement to and including the Termination Date, which unused line fee
shall be payable monthly in arrears on the first day of each month and on the
Termination Date.

       

      (c)           Facility
Fee.  [Intentionally Omitted.]

       

      (d)           Collateral
Exam Fees.  Company shall pay Wells
Fargo fees in connection with any collateral exams, audits or inspections
conducted by or on behalf of Wells Fargo at the current rates established from
time to time by Wells Fargo as its collateral exam fees (which fees are
currently $135.00 per hour per collateral examiner), together with all actual
out-of-pocket costs and expenses incurred in conducting any collateral
examination or inspection; provided that Company shall not, with the
exception of fees, costs, and expenses incurred during Default Periods, be
required to reimburse Wells Fargo for more than four such exams, audits, or
inspections per calendar year.

       

      (e)           Collateral Monitoring
Fees.  Company shall pay Wells Fargo a fee at the rates
established from time to time by Wells Fargo as its Collateral monitoring fees
(which fees are currently $1,000 per month), due and payable monthly in advance
on the first day of each month.

       

      (f)           Line of Credit Termination
and/or Reduction Fees.  If (i) Wells Fargo terminates the
Line of Credit during a Default Period, (ii) Company terminates the Line of
Credit on a date prior to the Maturity Date, or (iii) Company and Wells
Fargo agree to reduce the Maximum Line Amount, then Company shall pay Wells
Fargo as liquidated damages a termination or reduction fee in an amount equal to
a percentage of the Maximum Line Amount (or the reduction of the Maximum Line
Amount, as the case may be) calculated as follows:  (A) three
percent (3.0%) if the termination or reduction occurs on or before the first
anniversary of the first Line of Credit Advance; (B) one and one-half
percent (1.5%) if the termination or reduction occurs after the first
anniversary of the first Line of Credit Advance, but on or before the second
anniversary of the first Line of Credit Advance; and (C) one-half percent
(0.5%) if the termination or reduction occurs after the second anniversary of
the first Line of Credit Advance.

       

      (g)           Overadvance
Fees.  [Intentionally Omitted].

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      

      (h)           Treasury Management
Fees.  Company will pay service fees to Wells Fargo for
treasury management services provided pursuant to the Master Agreement for
Treasury Management Services or any other agreement entered into by the parties,
in the amount prescribed in Wells Fargo’s current service fee
schedule.

       

      (i)           Letter of Credit
Fees.  Company shall pay a fee with respect to each Letter of
Credit issued by Wells Fargo of three and one-half percent (3.5%) of the
aggregate undrawn amount of the Letter of Credit (the “Aggregate Face Amount”)
accruing daily from and including the date the Letter of Credit is issued until
the date that it either expires or is returned, which shall be payable monthly
in arrears on the first day of each month and on the date that the Letter of
Credit either expires or is returned; and following an Event of Default, this
fee shall increase to six and one-half percent (6.5%) of the Aggregate Face
Amount, commencing on the first day of the month in which the Default Period
begins and continuing through the last day of such Default Period, or any
shorter time period that Wells Fargo in its sole discretion may deem
appropriate, without waiving any of its other rights and remedies.

       

      (j)           Letter of Credit
Administrative Fees.  Company shall pay all administrative fees
charged by Wells Fargo in connection with the honoring of drafts under any
Letter of Credit, and any amendments to or transfers of any Letter of Credit,
and any other activity with respect to the Letters of Credit at the current
rates published by Wells Fargo for such services rendered on behalf of its
customers generally.

       

      (k)           Other Fees and
Charges.  [Intentionally Omitted].

       

      (l)           Termination and Prepayment
Fees Following Refinance by a Wells Fargo Commercial Banking
Group.  If after May 6, 2011, the Line of Credit is
refinanced in full by a Wells Fargo Commercial Banking Office and this Agreement
is terminated, such refinancing will not be deemed a termination or prepayment
resulting in the payment of termination and/or prepayment fees pursuant to
Section 1.8(f), or Fixed Rate Advance breakage fees, provided that Company
agrees, at the time of such refinancing by a Wells Fargo Commercial Banking
Office, to the payment of comparable termination and/or prepayment fees in an
amount not less than that set forth in this Agreement, in the event that any
facilities extended under such refinancing are terminated early or prepaid after
the refinancing.

       

      (m)           Fixed Rate Advance Breakage
Fees.  Company may prepay any Fixed Rate Advance at any time in
any amount, whether voluntarily or by acceleration; provided, however, that if the
Fixed Rate Advance is prepaid, Company shall pay Wells Fargo upon demand a Fixed
Rate Advance breakage fee equal to the sum of the discounted monthly differences
for each month from the month of prepayment through the month in which the Fixed
Rate Interest Period matures,  calculated as follows for each such
month:

       

      (i)           Determine the amount
of interest that would have accrued each month on the amount prepaid at the
interest rate applicable to such amount had it remained outstanding until the
last day of the applicable Fixed Rate Interest Period.

       

      (ii)           Subtract from the
amount determined in (i) above the amount of interest that would have accrued
for the same month on the amount of principal prepaid for the remaining term of
the Fixed Rate Interest Period at a rate equal to LIBOR in effect on the date of
prepayment for new loans extended at a Fixed Rate for the remainder of the Fixed
Rate Interest Period in a principal amount equal to the amount
prepaid.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      

      (iii)           If
the result obtained in (ii) for any month is greater than zero, discount that
difference by LIBOR used in (ii) above.

       

      Company
acknowledges that prepayment of the Revolving Note may result in Wells Fargo
incurring additional costs, expenses or liabilities, and that it is difficult to
ascertain the full extent of such costs, expenses or
liabilities.  Company agrees to pay the above-described Fixed Rate
Advance breakage fee and agrees that this amount represents a reasonable
estimate of the Fixed Rate Advance breakage costs, expenses and/or liabilities
of Wells Fargo.

       

      
        	
                 
      

              	
                1.9

              	
                Interest Accrual; Principal and
      Interest Payments;
Computation.

              

      

       

      (a)           Interest Payments and
Interest Accrual.  Accrued and unpaid interest under the
Revolving Note on Floating Rate Advances shall be due and payable in arrears on
the first day of each month (each an “Interest Payment Date”) and on the
Termination Date, and shall be paid in the manner provided in Section 1.6(c).  Interest
shall accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of Advance to the Interest Payment
Date.  Interest accruing on any Fixed Rate Advance shall be due and
payable on the last day of the applicable Fixed Rate Interest Period and on the
Termination Date; provided, however, that if a Fixed Rate Interest Period is in
excess of one month, and is not subject to a Rate Hedge, then interest shall
nevertheless be due and payable monthly on the last day of each month, and on
the last day of the Fixed Rate Interest Period.  Interest payable on
any Fixed Rate Advance subject to a Rate Hedge shall be payable on the earlier
of the last day of the Fixed Rate Interest Period or the Termination
Date.

       

      (b)           Payment of Revolving Note
Principal.  The principal amount of the Revolving Note shall be
paid from time to time as provided in this Agreement, and shall be fully due and
payable on the Termination Date.

       

      (c)           Payments Due on Non Business
Days.  If an Interest Payment Date or the Termination Date
falls on a day which is not a Business Day, payment shall be made on the next
Business Day, and interest shall continue to accrue during that time
period.

       

      (d)           Computation of Interest and
Fees.  Interest accruing on the unpaid principal amount of the
Revolving Note and fees payable under this Agreement shall be computed on the
basis of the actual number of days elapsed in a year of 360 days.

       

      (e)           Liability
Records.  Wells Fargo shall maintain accounting and bookkeeping
records of all Advances and payments under the Line of Credit and all other
Indebtedness due to Wells Fargo in such form and content as Wells Fargo in its
sole discretion deems appropriate.  Wells Fargo’s calculation of
current Indebtedness shall be presumed correct unless proven otherwise by
Company.  Upon Wells Fargo’s request, Company will admit and certify
in a Record the exact principal balance of the Indebtedness that Company then
believes to be outstanding.  Any billing statement or accounting
provided by Wells Fargo shall be conclusive and binding unless Company notifies
Wells Fargo in a detailed Record of its intention to dispute the billing
statement or accounting within 30 days of receipt.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      

      1.10        Termination, Reduction or Non-Renewal
of Line of Credit by Company; Notice.

       

      (a)           Termination by Company after
Advance Notice.  Company may terminate or reduce the Line of
Credit at any time prior to the Maturity Date, if it (i) delivers an
Authenticated Record notifying Wells Fargo of its intentions at least 30 days
prior to the proposed Termination Date or date upon which such reduction shall
be deemed effective, as applicable, (ii) pays Wells Fargo the termination
fee set forth in Section 1.8(f),
and (iii) pays the Indebtedness in full or down to the reduced Maximum Line
Amount.  Any reduction in the Maximum Line Amount shall be in
multiples of $500,000, with a minimum reduction of at least
$1,000,000.

       

      (b)           Termination by Company
without Advance Notice.  If Company fails to deliver Wells
Fargo timely notice of its intention to terminate the Line of Credit or reduce
the Maximum Line Amount as provided in Section 1.10(a), Company may
nevertheless terminate the Line of Credit or reduce the Maximum Line Amount and
pay the Indebtedness in full or down to the reduced Maximum Line Amount if it
(i) pays the termination fee set forth in Section 1.8(f),
and (ii) pays additional interest for each day that the notice was short of
the required 30 days notice, which interest shall be in an amount that is equal
to the greater of (A) interest calculated at the Default Rate based on
Company’s average borrowings under the Line of Credit for the one month prior to
the date that Wells Fargo receives delivery of an Authenticated Record giving it
actual notice of Company’s intention to terminate or reduce the Line of Credit,
or (B) the unused line fee for the 30 days prior to the date that Wells
Fargo receives delivery of an Authenticated Record giving it actual notice of
Company’s intention to terminate or reduce the Line of Credit, calculated as
provided in Section 1.8(b) of this
Agreement.

       

      (c)           Non-Renewal by Company;
Notice.  [Intentionally Omitted.]

       

      
        	
                 
      

              	
                1.11

              	
                Letters
      of Credit.

              

      

       

      (a)           Issuance of Letters of
Credit; Amount.  Wells Fargo, subject to the terms and
conditions of this Agreement, shall issue, on or after the date that Wells Fargo
is obligated to make its first Advance under this Agreement and prior to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a “Letter of Credit”, and collectively, “Letters of Credit”) for
Company’s account.  Wells Fargo will not issue any Letter of Credit if
the face amount of the Letter of Credit would exceed the least
of:  (i) $1,500,000 less the L/C Amount, (ii) the Borrowing
Base, less an amount equal to aggregate unreimbursed Line of Credit Advances
plus the L/C Amount, or (iii) the Maximum Line Amount less an amount equal to
aggregate unreimbursed Line of Credit Advances plus the L/C Amount.

       

      (b)           Additional Letter of Credit
Documentation.  Prior to requesting issuance of a Letter of
Credit, Company shall first execute and deliver to Wells Fargo a Standby Letter
of Credit Agreement or a Commercial Letter of Credit Agreement, as applicable,
an L/C Application, and any other documents that Wells Fargo may request, which
shall govern the issuance of the Letter of Credit and Company’s obligation to
reimburse Wells Fargo for any related Letter of Credit draws (the “Obligation of
Reimbursement”).

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      

      (c)           Expiration.  No
Letter of Credit shall be issued that has an expiry date that is later than one
(1) year from the date of issuance, or the Maturity Date in effect on the date
of issuance, whichever is earlier.

       

      (d)           Obligation of Reimbursement
During Default Periods.  If Company is unable, due to the
existence of a Default Period or for any other reason, to obtain an Advance to
pay any Obligation of Reimbursement, Company shall pay Wells Fargo on demand and
in immediately available funds, the amount of the Obligation of Reimbursement
together with interest, accrued from the date of presentment of the underlying
draft until reimbursement in full at the Default Rate.  Wells Fargo is
authorized, alternatively and in its sole discretion, to make an Advance in an
amount sufficient to discharge the Obligation of Reimbursement and pay all
accrued but unpaid interest and fees with respect to the Obligation of
Reimbursement.

       

      1.12        Special Account.  If
the Line of Credit is terminated for any reason while a Letter of Credit is
outstanding, or if after prepayment of the Revolving Note the L/C Amount
continues to exceed the Borrowing Base, then Company shall promptly pay Wells
Fargo in immediately available funds for deposit to the Special Account, an
amount equal, as the case may be, to either (a) the L/C Amount plus any
anticipated fees and costs, or (b) the amount by which the L/C Amount
exceeds the Borrowing Base.  If Company fails to pay these amounts
promptly, then Wells Fargo may in its sole discretion make an Advance to pay
these amounts and deposit the proceeds to the Special Account.  The
Special Account shall be an interest bearing account maintained with Wells Fargo
or any other financial institution acceptable to Wells Fargo.  Wells
Fargo may in its sole discretion apply amounts on deposit in the Special Account
to the Indebtedness.  Company may not withdraw amounts deposited to
the Special Account until the Line of Credit has been terminated and all
outstanding Letters of Credit have either been returned to Wells Fargo or have
expired and the Indebtedness has been fully paid.

       

      
        	
                2.

              	
                SECURITY
      INTEREST AND OCCUPANCY OF COMPANY’S
PREMISES

              

      

       

      2.1           Grant of Security
Interest.  Company hereby pledges, collaterally assigns and
grants to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells
Fargo Merchant Services, L.L.C., a Lien and security interest (collectively
referred to as the “Security Interest”) in the Collateral, as security for the
payment and performance of all Indebtedness; provided, however, notwithstanding
the foregoing, no Lien is hereby granted on any Excluded Property, and such
Excluded Property shall not be deemed to be “Collateral”; provided further that
if and when any property shall cease to be Excluded Property, a Lien on and
security interest in such property shall be deemed granted therein and such
property shall be deemed to be “Collateral.”  Following the written
request by Wells Fargo, Company shall grant Wells Fargo, for the benefit of
Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C., a Lien and
security interest in all commercial tort claims that it may have against any
Person.

       

      2.2           Notifying Account Debtors and Other
Obligors; Collection of Collateral.  Wells Fargo may at any
time (whether or not a Default Period then exists) deliver a Record giving an
account debtor or other Person obligated to pay an Account, a General
Intangible, or other amount due, notice that the Account, General Intangible, or
other amount due has been assigned to Wells Fargo for security and must be paid
directly to Wells Fargo.  Company shall join in giving such notice and
shall Authenticate any Record giving such notice upon Wells Fargo’s
request.  After Company or Wells Fargo gives such notice, Wells Fargo
may, but need not, in Wells Fargo’s or in Company’s name, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, such Account, General Intangible, or other amount due,
or grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any account debtor or other obligor.  Wells Fargo may,
in Wells Fargo’s name or in Company’s name, as Company’s agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of Company’s mail to any address designated by Wells Fargo,
otherwise intercept Company’s mail, and receive, open and dispose of Company’s
mail, applying all Collateral as permitted under this Agreement and holding all
other mail for Company’s account or forwarding such mail to Company’s last known
address.

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      

      2.3           Collateral Assignment of
Insurance.  As additional security for the Indebtedness,
Company hereby collaterally assigns to Wells Fargo and to Wells Fargo Merchant
Services, L.L.C., all rights of Company under every policy of insurance covering
the Collateral and all business records and other documents relating to it, and
all monies (including, without limitation, all proceeds and refunds) that may be
payable under any policy, and Company hereby directs the issuer of each policy
to pay all such monies directly to Wells Fargo.  At any time, whether
or not a Default Period then exists, Wells Fargo may (but need not), in Wells
Fargo’s or Company’s name, execute and deliver proofs of claim, receive payment
of proceeds and endorse checks and other instruments representing payment of the
policy of insurance, and adjust, litigate, compromise or release claims against
the issuer of any policy.  Any monies received under any insurance
policy assigned to Wells Fargo, other than liability insurance policies, or
received as payment of any award or compensation for condemnation or taking by
eminent domain, shall be paid to Wells Fargo and, as determined by Wells Fargo
in its sole discretion, either be applied to prepayment of the Indebtedness or
disbursed to Company under staged payment terms reasonably satisfactory to Wells
Fargo for application to the cost of repairs, replacements, or restorations
which shall be effected with reasonable promptness and shall be of a value at
least equal to the value of the items or property destroyed.

       

      
        	
                 
      

              	
                2.4

              	
                Company’s
      Premises.

              

      

       

      (a)           Wells Fargo’s Right to
Occupy Company’s Premises.  Company hereby grants to Wells
Fargo the right, at any time during a Default Period and without notice or
consent, to take exclusive possession of all locations where Company conducts
its business or has any rights of possession, including without limitation the
locations described on Exhibit B (the
“Premises”), until the earlier of (i) payment in full and discharge of all
Indebtedness and termination of the Line of Credit, or (ii) final sale or
disposition of all items constituting Collateral and delivery of those items to
purchasers.

       

      (b)           Wells Fargo’s Use of
Company’s Premises.  During any Default Period, Wells Fargo may
use the Premises to store, process, manufacture, sell, use, and liquidate or
otherwise dispose of items that are Collateral, and for any other incidental
purposes deemed appropriate by Wells Fargo in good faith.

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      

      (c)           Company’s Obligation to
Reimburse Wells Fargo.  Wells Fargo shall not be obligated to
pay rent or other compensation for the possession or use of any Premises, but if
Wells Fargo elects to pay rent or other compensation to the owner of any
Premises in order to have access to the Premises, then Company shall promptly
reimburse Wells Fargo all such amounts, as well as all actual out-of-pocket
taxes, fees, charges and other expenses at any time payable by Wells Fargo with
respect to the Premises by reason of the execution, delivery, recordation,
performance or enforcement of any terms of this Agreement.

       

      2.5           License.  Without
limiting the generality of any other Security Document, Company hereby grants to
Wells Fargo a non-exclusive, worldwide and royalty-free license during any
Default Period to use or otherwise exploit all Intellectual Property Rights of
Company for the purpose of:  (a) completing the manufacture of
any in-process materials during any Default Period so that such materials become
saleable Inventory, all in accordance with the same quality standards previously
adopted by Company for its own manufacturing and subject to Company’s reasonable
exercise of quality control; and (b) selling, leasing or otherwise
disposing of any or all Collateral.

       

      
        	
                 
      

              	
                2.6

              	
                Financing
      Statements.

              

      

       

      (a)           Authorization to
File.  Company authorizes Wells Fargo to file financing
statements describing Collateral to perfect Wells Fargo’s Security Interest in
the Collateral, and Wells Fargo may describe the Collateral as “all personal
property” or “all assets” or describe specific items of Collateral including
without limitation any commercial tort claims.  All financing
statements filed before the date of this Agreement to perfect the Security
Interest were authorized by Company and are hereby
re-authorized.  Following the termination of the Line of Credit and
payment of all Indebtedness, Wells Fargo shall, at Company’s expense and within
the time periods required under applicable law, release or terminate any filings
or other agreements that perfect the Security Interest.

       

      (b)           Termination.  Wells
Fargo shall, at Company’s expense, release or terminate any filings or other
agreements that perfect the Security Interest, provided that there are no suits,
actions, proceedings or claims pending or threatened against any Indemnitee
under this Agreement with respect to any Indemnified Liabilities, upon Wells
Fargo’s receipt of the following, in form and content satisfactory to Wells
Fargo: (i) cash payment in full of all Indebtedness and a completed
performance by Company with respect to its other obligations under this
Agreement, (ii) evidence that the commitment of Wells Fargo to make
Advances under the Line of Credit or under any other facility with Company has
been terminated, (iii) a release of all claims against Wells Fargo by
Company relating to Wells Fargo’s performance and obligations under the Loan
Documents, and (iv) an agreement by Company, any Guarantor, and any new
lender to Company to indemnify Wells Fargo for any payments received by Wells
Fargo that are applied to the Indebtedness as a final payoff that may
subsequently be returned or otherwise not paid for any reason.

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      

      2.7           Setoff.  Wells Fargo
may at any time during a Default Period, in its sole discretion and without
demand or notice to anyone, setoff any liability owed to Company by Wells Fargo
against any Indebtedness, whether or not due; provided that in no event shall
Wells Fargo offset against Company’s payroll account number 4121973010
maintained at Wells Fargo so long as the funds held in such payroll account are
limited to the amount required to satisfy Company’s payroll obligations during
the following seven day period (as of any date of determination).

       

      2.8           Collateral Related
Matters.  This Agreement does not contemplate a sale of
Accounts or chattel paper, and, as provided by law, Company is entitled to any
surplus and shall remain liable for any deficiency.  Wells Fargo’s
duty of care with respect to Collateral in its possession (as imposed by law)
will be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third Person, exercises reasonable care in the selection of the
bailee or third Person, and Wells Fargo need not otherwise preserve, protect,
insure or care for such Collateral.  Wells Fargo shall not be
obligated to preserve rights Company may have against prior parties, to
liquidate the Collateral at all or in any particular manner or order or apply
the Proceeds of the Collateral in any particular order of
application.  Wells Fargo has no obligation to clean-up or prepare
Collateral for sale.  Company waives any right it may have to require
Wells Fargo to pursue any third Person for any of the Indebtedness.

       

      2.9           Notices Regarding Disposition of
Collateral.  If notice to Company of any intended disposition
of Collateral or any other intended action is required by applicable law in a
particular situation, such notice will be deemed commercially reasonable if
given in the manner specified in Section 7.4 at least ten (10)
calendar days before the date of intended disposition or other
action.

       

      
        	
                3.

              	
                CONDITIONS
      PRECEDENT

              

      

       

      3.1           Conditions Precedent to Initial
Advance and Issuance of Initial Letter of Credit.  Wells
Fargo’s obligation to make the initial Advance or issue the first Letter of
Credit shall be subject to the condition that Wells Fargo shall have received
this Agreement and each of the Loan Documents, and any document, agreement, or
other item described in or related to this Agreement, and all fees and
information described in Exhibit C,
executed and in form and content satisfactory to Wells Fargo.

       

      3.2           Additional Conditions Precedent to
All Advances and Letters of Credit.  Wells Fargo’s obligation
to make any Advance (including the initial Advance) or issue any Letter of
Credit shall be subject to the further additional conditions: (a) that the
representations and warranties described in Exhibit D are
correct on the date of the Advance or the issuance of the Letter of Credit,
except to the extent that such representations and warranties relate solely to
an earlier date; and (b) that no event has occurred and is continuing, or
would result from the requested Advance or issuance of the Letter of Credit that
would result in an Event of Default.

       

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

      

      
        	
                4.

              	
                REPRESENTATIONS
      AND WARRANTIES

              

      

       

      To induce
Wells Fargo to enter into this Agreement, Company makes the representations and
warranties described in Exhibit D.  Any
request for an Advance will be deemed a representation by Company that all
representations and warranties described in Exhibit D are
true, correct, and complete as of the time of the request, unless they relate
exclusively to an earlier date.  Company shall promptly deliver a
Record notifying Wells Fargo of any change in circumstance that would affect the
accuracy of any representation or warranty, unless the representation and
warranty specifically relates to an earlier date.

       

      
        	
                5.

              	
                COVENANTS

              

      

       

      So long
as the Indebtedness remains unpaid, or the Line of Credit has not been
terminated, Company shall comply with each of the following covenants, unless
Wells Fargo shall consent otherwise in an Authenticated Record delivered to
Company.

       

      5.1           Reporting
Requirements.  Company shall deliver to Wells Fargo the
following information, compiled where applicable using GAAP consistently
applied, in form and content acceptable to Wells Fargo:

       

      (a)           Annual Financial
Statements.  As soon as available and in any event within 90
days after Company’s fiscal year end, Company’s audited financial statements
prepared by an independent certified public accountant acceptable to Wells
Fargo, which shall include Company’s balance sheet, income statement, and
statement of retained earnings and cash flows prepared, if requested by Wells
Fargo, on a consolidated and consolidating basis to include Holdings and
Subsidiaries.  The annual financial statements shall be accompanied by
the unqualified opinion of such accountant (provided that a qualification or
exception may be included in any such audit report or opinion for any period
ending within the 12-month period preceding the Maturity Date to the extent such
qualification is a result of the Line of Credit being reported as short term
indebtedness) and a certificate (the “Compliance Certificate”) in the form of
Exhibit E
that is signed by a Responsible Officer.  Each Compliance Certificate
that accompanies an annual financial statement shall also be accompanied by
(i) copies of all management letters prepared by Company’s accountants; and
(ii) a detailed statement, including computations, signed by the accountant
demonstrating whether or not Company is in compliance with the financial
covenants of this Agreement.  In addition, Company shall use
commercially reasonable efforts to obtain and deliver to Wells Fargo with the
Compliance Certificate a report signed by the accountant stating that in making
the investigations necessary to render the accountant’s opinion, the accountant
obtained no knowledge, except as specifically stated, of any other Event of
Default under the Agreement,

       

      (b)           Monthly Financial
Statements.  As soon as available and in any event within 30
days after the end of each month, a Company prepared balance sheet, income
statement, and statement of cash flows prepared for that month and for the
year–to-date period then ended, prepared, if requested by Wells Fargo, on a
consolidated and consolidating basis to include Holdings and Subsidiaries, and
stating in comparative form the figures for the corresponding date and periods
in the prior fiscal year and the final budget delivered to and accepted by Wells
Fargo, subject to quarter-end and year-end adjustments and the absence of
footnotes.  The financial statements shall be accompanied by (i) a
Compliance Certificate in the form of Exhibit E that
is signed by a Responsible Officer, and (ii) an account statement detailing the
activity of the Separate Collateral Bank Account.

       

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

      

      (c)           10-Q Financial
Reports.  As soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter of Company,
Company’s 10-Q financial reports filed with the Securities and Exchange
Commission.  This requirement may be satisfied by Company by posting a
link to the filing on the Company’s publicly-accessible website.

       

      (d)           Collateral
Reports.  No later than 15 days after each month end (or more
frequently if Wells Fargo shall request it), detailed agings of Company’s
accounts receivable and accounts payable, an accounts receivable reconciliation
report, a detailed inventory report, an inventory certification report, a report
on modifications to the payment terms of any Accounts, and a calculation of
Company’s Accounts, Eligible Accounts, Inventory and Eligible Inventory as of
the end of that month or shorter time period requested by Wells
Fargo.

       

      (e)           Projections.  No
later than 15 days after the beginning of each fiscal year, Company’s projected
balance sheet and income statement and statement of cash flows for each month of
such fiscal year, certified by a Responsible Officer to the effect that (a) such
projections were prepared in good faith by Company, (ii) Company has a
reasonable basis for the assumptions contained in such projections when made,
and (iii) such projections have been prepared in accordance with such
assumptions.

       

      (f)           Supplemental
Reports.  Weekly, Wells Fargo’s standard form of “weekly
collateral report”, together with receivables schedules, collection reports,
copies of credit memos that exceed $250,000, and copies of invoices in excess of
$50,000, and shipment documents and delivery receipts for goods sold to account
debtors in excess of $50,000.

       

      (g)           Customer
Lists.  On January 1 and July 1 of each calendar year, an
updated customer listing (with contact names and addresses).

       

      (h)           Litigation.  No
later than five days after a Responsible Officer obtains actual knowledge
thereof, a Record notifying Wells Fargo of any litigation or other proceeding
before any court or governmental agency which seeks a monetary recovery against
Company in excess of $100,000.

       

      (i)           Intellectual
Property.  (i) No later than 30 days after the end of each
fiscal quarter, a Record notifying Wells Fargo of any Intellectual Property
Rights of Company acquired during such fiscal quarter, together with copies of
all registrations and filings with respect to same; (ii) except as
permitted under Section 5.18 and except for
Permitted Liens, no later than five Business Days before it disposes of material
Intellectual Property Rights, a Record notifying Wells Fargo of Company’s
intention to dispose of such rights, along with copies of all proposed documents
and written agreements concerning the disposal of such rights as reasonably
requested by Wells Fargo; and (iii) promptly after a Responsible Officer
obtains actual knowledge thereof (and in any event, within five Business Days),
a Record notifying Wells Fargo of (A) any Infringement by any Person of
material Intellectual Property Rights owned by the Company, (B) any written
material claims that Company is Infringing on another Person’s Intellectual
Property Rights, and (C) except as permitted under Section 5.18, any threatened
cancellation, termination or material limitation of the material Owned
Intellectual Property or Licensed Intellectual Property.

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      

      (j)           Defaults.  No
later than three days after learning of the probable occurrence of any Event of
Default, a Record notifying Wells Fargo of the Event of Default and the steps
being taken by Company to cure the Event of Default.

       

      (k)           Disputes.  Promptly
upon discovery, a Record notifying Wells Fargo of (i) any disputes or
claims by Company’s customers exceeding $250,000, individually or in the
aggregate, during any fiscal year; (ii) credit memos not previously
reported in Section 5.1(f); and
(iii) any goods returned to or recovered by Company outside of the ordinary
course of business.

       

      (l)           Changes in Officers and
Directors.  Promptly following occurrence, a Record notifying
Wells Fargo of any change in the persons constituting Company’s Officers and
Directors.

       

      (m)           Collateral.  Promptly
after a Responsible Officer obtains actual knowledge thereof (and in any event
within five Business Days), a Record notifying Wells Fargo of any loss of or
material damage to any Collateral or of any substantial adverse change in any
Collateral or the prospect of its payment.

       

      (n)           Commercial Tort
Claims.  Promptly after a Responsible Officer obtains actual
knowledge thereof (and in any event within five Business Days), a Record
notifying Wells Fargo of any commercial tort claims brought by Company against
any Person, including the name and address of each defendant, a summary of the
facts, an estimate of Company’s damages, copies of any complaint or demand
letter submitted by Company, and such other information as Wells Fargo may
reasonably request.

       

      (o)           Reports to
Owners.  Promptly upon distribution (and in any event within
five Business Days), copies of all financial statements, reports and proxy
statements which Company shall have sent to its Owners.

       

      (p)           Tax Returns of
Company.  No later than five days after they are required to be
filed, copies of Company’s signed and dated state and federal income tax returns
and all related schedules, and copies of any extension requests.

       

      (q)           Tax Returns and Financial
Statements of Guarantors.  No later than May 15 of each
year or thirty days after they are required to be filed, whichever is later, the
current financial statement and signed and dated state and federal income tax
returns and related schedules of each Guarantor, and copies of any extension
requests.

       

      (r)           Violations of
Law.  No later than three days after discovery of any
violation, a Record notifying Wells Fargo of Company’s violation of any law,
rule or regulation, the non-compliance with which could have a Material Adverse
Effect on Company.

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

      

      (s)           Pension
Plans.  (i) Promptly upon discovery, and in any event
within 30 days after Company knows that any Reportable Event with respect to any
Pension Plan has occurred, a Record authenticated by a Responsible Officer
notifying Wells Fargo of the Reportable Event in detail and the actions which
Company proposes to take to correct the deficiency, together with a copy of any
related notice sent to the Pension Benefit Guaranty Corporation;
(ii) promptly upon discovery, and in any event within 10 days after Company
fails to make a required quarterly Pension Plan contribution under
Section 412(m) of the IRC, a Record authenticated by a Responsible Officer
notifying Wells Fargo of the failure in detail and the actions that Company will
take to cure the failure, together with a copy of any related notice sent to the
Pension Benefit Guaranty Corporation; and (iii) promptly upon discovery,
and in any event within 10 days after Company knows that it may be liable or may
be reasonably expected to have liability for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan under
Sections 4201 or 4243 of ERISA, a Record authenticated by a Responsible
Officer notifying Wells Fargo of the details of the event and the actions that
Company proposes to take in response.

       

      (t)           Other
Reports.  From time to time, with reasonable promptness, all
customer lists, receivables schedules, inventory reports, collection reports,
deposit records, invoices to account debtors, shipment documents and delivery
receipts for goods sold, and such other materials, reports, records or
information as Wells Fargo may request.

       

      5.2           Financial
Covenants.  Company agrees to comply with the financial
covenants described below, which shall be calculated using GAAP consistently
applied, except as they may be otherwise modified by the following capitalized
definitions:

       

      (a)           Minimum Book Net
Worth.  Company shall maintain its Book Net Worth during each
period set forth below in an amount not less than the amount set forth
below:

       

      
        	
                Month Ending

              	
                Minimum Book Net Worth

              
	
                November
      30, 2009

              	
                $49,250,000

              
	
                December
      31, 2009

              	
                $46,750,000

              
	
                January
      31, 2010

              	
                $47,000,000

              
	
                February
      28, 2010

              	
                $47,500,000

              
	
                March
      31, 2010

              	
                $48,000,000

              
	
                April
      30, 2010

              	
                $48,500,000

              
	
                May
      31, 2010

              	
                $48,750,000

              
	
                June
      30, 2010

              	
                $48,750,000

              
	
                July
      31, 2010

              	
                $48,250,000

              
	
                August
      31, 2010

              	
                $47,750,000

              
	
                September
      30, 2010

              	
                $47,250,000

              
	
                October
      31, 2010

              	
                $47,250,000

              
	
                November
      30, 2010

              	
                $46,750,000

              
	
                December
      31, 2010

              	
                $46,500,000

              
	
                January
      31, 2011

              	
                $46,500,000

              
	
                February
      28, 2011

              	
                $46,500,000

              

      

       

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

       

      provided however,
that each of foregoing minimum required amounts (other than the minimum amount
required for the November 30, 2009 test date) shall be increased by an amount
equal to the greater of (i) the December G/L Adjustment, or (ii) zero
(-0-).

       

      (b)           Minimum Adjusted
EBITDA.  Company shall achieve Adjusted EBITDA each fiscal
quarter, for the twelve-month period then ended, of not less than the amount set
forth below for each such period:

       

      

      
        	
                12-Month Period Ending

              	
                Minimum Adjusted EBITDA

              
	
                December
      31, 2009

              	
                $7,600,000

              
	
                March
      31, 2010

              	
                $12,300,000

              
	
                June
      30, 2010

              	
                $11,850,000

              
	
                September
      30, 2010

              	
                $10,150,000

              
	
                December
      31, 2010

              	
                $8,950,000

              

      

      

       

      (c)           Capital
Expenditures.  Company shall not incur or contract to incur
Capital Expenditures of more than the following:  (i) fiscal year
ending December 31, 2009, $6,000,000; and (ii) fiscal year ending December 31,
2010, $5,500,000. provided, however, in the event Company does not expend the
entire $6,000,000 during the fiscal year ending December 31, 2009, Company may
carry forward to the fiscal year ending December 31, 2010 (but not to subsequent
fiscal years) up to $600,000 of such unutilized portion.  All Capital
Expenditures during fiscal year 2010 shall be applied first to reduce the
$5,500,000 limit for fiscal year 2010, and then to reduce the carry-forward from
fiscal year 2009, if any.

       

      (d)           Future Financial
Covenants.  With respect to future periods not covered by the
foregoing Sections
5.2(a), (b), and (c), Company and
Wells Fargo agree to negotiate in good faith to establish, no later than April
30, 2010, minimum Book Net Worth, minimum Adjusted EBITDA, and maximum Capital
Expenditures requirements for such future periods through the Maturity
Date.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                5.3

              	
                Other
      Liens and Permitted Liens.

              

      

       

      (a)           Other Liens; Permitted
Liens.  Company shall not create, incur or suffer to exist any
Lien upon any of its assets, now owned or later acquired, as security for any
indebtedness, with the exception of the following (each a “Permitted Lien”;
collectively, “Permitted Liens”):  (i) in the case of real
property, covenants, restrictions, rights, easements and irregularities in title
which do not materially interfere with Company or any Guarantor’s business or
operations; (ii) Liens in existence on the date of this Agreement that are
described in Exhibit F;
(iii) the Security Interest and Liens created by the Security Documents;
(iv) purchase money Liens relating to the acquisition of Equipment) not
exceeding the lesser of cost or fair market value, not exceeding $500,000 in the
aggregate during any fiscal year, and so long as no Default Period is then in
existence and none would exist immediately after giving effect to such
acquisition; (v) Liens for taxes not yet delinquent or which are being contested
in good faith by appropriate proceedings; provided that adequate reserves with
respect thereto are maintained by Company or the applicable Guarantor and such
Liens do not have a priority over the Lien of Wells Fargo in the Collateral;
(vi) Liens created by operation of law or contract not securing the payment of
indebtedness for money borrowed or guaranteed, including landlords’, carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business which are not overdue for a period of
more than 60 days and, if overdue, for which adequate reserves have been made;
(vii) any interest or title of a lessor or sublessor under any lease permitted
by this Agreement; (viii) licenses (ranged on a non-exclusive basis),
sublicenses, leases or subleases granted to third parties in the ordinary course
of business and not interfering with the business of Company or the Guarantors;
(ix) pledges or deposits in connection with workers’ compensation, unemployment
insurance and other social security legislation and deposits securing liability
to insurance carriers under insurance or self-insurance arrangements; (x)
deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (xi) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by Company or the Guarantors in
the ordinary course of business; (xii) Liens in favor of customs and revenue
authorities arising as a matter of law which secure payment of customs duties in
connection with the importation of Inventory in the ordinary course of business;
(xiii) customary rights of setoff and bankers’ liens existing in the ordinary
course of business upon deposits of Company and the Guarantors; (xiv)
precautionary Liens filed by equipment lessors pursuant to operating leases of
the Company and the Guarantors; provided that no such
Lien covers any property other than the property subject to such lease; (xv)
Liens arising from any judgment against Company or Guarantor not constituting an
Event of Default so long such Liens do not have a priority over the Lien of
Wells Fargo in the Collateral; and (xvi) Liens securing Indebtedness permitted
by Sections 5.4(f) and (g).

       

      (b)           Financing
Statements.  Company shall not authorize the filing of any
financing statement by any Person as Secured Party with respect to any of
Company’s assets, other than by (i) Wells Fargo or (ii) a Person
holding a Permitted Lien (provided such filing shall only cover the assets of
Company in which such Person is allowed to have a Permitted Lien in accordance
with this Section 5.3.  Company
shall not amend any financing statement filed by Wells Fargo as Secured Party
except as permitted by law.

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

       

      5.4           Indebtedness.  Company
shall not incur, create, assume or permit to exist any indebtedness or liability
on account of deposits or letters of credit issued on Company’s behalf, or
advances or any indebtedness for borrowed money of any kind, whether or not
evidenced by an instrument, except:  (a) Indebtedness described
in this Agreement; (b) indebtedness of Company described in Exhibit F, and
any Refinancing Indebtedness in respect of such indebtedness (provided that if
the amount of the Refinancing Indebtedness exceeds $500,000, Company shall
provide Wells Fargo with 10 days prior notice of Company’s intent to incur the
Refinancing Indebtedness and a description of the material terms of such
Refinancing Indebtedness); (c) indebtedness secured by Permitted Liens; (d)
indebtedness evidenced by performance bonds issued in the ordinary course of
business or reimbursement obligations in respect thereof in an aggregate amount
at any time not exceeding $500,000; (e) Capitalized Lease Obligations in a
principal amount not exceeding $500,000 outstanding at anytime; (f) indebtedness
incurred by Company to one or more of its insurance companies, incurred in the
ordinary course of business to finance payment of its insurance premiums, not to
exceed in the aggregate $1,500,000 outstanding at any time; (g) indebtedness
owed to Subordinated Creditor, so long as such indebtedness remains subject to a
Subordination Agreement; (h) unsecured interest rate hedge agreements or
currency hedge agreements entered into in the ordinary course of Company’s
business for bona fide hedging purposes and not for speculation; and (i) other
unsecured indebtedness not referred to in any other clause of this Section 5.4
in an aggregate principal amount not exceeding $100,000 at any
time.  With respect to any such indebtedness owing to Subordinated
Creditors, Company shall only make payments of such indebtedness to the extent
permitted under the terms of the applicable Subordination Agreement or
Intercreditor Agreement.

       

      5.5           Guaranties.  Company
shall not assume, guarantee, endorse or otherwise become directly or
contingently liable for the obligations of any Person (collectively, “Contingent
Obligations”), except:  (a) the endorsement of negotiable
instruments by Company for deposit or collection or similar transactions in the
ordinary course of business; (b) guaranties, endorsements and other direct
or contingent liabilities in connection with the obligations of other Persons in
existence on the date of this Agreement and described in Exhibit F,
including extensions and renewals thereof which do not increase the amount of
such obligations as of the date of such extension or renewal; (c) Contingent
Obligations incurred in the ordinary course of business with respect to surety
and appeal bonds, performance bonds and other similar obligations; (d)
Contingent Obligations consisting of customary indemnity obligations under real
property leases entered into in the ordinary course of business; and (e) other
Contingent Obligations not exceed $100,000 in the aggregate at any time
outstanding.

       

      5.6           Investments and
Subsidiaries.  Company shall not make or permit to exist any
loans or advances to, or make any investment or acquire any interest whatsoever
in, any Person, including without limitation any partnership or joint venture,
nor purchase or hold beneficially any stock or other securities or evidence of
indebtedness of any Person, except:

       

      (a)           Investments
in direct obligations of the United States of America or any of its political
subdivisions whose obligations constitute the full faith and credit obligations
of the United States of America and have a maturity of one year or less,
commercial paper issued by U.S. corporations rated “A 1” or “A 2” by
Standard & Poor’s Ratings Services or “P 1” or “P 2” by Moody’s
Investors Service or certificates of deposit or bankers’ acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers’ acceptances are fully insured by the Federal Deposit Insurance
Corporation) (“Cash Equivalents”);

       

      (b)           Travel
advances or loans to Company’s Officers and employees not exceeding at any one
time an aggregate outstanding balance of $50,000;

       

      (c)           Prepaid
rent not exceeding one month or security deposits;

       

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

      

      (d)           Current
investments in those Subsidiaries in existence on the date of this Agreement
which are identified on Exhibit D;

       

      (e)           extensions
of trade credit in the ordinary course of business;

       

      (f)           subject
to the limitations set forth in Section 5.23,
investments received in connection with bankruptcy or reorganization of, or
settlement of delinquent Accounts and disputes with, customers and
suppliers;

       

      (g)           investments
outstanding on the Closing Date and set forth on Schedule 5.6;

       

      (h)           deposits
made in the ordinary course of business securing contractual obligations of
Company to the extent constituting a Permitted Lien; provided that if any such
deposit exceeds $50,000, Company shall promptly notify Wells Fargo of the
materials terms of such deposit;

       

      (i)           Contingent
Obligations expressly permitted hereunder;

       

      (j)           deposit
accounts maintained at Wells Fargo and at Union Bank, N.A. to the extent
permitted by Section
1.6(a);

       

      (k)           loans
and advances that otherwise would be permitted to be made as a distribution in
accordance with Section 5.7;
and

       

      (l)           other
investments, loans and advances not listed above not to exceed $250,000 in the
aggregate at any time outstanding.

       

      5.7           Dividends and
Distributions.  Except as set forth in this Agreement, Company
shall not declare or pay any dividends (other than dividends payable solely in
stock of Company) on any class of its stock, or make any payment on account of
the purchase, redemption or retirement of any shares of its stock, or other
securities or evidence of its indebtedness (other than scheduled payments with
respect to Permitted Indebtedness, to the extent not prohibited by any
intercreditor or subordination agreement to which Wells Fargo is a party
(including the Intercreditor Agreement)) or make any distribution regarding its
stock, either directly or indirectly; provided that (i) Company may make
distributions to Holdings, in amount not to exceed $100,000 per fiscal year,
solely to permit Holdings to pay, as and when due and payable, obligations
incurred in the ordinary course of business relating solely to holding company
activities, and (ii) Company may make distributions to Holdings to the extent
that Holdings pays, on behalf of Company, any taxes owing by
Company;

       

      5.8           Salaries.  [Intentionally
Omitted.]

       

      5.9           Key Person Life
Insurance.  [Intentionally Omitted.]

       

      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      

      
        	
                 
      

              	
                5.10

              	
                Books and Records; Collateral
      Examination; Inspection and
Appraisals.

              

      

       

      (a)           Books and Records;
Inspection.  Company shall keep complete and accurate books and
records with respect to the Collateral and Company’s business and financial
condition and any other matters that Wells Fargo may request, in accordance with
GAAP consistently applied.  Company shall permit any employee,
attorney, accountant or other agent of Wells Fargo to audit, review, make
extracts from and copy any of its books and records at any time during ordinary
business hours, and to discuss Company’s affairs with any of its Directors,
Officers, employees, Owners or agents.

       

      (b)           Authorization to Company’s
Agents to Make Disclosures to Wells Fargo.  Company authorizes
all accountants and other Persons acting as its agent to disclose and deliver to
Wells Fargo’s employees, accountants, attorneys and other Persons acting as its
agent, at Company’s expense, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Company; provided that legal counsel for Company shall not be required to
disclose information to Wells Fargo that consists of attorney-client privileged
communications between the Company and such counsel.

       

      (c)           Collateral Exams, Audits,
and Inspections.  Company shall permit Wells Fargo’s employees,
accountants, attorneys or other Persons acting as its agent, to examine, audit,
and inspect any Collateral or any other property of Company at any time during
ordinary business hours.

       

      (d)           Collateral
Appraisals.  Wells Fargo may also obtain, from time to time,
but no more than once every 120 days during the period commencing on the date of
this Agreement and ending on the first anniversary thereafter and then two times
each one-year period thereafter, at Company’s expense, an appraisal of Company’s
inventory and other Collateral by an appraiser acceptable to Wells Fargo in its
sole discretion; provided that during a Default Period Wells Fargo may obtain at
any time (and from time to time) in Wells Fargo’s sole discretion such
appraisals of the Company’s inventory and other Collateral at Company’s
expense.

       

      
        	
                 
      

              	
                5.11

              	
                Account Verification; Payment
      of Permitted Liens.

              

      

       

      (a)           Account
Verification.  Wells Fargo or its agents may (i) contact
account debtors and other obligors at any time to verify Company’s Accounts; and
(ii) require Company to send requests for verification of Accounts or send
notices of assignment of Accounts to account debtors and other
obligors.

       

      (b)           Covenant to Pay Permitted
Liens.  Company shall pay when due each account payable due to
any Person holding a Permitted Lien (as a result of such payable) on any
Collateral, except as expressly provided in Section
5.3(a).

       

      
        	
                 
      

              	
                5.12

              	
                Compliance with
      Laws.

              

      

       

      (a)           General Compliance with
Applicable Law; Use of Collateral.  Company shall
(i) comply, and cause each Subsidiary to comply, with the requirements of
applicable laws and regulations, the non compliance with which would have a
Material Adverse Effect on its business or its financial condition; and
(ii) use and keep the Collateral, and require that others use and keep the
Collateral, only for lawful purposes, without violation of any federal, state or
local law, statute or ordinance.

       

      
        
           

        

        
          25

          
            

          

        

        
           

        

      

      

      (b)           Compliance with Federal
Regulatory Laws.  Company shall (i) prohibit, and
cause each Subsidiary to prohibit, any Person that is an Owner or Officer from
being listed on the Specially Designated Nationals and Blocked Person List or
other similar lists maintained by the Office of Foreign Assets Control (“OFAC”),
the Department of the Treasury or included in any Executive Orders,
(ii) not permit the proceeds of the Line of Credit or any other financial
accommodation extended by Wells Fargo to be used in any way that violates any
foreign asset control regulations of OFAC or other applicable law,
(iii) comply, and cause each Subsidiary to comply, with all applicable Bank
Secrecy Act laws and regulations, as amended from time to time, and
(iv) otherwise comply with the U.S.A. Patriot Act.

       

      (c)           Compliance with
Environmental Laws.  Company shall (i) comply, and cause
each Subsidiary to comply, with the requirements of applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by them, and (ii) not generate, use, transport, treat, store or
dispose of any Hazardous Substances in such a manner as to create any material
liability or obligation under the common law of any jurisdiction or any
Environmental Law.

       

      5.13           Payment of Taxes and Other
Claims.  Company shall pay or discharge, when due, and cause
each Subsidiary to pay or discharge, when due, (a) all taxes, assessments
and governmental charges levied or imposed upon it or upon its income or
profits, upon any properties belonging to it (including without limitation the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach, (b) all
federal, state, provincial, and local taxes required to be withheld by it, and
(c) all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a Lien upon any properties of Company, although Company
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been
made.

       

      
        	
                 
      

              	
                5.14

              	
                Maintenance of Collateral and
      Properties.

              

      

       

      (a)           Company
shall keep and maintain the Collateral and all of its other properties necessary
or useful in its business in good condition, repair and working order (ordinary
wear and tear excepted) and will from time to time replace or repair any worn,
defective or broken parts, although Company may discontinue the operation and
maintenance of any properties if Company believes that such discontinuance is
desirable to the conduct of its business and not disadvantageous in any material
respect to Wells Fargo.  Company shall take all commercially
reasonable steps necessary to protect and maintain its Intellectual Property
Rights.

       

      (b)           Company
shall defend the Collateral against all Liens, claims and demands of all third
Persons claiming any interest in the Collateral.  Company shall keep
all Collateral free and clear of all Liens except Permitted
Liens.  Company shall take all commercially reasonable steps necessary
to prosecute any Person Infringing its Intellectual Property Rights and to
defend itself against any Person accusing it of Infringing any Person’s
Intellectual Property Rights.

       

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

      

      5.15           Insurance.  Company
shall at all times maintain insurance with insurers acceptable to Wells Fargo,
in such amounts and on such terms (including deductibles) as Wells Fargo in its
sole discretion may require and including, as applicable and without limitation,
business interruption insurance (including force majeure coverage), hazard
coverage on an “all risks” basis for all tangible Collateral, and theft and
physical damage coverage for Collateral consisting of motor
vehicles.  All insurance policies must contain an appropriate lender’s
interest endorsement or clause, and name Wells Fargo as an additional
insured.

       

      5.16           Preservation of
Existence.  Company shall preserve and maintain its existence
and all of its rights, privileges and franchises necessary or desirable in the
ordinary conduct of its business and shall conduct its business in an orderly,
efficient and regular manner.

       

      5.17           Delivery of Instruments,
etc.  Upon written request by Wells Fargo, Company shall
promptly deliver to Wells Fargo in pledge all instruments, documents and chattel
paper constituting Collateral, in an amount in excess of $50,000 (individually
or in the aggregate), endorsed or assigned by Company.

       

      5.18           Sale or Transfer of Assets;
Suspension of Business Operations.  Company shall not sell,
lease, assign, transfer or otherwise dispose of (a) the stock of any
Subsidiary, (b) all or a substantial part of its assets, or (c) any
Collateral or any interest in Collateral (whether in one transaction or in a
series of transactions) to any other Person other than (i) the sale of Inventory
in the ordinary course of business; (ii) the use of cash and Cash Equivalents in
the ordinary course of business; (iii) the sale of obsolete, surplus,
uneconomical, or worn-out assets; (iv) leases or subleases granted to third
parties in the ordinary course of business and in each case not interfering with
the business of Company; (v) subject to Section 5.23, write-offs or
grants of discounts or forgiveness of Accounts, without recourse, which are at
least 90 days past due in connection with the compromise or collection thereof
in the ordinary course of business which do not interfere in any material
respect of Company; and (vi) transfers arising from investments, loans and
advances to the extent permitted under Section 5.6.  Company
shall not liquidate, dissolve or suspend business operations.  Company
shall not transfer any part of its ownership interest in any Intellectual
Property Rights and shall not permit its rights as licensee of Licensed
Intellectual Property to lapse, except that Company may transfer such rights or
permit them to lapse if it has reasonably determined that such Intellectual
Property Rights are no longer useful in its business.  If Company
transfers (other than by license) any Intellectual Property Rights for value,
Company shall pay the Proceeds to Wells Fargo for application to the
Indebtedness.  Company shall not license any other Person to use any
of Company’s Intellectual Property Rights, except that Company may grant
licenses in the ordinary course of its business in connection with sales of
Inventory or the provision of services to its customers.

       

      5.19           Consolidation and Merger; Asset
Acquisitions.  Company shall not consolidate with or merge into
any other entity, or permit any other entity to merge into it, or acquire (in a
transaction analogous in purpose or effect to a consolidation or merger) all or
substantially all of the assets of any other entity, except for (i) any merger
or consolidation of a Subsidiary into Company, with Company being the survivor
thereof, and (ii) any merger or consolidation of a Subsidiary into another
Subsidiary.  Company shall not form or acquire any additional
Subsidiary after the date of this Agreement.

       

      
        
           

        

        
          27

          
            

          

        

        
           

        

      

      

      5.20           Sale and
Leaseback.  Company shall not enter into any arrangement,
directly or indirectly, with any other Person pursuant to which Company shall
sell or transfer any real or personal property, whether owned now or acquired in
the future, and then rent or lease all or part of such property or any other
property which Company intends to use for substantially the same purpose or
purposes as the property being sold or transferred.

       

      5.21           Restrictions on Nature of
Business.  Company will not engage in any line of business
materially different from that presently engaged in by Company, and will not
purchase, lease or otherwise acquire assets not related to its
business.

       

      5.22           Accounting.  Company
will not adopt any material change in accounting principles except as required
by GAAP, consistently applied.  Company will not change its fiscal
year.

       

      5.23           Discounts,
etc.  After notice from Wells Fargo during a Default Period,
(i) Company will not grant any discount, credit or allowance to any
customer of Company or accept any return of goods sold, and (ii) Company will
not at any time modify, amend, subordinate, cancel or terminate any
Account.

       

      5.24           Pension
Plans.  Except as disclosed to Wells Fargo in a Record prior to
the date of this Agreement, neither Company nor any ERISA Affiliate will
(a) adopt, create, assume or become party to any Pension Plan,
(b) become obligated to contribute to any Multiemployer Plan,
(c) incur any obligation to provide post-retirement medical or insurance
benefits with respect to employees or former employees (other than benefits
required by law), or (d) amend any Plan in a manner that would materially
increase its funding obligations.

       

      5.25           Place of Business;
Name.  Company will not transfer its chief executive office or
principal place of business, or move, relocate, close or sell any business
Premises, unless (i) Wells Fargo has received 30 days advance notice
thereof, (ii) Wells Fargo continuously maintains a perfected Lien on the
Collateral with the priority contemplated by this Agreement, and (iii) Company
exercises commercially reasonable efforts to provide Wells Fargo with a
Collateral Access Agreement no later than the date that such transfer, move, or
relocation occurs; provided that with respect to this clause (iii), Wells
Fargo may establish a Borrowing Base Reserve equal to three-months rent for any
location for which Wells Fargo does not receive a Collateral Access
Agreement.  Company will not permit any tangible Collateral or any
records relating to the Collateral to be located in any state or area in which,
in the event of such location, a financing statement covering such Collateral
would be required to be, but has not in fact been, filed in order to perfect the
Security Interest.  Company will not change its name or jurisdiction
of organization.

       

      5.26           Constituent
Documents.  Company will not amend its Constituent
Documents.

       

      5.27           Separate Collateral Bank
Account.  After the initial deposit of funds into the Separate
Collateral Bank Account that occurs on or about the date of this Agreement,
Company shall not deposit additional sums into the Separate Collateral Bank
Account, and Company may use the funds in the Separate Collateral Bank Account
for Capital Expenditures and general corporate purposes.  Company
shall close the Separate Collateral Bank Account no later than March 31, 2011,
and any funds remaining in the Separate Collateral Bank Account at the time it
is closed shall be transferred to the Collection Account.

       

      
        
           

        

        
          28

          
            

          

        

        
           

        

      

      

      5.28           Performance by Wells
Fargo.  If Company fails to perform or observe any of its
obligations under this Agreement at any time, Wells Fargo may, but need not,
perform or observe them on behalf of Company and may, but need not, take any
other actions which Wells Fargo may reasonably deem necessary to cure or correct
this failure; and Company shall pay Wells Fargo upon demand the amount of all
costs and expenses (including reasonable attorneys’ fees and legal expenses)
incurred by Wells Fargo in performing these obligations, together with interest
on these amounts at the Default Rate.

       

      5.29           Wells Fargo Appointed as Company’s
Attorney in Fact.  To facilitate Wells Fargo’s performance or
observance of Company’s obligations under this Agreement, Company hereby
irrevocably appoints Wells Fargo and Wells Fargo’s agents, as Company’s attorney
in fact (which appointment is coupled with an interest) with the right (but not
the duty) to create, prepare, complete, execute, deliver, endorse or file on
behalf of Company any instruments, documents, assignments, security agreements,
financing statements, applications for insurance and any other agreements or any
Record required to be obtained, executed, delivered or endorsed by Company in
accordance with the terms of this Agreement.

       

      
        	
                6.

              	
                EVENTS
      OF DEFAULT AND REMEDIES

              

      

       

      
        	
                 
      

              	
                6.1

              	
                Events of
      Default.  An “Event of Default” means any of the
      following:

              

      

       

      (a)           Company
fails to pay any the amount of any Indebtedness on the date that it becomes due
and payable;

       

      (b)           Company
fails to observe or perform (i) any covenant or agreement of Company set forth
in Sections
5.1(f),
(k), (o), and (p) and such failure
to observe or perform shall continue unremedied for a period of 10 days after
such failure, (ii) any covenant or agreement of Company set forth in Section 5.12 and such failure
shall not be cured within 30 days after the occurrence of such failure,
(iii) any covenant or agreement of Company set forth in Section 5.13; provided that
if such a breach of Section 5.13 relates to a
tax, assessment or charge that is less than $50,000, Company shall have up to 30
days to cure such breach before it shall be deemed to be an Event of Default, or
(iv) any other covenant or agreement of Company in this Agreement (not described
in clauses (i),
(ii), and (iii) of this paragraph (b)), or in
any of the Loan Documents or any Rate Hedge Agreement;

       

      (c)           Any
covenant in Section 5.2 becomes
inapplicable due to the lapse of time, and Company and Wells Fargo fail to come
to an agreement, acceptable to Wells Fargo in its reasonable discretion, to
amend the covenant to apply to future periods;

       

      (d)           An
Overadvance arises as the result of any reduction in the Borrowing Base, or
arises in any manner or on terms not otherwise approved of in advance by Wells
Fargo in a Record that it has Authenticated; provided that if such Overadvance
is less than $100,000 and Company has not experienced an Overadvance on any
previous occasion during the fiscal quarter in which such Overadvance occurs,
such Overadvance shall not constitute an Event of Default unless it is not
eliminated within three (3) Business Days of the occurrence of such
Overadvance;

       

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

      

      (e)           An
event of default or termination event (however defined) occurs under any Rate
Hedge Agreement, derivative, foreign exchange, or similar transaction or
arrangement entered into between Company and Wells Fargo, except for such a
termination initiated by Company that is accompanied by a concurrent payment in
full by Company of any termination fees and other payments resulting from such
termination;

       

      (f)           A
Change of Control shall occur;

       

      (g)           (i)
Company or any Guarantor becomes insolvent or admits in a Record an inability to
pay debts as they mature, or Company or any Guarantor makes an assignment for
the benefit of creditors; or Company or any Guarantor applies for or consents to
the appointment of any receiver, trustee, or similar officer for the benefit of
Company or any Guarantor, or for any of their properties; or (ii) any receiver,
trustee or similar officer is appointed without the application or consent of
Company or such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process is issued or levied against a substantial part of
the property of Company or any Guarantor which remains undismissed,
undischarged, unstayed, or unbonded for a period of 60 days or
longer;

       

      (h)           (i)
Company or any Guarantor files a petition under any chapter of the United States
Bankruptcy Code or under the laws of any other jurisdiction naming Company or
such Guarantor as debtor; (ii) any such petition is instituted against Company
or any such Guarantor which remains undismissed or undischarged for a period of
60 days or longer; (iii) Company or any Guarantor institutes (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, debt arrangement, dissolution, liquidation or similar proceeding
under the laws of any jurisdiction; or (iv) any such proceeding is instituted
(by petition, application or otherwise) against Company or any such Guarantor
which remains undismissed or undischarged for a period of 60 days or
longer;

       

      (i)           [Intentionally
Omitted];

       

      (j)           Any
representation or warranty made by Company in this Agreement or by any Guarantor
in any Guaranty, or by Company (or any Responsible Officer) or any Guarantor in
any agreement, certificate, instrument or financial statement or other statement
delivered to Wells Fargo in connection with this Agreement or pursuant to such
Guaranty is untrue or misleading in any material respect when delivered to Wells
Fargo;

       

      (k)           A
final, non-appealable arbitration award, judgment, or decree or order for the
payment of money in an amount in excess of $500,000 (to the extent not insured
or subject to indemnity), is entered against Company which is not stayed or
appealed within 60 days from the entry thereof;

       

      
        
           

        

        
          30

          
            

          

        

        
           

        

      

      

      (l)           
Company is in default beyond any applicable grace period with respect to (i) any
bond, debenture, note or other evidence of indebtedness issued by Company that
is held by any third Person other than Wells Fargo, or under any instrument
under which any such evidence of indebtedness has been issued or by which it is
governed, or (ii) any lease or other contract, which in each case under clauses
(i) or (ii) of this paragraph relates to an amount owing in excess of $500,000
individually or in the aggregate;

       

      (m)           Company
liquidates, dissolves, terminates or suspends its business operations or
otherwise fails to operate its business in the ordinary course, or merges with
another Person; or sells or attempts to sell all or substantially all of its
assets;

       

      (n)           Company
fails to pay any indebtedness or obligation owed to Wells Fargo which is
unrelated to the Line of Credit or this Agreement as it becomes due and
payable;

       

      (o)           Any
Guarantor repudiates or purports to revoke such Guarantor’s Guaranty, or fails
to perform any obligation under such Guaranty, or any individual Guarantor dies
or becomes incapacitated, or any other Guarantor ceases to exist for any reason
(except as expressly permitted under this Agreement);

       

      (p)           Company
engages in any act prohibited by the Intercreditor Agreement or any
Subordination Agreement, or makes any payment on Junior Obligations (as defined
in the Intercreditor Agreement) that a Junior Obligations Secured Party (as
defined in the Intercreditor Agreement) was not contractually entitled to
receive, including pursuant to or restricted by the Junior Obligations Security
Documents (as defined in the Intercreditor Agreement) or the Intercreditor
Agreement;

       

      (q)           A
Material Adverse Effect shall occur, as determined by Wells Fargo in Wells
Fargo’s Permitted Discretion;

       

      (r)           (i)
Company hires an Officer or appoints a Director who has been convicted of any
felony offence under state or federal law, or (ii) any Director or Responsible
Officer is indicted for a felony offence under state or federal law if, with
respect to this clause (ii), (x) such indictment has not been dismissed within
15 days of the indictment of such Director or Responsible Officer, or (y) such
Director or Responsible Officer has not been relieved of his or her duties as a
Director or Officer, as applicable, within 15 days of such
indictment.

       

      (s)           Any
Director, Officer, Guarantor, or Owner of at least 20% of the issued and
outstanding capital stock of Company is indicted for a felony offence under
state or federal law, or Company hires an Officer or appoints a Director who has
been convicted of any such felony offense, or a Person becomes an Owner of at
least 20% of the issued and outstanding capital stock of Company who has been
convicted of any such felony offense; and/or

       

      (t)           (i)
Any Reportable Event, which constitutes sufficient grounds for termination of
any Pension Plan or for the appointment of a trustee to administer any Pension
Plan, has occurred and is continuing 30 days after Company gives Wells Fargo a
Record notifying it of the Reportable Event; or a trustee is appointed by an
appropriate court to administer any Pension Plan; or the Pension Benefit
Guaranty Corporation institutes proceedings to terminate or appoint a trustee to
administer any Pension Plan; (ii) Company or any ERISA Affiliate files for a
distress termination of any Pension Plan under Title IV of ERISA;
(iii) Company or any ERISA Affiliate fails to make any quarterly Pension
Plan contribution required under Section 412(m) of the IRC, which may,
either by itself or in combination with other failures, result in the imposition
of a Lien on Company’s assets in favor of the Pension Plan; or (iv) any
withdrawal, partial withdrawal, reorganization or other event occurs with
respect to a Multiemployer Plan which could reasonably be expected to result in
a material liability by Company to the Multiemployer Plan under Title IV of
ERISA.

       

      
        
           

        

        
          31

          
            

          

        

        
           

        

      

      

      6.2           Rights and
Remedies.  During any Default Period, Wells Fargo may in its
discretion exercise any or all of the following rights and
remedies:

       

      (a)           Wells
Fargo may terminate the Line of Credit and decline to make Advances, and
terminate any services extended to Company under the Master Agreement for
Treasury Management Services;

       

      (b)           Wells
Fargo may declare the Indebtedness to be immediately due and payable and
accelerate payment of the Revolving Note, and all Indebtedness shall immediately
become due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which Company hereby expressly
waives;

       

      (c)           Wells
Fargo may, without notice to Company, apply any money owing by Wells Fargo to
Company to payment of the Indebtedness;

       

      (d)           Wells
Fargo may exercise and enforce any rights and remedies available upon default to
a secured party under the UCC, including the right to take possession of
Collateral (without posting a bond or other form of security, which Company
hereby waives), to proceed with or without judicial process (without a prior
hearing or notice of hearing, which Company hereby waives) and to sell, lease or
otherwise dispose of Collateral for cash or on credit (with or without giving
warranties as to condition, fitness, merchantability or title to Collateral, and
in the event of a credit sale, Indebtedness shall be reduced only to the extent
that payments are actually received), and Company will upon Wells Fargo’s demand
assemble the Collateral and make it available to Wells Fargo at any place
designated by Wells Fargo which is reasonably convenient to both
parties;

       

      (e)           Wells
Fargo may exercise and enforce its rights and remedies under any of the Loan
Documents and any other document or agreement described in or related to this
Agreement;

       

      (f)           Company
will pay Wells Fargo upon demand in immediately available funds an amount equal
to the Aggregate Face Amount plus any anticipated costs and fees for deposit to
the Special Account pursuant to Section 1.10;

       

      (g)           Wells
Fargo may for any reason apply for the appointment of a receiver of the
Collateral (to which appointment Company hereby consents) without the necessity
of posting a bond or other form of security (which Company hereby waives);
and

       

      
        
           

        

        
          32

          
            

          

        

        
           

        

      

      

      (h)           Wells
Fargo may exercise any other rights and remedies available to it by law or
agreement.

       

      6.3           Immediate Default and
Acceleration.  Following the occurrence of an Event of Default
described in Section 6.1(g) or Section 6.1(h),
the Line of Credit shall immediately terminate and all of Company’s Indebtedness
shall immediately become due and payable without presentment, demand, protest or
notice of any kind.

       

      
        	
                7.

              	
                MISCELLANEOUS

              

      

       

      7.1           No Waiver; Cumulative
Remedies.  No delay or any single or partial exercise by Wells
Fargo of any right, power or remedy under the Loan Documents, or under any other
document or agreement described in or related to this Agreement, shall
constitute a waiver of any other right, power or remedy under the Loan Documents
or granted by Company to Wells Fargo under other agreements or documents that
are unrelated to the Loan Documents.  No notice to or demand on
Company in any circumstance shall entitle Company to any additional notice or
demand in any other circumstances.  The remedies provided in the Loan
Documents or in any other document or agreement described in or related to this
Agreement are cumulative and not exclusive of any remedies provided by
law.  Wells Fargo shall comply with applicable law in connection with
a disposition of Collateral, and such compliance will not be considered to
adversely affect the commercial reasonableness of any sale of the
Collateral.

       

      7.2           Amendments; Consents and Waivers;
Authentication.  No amendment or modification of any Loan
Documents, or any other document or agreement described in or related to this
Agreement, or consent to or waiver of any Event of Default, or consent to or
waiver of the application of any covenant or representation set forth in any of
the Loan Documents, or any other document or agreement described in or related
to this Agreement, or any release of Wells Fargo’s Security Interest in any
Collateral, shall be effective unless it has been
agreed to by Wells Fargo and memorialized in a Record that:
(a) specifically states that it is intended to amend or modify specific
Loan Documents, or any other document or agreement described in or related to
this Agreement, or waive any Event of Default or the application of any covenant
or representation of any terms of specific Loan Documents, or any other document
or agreement described in or related to this Agreement, or is intended to
release Wells Fargo’s Security Interest in specific Collateral; and (b) is
Authenticated by the signature of an authorized employee of both parties, or by
an authorized employee of Wells Fargo with respect to a consent or
waiver.  The terms of an amendment, consent or waiver memorialized in
any Record shall be effective only to the extent, and in the specific instance,
and for the limited purpose to which Wells Fargo has agreed.

       

      7.3           Execution in Counterparts; Delivery
of Counterparts.  This Agreement and all other Loan Documents,
or any other document or agreement described in or related to this Agreement,
and any amendment or modification to them may be Authenticated by the parties in
any number of counterparts, each of which, once authenticated and delivered in
accordance with the terms of this Section 7.3, will be deemed
an original, and all such counterparts, taken together, shall constitute one and
the same instrument.  Delivery by fax or by encrypted e-mail or e-mail
file attachment of any counterpart to any Loan Document Authenticated by an
authorized signature will be deemed the equivalent of the delivery of the
original Authenticated instrument.  Company shall send the original
Authenticated counterpart to Wells Fargo by first class U.S. mail or by
overnight courier, but Company’s failure to deliver a Record in this form shall
not affect the validity, enforceability, and binding effect of this Agreement or
the other Loan Documents, or any other document or agreement described in or
related to this Agreement.

       

      
        
           

        

        
          33

          
            

          

        

        
           

        

      

      

      7.4           Notices, Requests, and
Communications; Confidentiality.  Except as otherwise expressly
provided in this Agreement:

       

      (a)           Delivery of Notices,
Requests and Communications.  Any notice, request, demand, or
other communication by either party that is required under the Loan Documents,
or any other document or agreement described in or related to this Agreement, to
be in the form of a Record (but excluding any Record containing information
Company must report to Wells Fargo under Section 5.1) may be delivered
(i) in person, (ii) by first class U.S. mail, (iii) by overnight
courier of national reputation, or (iv) by fax, or the Record may be sent
as an Electronic Record and delivered (v) by an encrypted e-mail, or
(vi) through Wells Fargo’s Commercial Electronic Office® (“CEO”) portal or
other secure electronic channel to which the parties have agreed.

       

      (b)           Addresses for
Delivery.  Delivery of any Record under this Section 7.4 shall be made to
the appropriate address set forth on the last page of this Agreement (which
either party may modify by a Record sent to the other party), or through Wells
Fargo’s CEO portal or other secure electronic channel to which the parties have
agreed.

       

      (c)           Date of
Receipt.  Each Record sent pursuant to the terms of this Section 7.4 will be deemed to
have been received on (i) the date of delivery if delivered in person,
(ii) the date deposited in the mail if sent by mail, (iii) the date
delivered to the courier if sent by overnight courier, (iv) the date of
transmission if sent by fax, or (v) the date of transmission, if sent as an
Electronic Record by electronic mail or through Wells Fargo’s CEO portal or
similar secure electronic channel to which the parties have agreed; except that
any request for an Advance or any other notice, request, demand or other
communication from Company required under Section 1, and any request
for an accounting under Section 9-210 of the UCC, will not be deemed to
have been received until actual receipt by Wells Fargo on a Business Day by an
authorized employee of Wells Fargo.

       

      (d)           Confidentiality of
Unencrypted E-mail.  Company acknowledges that if it sends an
Electronic Record to Wells Fargo without encryption or receives an Electronic
Record from Wells Fargo by e-mail or as an e-mail file attachment, there is a
risk that the Electronic Record may be received by unauthorized Persons, and
that by so doing it will be deemed to have accepted this risk and the
consequences of any such unauthorized disclosure.

       

      7.5           Company Information Reporting;
Confidentiality.  Except as otherwise expressly provided in
this Agreement:

       

      (a)           Delivery of Company
Information Records.  Any information that Company is required
to deliver under Section 5.1 in the form of a
Record may be delivered to Wells Fargo (i) in person, or by (ii) first
class U.S. mail, (iii) overnight courier of national reputation, or
(iv) fax, or the Record may be sent as an Electronic Record (v) by
encrypted e-mail, or (vi) through the file upload service of Wells Fargo’s CEO
portal or other secure electronic channel to which the parties have
agreed.

       

      
        
           

        

        
          34

          
            

          

        

        
           

        

      

      

      (b)           Addresses for
Delivery.  Delivery of any Record to Wells Fargo under this
Section 7.5 shall be made to
the appropriate address set forth on the last page of this Agreement (which
Wells Fargo may modify by a Record sent to Company), or through Wells Fargo’s
CEO portal or other secure electronic channel to which the parties have
agreed.

       

      (c)           Date of
Receipt.  Each Record sent pursuant to this Section will be
deemed to have been received on (i) the date of delivery to an authorized
employee of Wells Fargo, if delivered in person, or by U.S. mail, overnight
courier, fax, or e-mail; or (ii) the date of transmission, if sent as an
Electronic Record through Wells Fargo’s CEO portal or similar secure electronic
channel to which the parties have agreed.

       

      (d)           Authentication of Company
Information Records.  Company shall Authenticate any Record
delivered (i) in person, or by U.S. mail, overnight courier, or fax, by the
signature of the Officer or employee of Company who prepared the Record;
(ii) as an Electronic Record sent via encrypted e-mail, by the signature of
the Officer or employee of Company who prepared the Record by any file format
signature that is acceptable to Wells Fargo, or by a separate certification
signed and sent by fax; or (iii) as an Electronic Record via the file
upload service of Wells Fargo’s CEO portal or similar secure electronic channel
to which the parties have agreed, through such credentialing process as Wells
Fargo and Company may agree to under the CEO agreement.

       

      (e)           Certification of Company
Information Records.  Any Record (including without limitation
any Electronic Record) Authenticated and delivered to Wells Fargo under this
Section 7.5 will be deemed to
have been certified as materially true, correct, and complete by Company and
each Officer or employee of Company who prepared and Authenticated the Record on
behalf of Company, and may be legally relied upon by Wells Fargo without regard
to method of delivery or transmission.

       

      (f)           Confidentiality of Company
Information Records Sent by Unencrypted E-mail.  Company
acknowledges that if it sends an Electronic Record to Wells Fargo without
encryption by e-mail or as an e-mail file attachment, there is a risk that the
Electronic Record may be received by unauthorized Persons, and that by so doing
it will be deemed to have accepted this risk and the consequences of any such
unauthorized disclosure.  Company acknowledges that it may deliver
Electronic Records containing Company information to Wells Fargo by e-mail
pursuant to any encryption tool acceptable to Wells Fargo and Company, or
through Wells Fargo’s CEO portal file upload service without risk of
unauthorized disclosure.

       

      7.6           Further
Documents.  Company will from time to time execute, deliver,
endorse and authorize the filing of any instruments, documents, conveyances,
assignments, security agreements, financing statements, control agreements and
other agreements that Wells Fargo may reasonably request in order to secure,
protect, perfect or enforce the Security Interest or Wells Fargo’s rights under
the Loan Documents, or any other document or agreement described in or related
to this Agreement (but any failure to request or assure that Company executes,
delivers, endorses or authorizes the filing of any such item shall not affect or
impair the validity, sufficiency or enforceability of the Loan Documents, or any
other document or agreement described in or related to this Agreement, and the
Security Interest, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion).

       

      
        
           

        

        
          35

          
            

          

        

        
           

        

      

      

      7.7           Costs and
Expenses.  Company shall pay on demand all costs and expenses,
including without limitation reasonable attorneys’ fees, incurred by Wells Fargo
in connection with the Indebtedness, this Agreement, the Loan Documents, or any
other document or agreement described in or related to this Agreement, and the
transactions contemplated by this Agreement, including without limitation all
such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, delivery, amendment, administration, performance,
collection and enforcement of the Indebtedness and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.

       

      7.8           Indemnity.  In
addition to its obligation to pay Wells Fargo’s expenses under the terms of this
Agreement, Company shall indemnify, defend and hold harmless Wells Fargo, its
parent Wells Fargo & Company, and any of its affiliates and successors,
and all of their present and future Officers, Directors, employees, attorneys
and agents (each an “Indemnitee”) from and against any of the following
(collectively, “Indemnified Liabilities”):

       

      (a)           Any
and all transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of the Loan
Documents, or any other document or agreement described in or related to this
Agreement or the making of the Advances;

       

      (b)           Any
claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Exhibit D proves
to be incorrect in any respect or as a result of any violation of the covenants
contained in Section 5.12;
and

       

      (c)           Any
and all other liabilities, losses, damages, penalties, judgments, suits, claims,
costs and expenses of any kind or nature whatsoever (including without
limitation the reasonable fees and disbursements of counsel) in connection with
this Agreement and any other investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party to such
proceedings, which may be imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents, or any other document or
agreement described in or related to this Agreement, or the use or intended use
of the proceeds of the Advances, with the exception of any Indemnified Liability
caused by the gross negligence or willful misconduct of an
Indemnitee.

       

      If any
investigative, judicial or administrative proceeding described in this Section 7.8 is brought
against any Indemnitee, upon the Indemnitee’s request, Company, or counsel
designated by Company and satisfactory to the Indemnitee, will resist and defend
the action, suit or proceeding to the extent and in the manner directed by the
Indemnitee, at Company’s sole cost and expense.  Each Indemnitee will
use its best efforts to cooperate in the defense of any such action, suit or
proceeding.  If this agreement to indemnify is held to be
unenforceable because it violates any law or public policy, Company shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities to the extent permissible under applicable
law.  Company’s obligations under this Section 7.8 shall survive the
termination of this Agreement and the discharge of Company’s other obligations
under this Agreement.

       

      
        
           

        

        
          36

          
            

          

        

        
           

        

      

      

      7.9           Retention of Company’s
Records.  Wells Fargo shall have no obligation to maintain
Electronic Records or retain any documents, schedules, invoices, agings, or
other Records delivered to Wells Fargo by Company in connection with the Loan
Documents, or any other document or agreement described in or related to this
Agreement for more than 30 days after receipt by Wells Fargo.  If
there is a special need to retain specific Records, Company must notify Wells
Fargo of its need to retain or return such Records with particularity, which
notice must be delivered to Wells Fargo in accordance with the terms of this
Agreement at the time of the initial delivery of the Record to Wells
Fargo.

       

      7.10         Binding Effect; Assignment; Complete
Agreement.  The Loan Documents, or any other document or
agreement described in or related to this Agreement, shall be binding upon and
inure to the benefit of Company and Wells Fargo and their respective successors
and assigns, except that Company shall not have the right to assign its rights
under this Agreement or any interest in this Agreement without Wells Fargo’s
prior consent, which must be confirmed in a Record Authenticated by Wells
Fargo.  To the extent permitted by law, Company waives and will not
assert against any assignee any claims, defenses or set-offs which Company could
assert against Wells Fargo.  This Agreement shall also bind all
Persons who become a party to this Agreement as a borrower.  This
Agreement, together with the Loan Documents, or any other document or agreement
described in or related to this Agreement, comprises the complete and integrated
agreement of the parties on the subject matter of this Agreement and supersedes
all prior agreements, whether oral or evidenced in a Record.  To the
extent that any provision of this Agreement contradicts other provisions of the
Loan Documents other than this Agreement, or any other document or agreement
described in or related to this Agreement, this Agreement shall
control.

       

      7.11         Sharing of
Information.  Wells Fargo shall exercise commercially
reasonable efforts to maintain in confidence, in accordance with its customary
procedures for handling Confidential Information, all Confidential Information,
other than any such Confidential Information that becomes generally available to
the public or becomes available to Wells Fargo from a source other than Company
or Guarantors and that is not known to Wells Fargo to be subject to
confidentiality obligations; provided, that Wells Fargo shall have the right to
disclose Confidential Information to:

       

      (a)           Company,
Holdings, and Subsidiaries;

       

      (b)           Wells
Fargo’s affiliates, including each business unit and line of business within
Wells Fargo and each direct and indirect subsidiary of Wells Fargo &
Company;

       

      (c)           Wells
Fargo’s directors, officers, partners, managers, employees, agents, advisors,
representatives, attorneys, professional consultants, portfolio management
services and rating agencies;

       

      
        
           

        

        
          37

          
            

          

        

        
           

        

      

      

      (d)           any
successor or assign of Wells Fargo, or any Person to whom Wells Fargo offers, is
considering making an offer, or proposes to offer to sell, assign or transfer
any Indebtedness or any part thereof or any interest or participation
therein;

       

      (e)           any
Person that provides statistical analysis and/or information services to Wells
Fargo or its affiliates;

       

      (f)           any
governmental authority or agency to which Wells Fargo is subject at the request
or pursuant to any requirement of such governmental authority or agency, or in
connection with an examination of Wells Fargo by any such governmental authority
or agency; and

       

      (g)           any
Person (A) to the extent required by applicable law, (B) in response to any
subpoena or other legal process or informal investigative demand, (C) in
connection with any litigation, or (D) in connection with the actual or
potential exercise or enforcement of any right or remedy under any Loan
Document.

       

      Notwithstanding
any provision of any Loan Document, Wells Fargo may (i) disclose a general
description of transactions arising under the Loan Documents for advertising,
marketing or other similar purposes, and (ii) use Company’s, Holdings’, or
Subsidiaries’ names, logos or other indicia germane to such party in connection
with such advertising, marketing or other similar purposes.

      

      Notwithstanding
any termination of this Agreement, the terms of this Section 7.11 shall remain in
full force and effect for one year following any such termination.

      

      7.12           Severability of
Provisions.  Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining terms of this
Agreement.

       

      7.13           Headings.  Section
and subsection headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.

       

      7.14           Definitional Terms and Rules of
Interpretation.  All accounting terms not otherwise defined in
this Agreement shall have the meanings given them in accordance with
GAAP.  Unless the context clearly requires otherwise, the word “or”
has the inclusive meaning represented by the phrase
“and/or”.  Reference to any agreement (including without limitation
the Loan Documents), document or instrument means the agreement, document or
instrument as amended or supplemented, subject to any restrictions on amendment
contained therein (and, if applicable, in accordance with the terms of this
Agreement and the other Loan Documents).  Unless otherwise specified,
any reference to a statute or regulation means that statute or regulation as
amended or supplemented from time to time, and any corresponding provisions of
successor statutes or regulations.

       

      7.15           Governing Law; Jurisdiction,
Venue.  The Loan Documents (other than real estate related
documents, if any) shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of
California.   The parties to this Agreement (a) consent to
the personal jurisdiction of the state and federal courts located in the State
of California in connection with any controversy related to this Agreement;
(b) waive any argument that venue in any such forum is not convenient;
(c) agree that any litigation initiated by Wells Fargo or Company in
connection with this Agreement or the other Loan Documents may be venued in
either the state or federal courts located in the County of Los Angeles, State
of California; and (d) agree that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

       

      
        
           

        

        
          38

          
            

          

        

        
           

        

      

      

      
        	
                8.

              	
                ARBITRATION.

              

      

       

      8.1           Arbitration.  Wells
Fargo and Company agree, upon demand by either party, to submit to binding
arbitration all claims, disputes and controversies between or among them (and
their respective employees, officers, directors, attorneys, and other agents),
whether in tort, contract or otherwise, in any way arising out of or relating to
(a) any credit subject to this Agreement, or any of the Loan Documents, and
their negotiation, execution, collateralization, administration, repayment,
modification, extension, substitution, formation, inducement, enforcement,
default or termination; or (b) requests for additional credit.

       

      8.2           Governing
Rules.  Any arbitration proceeding will (a) proceed in a
location in Los Angeles, California selected by the American Arbitration
Association (“AAA”); (b) be governed by the Federal Arbitration Act
(Title 9 of the United States Code), notwithstanding any conflicting choice
of law provision in any of the documents between the parties; and (c) be
conducted by the AAA, or such other administrator as the parties shall mutually
agree upon, in accordance with the AAA’s commercial dispute resolution
procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive
of claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA’s optional procedures for large,
complex commercial disputes (the commercial dispute resolution procedures or the
optional procedures for large, complex commercial disputes to be referred to in
this Agreement, as applicable, as the “Rules”).  If there is any
inconsistency between the terms of this Agreement and the Rules, the terms and
procedures set forth in this Agreement shall control.  Any party who
fails or refuses to submit to arbitration following a demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any dispute.  Nothing contained in this Agreement shall
be deemed to be a waiver by any party that is a bank of the protections afforded
to it under 12 U.S.C. §91 or any similar applicable state law.

       

      8.3           No Waiver of Provisional Remedies,
Self-Help and Foreclosure.  The arbitration requirement does
not limit the right of any party to (a) foreclose against real or personal
property collateral; (b) exercise self-help remedies relating to collateral
or proceeds of collateral such as setoff or repossession; or (c) obtain
provisional or ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before during or after the pendency
of any arbitration proceeding.  This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference under this Agreement, including without limitation
those arising from the exercise of the actions detailed in clauses (a), (b) and
(c) of this Section 8.3.

       

      
        
           

        

        
          39

          
            

          

        

        
           

        

      

      

      8.4           Arbitrator Qualifications and
Powers.  Any arbitration proceeding in which the amount in
controversy is $5,000,000.00 or less will be decided by a single arbitrator
selected according to the Rules, and who shall not render an award of greater
than $5,000,000.00.  Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations.  The arbitrator will be
a neutral attorney licensed in the State of California or a neutral retired
judge of the state or federal judiciary of California, in either case with a
minimum of ten years experience in the substantive law applicable to the subject
matter of the dispute to be arbitrated.  The arbitrator will determine
whether or not an issue is arbitratable and will give effect to the statutes of
limitation in determining any claim.  In any arbitration proceeding
the arbitrator will decide (by documents only or with a hearing at the
arbitrator’s discretion) any pre-hearing motions which are similar to motions to
dismiss for failure to state a claim or motions for summary
adjudication.  The arbitrator shall resolve all disputes in accordance
with the substantive law of California and may grant any remedy or relief that a
court of such state could order or grant within the scope of this Agreement and
such ancillary relief as is necessary to make effective any
award.  The arbitrator shall also have the power to award recovery of
all costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law.  Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.  The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial
relief.

       

      8.5           Discovery.  In any
arbitration proceeding, discovery will be permitted in accordance with the
Rules.  All discovery shall be expressly limited to matters directly
relevant to the dispute being arbitrated and must be completed no later than 20
days before the hearing date.  Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party’s presentation and that no alternative means for
obtaining information is available.

       

      8.6           Class Proceedings and
Consolidations.  No party to this Agreement shall be entitled
to join or consolidate disputes by or against others in any arbitration, except
parties who have executed any Loan Document, or to include in any arbitration
any dispute as a representative or member of a class, or to act in any
arbitration in the interest of the general public or in a private attorney
general capacity.

       

      8.7           Payment of Arbitration Costs and
Fees.  The arbitrator shall award all costs and expenses of the
arbitration proceeding.

       

      
        
           

        

        
          40

          
            

          

        

        
           

        

      

      

      8.8           Miscellaneous.  To
the maximum extent practicable, the AAA, the arbitrators and the parties shall
take all action required to conclude any arbitration proceeding within 180 days
of the filing of the dispute with the AAA.  No arbitrator or other
party to an arbitration proceeding may disclose the existence, content or
results of the proceeding, except for disclosures of information by a party
required in the ordinary course of its business or by applicable law or
regulation.  If more than one agreement for arbitration by or between
the parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control.  This arbitration provision shall survive termination,
amendment or expiration of any of the Loan Documents or any relationship between
the parties.

       

      [signatures
on the next page]

      
        
           

        

        
          41

          
            

          

        

        
           

        

      

      

      COMPANY AND WELLS FARGO have
executed this Agreement through their authorized officers as of the date set
forth above.

       

      
        	
                WELLS
      FARGO BANK,

              	 
      	
                PHYSICIANS
      FORMULA, INC.

              
	
                NATIONAL
      ASSOCIATION

              	 
      	
                a
      New York corporation

              
	 
      	 
      	 
      	 
      	 
      
	
                By:

              	
                /s/ Phillip Goessler

              	 
      	
                By:

              	
                /s/ Ingrid Jackel

              
	
                Print
      Name:

              	
                Phillip Goessler

              	 
      	
                Print
      Name:

              	
                Ingrid Jackel

              
	
                Title:

              	
                Vice President

              	 
      	
                Title:

              	
                Chief Executive Officer

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                Wells
      Fargo, National Association

              	 
      	
                Physicians
      Formula, Inc.

              
	
                245
      South Los Robles Avenue, Suite 700

              	 
      	
                1055
      West 8th Street

              
	
                Pasadena,
      California 91101

              	 
      	
                Azusa,
      California 91702

              
	
                Fax:
      626.844.9063

              	 
      	
                Fax:
      626.812.6010

              
	
                Attention:
      Relationship Manager – Physicians Formula

              	 
      	
                Attention:
      Jeff Berry, CFO

              
	
                e-mail:
      gary.whitaker@wachovia.com

              	 
      	
                e-mail:
      jeff.berry@physiciansformula.com

              
	 
      	 
      	 
      	
                Federal
      Employer Identification No.

              
	 
      	 
      	 
      	
                13-3015258

              
	 
      	 
      	 
      	
                Organizational
      Identification No.

              

      

       

      
        
           

        

        
          S-1

          
            

          

        

        
           

        

      

      

      Exhibit
A to Credit and Security Agreement

       

      DEFINITIONS

       

      “Account
Funds” is defined in Section 1.6(a).

       

      “Accounts”
shall have the meaning given it under the UCC.

       

      “Adjusted
EBITDA” means, determined on a consolidated basis for Company and its
wholly-owned subsidiaries, Company’s net income, calculated before (in each
case, to the extent included in determining net income) (i) interest expense,
(ii) provision for income taxes, (iii) depreciation and amortization expense,
(iv) gains arising from the write-up of assets, (v) any extraordinary gains,
(vi) stock-based compensation expenses, (vii) changes resulting from the
valuation of goodwill and intangible assets made in accordance with FASB
Accounting Standard 142, and (viii) changes resulting from foreign exchange
adjustments arising from a revaluation of assets subject to foreign currency
revaluation, and (ix) provisions arising from adjustments to Company’s inventory
reserves for obsolete, excess, or slow moving inventory.

       

      “Advance”
and “Advances” means an advance or advances under the Line of
Credit.

       

      “Affiliate”
or “Affiliates” means Holdings, Physicians Formula Cosmetics, Inc., Physicians
Formula DRTV, LLC and any other Person controlled by, controlling or under
common control with Company, including without limitation any Subsidiary of
Company.  For purposes of this definition, “control,” when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise.

       

      “Aggregate
Face Amount” means the aggregate amount that may then be drawn under each
outstanding Letter of Credit, assuming compliance with all conditions for
drawing.

       

      “Agreement”
means this Credit and Security Agreement.

       

      “Authenticated”
means (a) to have signed; or (b) to have executed or to have otherwise
adopted a symbol, or have encrypted or similarly processed a Record in whole or
in part, with the present intent of the authenticating Person to identify the
Person and adopt or accept a Record.

       

      “Availability”
means, as of any date of determination, the sum of  (without
duplication) (i) the lesser of the Maximum Line Amount or the Borrowing Base,
less (ii) the
Working Capital Reserve, less (iii) the
Borrowing Base Reserve, less (iv) the
aggregate outstanding Indebtedness (including Advances) owing to Wells Fargo by
Company, less
(v) the L/C Amount, less (vi) the
aggregate amount of all trade payable older than 60 days from the applicable due
date and book overdrafts.

       

      “Average
Excess Availability” means the average amount of Company’s Availability over the
relevant measurement period.

       

      
        
           

        

        
          A-1

          
            

          

        

        
           

        

      

      

      “Blank
Components” means inventory consisting of (i) powders and lotions ready for
packaging, (ii) product packaging, including compacts, brushes and tubes that
are a permanent part of finished goods, and (iii) packaging which is to be
discarded once a product is purchased, such as blister packs, and packaging used
for shipping such as chips and cartons.

       

      “Book Net
Worth” means the aggregate of the Owners’ equity in Company,
determined in accordance with GAAP, and calculated without regard to any change
in the valuation of goodwill and intangible assets made in accordance with FASB
Accounting Standard 142.

       

      “Borrowing
Base” is defined in Section 1.2(a).

       

      “Borrowing
Base Reserve” means, as of any date of determination, an amount or a percent of
a specified category or item that Wells Fargo establishes in its Permitted
Discretion from time to time to reduce availability under the Borrowing Base
(a) to reflect events, conditions, contingencies or risks which affect the
assets, business or prospects of Company, or the Collateral or its value, or the
enforceability, perfection or priority of Wells Fargo’s Security Interest in the
Collateral, as the term “Collateral” is defined in this Agreement, or
(b) to reflect Wells Fargo’s judgment that any collateral report or
financial information relating to Company and furnished to Wells Fargo may be
incomplete, inaccurate or misleading in any material respect.

       

      “Business
Day” means a day on which the Federal Reserve Bank of New York is open for
business and, if such day relates to a Fixed Rate Advance, a day on which
dealings are carried on in the London interbank eurodollar market.

       

      “California
Lockbox” means the lockbox arrangement and related deposit account number
4960003069 maintained by Company with Union Bank, N.A.

       

      “Canadian
Cash Balance” means the cash balance held in the Canadian Concentration Account,
so long as Wells Fargo has a first priority perfected Lien on such account and
all funds held in such account and exclusive control over such account and funds
pursuant to, if applicable, a control agreement that is in form and substance
acceptable to Wells Fargo in Wells Fargo’s Permitted Discretion.

       

      “Canadian
Concentration Account” means Company’s Canadian Dollar deposit account
maintained with Wells Fargo.

       

      “Canadian
Operating Account” means Company’s Canadian Dollar deposit account maintained
with Wells Fargo.

       

      “Capital
Expenditures” means for a period, any expenditure of money during such period
for the lease, purchase or other acquisition of any capital asset (including
fixtures for in-store displays) and any capitalized costs incurred as a result
of Company’s move from Covina, CA to City of Industry, CA, or for the lease of
any other asset whether payable currently or in the future, but excluding any
prepaid operating expenses.

       

      “Capitalized
Lease Obligation” means any obligations for the payment of rent for any real or
personal property under leases or agreements to lease that, in accordance with
GAAP, have been or should be capitalized on the books of the lessee and, for
purposes hereof, the amount of any such obligation shall be the capitalized
amount thereof determined in accordance with GAAP.

       

      
        
           

        

        
          A-2

          
            

          

        

        
           

        

      

      

      “Cash
Equivalents” is defined in Section
5.6.

       

      “CEO” is
defined in Section 7.4(a).

       

      “Change
of Control” means the occurrence of any of the following events:

       

      (a)           Any
Person or “group” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) who does not have an ownership interest in
Company on the date of the initial Advance is or becomes the “beneficial owner”
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of
1934, except that any such Person, entity or group will be deemed to have
“beneficial ownership” of all securities that such Person, entity or group has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than twenty five
percent (25%) of the voting power of all classes of ownership of
Company;

       

      (b)           During
any consecutive two-year period, individuals who at the beginning of such period
constituted the board of Directors of Company (together with any new Directors
whose election to such board of Directors, or whose nomination for election by
the Owners of Company, was approved by a vote of two thirds of the Directors
then still in office who were either Directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the board of Directors of Company
then in office;

       

      (c)           Holdings
ceases to own, directly or indirectly, beneficially and of record, 100% of
Company; or

       

      (d)           Either
Ingrid Jackel ceases to be employed as the Chief Executive Officer of Company or
Jeffrey P. Rogers ceases to be employed as the President of Company, and not
replaced by a Person with substantially comparable experience within 90 days of
any such event.

       

      “Collateral”
means all of Company’s Accounts, chattel paper and electronic chattel paper,
deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
Inventory, Investment Property, letter-of-credit rights, letters of credit, all
sums on deposit in any Collection Account, and any items in any Lockbox or other
lockbox; together with (a) all substitutions and replacements for and
products of such property; (b) in the case of all goods, all accessions;
(c) all accessories, attachments, parts, Equipment and repairs now or
subsequently attached or affixed to or used in connection with any goods;
(d) all warehouse receipts, bills of lading and other documents of title
that cover such goods now or in the future; (e) all collateral subject to
the Lien of any of the Security Documents; (f) any money, or other assets
of Company that come into the possession, custody, or control of Wells Fargo now
or in the future; (g) Proceeds of any of the above Collateral;
(h) books and records of Company, including without limitation all mail or
e-mail addressed to Company; and (i) all of the above Collateral, whether
now owned or existing or acquired now or in the future or in which Company has
rights now or in the future.

       

      
        
           

        

        
          A-3

          
            

          

        

        
           

        

      

      

      “Collateral Access Agreement” means a
landlord waiver, bailee letter, or acknowledgement agreement of any lessor,
warehouseman, processor, consignee, or other Person in possession of, having a
Lien upon, or having rights or interests in Company’s, Holdings’, or a
Subsidiary’s books and records, equipment, or inventory, in each case, in form
and substance satisfactory to Wells Fargo in Wells Fargo’s Permitted
Discretion.

      

      “Collection
Account” means “Collection Account” as defined in the Master Agreement for
Treasury Management Services and related Lockbox and Collection Account Service
Description or Collection Account Service Description, whichever is
applicable.

       

      “Company
Inventory G/L Reserve” means the dollar amount carried in Company’s general
ledger reserve for inventory considered to be obsolete, excessive, or otherwise
having a value less than cost.  For clarification purposes, as of
September 30, 2009, Company’s general ledger reserve was
$5,446,000.

       

      “Compliance
Certificate” is defined in Section 5.1(a) and is in the
form of Exhibit E.

       

      “Commercial
Letter of Credit Agreement” means an agreement governing the issuance of
documentary letters of credit entered into between Company as applicant and
Wells Fargo as issuer.

       

      “Confidential
Information” means all non-public, confidential or proprietary information of
Company that is disclosed to Wells Fargo prior to or during the term of this
Agreement by Company or any of its officers, employees, agents or
representatives, and includes, without limitation, any trade secrets, research
and development test results, marketing or business plans, strategies,
forecasts, budgets, projections, customer and supplier information, and any
other analyses, computations or studies prepared by or for Company.

       

      “Constituent
Documents” means with respect to any Person, as applicable, that Person’s
certificate of incorporation, articles of incorporation, by-laws, certificate of
formation, articles of organization, limited liability company agreement,
management agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such Person’s existence,
organization or management or concerning disposition of ownership interests of
such Person or voting rights among such Person’s owners.

       

      “Daily
Three Month LIBOR” means, for any day, the rate of interest equal to LIBOR then
in effect for delivery for a three (3) month period.  When interest is
determined in relation to Daily Three Month LIBOR, each change in the interest
rate shall become effective each Business Day that Wells Fargo determines that
Daily Three Month LIBOR has changed.

       

      “December
G/L Adjustment” means an amount equal to the product of (i) $11,484,000 minus
the Company Inventory G/L Reserve as of December 31, 2009, times (ii)
sixty-percent (60%).  The December G/L Adjustment shall reflect
Company’s estimate of the effect of its customers’ annual product line
adjustments.  Any reversals of such December G/L Adjustment in
subsequent months will also increase each of the foregoing minimum required
amounts by the amount of such reversal.

       

      “Default
Period” is defined in Section 1.7(c).

       

      
        
           

        

        
          A-4

          
            

          

        

        
           

        

      

      

      “Default
Rate” is defined in Section 1.7(c).

       

      “Dilution”
means, as of any date of determination, a percentage, based upon the prior
twelve (12) months, which is the result of dividing (a) actual bad
debt write-downs, discounts, advertising allowances, credits, returned items,
and any other items with respect to the Accounts determined to be dilutive by
Wells Fargo in its sole discretion during this period, by (b) Company’s net
sales during such period (excluding extraordinary items) plus the amount of
clause (a).

       

      “Director”
means a director if Company is a corporation, or a governor or manager if
Company is a limited liability company.

       

      “Electronic
Record” means a Record that is created, generated, sent, communicated, received,
or stored by electronic means, but does not include any
Record that is sent, communicated, or received by fax.

       

      “Eligible
Accounts” means all unpaid Accounts of Company arising from the sale or lease of
goods or the performance of services, net of any credits, but excluding any
Accounts having any of the following characteristics:

       

      (a)           That
portion of Accounts which is unpaid more than 60 days past the original stated
due date or more than 90 days past the original invoice date;

       

      (b)           That
portion of Accounts related to goods or services with respect to which Company
has received notice of a claim or dispute, which are subject to a claim of
offset or a contra account, or which reflect a reasonable reserve for warranty
claims or returns;

       

      (c)           That
portion of Accounts not yet earned by the final delivery of goods or that
portion of Accounts not yet earned by the final rendition of services by Company
to the account debtor, including with respect to both goods and services,
progress billings, and that portion of Accounts for which an invoice has not
been sent to the applicable account debtor;

       

      (d)           Accounts
constituting (i) Proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States
Copyright Office, or (ii) Proceeds of patentable inventions unless such
patentable inventions have been registered with the United States Patent and
Trademark Office;

       

      (e)           Accounts
owed by any unit of government, whether foreign or domestic (except that there
shall be included in Eligible Accounts that portion of Accounts owed by such
units of government for which Company has provided evidence satisfactory to
Wells Fargo that (i) Wells Fargo’s Security Interest constitutes a
perfected first priority Lien in such Accounts, and (ii) such Accounts may
be enforced by Wells Fargo directly against such unit of government under all
applicable laws);

       

      (f)           Accounts
denominated in any currency other than United States Dollars or Canadian
Dollars;

       

      
        
           

        

        
          A-5

          
            

          

        

        
           

        

      

      

      (g)           Accounts
owed by an account debtor located outside the United States or Canada which are
not (i) backed by a bank letter of credit naming Wells Fargo as beneficiary
or assigned to Wells Fargo, in Wells Fargo’s possession or control, and with
respect to which a control agreement concerning the letter-of-credit rights is
in effect, and acceptable to Wells Fargo in all respects, in its sole
discretion, or (ii) covered by a foreign receivables insurance policy
acceptable to Wells Fargo in its sole discretion;

       

      (h)           Accounts
owed by an account debtor who is insolvent or is the subject of bankruptcy
proceedings or who has gone out of business;

       

      (i)           Accounts
owed by an Owner, Subsidiary, Affiliate, Officer or employee of
Company;

       

      (j)           Accounts
not subject to the Security Interest or which are subject to any Lien in favor
of any Person other than Wells Fargo or Mill Road Capital, L.P.;

       

      (k)           That
portion of Accounts that has been restructured, extended, amended or modified;
provided that if the payment terms of an Account have been modified or extended,
such Account may still be deemed to be an Eligible Account so long as such
payment terms continue to comply with the requirements of clause (a) of this
definition of “Eligible Account” (as well as each of the other criteria set
forth in this definition of “Eligible Accounts”);

       

      (l)           That
portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;

       

      (m)           Accounts
owed by an account debtor, regardless of whether otherwise eligible, to the
extent that the aggregate balance of such Accounts exceeds 15% of the aggregate
amount of all Accounts; provided that such percentage shall be 30% for account
debtor CVS, 35% for account debtor Wal-Mart, and 25% for account debtor
Rite-Aid;

       

      (n)           Accounts
owed by an account debtor, regardless of whether otherwise eligible, if 25% or
more of the total amount of Accounts due from such debtor is ineligible under
clauses (a), (b), or (k) above; and

       

      (o)           Accounts,
or portions of Accounts, otherwise deemed ineligible by Wells Fargo in its
Permitted Discretion.

       

      “Eligible
Inventory” means all Inventory of Company, valued at the lower of cost or market
in accordance with GAAP; but excluding Inventory having any of the following
characteristics:

       

      (a)           Inventory
that is:  in-transit; located at any warehouse, job site or other
premises not approved by Wells Fargo in an Authenticated Record delivered to
Company; not subject to a perfected first priority Lien in Wells Fargo’s favor;
covered by any negotiable or non-negotiable warehouse receipt, bill of lading or
other document of title; on consignment from any consignor; or on consignment to
any consignee or subject to any bailment unless the consignee or bailee has
executed an agreement with Wells Fargo;

       

      
        
           

        

        
          A-6

          
            

          

        

        
           

        

      

      

      (b)           Supplies,
packaging (including, but not limited to, containers and box inventory), printed
materials, labels, parts or sample Inventory, or customer supplied parts or
Inventory; provided that Blank Components shall be Eligible Inventory to the
extent that the other criteria for Eligible Inventory are
satisfied;

       

      (c)           Work-in-process
Inventory (other than semi-finished goods which are ready for packing and
shipping);

       

      (d)           Inventory
that is damaged, defective, tainted, obsolete, slow moving (other than excess
Inventory approved by Wells Fargo in Well’s Fargo’s sole discretion) or not
currently saleable in the normal course of Company’s operations, or the amount
of such Inventory that has been reduced by shrinkage;

       

      (e)           Inventory
that Company has returned, has attempted to return, is in the process of
returning or intends to return to the vendor of the Inventory;

       

      (f)           Inventory
that is perishable or live;

       

      (g)           Inventory
manufactured by Company pursuant to a license unless the applicable licensor has
agreed in a Record that has been Authenticated by licensor to permit Wells Fargo
to exercise its rights and remedies against such Inventory;

       

      (h)           Inventory
that is subject to a Lien in favor of any Person other than Wells Fargo or Mill
Road Capital, L.P.;

       

      (i)           Inventory
with a shelf life that is scheduled to expire within six months;

       

      (j)           Inventory
consisting of raw materials in powder or liquid form that is contained in open
containers;

       

      (k)           Unless
otherwise agreed to by Wells Fargo in an Authenticated Record in Wells Fargo’s
sole discretion, Inventory that is not located at any location for which Wells
Fargo has not received a landlord’s waiver (or equivalent) in form and substance
acceptable to Wells Fargo in Wells Fargo’s sole discretion;

       

      (l)           Inventory
stored at locations holding less than 10% of the aggregate value of Company’s
Eligible Inventory; provided that the following Inventory may be included as
Eligible Inventory to the extent all of the other criteria for all Eligible
Inventory are satisfied:  Inventory stored at (i) up to two (2)
locations with a net orderly liquidation value of at least $450,000 each (as
determined by Wells Fargo in Wells Fargo’s Permitted Discretion), and (ii) the
Scholl’s warehouse so long as the net orderly liquidation value of such
Inventory is at least $300,000 (as determined by Wells Fargo in Wells Fargo’s
Permitted Discretion); and

       

      (m)           Inventory
otherwise deemed ineligible by Wells Fargo in its Permitted
Discretion.

       

      
        
           

        

        
          A-7

          
            

          

        

        
           

        

      

       

      “Excluded
Property” means, collectively, (i) any permit, lease or license or any
contractual obligation entered into by Company (A) that prohibits or requires
the consent of any Person other than Company, Holdings and its Subsidiaries
which has not been obtained as a condition to the creation by Company of a Lien
on any right, title or interest in such permit, lease, license or contractual
obligation or any Capital Stock or equivalent thereof related thereto or that
contains terms stating that the granting of a lien therein would otherwise
result in a material loss by Company of any material rights therein, (B) to the
extent that any law applicable thereto prohibits the creation of a Lien thereon,
or (C) to the extent that a Lien thereon would give any other party a
legally enforceable right to terminate such permit, lease, license or any
contractual obligation, but only, with respect to the prohibition in (A), (B)
and (C) to the extent, and for as long as, such prohibition is not terminated or
rendered unenforceable or otherwise deemed ineffective by the UCC or any other
applicable law, (ii) property or assets owned by Company that is subject to a
purchase money Lien or a Capital Lease Obligation permitted hereunder if the
contractual obligation pursuant to which such Lien is granted (or in the
document providing for such Capital Lease Obligation) prohibits or requires the
consent of any Person other than Company, Holdings and its Subsidiaries which
has not been obtained as a condition to the creation of any other Lien on such
property or such assets, (iii) any “intent to use” trademark applications for
which a statement of use has not been filed (but only until such statement is
filed with, and accepted by, the United States Patent and Trademark Office)
(each such trademark, an “Intent To Use Trademark”), (iv) any Intellectual
Property Right owned by Company if the grant of a security interest in such
Intellectual Property Right would result in the cancellation or voiding of such
Intellectual Property Right, and (iv) shares of capital stock having voting
power in excess of 65% of the voting power of all classes of capital stock of a
first tier controlled foreign corporation (as that term is defined in the IRC);
provided, however, “Excluded
Property” shall not, except as explicitly stated herein, include any proceeds,
products, substitutions or replacements of Excluded Property (unless such
proceeds, products, substitutions or replacements would otherwise constitute
Excluded Property).

       

      “Environmental
Law” means any federal, state, local or other governmental statute, regulation,
law or ordinance dealing with the protection of human health and the
environment.

       

      “Equipment”
shall have the meaning given it under the Uniform Commercial Code in effect in
the state whose laws govern this Agreement.

       

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

       

      “ERISA
Affiliate” means any trade or business (whether or not incorporated) that is a
member of a group which includes Company and which is treated as a single
employer under Section 414 of the IRC.

       

      “Event of
Default” is defined in Section 6.1.

       

      “Existing
Lender” is defined in Section 1.1(c).

       

      “Fixed
Rate” is defined in Section 1.7(a).

       

      “Fixed
Rate Interest Period” means a three (3) month period that commences on (and
includes) the Business Day on which either a Fixed Rate Advance is made or
continued or on which a Floating Rate Advance is converted to a Fixed Rate
Advance, and ending on (but excluding) the Business Day numerically
corresponding to that date three (3) months thereafter, during which period the
outstanding principal amount of the Fixed Rate Advance shall bear interest at
the Fixed Rate; provided, however,
that:

       

      
        
           

        

        
          A-8

          
            

          

        

        
           

        

      

      

      (a)           If
a Fixed Rate Interest Period would otherwise end on a day which is not a
Business Day, then it shall end on the next Business Day, unless that day is the
first Business Day of a month, in which case the Fixed Rate Interest Period
shall end on the last Business Day of the preceding month;

       

      (b)           No
Fixed Rate Interest Period may have a term that extends beyond the Maturity
Date; and

       

      (c)           No
Fixed Rate Interest Period may be selected if any part of the Fixed Rate Advance
must contractually be prepaid prior to the end of the Fixed Rate Interest
Period.

       

      “Fixed
Rate Advance” is defined in Section 1.3(a).

       

      “Floating
Rate” is defined in Section 1.7(a).

       

      “Floating
Rate Advance” is defined in Section 1.3(a).

       

      “GAAP”
means generally accepted accounting principles, applied on a basis consistent
with the accounting practices applied in the financial statements described on
Exhibit D.

       

      “General
Intangibles” shall have the meaning given it under the UCC.

       

      “Guarantor(s)”
means Holdings, Physicians Formula Cosmetics, Inc., Physicians Formula DRTV, LLC
and any other Person now or in the future guaranteeing any Indebtedness through
the issuance of a Guaranty, as applicable.

       

      “Guaranty”
means an unconditional continuing guaranty executed by a Guarantor in favor of
Wells Fargo (if more than one, the “Guaranties”).

       

      “Hazardous
Substances” means pollutants, contaminants, hazardous substances, hazardous
wastes, or petroleum, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.

       

      “Holdings”
means Physicians Formula Holdings, Inc., a Delaware corporation.

       

      “Indebtedness”
is used in its most comprehensive sense and means any debts, obligations and
liabilities of Company to Wells Fargo, whether incurred in the past, present or
future, whether voluntary or involuntary, and however arising, and whether due
or not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and including without limitation all obligations arising under any
Rate Hedge Agreement, derivative, foreign exchange, deposit, treasury management
or similar transaction or arrangement however described or defined that Company
may enter into at any time with Wells Fargo or with Wells Fargo Merchant
Services, L.L.C., whether or not Company may be liable individually or jointly
with others, or whether recovery upon such Indebtedness may subsequently become
unenforceable.

       

      
        
           

        

        
          A-9

          
            

          

        

        
           

        

      

      

      “Indemnified
Liabilities” is defined in Section 7.8.

       

      “Indemnitee”
is defined in Section 7.8.

       

      “Infringement”
or “Infringing” when used with respect to Intellectual Property Rights means any
infringement or other violation of Intellectual Property Rights.

       

      “Intellectual
Property Rights” means all actual or prospective rights arising in connection
with any intellectual property or other proprietary rights, including without
limitation all rights arising in connection with copyrights, patents, service
marks, trade dress, trade secrets, trademarks, trade names or mask
works.

       

      “Intent
to Use Trademark” is defined in the definition of Excluded
Property.

       

      “Intercreditor
Agreement” means that certain Intercreditor Agreement, dated as of November 6,
2009, by and among Wells Fargo, Mill Road Capital, L.P., and
Company.

       

      “Interest
Payment Date” is defined in Section 1.9(a).

       

      “Inventory”
shall have the meaning given it under the UCC.

       

      “Investment
Property” shall have the meaning given it under the UCC.

       

      “IRC”
shall mean the United States Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.

       

      “L/C
Amount” means the sum of (a) the Aggregate Face Amount of any outstanding
Letters of Credit, plus (b) the amount of each Obligation of Reimbursement
that either remains unreimbursed or has not been paid through an Advance on the
Line of Credit.

       

      “L/C
Application” means an application for the issuance of standby or documentary
Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement
or Commercial Letter of Credit Agreement, in form acceptable to Wells
Fargo.

       

      “Letter
of Credit” and “Letters of Credit” are each defined in Section 1.11(a).]

       

      “Licensed
Intellectual Property” is defined in Exhibit D.

       

      “LIBOR”
means the rate per annum (rounded upward, if necessary, to the nearest whole
1/8th of one percent (1%)) determined pursuant to the following
formula:

       

      
        	
                LIBOR 
       =     

              	
                Base
      LIBOR

              
	 
      	
                100%
      - LIBOR Reserve Percentage

              

      

       

      (a)           “Base
LIBOR” means the rate per annum for United States dollar deposits quoted by
Wells Fargo (i) for the purpose of calculating the effective Floating Rate
for loans that reference Daily Three Month LIBOR as the Inter-Bank Market
Offered Rate in effect from time to time for three (3) month delivery of funds
in amounts approximately equal to the principal amount of such loans, or
(ii) for the purpose of calculating the effective Fixed Rate for loans
making reference to LIBOR as the Inter-Bank Market Offered Rate on the first day
of a Fixed Rate Interest Period for delivery of funds on said date for a period
of time approximately equal to the number of days in the Fixed Rate Interest
Period and in an amount approximately equal to the principal amount to which the
Fixed Rate Interest Period applies.  Company understands and agrees
that Wells Fargo may base its quotation of the Inter-Bank Market Offered Rate
upon such offers or other market indicators of the Inter-Bank Market as Wells
Fargo in its discretion deems appropriate, including but not limited to the rate
offered for U.S. dollar deposits on the London Inter-Bank Market.

       

      
        
           

        

        
          A-10

          
            

          

        

        
           

        

      

      

      (b)           “LIBOR
Reserve Percentage” means the reserve percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for “Eurocurrency
Liabilities” (as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by Wells Fargo for expected changes in such reserve
percentage during the applicable term of the Revolving Note.

       

      “Lien”
means any security interest, mortgage, deed of trust, pledge, lien, charge,
adverse claim, trust claim, encumbrance, title retention agreement or analogous
instrument or device, including without limitation the interest of each lessor
under any capitalized lease and the interest of any bondsman under any payment
or performance bond, in, of or on any assets or properties of a Person, whether
now owned or subsequently acquired and whether arising by agreement or operation
of law.

       

      “Line of
Credit” is defined in the Recitals.

       

      “Loan
Documents” means this Agreement, the Revolving Note, the Master Agreement for
Treasury Management Services, each Guaranty, the Intercreditor Agreement, each
Subordination Agreement, each Standby Letter of Credit Agreement, each
Commercial Letter of Credit Agreement, any L/C Applications, and the Security
Documents, together with every other agreement, note, document, contract or
instrument to which Company now or in the future may be a party and which may be
required by Wells Fargo in connection with, or as a condition to, the execution
of this Agreement.  Any documents or other agreements entered into
between Company and Wells Fargo that relate to any Rate Hedge Agreement,
derivative, foreign exchange, or similar product or transaction, or which are
entered into with an operating division of Wells Fargo other than Wells Fargo
Business Credit, shall not be included in this definition.

       

      “Loan
Manager” means the treasury management service defined in the Master Agreement
for Treasury Management Services and related Loan Manager Service
Description.

       

      “Lockbox”
means “Lockbox” as defined in the Master Agreement for Treasury Management
Services and related Lockbox and Collection Account Service
Description.

       

      “Master
Agreement for Treasury Management Services” means the Master Agreement for
Treasury Management Services, the related Acceptance of Services, and the
Service Description governing each treasury management service used by
Company.

       

      
        
           

        

        
          A-11

          
            

          

        

        
           

        

      

      

      “Material
Adverse Effect” means any of the following:

       

      (a)           A
material adverse effect on the business, operations, results of operations,
assets, liabilities or financial condition of Company;

       

      (b)           A
material adverse effect on the ability of Company to perform its obligations
under the Loan Documents, or any other document or agreement related to this
Agreement; or

       

      (c)           A
material adverse effect on the ability of Wells Fargo to enforce the
Indebtedness or to realize the intended benefits of the Security Documents,
including without limitation a material adverse effect on the validity or
enforceability of any Loan Document or of any rights against any Guarantor, or
on the status, existence, perfection, priority (subject to Permitted Liens) or
enforceability of any Lien securing payment or performance of the
Indebtedness.

       

      “Maturity
Date” is defined in Section 1.1(b).

       

      “Maximum
Line Amount” is defined in Section 1.1(a).

       

      “Minimum
Interest Charge” is defined in Section 1.7(b).

       

      “Multiemployer
Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of
ERISA) to which Company or any ERISA Affiliate contributes or is obligated to
contribute.

       

      “Net Cash
Proceeds” means the cash proceeds of any asset sale (including cash proceeds
received as deferred payments pursuant to a note, installment receivable or
otherwise, but only upon actual receipt) net of (a) attorney, accountant,
and investment banking fees, (b) brokerage commissions, (c) amounts
required to be applied to prior Liens or the repayment of debt secured by a Lien
not prohibited by this Agreement on the asset being sold, and (d) taxes
paid or reasonably estimated to be payable as a result of such asset
sale.

       

      “Net
Income” means after-tax net income from continuing operations, including
extraordinary losses but excluding extraordinary gains, all as determined in
accordance with GAAP.

       

      “Net
Orderly Liquidation Value Percentage” means a professional opinion of the
probable Net Cash Proceeds, less (without duplication) any other costs of
liquidation (including those described in any appraisal of the Company’s
Inventory), that could be realized at a properly advertised and professionally
conducted liquidation sale, conducted under orderly sale conditions for an
extended period of time (usually six to nine months), under the economic trends
existing at the time of the appraisal, expressed as a percentage of cost of such
Inventory.

       

      “Obligation
of Reimbursement” is defined in Section 1.11(b).

       

      “OFAC” is
defined in Section 5.12(b).

       

      
        
           

        

        
          A-12

          
            

          

        

        
           

        

      

      

      “Officer”
means with respect to Company, an officer if Company is a corporation, a manager
if Company is a limited liability company, or a partner if Company is a
partnership.

       

      “Operating
Account” is defined in Section 1.3(a), and
maintained in accordance with the terms of Wells Fargo’s Commercial Account
Agreement in effect for demand deposit accounts.

       

      “Overadvance”
means the amount, if any, by which the unpaid principal amount of the Revolving
Note, plus the L/C Amount, is in excess of the then-existing Borrowing
Base.

       

      “Owned
Intellectual Property” is defined in Exhibit D.

       

      “Owner”
means with respect to Company, each Person having legal or beneficial title to
an ownership interest in Company or a right to acquire such an
interest.

       

      “Patent
and Trademark Security Agreement” means each Patent and Trademark Security
Agreement entered into between Company and Wells Fargo.

       

      “Pension
Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained
for employees of Company or any ERISA Affiliate and covered by Title IV of
ERISA.

       

      “Permitted
Discretion” means a determination made by Wells Fargo from the perspective of a
secured asset-based lender.

       

      “Permitted
Lien” and “Permitted Liens” are defined in Section 5.3(a).

       

      “Person”
means any individual, corporation, partnership, joint venture, limited liability
company, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision of a governmental
entity.

       

      “Plan”
means an employee benefit plan (as defined in Section 3(3) of ERISA)
maintained for employees of Company or any ERISA Affiliate.

       

      “Premises”
is defined in Section 2.4(a).

       

      “Proceeds”
shall have the meaning given it under the UCC.

       

      “Rate
Hedge” means any interest rate swap or interest rate collar agreement applicable
to borrowings advanced by Wells Fargo under the Line of Credit.

       

      “Rate
Hedge Agreement” is an agreement entered into between Wells Fargo (or any of its
affiliates) and Company for purposes of providing Company with a Rate
Hedge.

       

      “Record”
means information that is inscribed on a tangible medium or that is stored in an
electronic or other medium and is retrievable in perceivable form, and includes
all information that is required to be reported by Company to Wells Fargo
pursuant to Section 5.1.

       

      “Refinancing
Indebtedness” means refinancings, renewals, or extensions of indebtedness
so long as:

       

      
        
           

        

        
          A-13

          
            

          

        

        
           

        

      

      

      (a)           the
principal amount of such refinancings, renewals, or extensions of indebtedness
does not exceed the principal amount of indebtedness refinanced, renewed, or
extended (plus all accrued interest on the indebtedness and the amount of all
reasonable amounts of fees and expenses reasonably incurred, including premiums,
incurred in connection therewith),

       

      (b)           such
refinancings, renewals, or extensions do not result in a shortening of the
average weighted maturity (measured as of the refinancing, renewal, or
extension) of the indebtedness so refinanced, renewed, or extended (excluding
the effects of prepayments of such indebtedness in connection with such
refinancing), nor are they on terms or conditions that, after being compared to
the terms or conditions of the existing indebtedness and taken as a whole, are
or could reasonably be expected to be materially more burdensome or restrictive
to Company,

       

      (c)           if
the indebtedness that is refinanced, renewed, or extended was subordinated in
right of payment to the Indebtedness, then the terms and conditions of the
refinancing, renewal, or extension must include subordination terms and
conditions that are at least as favorable to Wells Fargo (as determined by Wells
Fargo in Wells Fargo’s sole discretion) as those that were applicable to the
refinanced, renewed, or extended indebtedness, and

       

      (d)           the
indebtedness that is refinanced, renewed, or extended is not recourse to any
Person that is liable on account of the indebtedness other than those Persons
which were obligated with respect to the indebtedness that was refinanced,
renewed, or extended.

       

      “Reportable
Event” means a reportable event (as defined in Section 4043 of ERISA),
other than an event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the Pension Benefit Guaranty
Corporation.

       

      “Responsible
Officer” means the chief executive officer, the president, the chief financial
officer, or any vice president responsible for financial affairs of
Company.

       

      “Returned
Items” means that portion of Company’s Eligible Inventory consisting of finished
goods that have been returned by a customer of Company that are not damaged and
capable of being resold as new goods.

       

      “Revolving
Note” is defined in Section 1.1(d).

       

      “San
Gabriel Valley Site Liabilities” means any and all losses and obligations
arising from or related to any of the following:  (a) any hazardous
substances or other contamination present at, in, on or under, or that
originated at or migrated from, the Company’s or any Subsidiary’s leased real
property in the City of Industry, California on or prior to the date hereof,
including any obligations to or asserted by the California Regional Water
Quality Control Board, the United States Environmental Protection Agency or
other government agency; (b) any involvement in, with or at the San Gabriel
Valley Superfund Site and/or the Puente Valley Area or Operable Unit thereof in
connection with the Company’s or any Subsidiary’s leased real property in the
City of Industry, California (collectively, the “San Gabriel Valley Superfund
Site”); and (c) all pending and any future asserted personal injury, property or
natural resource damage, toxic tort or other lawsuits or claims related to
hazardous substances or other contaminants within the San Gabriel Valley
Superfund Site and/or any Hazardous Substances or other contamination present
at, in, on or under, or that originated at or migrated from, the Company's or
any Subsidiary’s leased real property in the City of Industry, California on or
prior to the date hereof, including any contamination related claims or lawsuits
filed or to be filed by water suppliers located within the San Gabriel Valley
Superfund Site thereof in connection with the Company’s or any Subsidiary’s
leased real property in the City of Industry, California.

       

      
        
           

        

        
          A-14

          
            

          

        

        
           

        

      

      

      “San
Gabriel Valley Superfund Site” has the meaning set forth in the definition of
“San Gabriel Valley Site Liabilities.

       

      “Security
Documents” means this Agreement, each Collateral Pledge Agreement (described in
Exhibit C), each Security Agreement (described in Exhibit C), any deposit
account control agreement, the Patent and Trademark Security Agreement(s), and
any other document delivered to Wells Fargo from time to time to create and/or
perfect a security interest in Collateral or other assets that are collateral,
directly or indirectly, for the Indebtedness.

       

      “Security
Interest” is defined in Section 2.1.

       

      “Separate
Collateral Bank Account” means a deposit account containing a one-time deposit
from the proceeds of the Subordinated Debt in an amount equal to $3,000,000,
such amount to be reduced as such funds are used in accordance with this
Agreement.

       

      “Special
Account” means a specified cash collateral account maintained with Wells Fargo
or another financial institution acceptable to Wells Fargo in connection with
each undrawn Letter of Credit issued by Wells Fargo, as more fully defined in
Section 1.11.

       

      “Standby
Letter of Credit Agreement” means an agreement governing the issuance of standby
letters of credit by Wells Fargo entered into between Company as applicant and
Wells Fargo as issuer.

       

      “Subordinated
Creditor(s)” means Mill Road Capital, L.P. and any other Person now or in the
future subordinating indebtedness of Company held by that Person to the payment
of the Indebtedness.

       

      “Subordinated
Credit Agreement” means that certain Senior Subordinated Note Purchase and
Security Agreement dated as of the date hereof by and among Company, certain
guarantors party thereto, and Mill Road Capital, L.P.

       

      “Subordinated
Debt” means indebtedness due to Company that has been subordinated to Wells
Fargo by a Subordinated Creditor pursuant to a Subordination Agreement or the
Intercreditor Agreement.

       

      “Subordination
Agreement” means a subordination agreement, in form and substance acceptable to
Wells Fargo, executed by a Subordinated Creditor in favor of Wells Fargo (if
more than one, the “Subordination Agreements”).

       

      “Subsidiary”
means any Person of which more than 50% of the outstanding ownership interests
having general voting power under ordinary circumstances to elect a majority of
the board of directors or the equivalent of such Person, irrespective of whether
or not at the time ownership interests of any other class or classes shall have
or might have voting power by reason of the happening of any contingency, is at
the time directly or indirectly owned by Company, by Company and one or more
other Subsidiaries, or by one or more other Subsidiaries.

       

      
        
           

        

        
          A-15

          
            

          

        

        
           

        

      

      

      “Termination
Date” is defined in Section 1.1(b).

       

      “UCC”
means the Uniform Commercial Code in effect in the state designated in this
Agreement as the state whose laws shall govern this Agreement, or in any other
state whose laws are held to govern this Agreement or any portion of this
Agreement.

       

      “Unused
Amount” is defined in Section 1.8(b).

       

      “Wells
Fargo” means Wells Fargo Bank, National Association in its broadest and most
comprehensive sense as a legal entity, and is not limited in its meaning to the
Wells Fargo Business Credit operating division, or to any other operating
division of Wells Fargo.

       

      “Working
Capital Reserve” means an amount equal to $1,000,000 as such amount may be
adjusted by Wells Fargo from time to time in Wells Fargo’s Permitted Discretion;
provided, however that the Working Capital Reserve may be eliminated or reduced
in Wells Fargo’s discretion if for any twelve-month consecutive period (ending
on or after September 30, 2010) Company’s Net Income is greater than or equal to
$1,000,000 and Average Excess Availability under the Line of Credit for the last
three months of such twelve-month period is greater than or equal to
$2,000,000.

       

      
        
           

        

        
          A-16

          
            

          

        

        
           

        

      

      

      Exhibit
B to Credit and Security Agreement

       

      PREMISES

       

      The
Premises referred to in the Credit and Security Agreement have an address of
1753 Arrow Grand Circle Way Covina, CA 91722, and are legally described as
follows:

       

      Tract
No:  41841

      Abbreviated
Description:  TR=41841 LOTS 28 THRU 30 AND E 60 FT OF LOT 27 AND E
104-22 FT OF LOT 31

      City/Muni/Twp:  REGION/CLUSTER:  27/27609

       

       

      The
Premises referred to in the Credit and Security Agreement have an address of 230
South Ninth Avenue, City of Industry, CA 91746, and are legally described as
follows:

       

      The
southwesterly 132 feet of the northeasterly 396 feet of Lot 5 in Block 2 of
Tract No. 1343, in the City of Industry, in the County of Los Angeles, State of
California, as per map recorded in Book 20 Pages 10 and 11 on Maps, in the
office of the County Recorder of said County.

      

      EXCEPT
therefrom the precious ores and metals thereof, as excepted in the partition
between William Workman and John Rowland, Sr., in the partition deed recorded in
Book 10 Page 39 of Deeds.

      

      ALSO
EXCEPTING and reserving all the oil and mineral rights of said land with the
right to enter thereon for the purposes of extracting the same, subject to any
damage to said purchaser resulting from such entry upon said land, as excepted
and reserved by Cross Land Company, a corporation, be deed recorded January 29,
1920 in Book 7028 Pages 286, of Deeds.

      By an
instrument dated August 12, 1966, recorded August 29, 1966 said Cedars of
Lebanon Hospital relinquished all rights to enter upon the surface of said
land.

      

      The Premises referred to in the Credit
and Security Agreement have an address of 250 South Ninth Avenue, City of
Industry, CA 91746, and are legally described as follows:

      

      The
northeast 132 feet of the southwest 264 feet of Lot 5 in Block 2 of Tract No.
1343, in the City if Industry, County of Los Angeles, State of California, as
per map recorded in Book 20 pages 10 and 11 of Maps, in the office of the county
recorder of said county.

      Except
all the oil and mineral rights of said land with the right to enter thereon for
the purpose of extracting the same, subject to any damage in said purchaser
resulting from such entry upon said land, as excepted and reserved by Cross Land
Company, a corporation, by deed recorded January 24, 1920 in Book 7028 page 286
of deeds.

      

      All
right, title and interest in and to the surface of said land for the purpose of
exploring for and extracting any minerals, oil, gas and other hydrocarbons was
quitclaimed to the record owners by deed recorded November 4, 1964, in Book
D-2686 page 628, Official Records.

      
        
           

        

        
          B-1

          
            

          

        

        
           

        

      

      

      The Premises referred to in the Credit
and Security Agreement have an address of 1055 W. Eighth Street, Azusa, CA 91702
and are legally described as follows:

      

      The
southerly approximately 82,800 square feet of a free standing
industrial/warehouse/distribution building located at 1055 W. Eighth St. Azusa
California as further shown on Annex I attached hereto.

      

      In the
event of any conflict between the address and the legal description, the legal
description shall control.

      
        
           

        

        
          B-2

          
            

          

        

        
           

        

      

      

      Exhibit
C to Credit and Security Agreement

       

      CONDITIONS
PRECEDENT

       

      Wells
Fargo’s obligation to make an initial Advance shall be subject to the condition
that Wells Fargo shall have received the following, executed and in form and
content satisfactory to Wells Fargo.  The following descriptions are
limited descriptions for reference purposes only and should not be construed as
limiting in any way the subject matter that Wells Fargo requires each document
to address.

       

      
        	
                A.

              	
                Loan
      Documents to be Executed by
Company:

              

      

       

      (1)           The
Revolving
Note.

       

      (2)           The
Credit and Security
Agreement.

       

      (3)           The
Master Agreement for Treasury
Management Services, the Acceptance of Services, and
the related Service Description for each deposit or treasury management related
product or service that Company will subscribe to, including without limitation
the Lockbox and Collection
Account Service Description.

       

      (4)           The
Patent and Trademark Security
Agreement.

       

      (5)           A
Standby Letter of Credit
Agreement and the Commercial Letter of Credit
Agreement, and a separate L/C Application for each Letter of Credit that
Company has requested that Wells Fargo issue.

       

      (6)           The
Collateral Pledge
Agreement of Company pursuant to which Company grants Wells Fargo a
security interest in the shares of stock more fully described in such Collateral
Pledge Agreement.

       

      (7)           Canadian
form of General Security
Agreement.

       

      
        	
                B.

              	
                Loan
      Documents to be Executed by Third
Parties:

              

      

       

      (1)           The
Guaranty by Corporation
of each of Holdings, Physicians Formula Cosmetics, Inc., and Physicians Formula
DRTV, LLC, pursuant to which such Person unconditionally guarantees the full and
prompt payment of Company’s Indebtedness.

       

      (2)           The
Security Agreement of
each of Holdings, Physicians Formula Cosmetics, Inc., and Physicians Formula
DRTV, LLC, pursuant to which such Person grants Wells Fargo a security interest
in the personal property more fully described in the Security Agreement, as
security for the full and prompt payment of Company’s Indebtedness.

       

      (3)           The
Collateral Pledge
Agreement of Holdings pursuant to which that Person grants Wells Fargo a
security interest in the shares of stock more fully described in the Collateral
Pledge Agreement, together with the stock certificates and stock powers, as
security for the full and prompt payment of Company’s Indebtedness.

       

      
        
           

        

        
          C-1

          
            

          

        

        
           

        

      

      

      (4)           The
Intercreditor
Agreement.

       

      (5)           An
Acknowledgement of
Warehouseman from each warehouse where Company stores Inventory, pursuant
to which the warehouseman waives its Lien in the Inventory.

       

      (6)           A
Landlord’s Disclaimer and
Consent to each lease entered into by Company and that Landlord with
respect to the Premises, pursuant to which the Landlord waives its Lien in any
goods or other Inventory of Company located on the Premises.

       

      (7)           Certificates of Insurance
required under this Agreement, with all hazard insurance containing a lender’s
interest endorsement in Wells Fargo’s favor and with all liability insurance
naming Wells Fargo as additional insured.

       

      
        	
                C.

              	
                Documents
      Related to the Premises

              

      

       

      (1)           Any
leases pursuant to which
Company is leasing the Premises from a lessor.

       

      (2)           Every
bailment or consignment pursuant to which
any property of Company is in the possession of a third Person such as a
consignee or subcontractor, together with, in the case of any goods held by such
Person for resale, UCC
financing statements sufficient to protect Company’s and Wells Fargo’s
interests in such goods.

       

      
        	
                D.

              	
                Federal
      Tax, State Tax, Judgment, UCC and Intellectual Property Lien
      Searches

              

      

       

      (1)           Current searches of Company in
appropriate filing offices showing that (i) no Liens have been filed and
remain in effect against Company and Collateral except Permitted Liens or Liens
held by Persons who have agreed in an Authenticated Record that upon receipt of
proceeds of the initial Advances, they will satisfy, release or terminate such
Liens in a manner satisfactory to Wells Fargo, and (ii) Wells Fargo has
filed all UCC financing statements necessary to perfect the Security Interest,
to the extent the Security Interest is capable of being perfected by
filing.

       

      (2)           Current searches of Third
Persons in appropriate filing offices with respect to any of the
Collateral that is in the possession of a Person other than Company that is held
for resale, showing that (i) UCC financing statements sufficient to protect
Company’s and Wells Fargo’s interests in such Collateral have been filed, and
(ii) no other secured party has filed a financing statement against such
Person and covering property similar to Company’s, other than Company, or if
there exists any such secured party, evidence that each such party has received
notice from Company and Wells Fargo sufficient to protect Company’s and Wells
Fargo’s interests in Company’s goods from any claim by such secured
party.

       

      
        	
                E.

              	
                Constituent
      Documents:

              

      

       

      (1)           The
Certificate of Authority
of Company, which shall
include as part of the Certificate or as exhibits to the Certificate,
(i) the Resolution
of Company’s Directors and, if required, Owners, authorizing the execution,
delivery and performance of those Loan Documents and other documents or
agreements described in or related to this Agreement to which Company is a
party, (ii) an Incumbency
Certificate containing the signatures of Company’s Officers or agents
authorized to execute and deliver those instruments, agreements and certificates
referenced in (i) above, as well as Advance requests, on Company’s behalf,
(iii) Company’s Constituent Documents,
(iv) a current Certificate
of Good Standing or Certificate of Status issued
by the secretary of state or other appropriate authority for Company’s state of
organization, certifying that Company is in good standing and in compliance with
all applicable organizational requirements of the state of organization, and
(v) a Secretary’s
Certificate of Company’s secretary or assistant secretary certifying that
the Certificate of Authority of Company is true, correct and
complete.

       

      
        
           

        

        
          C-2

          
            

          

        

        
           

        

      

      

      (2)           The
Certificate of Authority each
Corporate Guarantor, which shall include as part of the Certificate or as
exhibits to the Certificate, (i) the Resolution of such Guarantor’s
Directors and, if required, Owners, authorizing the execution, delivery and
performance of the Guaranty of Corporation, (ii) an Incumbency Certificate
containing the signatures of such Guarantor’s Officers or agents authorized to
execute and deliver the Guaranty by Corporation on such Guarantor’s behalf,
(iii) such Guarantor’s Constituent Documents,
(iv) a current Certificate
of Good Standing or Certificate of Status issued
by the secretary of state or other appropriate authority for Guarantor’s state
of organization, certifying that Guarantor is in good standing and in compliance
with all applicable organizational requirements of the state of organization,
and (v) a Secretary’s
Certificate of such Guarantor’s secretary or assistant secretary
certifying that the Certificate of Authority of Corporate Guarantor and all
attached exhibits are true, correct and complete.

       

      (3)           Evidence that Company is licensed or
qualified to transact business in all jurisdictions where the character
of the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.

       

      (4)           An
Officer’s Certificate of
an appropriate Officer of Company confirming, in his or her capacity as an
officer (and not personal capacity), the representations and warranties set
forth in this Agreement.

       

      (5)           A
Customer Identification
Information Form and such other forms and verification as Wells Fargo may
need to comply with the U.S.A. Patriot Act.

       

      
        	
                F.

              	
                Miscellaneous
      Matters or Documents:

              

      

       

      (1)           Payment
of fees and reimbursable costs
and expenses due under this Agreement through the date of initial Advance or
issuance of a Letter of Credit, including without limitation all legal
expenses incurred through the date of the closing of this
Agreement.

       

      (2)           Evidence
that after making the initial Advance and satisfying all obligations owed to
Existing Lender, paying all trade payables older than 60 days from the
applicable due date, establishing the Working Capital Reserve, and paying all
book overdrafts, held checks, and closing costs (including, but not limited to,
payment of the origination fee required under Section 1.8(a)), availability
under the Line of Credit is not less than $4,000,000.

       

      (3)           Any
documents or other agreements entered into by Company and Wells Fargo that
relate to any Rate Hedge Agreement, derivative, foreign exchange, deposit,
treasury management or similar product or transaction extended to Company by
Wells Fargo not already provided pursuant to the requirements of (A)-(E)
above.

       

      
        
           

        

        
          C-3

          
            

          

        

        
           

        

      

      

      (4)           Such
other documents as Wells Fargo in its sole discretion may require.

       

      
        
           

        

        
          C-4

          
            

          

        

        
           

        

      

      

      Exhibit
D to Credit and Security Agreement

       

      REPRESENTATIONS AND
WARRANTIES

       

      Company
represents and warrants to Wells Fargo as follows:

       

      (a)           Existence and Power; Name;
Chief Executive Office; Inventory and Equipment Locations; Federal Employer
Identification Number and Organizational Identification
Number.  Company is a corporation, organized, validly existing
and in good standing under the laws of the State of New York and is licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary, except to the extent that the failure
to be so licensed or qualified could reasonably be expected to result in a
Material Adverse Effect.  Company has all requisite power and
authority to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under, those Loan Documents and
any other documents or agreements that it has entered into with Wells Fargo
related to this Agreement.  During the past five (5) years, Company
has done business solely under the names set forth below in addition to its
correct legal name.  Company’s chief executive office and principal
place of business is located at the address set forth below, and all of
Company’s records relating to its business or the Collateral are kept at that
location.  All Inventory and Equipment is located at that location or
at one of the other locations set forth below, other than Inventory in-transit
between such locations in the ordinary course of business.  Company’s
name, Federal Employer Identification Number and Organization Identification
Number are correctly set forth at the end of the Agreement next to Company’s
signature.

       

      
        	
                Trade
      Names

              
	
                None

              

      

      

       

      
        	
                Chief
      Executive Office / Principal Place of Business

              
	
                1055
      West 8th Street

                 

                Azusa,
      California 91702

              

      

      

       

      
        	
                Other
      Inventory and Equipment Locations

              
	
                1055
      W. 8th
      Street

                Azusa,
      CA 91702

              
	
                1425
      Max Brose Drive #8

                London,
      Ontario   N6N 0A2

                Canada

              
	
                435
      Park Court

                Lino
      Lakes, MN 55014

              
	
                230
      South Ninth Avenue

                City
      of Industry, CA 91746

              
	
                250
      South Ninth Avenue

                City
      of Industry, CA 91746

              
	
                753-755
      Arrow Grand Circle Way

                Covina,
      CA 91722

              
	
                2169
      Wright Ave.

                La
      Verne, CA 91750

              

      

       

      
        
           

        

        
          D-1

          
            

          

        

        
           

        

      

      

      (b)           Capitalization.  The
Capitalization Chart below constitutes a correct and complete list of all
ownership interests of Company and all rights to acquire ownership interests,
including the record holder, number of interests and percentage interests on a
fully diluted basis as of the date hereof, and the Organizational Chart below
shows the ownership structure of all Subsidiaries of Company.

       

      
        	
                Capitalization
      Chart

              
	
                Holder

              	
                Type
      of Rights/Stock

              	
                No.
      of Shares (after exercise of all rights to acquire shares)

              	
                %
      Interest (on a fully diluted basis)

              
	
                Physicians
      Formula Holdings, Inc.

              	
                Holder
      of Common Stock in Physicians Formula, Inc.

              	
                100

              	
                100%

              
	
                Physicians
      Formula, Inc.

              	
                Holder
      of Common Stock in Physicians Formula Cosmetics, Inc.

              	
                1,000

              	
                100%

              
	
                Physicians
      Formula, Inc.

              	
                Holder
      of Common Units in Physicians Formula DRTV, LLC

              	
                1,000

              	
                100%

              

      

       

      
        	
                Organizational
      Chart

              
	
                See
      Annex A

              

      

       

      (c)           Authorization of Borrowing;
No Conflict as to Law or Agreements.  The execution, delivery
and performance by Company of the Loan Documents and any other documents or
agreements described in or related to this Agreement, and all borrowing under
the Line of Credit have been authorized and do not (i) require the consent
or approval of Company’s Owners; (ii) require the authorization, consent or
approval by, or registration, declaration or filing with, or notice to, any
governmental agency or instrumentality, whether domestic or foreign, or any
other Person, except to the extent obtained, accomplished or given prior to the
date of this Agreement; (iii) violate any provision of any law, rule or
regulation (including Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in effect
having applicability to Company or of Company’s Constituent Documents;
(iv) result in a breach of or constitute a default or event of default
under any indenture or loan or credit agreement or any other material agreement,
lease or instrument to which Company is a party or by which it or its properties
may be bound or affected; or (v) result in, or require, the creation or
imposition of any Lien (other than the Security Interest) upon or with respect
to any of the properties now owned or subsequently acquired by
Company.

       

      
        
           

        

        
          D-2

          
            

          

        

        
           

        

      

      

      (d)           Legal
Agreements.  This Agreement, the other Loan Documents, and any
other document or agreement described in or related to this Agreement, will
constitute the legal, valid and binding obligations of Company, enforceable
against Company in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

       

      (e)           Subsidiaries.  Except
as disclosed below, Company has no Subsidiaries.

       

      
        	
                Subsidiaries

              
	
                Physicians
      Formula Cosmetics, Inc.

                Physicians
      Formula DRTV, LLC

              

      

       

      (f)           Financial Condition; No
Adverse Change.  Company has furnished to Wells Fargo its
audited financial statements for its fiscal year ended December 31, 2008 and
unaudited financial statements for the fiscal-year-to-date period ended August
31, 2009 and those statements fairly present in all material respects Company’s
financial condition as of those dates and the results of Company’s operations
and cash flows for the periods then ended and were prepared in accordance with
GAAP.  Since the date of the most recent financial statements, there
has been no Material Adverse Effect.

       

      (g)           Litigation.  There
are no actions, suits or proceedings pending or, to Company’s knowledge,
threatened against or affecting Company, Holdings, or Subsidiaries or the
properties of Company, Holdings, or Subsidiaries before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to Company, Holdings, or
Subsidiaries, would reasonably be expected to have a Material Adverse
Effect.

       

      (h)           Intellectual Property
Rights.

       

      (i)           Owned Intellectual
Property.  Set forth below is a complete list of all registered
patents, applications for patents, trademarks, applications to register
trademarks, service marks, applications to register service marks, registered
copyrights, and applications to register copyrights for which Company is the
owner of record (the “Owned Intellectual Property”).  Except as set
forth below and except for such Owned Intellectual Property that is not material
to Company’s business, (A) Company owns the Owned Intellectual Property
free and clear of all restrictions (including without limitation covenants not
to sue any Person), court orders, injunctions, decrees, writs or Liens, whether
by agreement memorialized in a Record Authenticated by Company or otherwise,
(B) no Person other than Company owns or has been granted any right in the
Owned Intellectual Property, (C) all Owned Intellectual Property is valid,
subsisting and enforceable, and (D) Company has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.

       

      
        
           

        

        
          D-3

          
            

          

        

        
           

        

      

      

      (ii)           Agreements with Employees
and Contractors.  Company has entered into an agreement with
each Person that is an employee obligating such Person to assign to Company,
without additional compensation, any Intellectual Property Rights developed by
such Person in the course of such Person’s employment with Company (except to
the extent permitted by such agreement or prohibited by law).

       

      (iii)           Intellectual Property Rights
Licensed from Others.  Set forth below is a complete list of
all agreements under which Company has licensed Intellectual Property Rights
from another Person (“Licensed Intellectual Property”) other than readily
available, non-negotiated licenses of computer software and other intellectual
property used solely for performing accounting, word processing and similar
administrative tasks (“Off-the-shelf Software”) and a summary of any ongoing
payments Company is obligated to make with respect to Licensed Intellectual
Property.  Except as set forth below, in any other schedule or exhibit
to this Agreement, or in any other Record, copies of which have been given to
Wells Fargo, Company’s licenses to use the Licensed Intellectual Property are in
full force and effect and are free and clear of all restrictions, Liens, court
orders, injunctions, decrees, or writs, whether agreed to in a Record
Authenticated by Company or otherwise.  Except as disclosed below,
Company is not contractually obligated to make royalty payments of a material
nature, or pay fees to any owner of, licensor of, or other claimant to, any
Intellectual Property Rights.

       

      (iv)           Other Intellectual Property
Needed for Business.  Except for Off-the-shelf Software and as
disclosed below, the Owned Intellectual Property and the Licensed Intellectual
Property constitute all Intellectual Property Rights used or necessary to
conduct Company’s business as it is presently conducted or as Company reasonably
foresees conducting it and the Company owns, possesses or has the right to use
all such Intellectual Property Rights.

       

      (v)           Infringement.  Except
as disclosed below, Company has no knowledge of, and has not received notice
either orally or in a Record alleging, any Infringement of another Person’s
Intellectual Property Rights (including any claim set forth in a Record that
Company must license or refrain from using the Intellectual Property Rights of
any Person) nor, to Company’s knowledge, is there any threatened claim or any
reasonable basis for any such claim.

       

      
        
           

        

        
          D-4

          
            

          

        

        
           

        

      

       

      
        
          	
                  Intellectual
      Property Disclosures

                

        

         

      

      
        	
                (i)

              	
                Owned
      Intellectual Property

              

      

       

      COPYRIGHTS
- None.

      

      PATENTS
-  None.

      

      TRADEMARKS
–

      

      
        
          	
                  U.S. Trademarks Registered

                	
                  Registration No.

                
	
                  Actiplump

                	
                  3,496,856

                
	
                  Artist's
      Eraser

                	
                  3,262,868

                
	
                  Baked
      Berries

                	
                  3,169,240

                
	
                  Baked
      Berry

                	
                  3,127,457

                
	
                  Baked
      Butter

                	
                  3,189,776

                
	
                  Baked
      Cocoa

                	
                  3,146,080

                
	
                  Baked
      Ginger

                	
                  3,146,079

                
	
                  Baked
      Gingersnap

                	
                  3,112,495

                
	
                  Baked
      Oatmeal

                	
                  3,189,775

                
	
                  Baked
      Pyramid

                	
                  3,382,889

                
	
                  Baked
      Sands

                	
                  3,189,777

                
	
                  Baked
      Smokes

                	
                  3,169,239

                
	
                  Baked
      Spices

                	
                  3,189,774

                
	
                  Baked
      Sugar

                	
                  3,197,148

                
	
                  Baked
      Sweets

                	
                  3,107,413

                
	
                  Baked
      to Perfection

                	
                  3,235,191

                
	
                  Blemish
      Rx

                	
                  3,402,746

                
	
                  Bronze
      Gems

                	
                  3,332,539

                
	
                  Brow-Tweez

                	
                  3,446,275

                
	
                  Circle
      RX & Design

                	
                  3,419,413

                
	
                  Cliniclear
      Technology

                	
                  3,586,902

                
	
                  Conceal
      RX & Mortar & Pestle Design

                	
                  3,325,455

                
	
                  Cover
      2 Go

                	
                  3,235,257

                
	
                  Covertoxten50

                	
                  3,277,212

                
	
                  Derm@Home

                	
                  3,170,157

                
	
                  Durascreen

                	
                  1,695,175

                
	
                  Eco-Olive

                	
                  3,446,345

                
	
                  Ecoblend

                	
                  3,423,809

                
	
                  Eurobuffer

                	
                  3,295,301

                
	
                  Exerc’Eyes

                	
                  3,064,200

                
	
                  Face
      Aid

                	
                  3,202,539

                
	
                  F.L.A.T.

                	
                  3,346,200

                
	
                  How
      Green is Your Makeup?

                	
                  3,544,638

                
	
                  Illuminating
      Veil

                	
                  3,402,750

                
	
                  Line
      Erase RX & Design

                	
                  3,641,110

                

        

         

        
          
            
            

          

          
            D-5

            
              

            

          

          
            
            

          

        

         

        
          	
                  Magic
      Mosaic

                	
                  3,098,670

                
	
                  Mineral
      Bronzebrightener

                	
                  3,644,714

                
	
                  Mineral
      Wear

                	
                  3,104,495

                
	
                  Mineral
      Wear

                	
                  3,164,117

                
	
                  Mineral
      Wear

                	
                  3,373,540

                
	
                  Mineral
      Wear

                	
                  3,595,401

                
	
                  Mineral
      Wear

                	
                  3,554,909

                
	
                  My
      Secret Formula

                	
                  3,577,246

                
	
                  Organic
      Wear

                	
                  3,454,574

                
	
                  Organisoy

                	
                  3,423,808

                
	
                  Painter's
      Palette

                	
                  3,331,759

                
	
                  Painter's
      Tube

                	
                  3,320,750

                
	
                  PF

                	
                  3,277,282

                
	
                  PF
      & Palette Design

                	
                  3,294,477

                
	
                  Physicians
      Formula & Design (Line)

                	
                  3,494,604

                
	
                  Plump
      Potion

                	
                  3,341,830

                
	
                  Plump
      Potion

                	
                  3,455,125

                
	
                  Pro-Cover

                	
                  3,276,953

                
	
                  Revined

                	
                  3,074,104

                
	
                  Silipcone

                	
                  3,419,412

                
	
                  The
      Once-A-Day, All Day Sunscreen

                	
                  2,021,117

                
	
                  Wanderful
      Brow Wand

                	
                  3,407,243

                
	
                  California Trademarks
      Registered

                	
                  Registration No.

                
	
                  Physicians
      Formula

                	
                  112615

                
	
                  Physicians
      Formula & Line Design

                	
                  112616

                
	
                  Trademarks Pending

                	
                  Application No.

                
	
                  Bamboo
      Wear

                	
                  77/677,128

                
	
                  Bambuki

                	
                  77/773,439

                
	
                  Bronze
      Booster & Sun Design

                	
                  77/569,242

                
	
                  Brow
      Designer

                	
                  77/136,836

                
	
                  DHA+
      Infusion

                	
                  77/555,910

                
	
                  Eco-Aroma
      Therapy

                	
                  77/617,381

                
	
                  Eye-Tech

                	
                  77/639,786

                
	
                  Happy
      Wear

                	
                  77/814,994

                
	
                  Healthy
      Wear

                	
                  77/691,778

                
	
                  How
      Green is Your Makeup Remover?

                	
                  77/663,154

                
	
                  How
      Green is Your Skincare?

                	
                  77/663,162

                
	
                  Line
      Erase Rx & Design

                	
                  77/569,244

                
	
                  Organiblend

                	
                  77/276,037

                
	
                  Mineral
      Cheekbrightener

                	
                  77/677,070

                
	
                  Mineral
      Shimmer Gem

                	
                  77/726,090

                
	
                  Organic
      Glow

                	
                  77/087,977

                
	
                  Time
      Proof

                	
                  77/136,799

                
	
                  True
      Organic

                	
                  77/087,988

                
	
                  Your
      Beauty. Our Passion. We Promise.

                	
                  77/594,530

                

        

      

      

      
        	
                (iii) 

              	
                Intellectual
      Property Licensed From Others

              

      

       

      NONE

       

      
        	
                (v) 

              	
                Infringement

              

      

       

      NONE

      
        
           

        

        
          D-6

          
            

          

        

        
           

        

      

      

      (i)           Taxes.  Company,
Holdings, and Subsidiaries have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld
by each of them.  Company, Holdings, and Subsidiaries have filed all
federal, state and local tax returns which to the knowledge of the Officers of
Company, Holdings, and Subsidiaries, as the case may be, are required to be
filed, and Company, Holdings, and Subsidiaries have paid or caused to be paid to
the respective taxing authorities all taxes as shown on these returns or on any
assessment received by any of them to the extent such taxes have become
due.

       

      (j)           Titles and
Liens.  Company has good and marketable title to all Collateral
free and clear of all Liens other than Permitted Liens.  No financing
statement naming Company as debtor is on file in any office except to perfect
only Permitted Liens.

       

      (k)           No
Defaults.  Company is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which could
reasonably be expected to have a Material Adverse Effect.

       

      (l)           Submissions to Wells
Fargo.  All financial and other information provided to Wells
Fargo by or on behalf of Company in connection with this Agreement (i) is
true, correct and complete in all material respects, (ii) does not omit any
material fact that would cause such information to be misleading, and
(iii) as to projections, budgets, valuations or proforma financial
statements, presents a good faith opinion as to such projections, budgets,
valuations and proforma condition and results as of the date such projections,
budgets, valuations and proforma financial statements were provided to Wells
Fargo.

       

      (m)           Financing
Statements.  Company has previously authorized the filing of
financing statements sufficient when filed to perfect the Security Interest and
other Liens created by the Security Documents.  When such financing
statements are filed, Wells Fargo will have a valid and perfected security
interest in all Collateral capable of being perfected by the filing of financing
statements.  None of the Collateral is or will become a fixture on
real estate, unless a sufficient fixture filing has been filed with respect to
such Collateral.

       

      (n)           Rights to
Payment.  Except to the extent that Wells Fargo has been
notified in an Authenticate Record, each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or, in the case of all future Collateral, will be when arising or
issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim of the account debtor or other obligor named in
that instrument.

       

      
        
           

        

        
          D-7

          
            

          

        

        
           

        

      

      

      (o)           Employee Benefit
Plans.

       

      (i)           Maintenance and
Contributions to Plans.  Except as disclosed below, neither
Company nor any ERISA Affiliate (A) maintains or has maintained any Pension
Plan, (B) contributes or has contributed to any Multiemployer Plan, or
(C) provides or has provided post-retirement medical or insurance benefits
to employees or former employees (other than benefits required under
Section 601 of ERISA, Section 4980B of the IRC, or applicable state
law).

       

      (ii)           Knowledge of Plan
Noncompliance with Applicable Law.  Except as disclosed below,
neither Company nor any ERISA Affiliate has (A) knowledge that Company or the
ERISA Affiliate is not in full compliance with the requirements of ERISA, the
IRC, or applicable state law with respect to any Plan, (B) knowledge that a
Reportable Event occurred or continues to exist in connection with any Pension
Plan, or (C) sponsored a Plan that it intends to maintain as qualified under the
IRC that is not so qualified, and no fact or circumstance exists which may have
an adverse effect on such Plan’s tax qualified status.

       

      (iii)           Funding Deficiencies and
Other Liabilities.  Neither Company nor any ERISA Affiliate has
liability for any (A) accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC) under any Plan,
whether or not waived, (B) withdrawal, partial withdrawal, reorganization
or other event under any Multiemployer Plan under Section 4201 or 4243 of
ERISA, or (C) event or circumstance which could result in financial
obligation to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in connection with any Plan
(other than routine claims for benefits under the Plan).

       

      (iv)           No
Controlled Group Liabilities.  The Company has not incurred nor
reasonably expects to incur any liability under Title IV of ERISA from any ERISA
Affiliate.

       

      
        
          
            	
                    Employee
      Benefit Plans

                  

          

           

        

      

      
        	
                 
      

              	
                (i)

              	
                Maintenance
      and Contribution to Plans

              

      

       

      NONE

       

      
        	
                 
      

              	
                (i)

              	
                Knowledge
      of Plan Noncompliance with Applicable
Law

              

      

       

      NONE

      
        
           

        

        
          D-8

          
            

          

        

        
           

        

      

       

      
        	
                 
      

              	
                (p)

              	
                Environmental
      Matters.

              

      

       

      (i)           Hazardous Substances on
Premises.  Except as disclosed below and except for the
existence of the San Gabriel Valley Site Liabilities, there are not present in,
on or under the Premises any Hazardous Substances in such form or quantity as to
create any material liability or obligation for either Company or Wells Fargo
under the common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked, discharged,
emitted or released in, on or under the Premises in such a way as to create a
material liability.

       

      (ii)           Disposal of Hazardous
Substances.  Except as disclosed below, Company has not
disposed of Hazardous Substances in such a manner as to create any material
liability under any Environmental Law.

       

      (iii)           Claims and Proceedings with
Respect to Environmental Law Compliance.  Except as disclosed
below and except for the San Gabriel Valley Site Liabilities, there have not
existed in the past, nor are there any threatened or impending requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation relating in any way to the Premises or Company, alleging material
liability under, violation of, or noncompliance with any Environmental Law or
any license, permit or other authorization issued pursuant to such an
Environmental Law.

       

      (iv)           Compliance with
Environmental Law; Permits and Authorizations.  Except as
disclosed below, Company (A) conducts its business at all times in
compliance with applicable Environmental Law, (B) possesses valid licenses,
permits and other authorizations required under applicable Environmental Law for
the lawful and efficient operation of its business, none of which are scheduled
to expire, or withdrawal, or material limitation within the next 12 months, and
(C) has not been denied insurance on grounds related to potential
environmental liability.

       

      (v)           Status of
Premises.  Except as disclosed below and except with respect to
the San Gabriel Valley Superfund Site, the Premises are not and never have been
listed on the National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.

       

      (vi)           Environmental Audits,
Reports, Permits and Licenses.  Company has delivered to Wells
Fargo all environmental assessments, audits, reports, permits, licenses and
other documents describing or relating in any way to the Premises or Company’s
businesses.

       

      
        
           

        

        
          D-9

          
            

          

        

        
           

        

      

       

      
        
          
            
              	
                      Environmental
      Matters

                    

            

             

          

        

      

      
        	
                (i)

              	
                Hazardous
      Substances on Premises

              

      

       

      None

       

      
        	
                (ii)

              	
                Disposal
      of Hazardous Substances

              

      

       

      Company
was named in the late 1990s as a de minimis PRP for the cleanup of the Operating
Industries, Inc. Superfund site (landfill) in Monterey Park, California for
generating a small volume of non-hazardous wastes disposed at the
landfill.  Company, one of hundreds of PRPs, settled the matter by
paying a de minimis settlement sum.

       

      
        	
                (iii)

              	
                Claims
      and Proceedings with Respect to Environmental Law
    Compliance

              

      

       

      Company
was named in the late 1990s as a de minimis PRP for the cleanup of the Operating
Industries, Inc. Superfund site (landfill) in Monterey Park, California for
generating a small volume of non-hazardous wastes disposed at the
landfill.  Company, one of hundreds of PRPs, settled the matter by
paying a de minimis settlement sum.

       

      Company
has been the subject of numerous alleged Occupational Safety and Health
Administration (“OSHA”) violations, all of which have been fully
abated.

       

      In 1999
Company, along with dozens of other manufacturers and distributors of dandruff
shampoos, was named a defendant in a Proposition 65 lawsuit, Gottesfeld v. Alva-Amco, Inc., et
al., for manufacturing and distributing without a Proposition 65 warning
a dandruff shampoo containing coal tar.  Company settled the lawsuit
in 1999 for a de minimis sum.

       

      Company
recalled 16,300 bottles of eye makeup remover lotion distributed between March
14 and May 28, 2001 due to alleged contamination with
bacteria.  Company does not expect to incur any additional liabilities
as a result of this matter.

       

      
        	
                (iv)

              	
                Compliance
      with Environmental Law; Permits and
  Authorizations

              

      

       

      Company
was named in the late 1990s as a de minimis PRP for the cleanup of the Operating
Industries, Inc. Superfund site (landfill) in Monterey Park, California for
generating a small volume of non-hazardous wastes disposed at the
landfill.  Company, one of hundreds of PRPs, settled the matter by
paying a de minimis settlement sum.

       

      Company
has been the subject of numerous alleged Occupational Safety and Health
Administration (“OSHA”) violations, all of which have been fully
abated.

       

      In 1999
Company, along with dozens of other manufacturers and distributors of dandruff
shampoos, was named a defendant in a Proposition 65 lawsuit, Gottesfeld v.
Alva-Amco, Inc., et al., for manufacturing and distributing without a
Proposition 65 warning a dandruff shampoo containing coal
tar.  Company settled the lawsuit in 1999 for a de minimis
sum.

       

      Company
recalled 16,300 bottles of eye makeup remover lotion distributed between March
14 and May 28, 2001 due to alleged contamination with
bacteria.  Company does not expect to incur any additional liabilities
as a result of this matter.

       

      
        	
                (v)

              	
                Status
      of Premises

              

      

       

      None

       

      
        
           

        

        
          D-10

          
            

          

        

        
           

        

      

      

      (q)           Commercial Tort
Claims.  Neither Holdings, nor Company, nor any Subsidiary has
any known commercial tort claims as of the date of this Agreement.

       

      (r)           Margin
Rules.  Neither Holdings, nor Company, nor any Subsidiary owns
or has any present intention of purchasing or carrying, and no portion of the
proceeds of the Advances shall be used for purchasing or carrying, any “margin
security” or “margin stock” as such terms are used in Regulations T, U or X of
the Board of Governors of the Federal Reserve System.

       

      (s)           Representation by
Counsel.  Company acknowledges that it has been advised by
counsel in connection with the negotiation, execution and delivery of each Loan
Document.

       

      (t)           Relationship of Parties,
etc.  Company acknowledges and agrees that Wells Fargo does not
have any fiduciary relationship with or duty to Company or its Affiliates
arising out of or in connection with this Agreement or any of the other Loan
Documents.  Company further acknowledges and agrees that no joint
venture exists between Company and/or any of its Affiliates, on the one hand,
and Wells Fargo, on the other hand.

       

      (u)           Brokers.  Except
as disclosed to Wells Fargo in writing, no broker, finder or other intermediary
has brought about the obtaining, making or closing of the transactions
contemplated by the Loan Documents, and Company has no obligation to any Person
in respect of any finder’s or brokerage fees in connection
herewith.

       

      
        
           

        

        
          D-11

          
            

          

        

        
           

        

      

      

      (v)           Foreign Assets Control
Regulations and Anti-Money Laundering.

       

      (i)           Neither
Holdings, nor Company, nor any Subsidiary (i) is a Person whose property or
interest in property is blocked or subject to blocking pursuant to Section 1 of
Executive Order 13224 of September 23, 2001 Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or
transactions prohibited by Section 2 of such executive order or
(iii) is a person on the list of Specially Designated Nationals and Blocked
Persons or subject to the limitations or prohibitions under any other U.S.
Department of Treasury’s Office of Foreign Assets Control regulation or
executive order.

       

      (ii)           Holdings,
Company, and each Subsidiary are, to the extent required by law, in compliance,
in all material respects, with the U.S.A. Patriot Act.  No part of the
proceeds of the Advances or Letters of Credit will be used, directly or
indirectly, for any payments to any governmental official or employee, political
party, official of a political party, candidate for political office, or anyone
else acting in an official capacity, in order to obtain, retain or direct
business or obtain any improper advantage, in violation of the United States
Foreign Corrupt Practices Act of 1977, as amended.

       

      (w)           Delivery of and Subordinated
Credit Agreement.  Wells Fargo has received complete copies of
the Subordinated Credit Agreement (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof.  None of such documents and
agreements has been amended or supplemented, nor have any of the provisions
thereof been waived, except pursuant to a written agreement or instrument which
has heretofore been delivered to Wells Fargo.

       

      
        
           

        

        
          D-12

          
            

          

        

        
           

        

      

       

      

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
E to Credit and Security Agreement

       

      COMPLIANCE
CERTIFICATE

       

      
        	
                To:

              	
                Wells
      Fargo Bank, National Association

              

      

      
        	
                Date:

              	
                [__________________,
      20__]

              

      

      
        	
                Subject:

              	
                Financial
      Statements

              

      

       

      In
accordance with our Credit and Security Agreement dated November 6, 2009 (as
amended from time to time, the “Credit Agreement”), attached are the financial
statements of Physicians Formula, Inc. (the “Company”) dated [______________],
200_ (the “Reporting Date”) and the year-to-date period then ended (the “Current
Financials”).  All terms used in this certificate have the meanings
given in the Credit Agreement.

       

      A.           Preparation and Accuracy of Financial
Statements.  I certify, on behalf of the Company and not in any
individual capacity, that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments and the absence of
footnotes, and fairly present all material respects Company’s financial
condition as of the Reporting Date.

       

      B.           Name of Company; Merger and
Consolidation.  I certify, on behalf of the Company and not in
any individual capacity, that:

       

      (Check
one)

       

      
        	
                 
      

              	
                 ̈

              	
                Company
      has not, since the date of the Credit Agreement, changed its name or
      jurisdiction of organization, nor has it consolidated or merged with
      another Person.

              

      

       

      
        	
                 
      

              	
                 ̈

              	
                Company
      has, since the date of the Credit Agreement, either changed its name or
      jurisdiction of organization, or both, or has consolidated or merged with
      another Person, which change, consolidation or merger was consented to in
      advance by Wells Fargo in an Authenticated Record or otherwise permitted
      under the Credit Agreement, and/or is more fully described in the
      statement of facts attached to this
Certificate.

              

      

       

      C.    
       Events of
Default.  I certify, on behalf of the Company and not in any
individual capacity, that:

       

      (Check
one)

       

      
        	
                 
      

              	
                 ̈

              	
                I
      have no knowledge of the occurrence of an Event of Default under the
      Credit Agreement, except as previously reported to Wells Fargo in a
      Record.

              

      

       

      
        	
                 
      

              	
                 ̈

              	
                I
      have knowledge of an Event of Default under the Credit Agreement not
      previously reported to Wells Fargo in a Record, as more fully described in
      the statement of facts attached to this Certificate, and further, I
      acknowledge that Wells Fargo may under the terms of the Credit Agreement
      impose the Default Rate at any time during the resulting Default
      Period.

              

      

       

      
        
           

        

        
          E-1

          
            

          

        

        
           

        

      

      

      D.           Litigation
Matters.  I certify, on behalf of the Company and not in any
individual capacity, that:

       

      (Check
one)

       

      
        	
                 
      

              	
                 ̈

              	
                I
      have no knowledge of any litigation required to be reported under Section
      5.1(g) of the Credit Agreement.

              

      

       

      
        	
                 
      

              	
                 ̈

              	
                I
      have knowledge of litigation required to be reported under Section 5.1(g)
      of the Credit Agreement and not previously disclosed to Wells Fargo, as
      more fully described in the statement of facts attached to this
      Certificate.

              

      

       

      
        	
                 
      

              	
                E.

              	
                Deposits.  I
      certify, on behalf of the Company and not in any individual capacity,
      that:

              

      

       

      
        	
                 
      

              	
                 ̈

              	
                Company
      has not made any deposits exceeding $50,000 of the type described in
      Section 5.6(h).

              

      

       

      
        	
                 
      

              	
                 ̈

              	
                Company
      has made one or more deposits exceeding $50,000, the terms of which are
      described in the statement of facts attached to this
      Certificate

              

      

       

      F.      
     Financial
Covenants.  I further certify, on behalf of the Company and not
in any individual capacity, that:

       

      (Check
and complete each of the following)

       

      1.       
    Minimum
Book Net Worth.  Pursuant to Section 5.2(a) of the Credit
Agreement, as of the Reporting Date, Company’s Book Net Worth was
$[___________], which  ̈ satisfies  ̈ does not satisfy the
requirement that such amount be not less than the applicable amount set forth in
Section 5.2(a).

       

       2.           Minimum
EBITDA.  Pursuant to Section 5.2(b) of the Credit
Agreement, as of the Reporting Date, Company’s EBITDA was $[___________], which
 ̈ satisfies  ̈ does not satisfy the
requirement that EBITDA be not less than the amount set forth in Section
5.2(b).

       

      3.           Capital
Expenditures.  Pursuant to Section 5.2(c) of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, Company has
expended or contracted to expend during the fiscal year ended [______________],
200_ for Capital Expenditures, $__________________, which  ̈ satisfies  ̈ does not satisfy the
requirement that such expenditures not exceed the amount set forth in Section 5.2(c)

       

      Attached
are statements of all relevant facts and computations in reasonable detail
sufficient to evidence Company’s compliance with the financial covenants
referred to above, which computations were made in accordance with GAAP
consistently applied.

       

      
        	 
      	
                PHYSICIANS
      FORMULA, INC.

              
	 
      	 
      	 
      
	 
      	
                By:

              	 
      
	 
      	
                Its:

              	
                Responsible
      Officer

              

      

      
        
           

        

        
          E-2

          
            

          

        

        
           

        

      

      

      Exhibit
F to Credit and Security Agreement

       

      PERMITTED
LIENS

       

      
        	
                Creditor

              	
                Collateral

              	
                Jurisdiction

              	
                Filing Date

              	
                Filing No.

              
	
                U.S.
      District Court, California Central District*

              	 
      	
                CA

              	
                02/04/2009

              	
                2:09-CV-0866-ABC-FMO

              
	
                Liens
      in favor of the Subordinated Creditor

              	 
      	 
      	 
      	 
      

      

      * This
judgment lien has been discharged.

       

      INDEBTEDNESS

       

      
        	
                Creditor

              	
                Current Principal Amt.

              	
                Maturity Date

              	
                Monthly Payment

              	
                Collateral

              
	
                None.

              	 
      	 
      	 
      	 
      

      

      

       

      GUARANTIES

       

      
        	
                Primary Obligor

              	
                Amount and Description of Obligation
      Guaranteed

              	
                Beneficiary of Guaranty

              
	
                None

              	 
      	 
      

      

       

       

    

      F-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00165-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00165-of-00352.parquet"}]]