Document:

Exhibit 10.16

CREDIT AGREEMENT

 

(ACCOUNTS RECEIVABLE LINE OF
CREDIT)

 

(FOREIGN EXCHANGE SUB-FACILITY)

 

This Agreement (the “Agreement”) is made and entered
into as of January 25, 2006 by and between BANK OF THE WEST (the “Bank”)
and ALPHATEC SPINE, INC. (the “Borrower”), on the terms and conditions that
follow:

 

SECTION 1

 

DEFINITIONS

 

1.1                                 Certain Defined Terms: Unless elsewhere defined in this Agreement,
the following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):

 

1.1.1                        “Acceptable Inventory”:  shall
mean inventory as defined in the Uniform Commercial Code but excluding:

 

(i)                                     inventory which is not owned by the Borrower
free and clear of all security interests, liens, encumbrances or claims of any
third party;

 

(ii)                                  inventory which is not permanently located in
the United States;

 

(iii)                               inventory which consists of work-in-process
or which the Bank, in its sole discretion, deems to be obsolete, unsalable,
damaged, defective or unfit for further processing.

 

(iv)                              inventory which consists of donor organs.

 

(v)                                 inventory used for specialized applications.

 

1.1.2                        “Account”: shall mean, individually and collectively as
the context so requires, any and all accounts, chattel paper and general
intangibles owed or owing to Borrower by Account Debtors, whether now owned or
hereafter acquired by Borrower, or in which the Borrower may now have or
hereafter acquire any interest.

 

1.1.3                        “Account Debtor”:  shall
mean the person or entity obligated to the Borrower upon an Account.

 

1.1.4                        “Advance”:  shall
mean an advance to the Borrower under the credit facility(ies) described in Section 2.

 

1.1.5                        “AR Line of Credit”:  shall
mean the credit facility described as such in Section 2.

 

1.1.6                        “Borrowing Base”:  shall
mean, as determined by the Bank from time to time, the lesser of: (i) 80%
of the aggregate amount of Eligible Accounts of the Borrower plus the lesser of
50% of the aggregate amount of book entry Accounts outstanding not more than 15
days from the date of entry or $500,000.00 plus the lesser of 40% of the Value
of Acceptable Inventory of the Borrower which consists of raw materials,
work-in-process or

 

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finished
goods plus 20% of the Value of Acceptable Inventory which consists of inventory
held at the customer’s location or $500,000.00; or (ii) $10,000,000.00.

 

1.1.7                        “Borrowing Base Certificate”:  shall
have the meaning provided in Section 6.1(v) hereof.

 

1.1.8                        “Business Day”:  shall
mean a day, other than a Saturday or Sunday, on which commercial banks are open
for business in California.

 

1.1.9                        “Close-Out Date”:  shall
mean the Business Day on which the Bank closes out and liquidates an FX
Transaction.

 

1.1.10                  “Closing Value”:  has
the meaning given to it in Section 8.5(i) hereof.

 

1.1.11                  “Closing Gain” and “Closing
Loss”:  shall mean the amount determined in
accordance with Section 8.5(ii) hereof.

 

1.1.12                  “Collateral”:  shall
mean the property described in Section 3, together with any other personal
or real property in which the Bank may be granted a lien or security interest
to secure payment of the Obligations.

 

1.1.13                  “Credit Percentage”:  shall
mean 10%.

 

1.1.14                  “Debt”:  shall
mean all liabilities of the Borrower less Subordinated Debt, if any.

 

1.1.15                  “EBITDA”:  shall
mean earnings exclusive of extraordinary gains and extraordinary charges and
before deductions for interest expense, taxes, depreciation and amortization
expense.

 

1.1.16                  “Effective Tangible Net
Worth”:  shall mean the Borrower’s stated net worth
plus Subordinated Debt but less all intangible assets of the Borrower (i.e.,
goodwill, trademarks, patents, copyrights, organization expense and similar
intangible items including, but not limited to, investments in and all amounts
due from affiliates, officers or employees).

 

1.1.17                  “Eligible Account”:  shall
mean, at any time, the gross amount, less returns, discounts, credits or
offsets of any nature, of the Accounts owing to the Borrower by Account Debtors
containing selling terms not exceeding 30 days but excluding the following:

 

(i)                                     Accounts with respect to which the Account
Debtor is an officer, employee or agent of the Borrower.

 

(ii)                                  Accounts with respect to which goods are
placed on consignment, guarantied sale or other terms by reason of which the
payment by the Account Debtor may be conditional.

 

(iii)                               Accounts with respect to which the Account
Debtor is not a resident of the United States except to the extent such
accounts are supported by adequate Eximbank insurance or other insurance
acceptable to the Bank or by irrevocable letters of credit issued by banks
satisfactory to the Bank.

 

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(iv)                              Accounts with respect to which the Account
Debtor is the United States or any federal department or agency not supported
by assignment of claims under government contract.

 

(v)                                 Accounts with respect to which the Account
Debtor is a subsidiary of, or affiliated with, the Borrower or its
shareholders, officers or directors.

 

(vi)                              Accounts with respect to which the Borrower
is or may become liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to the Borrower.

 

(vii)                           That portion of the Accounts of any single
Account Debtor that exceeds 20% of all of the Borrower’s Accounts.

 

(viii)                        Accounts which have not been paid in full
within 60 days from the date payment was due or 90 days from the original date
of invoice, whichever is less.

 

(ix)                                All Accounts of any single Account Debtor if
25% or more of the dollar amount of all such Accounts are represented by
Accounts which have not been paid in full within 60 days from the date payment
was due or 90 days from the original date of invoice, whichever is less.

 

(x)                                   Accounts which are subject to dispute, counterclaim
or setoff.

 

(xi)                                Accounts with respect to which the goods have
not been shipped or delivered, or the services have not been rendered, to the
Account Debtor.

 

(xii)                             Accounts with respect to which the Bank, in
its sole discretion, deems the creditworthiness or financial condition of the
Account Debtor to be unsatisfactory.

 

(xiii)                          Accounts of any Account Debtor who has filed
or had filed against it a petition in bankruptcy, or an application for relief
under any provision of any state or federal bankruptcy, insolvency or
debtor-in-relief acts; or who has had appointed a trustee, custodian or
receiver for the assets of such Account Debtor; or who has made an assignment
for the benefit of creditors or has become insolvent or fails generally to pay
its debts (including its payrolls) as such debts become due.

 

(xiv)                         Accounts arising from cash sales or from
collect on delivery sales of inventory.

 

(xv)                            Accrued finance charges on Accounts.

 

1.1.18                  “Environmental Claims”:  shall
mean all claims, however asserted, by any governmental authority or other
person alleging potential liability or responsibility for violation of any
Environmental Law or for Discharge or injury to the environment or threat to
public health, personal injury (including sickness, disease or death), property
damage, natural resources damage, or otherwise alleging liability or
responsibility for damages (punitive or otherwise), cleanup, removal, remedial
or response costs, restitution, civil or criminal penalties, injunctive relief,
or other type of relief, resulting from or based upon (a) the presence,
placement, discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden, accidental or
non-accidental placement, spills, leaks, Discharges, emissions or releases) of
any Hazardous Material at, in, or from property, whether or not owned by the
Borrower, or (b) any other

 

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circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.

 

1.1.19                  “Environmental Laws”:  shall
mean all federal, state or local laws, statutes, common law duties, rules,
regulations, ordinances and codes, together with all administrative orders,
directed duties, requests, licenses, authorizations and permits of, and
agreements with, any governmental authorities, in each case relating to
environmental, health, safety and land use matters; including but not limited
to the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (“CERCLA”), the Clean Air Act, the Federal Water Pollution Control Act of
1972, the Solid Waste Disposal Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Emergency Planning and
Community Right-to-Know Act, the California Hazardous Waste Control Law, the
California Solid Waste Management, Resource, Recovery and Recycling Act, the
California Water Code and the California Health and Safety Code.

 

1.1.20                  “Environmental Permits”:  shall
have the meaning provided in Section 5.11 hereof.

 

1.1.21                  “ERISA”:  shall
mean the Employee Retirement Income Security Act of 1974, as amended from time
to time, including (unless the context otherwise requires) any rules or
regulations promulgated thereunder.

 

1.1.22                  “Event of Default”:  shall
have the meaning set forth in Section 7.

 

1.1.23                  “Expiration Date”:  shall
mean January 30, 2008, or the date of termination of the Bank’s commitment
to lend under this Agreement pursuant to Section 8, whichever shall occur
first.

 

1.1.24                  “Foreign Currency”:  shall
mean any legally traded currency other than US dollars and which may be
transferred by paperless wire transfer or cash and in which the Bank regularly
trades.

 

1.1.25                  “Foreign Exchange Facility”:  shall
mean the credit facility described as such in Section 2.

 

1.1.26                  “Funded Debt”:  shall
mean Debt which matures, by it terms, more than one year from the date of its
creation and all Debt which is owed to financial institutions regardless of its
maturity.

 

1.1.27                  “FX Risk Liability”:  shall
mean the product of (a) the Credit Percentage, times (b) the
aggregate of the Notional Values of all FX Transactions outstanding, net of any
Offsetting Transactions.

 

1.1.28                  “FX Limit”:  shall
mean $1,250,000.00.

 

1.1.29                  “FX Transaction”:  shall
mean any transaction between the Bank and the Borrower pursuant to which the
Bank has agreed to sell to or to purchase from the Borrower a Foreign Currency
of an agreed amount at an agreed price in US dollars or such other agreed upon
Foreign Currency, deliverable and payable on an agreed date.

 

1.1.30                  “Hazardous Materials”:  shall
mean all those substances which are regulated by, or which may form the basis
of liability under, any Environmental Law, including all substances identified
under any Environmental Law as a pollutant, contaminant,

 

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hazardous
waste, hazardous constituent, special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived substance or
waste.

 

1.1.31                  “Indebtedness”:  shall
mean, with respect to the Borrower, (i) all indebtedness for borrowed
money or for the deferred purchase price of property or services in respect of
which the Borrower is liable, contingently or otherwise, as obligor, guarantor
or otherwise, or in respect of which the Borrower otherwise assures a creditor
against loss and (ii) obligations under leases which shall have been or
should be, in accordance with generally accepted accounting principles,
reported as capital leases in respect of which the Borrower is liable,
contingently or otherwise, or in respect of which the Borrower otherwise
assures a creditor against loss. The word “Indebtedness” also includes expenses
incurred by the Bank to enforce obligations of the Borrower under this
Agreement, together with interest on such amounts as provided in this
Agreement, and all other obligations, debts, and liabilities of the Borrower to
the Bank as well as all claims by the Bank against the Borrower that are now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated, whether the Borrower may be liable
individually or jointly with others, whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations, and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.

 

1.1.32                  “LIBOR Advance”:  shall
have the respective meaning as it is defined for each facility under Section 2,
hereof.

 

1.1.33                  “LIBOR Interest Period”:  shall
have the respective meaning as it is defined for each facility under Section 2,
hereof.

 

1.1.34                  “LIBOR Rate”:  shall
have the respective meaning as it is defined for each facility under Section 2,
hereof.

 

1.1.35                  “Line Account”:  shall
have the meaning provided in Section 2.3 hereof.

 

1.1.36                  “Notional Value”:  shall
mean the US Dollar equivalent of the price at which the Bank agreed to purchase
or sell to the Borrower a Foreign Currency.

 

1.1.37                  “Obligations”:  shall
mean all amounts owing by the Borrower to the Bank pursuant to this Agreement
including, but not limited to, the unpaid principal amount of any loans or
advances.

 

1.1.38                  “Offsetting Transaction”:  shall
mean a FX Transaction to purchase a Foreign Currency and a FX Transaction to
sell the same Foreign Currency , each with the same Settlement Date and
designated as an Offsetting Transaction at the time of entering into the FX
Transaction.

 

1.1.39                  “Ordinary Course of Business”:  shall
mean, with respect to any transaction involving the Borrower or any of its
subsidiaries or affiliates, the ordinary course of the Borrower’s business, as
conducted by the Borrower in accordance with past practice and undertaken by
the Borrower in good faith and not for the purpose of evading any covenant or
restriction in this Agreement or in any other document, instrument or agreement
executed in connection herewith.

 

1.1.40                  “Permitted Liens”:  shall
mean: (i) liens and security interests securing indebtedness owed by the
Borrower to the Bank; (ii) liens for taxes, assessments or similar charges
not yet due; (iii) liens of materialmen, mechanics, warehousemen, or
carriers or other like

 

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liens
arising in the Ordinary Course of Business and securing obligations which are
not yet delinquent; (iv) purchase money liens or purchase money security
interests upon or in any property acquired or held by the Borrower in the
Ordinary Course of Business to secure Indebtedness outstanding on the date
hereof or permitted to be incurred herein; (v) liens and security
interests which, as of the date hereof, have been disclosed to and approved by
the Bank in writing; and (vi) those liens and security interests which in
the aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of the Borrower’s assets.

 

1.1.41                  “Prime Rate”:  shall
mean an index for a variable interest rate which is quoted, published or
announced by Bank as its prime rate and as to which loans may be made by Bank
at, above or below such rate.

 

1.1.42                  “Settlement Date”:  shall
mean the Business Day on which the Borrower has agreed to (a) deliver the
required amount of Foreign Currency, or (b) pay in US dollars the agreed
upon purchase price of the Foreign Currency.

 

1.1.43                  “Value”:  shall
mean the lesser of the Borrower’s cost of Acceptable Inventory or the book
value thereof or the wholesale market value thereof in such quantities and on
such terms as the Bank in its sole discretion may deem appropriate.

 

1.1.44                  “Variable Rate Advance”: shall have the respective meaning as it is
defined for each facility under Section 2, hereof.

 

1.1.45                  “Variable Rate”: shall have the respective meaning as it is
defined for each facility under Section 2, hereof.

 

1.2                                 Accounting Terms:  All
references to financial statements, assets, liabilities, and similar accounting
items not specifically defined herein shall mean such financial statements or
such items prepared or determined in accordance with generally accepted
accounting principles consistently applied and, except where otherwise
specified, all financial data submitted pursuant to this Agreement shall be
prepared in accordance with such principles.

 

1.3                                 Other Terms:  Other
terms not otherwise defined shall have the meanings attributed to such terms in
the Uniform Commercial Code as in effect on July 1, 2001 and from time to
time thereafter.

 

SECTION 2

 

CREDIT
FACILITIES

 

2.1                                 THE ACCOUNTS RECEIVABLE LINE
OF CREDIT

 

2.1.1                        The AR Line of Credit:  On
terms and conditions as set forth herein, the Bank agrees to make Advances to
the Borrower from time to time from the date hereof to the Expiration Date,
provided the aggregate amount of such Advances outstanding at any time does not
exceed the Borrowing Base. Within the foregoing limits, the Borrower may
borrow, partially or wholly prepay, and reborrow under this Section 2.1.

 

2.1.2                        Making Line Advances:  Each
Advance shall be conclusively deemed to have been made at the request of and
for the benefit of the Borrower (i) when credited to any deposit account
of the Borrower maintained with the Bank or (ii) when paid in accordance
with the Borrower’s written instructions. Subject to the requirements of Section 4
and

 

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provided
such request is made in a timely manner as provided in Section 2.1.5
below, Advances shall be made by the Bank under the AR Line of Credit.

 

2.1.3                        Repayment:

 

(i)                                     If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base, the
Borrower hereby promises and agrees, immediately upon written or telephonic
notice from the Bank, to pay to the Bank an amount equal to the difference
between the outstanding principal balance of the Advances and the Borrowing
Base.

 

(ii)                                  On the Expiration Date, the Borrower hereby
promises and agrees to pay to the Bank in full the aggregate unpaid principal
amount of all Advances then outstanding, together with all accrued and unpaid
interest thereon.

 

2.1.4                        Interest on Advances:  Interest shall accrue from the date of each
Advance under the AR Line of Credit at one of the following rates, as quoted by
the Bank and as elected by the Borrower below:

 

(i)                                     Variable Rate Advances: A variable rate per annum equivalent to the
Prime Rate (the “Variable Rate”). Interest shall be adjusted concurrently with
any change in the Prime Rate. An Advance based upon the Variable Rate is
hereinafter referred to as a “Variable Rate Advance”.

 

(ii)                                  LIBOR Advances: A fixed rate quoted by the Bank for 30, 60
or 90 days or for such other period of time that the Bank may quote and offer
(provided that any such period of time does not extend beyond the Expiration
Date) (the “LIBOR Interest Period”) for Advances in the minimum amount of
$100,000.00. Such interest rate shall be a percentage approximately equivalent
to 2.25% in excess of the Bank’s LIBOR Rate which is that rate determined by
the Bank’s Treasury Desk as being the arithmetic mean (rounded upwards, if
necessary, to the nearest whole multiple of one-sixteenth of one percent
(1/16%)) of the U. S. dollar London Interbank Offered Rates for such period
appearing on page USD (or such other page as may replace page USD)
of the Bloomberg Financial Markets screen at or about 10:00 a.m. (New York
Time) on the second Business Day prior to the first day of such period
(adjusted for any and all assessments, surcharges and reserve requirements)
(the “LIBOR Rate”). An Advance based upon the LIBOR Rate is hereinafter
referred to as a “LIBOR Advance”.

 

Interest on any Advance shall be computed on the
basis of 360 days per year, but charged on the actual number of days elapsed.

 

The Borrower hereby promises and agrees to pay
interest in arrears on Variable Rate Advances and LIBOR Advances on the 20th
calendar day of each month.

 

If interest is not paid as and when it is due, it
shall be added to the principal, become and be treated as a part thereof, and
shall thereafter bear like interest.

 

2.1.5                        Notice of Borrowing:  Upon
written or telephonic notice which shall be received by the Bank at or before
2:00 p.m. (Pacific time) on a Business Day, the Borrower may borrow under
the AR Line of Credit by requesting:

 

(i)                                     A Variable Rate Advance. A Variable Rate
Advance may be made on the day notice is received by the Bank; provided,
however, that if the Bank shall not have

 

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received
notice at or before 2:00 p.m. on the day such Advance is requested to be
made, such Variable Rate Advance may, at the Bank’s option, be made on the next
Business Day.

 

(ii)                                  A LIBOR Advance. Notice of any LIBOR Advance
shall be received by the Bank no later than two Business Days prior to the day
(which shall be a Business Day) on which the Borrower requests such LIBOR
Advance to be made.

 

2.1.6                        Notice of Election to Adjust
Interest Rate:  The Borrower may elect:

 

(i)                                     That interest on a Variable Rate Advance
shall be adjusted to accrue at the LIBOR Rate; provided, however, that such
notice shall be received by the Bank no later than two Business Days prior to
the day (which shall be a Business Day) on which the Borrower requests that
interest be adjusted to accrue at the LIBOR Rate.

 

(ii)                                  That interest on a LIBOR Advance shall
continue to accrue at a newly quoted LIBOR Rate or shall be adjusted to
commence to accrue at the Variable Rate; provided, however, that such notice
shall be received by the Bank no later than two Business Days prior to the last
day of the LIBOR Interest Period pertaining to such LIBOR Advance. If the Bank
shall not have received notice (as prescribed herein) of the Borrower’s
election that interest on any LIBOR Advance shall continue to accrue at the
newly quoted LIBOR Rate, the Borrower shall be deemed to have elected that
interest thereon shall be adjusted to accrue at the Variable Rate upon the
expiration of the LIBOR Interest Period pertaining to such Advance.

 

2.1.7                        Prepayment:  The
Borrower may prepay any Advance in whole or in part, at any time and without
penalty, provided, however, that: (i) any partial prepayment shall first
be applied, at the Bank’s option, to accrued and unpaid interest and next to
the outstanding principal balance; and (ii) during any period of time in
which interest is accruing on any Advance on the basis of the LIBOR Rate, no
prepayment shall be made except on a day which is the last day of the LIBOR
Interest Period pertaining thereto. If the whole or any part of any LIBOR
Advance is prepaid by reason of acceleration or otherwise, the Borrower shall,
upon the Bank’s request, promptly pay to and indemnify the Bank for all costs,
expenses and any loss (including loss of profit resulting from the
re-employment of funds) deemed sustained by the Bank as a consequence of such
prepayment.

 

The Bank shall be entitled to fund all or any
portion of its Advances in any manner it may determine in its sole discretion,
but all calculations and transactions hereunder shall be conducted as though
the Bank actually funded all Advances through the purchase of dollar deposits
bearing interest at the same rate as U.S. Treasury securities in the amount of
the relevant Advance and in maturities corresponding to the date of such
purchase to the Expiration Date hereunder.

 

2.1.8                        Indemnification for LIBOR
Rate Costs:  During any period of time in which interest on
any Advance is accruing on the basis of the LIBOR Rate, the Borrower shall,
upon the Bank’s request, promptly pay to and reimburse the Bank for all costs
incurred and payments made by the Bank by reason of any future assessment,
reserve, deposit or similar requirement or any surcharge, tax or fee imposed
upon the Bank or as a result of the Bank’s compliance with any directive or
requirement of any regulatory authority pertaining or relating to funds used by
the Bank in quoting and determining the LIBOR Rate.

 

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2.1.9                        Conversion from LIBOR Rate
to Variable Rate:  In the event that the Bank shall at any time
determine that the accrual of interest on the basis of the LIBOR Rate (i) is
infeasible because the Bank is unable to determine the LIBOR Rate due to the
unavailability of U.S. dollar deposits, contracts or certificates of deposit in
an amount approximately equal to the amount of the relevant Advance and for a
period of time approximately equal to relevant LIBOR Interest Period or (ii) is
or has become unlawful or infeasible by reason of the Bank’s compliance with
any new law, rule, regulation, guideline or order, or any new interpretation of
any present law, rule, regulation, guideline or order, then the Bank shall give
telephonic notice thereof (confirmed in writing) to the Borrower, in which
event any Advance bearing interest at the LIBOR Rate shall be deemed to be a
Variable Rate Advance and interest shall thereupon immediately accrue at the
Variable Rate.

 

2.1.10                  Commitment Fee:  The Borrower
agrees to pay to the Bank a commitment fee on the unused portion of the AR Line
of Credit of 0.375% per annum, payable quarterly in arrears, commencing April 30,
2006 and computed on a year of 360 days for actual days elapsed.

 

2.2                                 FOREIGN EXCHANGE
SUB-FACILITY

 

2.2.1                        Foreign Exchange
Sub-Facility:  The Bank agrees to enter into FX Transactions
with the Borrower, at the Borrower’s request therefor made prior to the
Expiration Date, provided however, that at no time shall the aggregate FX Risk
Liability of the Borrower exceed the FX Limit, and together with the total
principal amount of all outstanding Advances under the AR Line of Credit,
exceed the Borrowing Base. Each FX Transaction shall be used to hedge the
Borrower’s foreign exchange exposure.

 

(i)                                     Requests.  Each
request for a FX Transaction shall be made by telephone to the Bank’s Treasury
Department (“Request”), shall specify the Foreign Currency to be purchased or
sold, the amount of such Foreign Currency and the Settlement Date. Each Request
shall be communicated to the Bank no later than 3:00 p.m. California time
on the Business Day on which the FX Transaction is requested.

 

(ii)                                  Tenor.  No FX
Transaction shall have a Settlement Date which is more than 365 days after the
date of entry into such FX Transaction, and provided further, no FX Transaction
shall expire on a date which is 90 days after the Expiration Date.

 

(iii)                               Availability.  Bank
may refuse to enter into a FX Transaction with the Borrower where the Bank, at
its sole discretion, determines that (1) the requested Foreign Currency is
unavailable, or (2) the Bank is not then dealing in the requested Foreign
Currency, or (3) the Bank would be prohibited by any applicable law, rule,
regulation or order from purchasing such Foreign Currency.

 

(iv)                              Payment.  Payment is due on the Settlement Date of the
relevant FX Transaction. The Bank is hereby authorized by the Borrower to
charge the full settlement price of any FX Transaction against the depository
account or accounts maintained by the Borrower with the Bank on the Settlement
Date. In the event that the Borrower fails to pay the settlement price of any
FX Transaction on the Settlement Date or the balances in the depository account
or accounts maintained with Bank are insufficient to pay the settlement price,
without limiting the rights of Bank hereunder or waiving any Event of Default
caused thereby, Bank may , and Borrower hereby authorizes Bank to, create an
Advance bearing interest at the Variable Rate to pay the settlement price on the
Settlement Date.

 

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(v)                                 Increased Costs.  Borrower shall promptly pay to and reimburse
the Bank for all costs incurred and payments made by the Bank by reason of any
assessment, reserve, deposit, capital maintenance or similar requirement or any
surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s
compliance with any directive or requirement of any regulatory authority
pertaining or relating to any FX Transaction.

 

(vi)                              Impossibility of Performance.  In
the event that the Borrower or the Bank cannot perform under a FX Transaction
due to force majeure or an act of State or it becomes unlawful or impossible to
perform, all in the good faith judgment of the Borrower or the Bank, then upon
notice to the other party, the Borrower or the Bank may require the close-out
and liquidation of the affected FX Transaction in accordance with the
provisions of this Agreement.

 

2.3                                 Line Account:  The
Bank shall maintain on its books a record of account in which the Bank shall
make entries for each Advance and such other debits and credits as shall be
appropriate in connection with the credit facilities granted hereunder (the “Line
Account”). The Bank shall provide the Borrower with a statement of the Borrower’s
Line Account, which statement shall be considered to be correct and
conclusively binding on the Borrower unless the Borrower notifies the Bank to
the contrary within 30 days after the Borrower’s receipt of any such statement
which it deems to be incorrect.

 

2.4                                 Authorization to Charge
Account(s):  The Borrower hereby authorizes the Bank to
charge, from time to time, against any or all of the Borrower’s deposit
accounts with the Bank any amount so due under this Agreement, including, but
not limited to, account # 672-008281 maintained with the Bank’s San Diego
Office (CBC). Notwithstanding this authorization, the Borrower shall be in
default for nonpayment as provided in this Agreement until and unless the
default is cured by payment, whether initiated by the Bank or by the Borrower.

 

2.5                                 Payments: If any payment required to be made by the
Borrower hereunder becomes due and payable on a day other than a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at then applicable rate during such
extension. All payments required to be made hereunder shall be made to the
office of the Bank designated for the receipt of notices herein or such other
office as Bank shall from time to time designate.

 

2.6                                 Late Payment:  In
addition to any other rights the Bank may have hereunder, if any payment of
principal or interest or any portion thereof, under this Agreement is not paid
within 5 days of when due, a late payment charge equal to five percent (5%) of
such past due payment may be assessed and shall be immediately payable.

 

SECTION 3

 

COLLATERAL

 

3.1                                 The Collateral:  To
secure payment and performance of all the Borrower’s Obligations under this
Agreement and all other liabilities, loans, guarantees, covenants and duties
owed by the Borrower to the Bank, whether or not evidenced by this or by any
other agreement, absolute or contingent, due or to become due, now existing or
hereafter and howsoever created, the Borrower hereby grants the Bank a security
interest in and to all of the following property:

 

(i)                                     Equipment.  All
goods now owned or hereafter acquired by the Borrower or in which the Borrower
now has or may hereafter acquire any interest, including, but not limited to,
all machinery, equipment, furniture, furnishings, fixtures, tools, supplies and
motor vehicles

 

10

 

of
every kind and description, and all additions, accessions, improvements,
replacements and substitutions thereto and thereof (the “Equipment”).

 

(ii)                                  Inventory.  All
inventory now owned or hereafter acquired by the Borrower, including, but not
limited to, all raw materials, work in process, finished goods, inventory
leased to others or held for lease, merchandise, parts and supplies of every
kind and description, including inventory temporarily out of the Borrower’s
custody or possession, together with all returns on accounts (the “Inventory”).

 

(iii)                               Accounts.  All
accounts, letter of credit rights, commercial tort claims, contract rights and
general intangibles, including software and payment intangibles, now owned or
hereafter created or acquired by the Borrower, including, but not limited to,
all receivables, including as-extracted receivables, credit card receivables,
health care receivables, insurance receivables, software receivables and
license fees, goodwill, trademarks, trademark applications, trade styles, trade
names, patents, patent applications, copyrights and copyright applications,
customer lists, business records and computer programs, tapes, disks and
related data processing software that at any time evidence or contain
information relating to any of the Collateral.

 

(iv)                              Documents. All documents, instruments and chattel
paper, whether electronic or tangible, now owned or hereafter acquired by the
Borrower, including, but not limited to, warehouse and other receipts, bills of
sale, promissory notes and bills of lading.

 

(v)                                 Monies. All monies, deposit accounts, certificates
of deposit, investment property and securities of the Borrower now or hereafter
in the Bank’s or its agents’ possession.

 

(vi)                              Assets. All assets of the Borrower, whether now
existing or hereafter acquired, and the products and proceeds thereof.

 

The
Bank’s security interest in the Collateral shall be a continuing lien and shall
include the proceeds and products of the Collateral including, but not limited
to, the proceeds of any insurance thereon.

 

Borrower
hereby consents to and instructs Bank to file financing statements in all
locations deemed appropriate by the Bank from time to time.

 

The
security interest granted to Bank in the Collateral shall not secure or be
deemed to secure any Indebtedness of the Borrower to the Bank which is, at the
time of its creation, subject to the provisions of any state or federal
consumer credit or truth-in-lending disclosure statutes.

 

SECTION 4

 

CONDITIONS
PRECEDENT

 

4.1                                 Conditions Precedent to the
Initial Extension of Credit:  The obligation of the Bank to make the
initial Advance or the first extension of credit to or on account of the
Borrower hereunder is subject to the conditions precedent that the Bank shall
have received before the date of such initial Advance or such first extension
of credit all of the following, in form and substance satisfactory to the Bank:

 

(i)                                     Authority to Borrow.  Evidence that the execution, delivery and
performance by the Borrower of this Agreement and any document, instrument or
agreement required hereunder have been duly authorized.

 

11

 

(ii)                                  Guarantors.  Continuing guaranty and security agreement in
favor of the Bank executed by the following, together with evidence that the
execution, delivery and performance by any guarantor has been duly authorized:
ALPHATEC HOLDINGS, INC.

 

(iii)                               Subordinations.  Subordination agreement(s) executed by
Shunshiro Yoshimi together with evidence that the execution, delivery and
performance by any subordinator who is not an individual has been duly
authorized.

 

(iv)                              Fees.  A fee
of $10,000.00, such fee to be deemed to be fully earned upon payment and
payment of all of the Bank’s out-of-pocket expenses in connection with the
preparation and negotiation of this Agreement.

 

(v)                                 Audit.  The
Bank shall have conducted an audit of the Borrower’s books, records and
operations and the Bank shall be satisfied as to the condition thereof.

 

(vi)                              Miscellaneous.  Such
other evidence as the Bank may request to establish the consummation of the
transaction contemplated hereunder and compliance with the conditions of this
Agreement.

 

4.2                                 Conditions Precedent to All
Extensions of Credit:  The obligation of the Bank to make each
Advance or each other extension of credit, as the case may be, to or on account
of the Borrower (including the initial Advance or the first extension of
credit) shall be subject to the further conditions precedent that, on the date
of each Advance or each extension of credit and after the making of such
Advance or extension of credit:

 

(i)                                     Reporting Requirements.  The
Bank shall have received the documents set forth in Section 6.1.

 

(ii)                                  Subsequent Approvals.  The
Bank shall have received such supplemental approvals, opinions or documents as
the Bank may reasonably request.

 

(iii)                               Representations and
Warranties.  The representations contained in Section 5
and in any other document, instrument or certificate delivered to the Bank
hereunder are true, correct and complete.

 

(iv)                              Event of Default.  No
event has occurred and is continuing which constitutes, or with the lapse of
time or giving of notice or both, would constitute an Event of Default.

 

(v)                                 Collateral.  The
security interest in the Collateral has been duly authorized, created and
perfected with first priority and is in full force and effect.

 

The
Borrower’s acceptance of the proceeds of any loan, Advance or extension of
credit or the Borrower’s execution of any document or instrument evidencing or
creating any Obligation hereunder shall be deemed to constitute the Borrower’s
representation and warranty that all of the above statements are true and correct.

 

12

 

SECTION 5

 

REPRESENTATIONS
AND WARRANTIES

 

The
Borrower hereby makes the following representations and warranties to the Bank,
which representations and warranties are continuing:

 

5.1                                 Status:  The
Borrower’s correct legal name is as stated in this Agreement and the Borrower
is a corporation duly organized and validly existing under the laws of
California and with its chief executive office in the state of California and
is properly licensed and is qualified to do business and in good standing in,
and, where necessary to maintain the Borrower’s rights and privileges, has
complied with the fictitious name statute of every jurisdiction in which the
Borrower is doing business.

 

5.2                                 Authority:  The
execution, delivery and performance by the Borrower of this Agreement and any
instrument, document or agreement required hereunder have been duly authorized
and do not and will not: (i) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having application to the Borrower; (ii) result in a
breach of or constitute a default under any material indenture or loan or
credit agreement or other material agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound or affected;
or (iii) require any consent or approval of its stockholders or violate
any provision of its articles of incorporation or by-laws.

 

5.3                                 Legal Effect:  This
Agreement constitutes, and any instrument, document or agreement required
hereunder when delivered hereunder will constitute, legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.

 

5.4                                 Fictitious Trade Styles:  There
are no fictitious trade styles, fictitious trade names, assumed business names
or trade names (defined herein as “Trade Name”) used by the Borrower in
connection with its business operations. The Borrower shall notify the Bank not
less than 30 days prior to effecting any change in the matters described herein
or prior to using any other Trade Name at any future date, indicating the Trade
Name and State(s) of its use.

 

5.5                                 Financial Statements:  All
financial statements, information and other data which may have been or which
may hereafter be submitted by the Borrower to the Bank are true, accurate and
correct and have been or will be prepared in accordance with generally accepted
accounting principles consistently applied and accurately represent the
financial condition or, as applicable, the other information disclosed therein.
Since the most recent submission of such financial information or data to the
Bank, the Borrower represents and warrants that no material adverse change in
the Borrower’s financial condition or operations has occurred which has not
been fully disclosed to the Bank in writing.

 

5.6                                 Litigation:  Except as have been disclosed to the Bank in
writing, there are no actions, suits or proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or the
Borrower’s properties before any court or administrative agency which, if
determined adversely to the Borrower, would have a material adverse effect on
the Borrower’s financial condition or operations or on the Collateral.

 

5.7                                 Title to Assets:  The
Borrower has good and marketable title to all of its assets (including, but not
limited to, the Collateral) and the same are not subject to any security
interest, encumbrance, lien or claim of any third person except for Permitted
Liens.

 

13

 

5.8                                 ERISA:  If
the Borrower has a pension, profit sharing or retirement plan subject to ERISA,
such plan has been and will continue to be funded in accordance with its terms
and otherwise complies with and continues to comply with the requirements of
ERISA.

 

5.9                                 Taxes:  The
Borrower has filed all tax returns required to be filed and paid all taxes
shown thereon to be due, including interest and penalties, other than such
taxes which are currently payable without penalty or interest or those which
are being duly contested in good faith.

 

5.10                           Margin Stock.  The
proceeds of any loan or advance hereunder will not be used to purchase or carry
margin stock as such term is defined under Regulation U of the Board of
Governors of the Federal Reserve System.

 

5.11                           Environmental Compliance.  The
operations of the Borrower comply, and during the term of this Agreement will
at all times comply, in all respects with all Environmental Laws; the Borrower
has obtained all licenses, permits, authorizations and registrations required
under any Environmental Law (“Environmental Permits”) and necessary for its
ordinary course operations, all such Environmental Permits are in good
standing, and the Borrower is in compliance with all material terms and
conditions of such Environmental Permits; neither the Borrower nor any of its
present property or operations is subject to any outstanding written order from
or agreement with any governmental authority nor subject to any judicial or
docketed administrative proceeding, respecting any Environmental Law,
Environmental Claim or Hazardous Material; there are no Hazardous Materials or
other conditions or circumstances existing, or arising from operations prior to
the date of this Agreement, with respect to any property of the Borrower that
would reasonably be expected to give rise to Environmental Claims; provided,
however, that with respect to property leased from an unrelated third party,
the foregoing representation is made to the best knowledge of the Borrower. In
addition, (i) the Borrower does not have any underground storage tanks
that are not properly registered or permitted under applicable Environmental
Laws, or that are leaking or disposing of Hazardous Materials off-site, and (ii) the
Borrower has notified all of their employees of the existence, if any, of any
health hazard arising from the conditions of their employment and have met all
notification requirements under Title III of CERCLA and all other Environmental
Laws.

 

5.12                           Accounts:                                         Each Eligible Account represents a bona fide
sale conforming to the requirements of Section 1.1.17.

 

5.13                           Inventory:

 

(i)                                     The Value of the inventory is, as of the date
of any such schedule of inventory, as reflected in such schedule.

 

(ii)                                  The Value of the inventory is determined on
the basis of its average cost.

 

(iii)                               The Borrower keeps correct and accurate
records..

 

(iv)                              All inventory is of good and merchantable
quality, free from defects.

 

(v)                                 The inventory is not stored with a bailee,
warehouseman or similar party.

 

14

 

SECTION 6

 

COVENANTS

 

The
Borrower covenants and agrees that, during the term of this Agreement, and so
long thereafter as the Borrower is indebted to the Bank under this Agreement,
the Borrower will, unless the Bank shall otherwise consent in writing:

 

6.1                                 Reporting and Certification
Requirements:  Deliver or cause to be delivered to the Bank
in form and detail satisfactory to the Bank:

 

(i)                                     Not later than 120 days after the end of each
of the Borrower’s fiscal years, a copy of the annual audited consolidated
financial report of the Borrower for such year, prepared by a firm of certified
public accountants acceptable to Bank and accompanied by an unqualified opinion
of such firm.

 

(ii)                                  Not later than 45 days after the end of each
fiscal quarter, a copy of the Borrower’s consolidated financial statement as of
the end of such quarter.

 

(iii)                               Not later than 30 days after the end of each
month, a copy of the Borrower’s financial statement as of the end of such
period.

 

(iv)                              Concurrently with the delivery of the
quarterly and fiscal year end financial reports required hereunder, a
compliance certificate stating that the Borrower is in compliance with all
covenants contained herein and that no Event of Default or potential Event of
Default has occurred or is continuing, and certified to by the chief financial
officer of the Borrower.

 

(v)                                 Not later than 30 days after the end of each
month, (i) a borrowing base certificate in the form attached hereto as Exhibit ”A”
(“Borrowing Base Certificate”), executed by Borrower and certifying the Amount
of the Eligible Accounts as of the last day of the preceding month; and, (ii) an
aging of accounts receivable indicating separately the amount of accounts due
from each Account Debtor and the amount of total accounts receivable which are
current, 31 to 60 days past the due date, 61 to 90 days past the due date, and
the amount over 90 days past the due date and an aging of accounts payable
indicating the amount of such payables which are current, 31 to 60 days past
the due date, 61 to 90 days past the due date, and the amount over 90 days past
the due date; and, (iii) a schedule of inventory specifying the Value
thereof in the form attached hereto as Exhibit ”B”, and such other matters
and information relating to the Borrower’s inventory as the Bank may request.

 

Notwithstanding the foregoing, Bank, at its sole
discretion, may require Borrower to submit daily or at such other time as
required by the Bank: (i) a transaction report and schedule of
accounts receivable which indicates all sales made and all collections received
for each such day; (ii) all remittances and collections of accounts in
kind and without commingling to be applied to the payment of the Borrower’s
Obligations on the next Business Day following receipt thereof; provided,
however, that if such amounts are received in a form other than cash or bank
wire, the Bank may withhold application of such amounts for such time to the
extent permitted by law as the Bank, in its sole discretion, deems reasonable
to allow for collection and provided further that any remittances and
collections received by the Bank later than 2:00 p.m. (Pacific time) on
any day shall be deemed received on the next succeeding Business Day; and (iii) clear
and

 

15

 

legible copies of all invoices or sales receipts
evidencing the sale of goods or services by the Borrower.

 

(vi)                              Promptly upon the Bank’s request, such other
information pertaining to the Borrower, the Collateral or any guarantor
hereunder as the Bank may reasonably request.

 

6.2                                 Financial Condition:  The
Borrower promises and agrees, during the term of this Agreement and until
payment in full of all of the Borrower’s Obligations, the Borrower will
maintain at all times:

 

(i)                                     A maximum net loss not to exceed
$2,000,000.00 for the year ending December 31, 2005.

 

(ii)                                  Maintain profitability by not allowing any
two consecutive quarterly losses, commencing with the quarter ended March 31,
2006.

 

(iii)                               A minimum net profit after tax of at least
$500,000.00 at fiscal year end 2006 and $1,000,000.00 at fiscal year end 2007
and at each fiscal year end thereafter.

 

(iv)                              A ratio of Funded Debt to EBITDA for the
immediately preceding three fiscal quarters and the current quarter just ended
of not more than 2.75 to 1.00 at the end of each fiscal quarter, commencing
with the quarter ended December 31, 2006.

 

(v)                                 A ratio of Debt to Effective Tangible Net
Worth of not more than 7.50 to 1.00 at December, 31, 2006 and 3.00 to 1.00 at December 31,
2007 and 3.00 to 1.00 quarterly thereafter.

 

6.3                                 Preservation of Existence;
Compliance with Applicable Laws:  Maintain and preserve its existence
and all rights and privileges now enjoyed; and conduct its business and
operations in accordance with all applicable laws, rules and regulations.

 

6.4                                 Merge or Consolidate:  Not
liquidate or dissolve, merge or consolidate with or into, any other business
organization, or acquire any other business organization in fiscal 2006,
provided however, that Borrower may make business acquisitions of up to
$1,000,000.00 in fiscal year 2007.

 

6.5                                 Maintenance of Insurance:  Keep
and maintain the Collateral insured for not less than its full replacement
value against all risks of loss and damage and maintain insurance in such
amounts and covering such risks as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Borrower operates and maintain such other insurance and coverages as
may be required by the Bank. All such insurance shall be in form and amount and
with companies satisfactory to the Bank.

 

With respect to insurance covering properties in
which the Bank maintains a security interest or lien, such insurance shall name
the Bank as loss payee pursuant to a loss payable endorsement satisfactory to
the Bank and shall not be altered or canceled except upon 10 days’ prior
written notice to the Bank. Upon the Bank’s request, the Borrower shall furnish
the Bank with the original policy or binder of all such insurance.

 

6.6                                 Maintenance of Collateral
and Other Properties:  Except for Permitted Liens, keep and maintain
the Collateral free and clear of all levies, liens, encumbrances and security
interests (including, but not limited to, any lien of attachment, judgment or
execution) and defend the Collateral against any such levy, lien, encumbrance
or security interest; comply with all laws,

 

16

 

statutes
and regulations pertaining to the Collateral and its use and operation;
execute, file and record such statements, notices and agreements, take such
actions and obtain such certificates and other documents as necessary to
perfect, evidence and continue the Bank’s security interest in the Collateral
and the priority thereof; maintain accurate and complete records of the
Collateral which show all sales, claims and allowances; and properly care for,
house, store and maintain the Collateral in good condition, free of misuse,
abuse and deterioration, other than normal wear and tear. The Borrower shall
also maintain and preserve all its properties in good working order and
condition in accordance with the general practice of other businesses of
similar character and size, ordinary wear and tear excepted.

 

6.7                                 Payment of Obligations and
Taxes:  Make timely payment of all assessments and
taxes and all of its liabilities and obligations including, but not limited to,
trade payables, unless the same are being contested in good faith by
appropriate proceedings with the appropriate court or regulatory agency. For
purposes hereof, the Borrower’s issuance of a check, draft or similar
instrument without delivery to the intended payee shall not constitute payment.

 

6.8                                 Depository Relationships:  Maintain its primary business depository
relationship with Bank, including general, operating and administrative deposit
accounts and cash management services.

 

6.9                                 Inspection Rights and
Accounting Records:  The Borrower will maintain adequate books and
records in accordance with generally accepted accounting principles
consistently applied and in a manner otherwise acceptable to Bank, and, at any
reasonable time and from time to time, permit the Bank or any representative
thereof to examine and make copies of the records and visit the properties of
the Borrower and discuss the business and operations of the Borrower with any
employee or representative thereof. If the Borrower shall maintain any records
(including, but not limited to, computer generated records or computer programs
for the generation of such records) in the possession of a third party, the
Borrower hereby agrees to notify such third party to permit the Bank free access
to such records at all reasonable times and to provide the Bank with copies of
any records which it may request, all at the Borrower’s expense, the amount of
which shall be payable immediately upon demand.

 

In addition, the Bank may, at any reasonable time
and from time to time, conduct inspections and audits of the Collateral and the
Borrower’s accounts payable, the cost and expenses of which shall be paid by
the Borrower to the Bank upon demand.

 

6.10                           Payment of Dividends: Not declare or pay any dividends on any
class of stock now or hereafter outstanding except dividends payable solely in
the Borrower’s capital stock.

 

6.11                           Redemption or Repurchase of
Stock:  Not redeem or repurchase any class of the
Borrower’s stock now or hereafter outstanding.

 

6.12                           Additional Indebtedness:  Not,
after the date hereof, create, incur or assume, directly or indirectly, any
additional Indebtedness other than (i) Indebtedness owed or to be owed to
the Bank or (ii) Indebtedness to trade creditors incurred in the Ordinary
Course of Business or (iii) Indebtedness of up to $100,000.00 in any one
fiscal year.

 

6.13                           Loans:  Not
make any loans or advances or extend credit to any third person, including, but
not limited to, directors, officers, shareholders, members, partners, employees,
affiliated entities and subsidiaries of the Borrower, except for credit
extended in the Ordinary Course of Business as presently conducted and except
up to $100,000.00 in any one fiscal year.

 

6.14                           Liens and Encumbrances:  Not
create, assume or permit to exist any security interest, encumbrance, mortgage,
deed of trust, or other lien (including, but not limited to, a lien of
attachment, judgment or execution) affecting any of the Borrower’s properties,
or execute or allow to be filed any financing statement or continuation thereof
affecting any of such properties, except

 

17

 

for
Permitted Liens or as otherwise provided in this Agreement, and except liens
and security interests associated with Indebtedness of up to $100,000.00 in any
one fiscal year.

 

6.15                           Transfer Assets:  Not,
after the date hereof, sell, contract for sale, convey, transfer, assign, lease
or sublet, any of its assets (including, but not limited to, the Collateral)
except in the Ordinary Course of Business and, then, only for full, fair and
reasonable consideration.

 

6.16                           Change in Nature of
Business:  Not make any material change in its financial
structure or the nature of its business as existing or conducted as of the date
hereof.

 

6.17                           Maintenance of Jurisdiction:  Borrower shall maintain the jurisdiction of
its organization and chief executive office, or if applicable, principal
residence, as set forth herein and not change such jurisdiction name or form of
organization without 30 days prior written notice to Bank.

 

6.18                           Compensation of Employees:  Compensate its employees for services rendered
at an hourly rate at least equal to the minimum hourly rate prescribed by any
applicable federal or state law or regulation.

 

6.19                           Notice:  Give
the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation,
arbitration or administrative proceedings to which the Borrower is a party and
in which the claim or liability exceeds $100,000.00 or which affects the
Collateral; (iii) other matters which have resulted in, or might result in
a material adverse change in the Collateral or the financial condition or
business operations of the Borrower, and (iv) any enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed or
threatened against the Borrower or any of its properties.

 

6.20                           Chief Executive Office: The Borrower shall keep its chief executive
office and the office where it keeps its records concerning the Collateral, and
the office where it keeps all originals of all chattel paper at the following
location: 2051 Palomar Airport Road, Suite 100, Carlsbad, CA 92011.
Borrower agrees to provide to Bank thirty days prior written notification of
any move of the Borrower’s chief executive office or of any change of the
location specified herein.

 

6.21                           Collection of Accounts:  Except as otherwise provided in this
Agreement, the Borrower shall continue to collect the Accounts in accordance
with its customary practice. Prior to the occurrence of an Event of Default or
an event which, with notice or the passage of time, could become an Event of
Default, the Borrower shall have the right to adjust, settle or compromise the
amount of any payment of any Account or release wholly or partly and Account Debtor
or obligor thereof or allow any credit or discount thereof, all in accordance
with its customary practices in the Ordinary Course of Business.

 

6.22                           Environmental Compliance:  The
Borrower shall conduct its operations and keep and maintain all of its property
in compliance with all Environmental Laws and, upon the written request of the
Bank, the Borrower shall submit to the Bank, at the Borrower’s sole cost and
expense, at reasonable intervals, a report providing the status of any
environmental, health or safety compliance, hazard or liability.

 

6.23                           Inventory:

 

(i)                                     The Borrower shall keep correct and accurate
records.

 

(ii)                                  All inventory shall be of good and
merchantable quality, free from defects.

 

18

 

(iii)                               The inventory shall not at any time or times
hereafter be stored with a bailee, warehouseman or similar party without the
Bank’s prior written consent and, in such event, the Borrower will concurrently
therewith cause any such bailee, warehouseman or similar party to issue and
deliver to the Bank, in form acceptable to the Bank, warehouse receipts in the
Bank’s name evidencing the storage of inventory.

 

(iv)                              At any reasonable time and from time to time,
allow Bank to have the right, upon demand, to inspect and examine inventory and
to check and test the same as to quality, quantity, value and condition and the
Borrower agrees to reimburse the Bank for the Bank’s reasonable costs and
expenses in so doing.

 

6.24                           Location and Maintenance of
Equipment:

 

(i)                                     The Equipment shall at all times be in the
Borrower’s physical possession, shall not be held for sale or lease.

 

(ii)                                  The Borrower shall not secrete, abandon or
remove, or permit the removal of, the Equipment, or any part thereof, from the
Borrower’s physical possession or remove or permit to be removed any
accessories now or hereafter placed upon the Equipment.

 

(iii)                               Upon the Bank’s demand, the Borrower shall
immediately provide the Bank with a complete and accurate description of the
Equipment including, as applicable, the make, model, identification number and
serial number of each item of Equipment. In addition, the Borrower shall
immediately notify the Bank of the acquisition of any new or additional
Equipment or the replacement of any existing Equipment and shall supply the
Bank with a complete description of any such additional or replacement
Equipment.

 

(iv)                              The Borrower shall, at the Borrower’s sole
cost and expense, keep and maintain the Equipment in a good state of repair and
shall not destroy, misuse, abuse, illegally use or be negligent in the care of
the Equipment or any part thereof. The Borrower shall not remove, destroy,
obliterate, change, cover, paint, deface or alter the name plates, serial
numbers, labels or other distinguishing numbers or identification marks placed
upon the Equipment or any part thereof by or on behalf of the manufacturer, any
dealer or rebuilder thereof, or the Bank. The Borrower shall not be released
from any liability to the Bank hereunder because of any injury to or loss or
destruction of the Equipment. The Borrower shall allow the Bank and its
representatives free access to and the right to inspect the Equipment at all
times and shall comply with the terms and conditions of any leases covering the
real property on which the Equipment is located and any orders, ordinances,
laws, regulations or rules of any federal, state or municipal agency or
authority having jurisdiction of such real property or the conduct of the
business of the persons having control or possession of the Equipment.

 

(v)                                 The Equipment is not now and shall not at any
time hereafter be so affixed to the real property on which it is located as to
become a fixture or a part thereof. The Equipment is now and shall at all times
hereafter be and remain personal property of the Borrower.

 

19

 

SECTION 7

 

EVENTS
OF DEFAULT

 

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

 

7.1                                 Non-Payment:  The
Borrower shall fail to pay any of the Obligations when due.

 

7.2                                 Performance Under This
Agreement:  The Borrower or any Guarantor shall fail in
any material respect to perform or observe any term, covenant or agreement
contained in this Agreement or in any document, instrument or agreement
relating to this Agreement or any other document or agreement executed by the
Borrower or any Guarantor with or in favor of Bank and any such failure shall
continue unremedied for more than 30 days after the occurrence thereof.

 

7.3                                 Representations and
Warranties; Financial Statements:  Any representation or warranty
made by the Borrower under or in connection with this Agreement or any
financial statement given by the Borrower or any guarantor shall prove to have
been incorrect in any material respect when made or given or when deemed to
have been made or given.

 

7.4                                 Other Agreements:  If
there is a default under any agreement to which Borrower is a party with Bank
or with a third party or parties resulting in a right by the Bank or by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness.

 

7.5                                 Insolvency:  The
Borrower or any guarantor shall: (i) become insolvent or be unable to pay
its debts as they mature; (ii) make an assignment for the benefit of
creditors or to an agent authorized to liquidate any substantial amount of its
properties and assets; (iii) file a voluntary petition in bankruptcy or
seeking reorganization or to effect a plan or other arrangement with creditors;
(iv) file an answer admitting the material allegations of an involuntary
petition relating to bankruptcy or reorganization or join in any such petition;
(v) become or be adjudicated a bankrupt; (vi) apply for or consent to
the appointment of, or consent that an order be made, appointing any receiver,
custodian or trustee, for itself or any of its properties, assets or
businesses; or (vii) in an involuntary proceeding, any receiver, custodian
or trustee shall have been appointed for all or substantial part of the
Borrower’s or guarantor’s properties, assets or businesses and shall not be
discharged within 30 days after the date of such appointment.

 

7.6                                 Execution: Any writ of execution or attachment or any
judgment lien shall be issued against any property of the Borrower and shall
not be discharged or bonded against or released within 30 days after the
issuance or attachment of such writ or lien.

 

7.7                                 Revocation or Limitation of
Guaranty:  Any guaranty shall be revoked or limited or
its enforceability or validity shall be contested by any guarantor, by
operation of law, legal proceeding or otherwise or any guarantor who is a
natural person shall die.

 

7.8                                 Revocation or Limitation of
Subordination Agreement:  Any subordination agreement shall be revoked
or limited or its enforceability or validity shall be contested by any creditor
signatory thereto, by operation of law, legal proceeding or otherwise.

 

7.9                                 Suspension:  The
Borrower shall voluntarily suspend the transaction of business or allow to be
suspended, terminated, revoked or expired any permit, license or approval of
any governmental body necessary to conduct the Borrower’s business as now
conducted.

 

7.10                           Material Adverse Change:  If
there occurs a material adverse change in the Borrower’s business or financial
condition, or if there is a material impairment of the prospect of repayment of

 

20

 

any
portion of the Obligations or there is a material impairment of the value or
priority of the Bank’s security interest in the Collateral, or if a Borrower
who is a natural person shall die.

 

7.11                           Change in Ownership:  There
shall occur a sale, transfer, disposition or encumbrance (whether voluntary or
involuntary), or an agreement shall be entered into to do so, with respect to
more than 10% of the issued and outstanding capital stock of the Borrower.

 

7.12                           Impairment of Collateral.  There
shall occur any injury or damage to all or any part of the Collateral or all or
any part of the Collateral shall be lost, stolen or destroyed.

 

7.13                           Material Subsidiary.  Prior
to the date on which Borrower creates a material subsidiary or on which any
subsidiary becomes material, Borrower shall fail to (i) notify Bank
thereof or (ii) deliver to Bank a continuing guaranty that is in form and
substance satisfactory to Bank together with copies of such organizational
documents, authorizing resolutions and other documents and legal opinions as
Bank shall reasonably require with respect thereto

 

SECTION 8

 

REMEDIES
ON DEFAULT

 

Upon
the occurrence of any Event of Default, the Bank may, at its sole and absolute
election, without demand and only upon such notice as may be required by law:

 

8.1                                 Acceleration:  Declare any or all of the Borrower’s
indebtedness owing to the Bank, whether under this Agreement or any other
document, instrument or agreement, immediately due and payable, whether or not
otherwise due and payable.

 

8.2                                 Cease Extending Credit:  Cease
making Advances or otherwise extending credit to or for the account of the
Borrower under this Agreement or under any other agreement now existing or
hereafter entered into between the Borrower and the Bank.

 

8.3                                 Termination:  Terminate this Agreement as to any future
obligation of the Bank without affecting the Borrower’s obligations to the Bank
or the Bank’s rights and remedies under this Agreement or under any other
document, instrument or agreement.

 

8.4                                 Notification of Account
Debtors:

 

(i)                                     Notify any Account Debtor, any buyers or
transferee of the Collateral or any other persons of the Bank’s interest in the
Collateral and the proceeds thereof.

 

(ii)                                  Sign the Borrower’s name (which authority the
Borrower hereby irrevocably and unconditionally grants to the Bank) on any
invoice or bill of lading relating to accounts or other drafts against the
account debtors, buyers or transferees, notify post office authorities to
change the address for delivery of mail addressed to the Borrower to such
address as the Bank may designate and take possession of and open mail
addressed to the Borrower and remove therefrom, proceeds of and payments on the
Collateral, and demand, receive and endorse payment and give receipts, releases
and satisfactions for and sue for all money payable to the Borrower.

 

(iii)                               Require the Borrower to indicate on the face
of all invoices (or such other documentation as may be specified by the Bank
relating to the sale, delivery or shipment of goods giving rise to the account)
that the account has been assigned

 

21

 

to
the Bank and that all payments are to be made directly to the Bank at such
address as the Bank may designate.

 

8.5                                 Close-Out and Liquidation:  Close-out and liquidate each outstanding FX  Transaction so that each FX Transaction is
canceled in accordance with the following:

 

(i)                                     Closing Value.  The
Bank shall calculate value of such canceled FX Transaction by converting (1) in
the case of a FX Transaction whose Settlement Date is the same as or later than
the Close-Out Date, the amount of Foreign Currency into US dollars at a rate of
exchange at which the Bank can buy or sell US dollars with or against the
Foreign Currency for delivery on the Settlement Date of the relevant FX
Transaction; or (2) in the case of a FX Transaction whose Settlement Date
precedes the Close-Out Date, the amount of the Foreign Currency adjusted by
adding interest with respect thereto at the Variable Rate from the Settlement
Date to the Close-Out Date, into US Dollars at a rate of exchange at which the
Bank can buy or sell US dollars with or against the Foreign Currency for
delivery on the Close-Out Date.

 

(ii)                                  Closing Gain or Loss.  (1) For
a FX Transaction for which the Bank agreed to purchase a Foreign Currency, the
amount by which the Closing Value exceeds the Notional Value shall be a Closing
Loss and the amount by which the Closing Value is less than the Notional Value
shall be a Closing Gain; and (2) For a FX Transaction for which the Bank
agreed to sell a Foreign Currency, the amount by which the Closing Value
exceeds the Notional Value shall be a Closing Gain and the amount by which the
Closing Value is less than the Notional Value shall be a Closing Loss.

 

(iii)                               Net Present Value.  The
Closing Gain or Closing Loss for each Settlement Date falling after the
Close-out Date will be discounted by the Bank to it net present value.

 

(iv)                              Payment.  To
the extent that the net amount of the aggregate Closing Gains exceeds the
Closing Losses, such amount shall be payable by the Bank to the Borrower. To
the extent that the aggregate net amount of the Closing Losses exceeds the
Closing Gains, such amount shall be payable by the Borrower to the Bank.

 

8.6                                 Protection of Security
Interest:  Make such payments and do such acts as the
Bank, in its sole judgment, considers necessary and reasonable to protect its
security interest or lien in the Collateral. The Borrower hereby irrevocably
authorizes the Bank to pay, purchase, contest or compromise any encumbrance,
lien or claim which the Bank, in its sole judgment, deems to be prior or
superior to its security interest. Further, the Borrower hereby agrees to pay
to the Bank, upon demand therefor, all expenses and expenditures (including
attorneys’ fees) incurred in connection with the foregoing.

 

8.7                                 Foreclosure:  Enforce any security interest or lien given or
provided for under this Agreement or under any security agreement, mortgage,
deed of trust or other document, in such manner and such order, as to all or
any part of the properties subject to such security interest or lien, as the
Bank, in its sole judgment, deems to be necessary or appropriate and the
Borrower hereby waives any and all rights, obligations or defenses now or
hereafter established by law relating to the foregoing. In the enforcement of
its security interest or lien, the Bank is authorized to enter upon the
premises where any Collateral is located and take possession of the Collateral
or any part thereof, together with the Borrower’s records pertaining thereto,
or the Bank may require the Borrower to assemble the Collateral and records
pertaining thereto and make such Collateral and

 

22

 

records
available to the Bank at a place designated by the Bank. The Bank may sell the
Collateral or any portions thereof, together with all additions, accessions and
accessories thereto, giving only such notices and following only such
procedures as are required by law, at either a public or private sale, or both,
with or without having the Collateral present at the time of the sale, which
sale shall be on such terms and conditions and conducted in such manner as the
Bank determines in its sole judgment to be commercially reasonable. The
Collateral may be disposed of in its then condition without any preparation or
processing. In connection with any disposition of the Collateral, the Bank may
disclaim any warranty relating to title, possession or quiet enjoyment. Any
deficiency which exists after the disposition or liquidation of the Collateral
shall be a continuing liability of the Borrower to the Bank and shall be
immediately paid by the Borrower to the Bank. Further, the Borrower hereby
agrees to pay to the Bank, upon demand therefore, all expenses and expenditures
(including attorney’s fees) incurred in connection with the foregoing.

 

8.8                                 Non-Exclusivity of Remedies:  Exercise one or more of the Bank’s rights set
forth herein or seek such other rights or pursue such other remedies as may be
provided by law, in equity or in any other agreement now existing or hereafter
entered into between the Borrower and the Bank, or otherwise.

 

SECTION 9

 

MISCELLANEOUS

 

9.1                                 Amounts Payable on Demand:  If
the Borrower shall fail to pay on demand any amount so payable under this
Agreement, the Bank may, at its option and without any obligation to do so and
without waiving any default occasioned by the Borrower having so failed to pay
such amount, create an Advance under this Agreement in an amount equal to the
amount so payable, which Advance shall thereafter bear interest as provided
hereunder.

 

9.2                                 Default Interest Rate:  If an
Event of Default, or an event which, with notice or passage of time could
become an Event of Default, has occurred or is continuing, the Borrower shall
pay to the Bank interest on any Indebtedness or amount payable under this
Agreement at a rate which is 5% in excess of the rate or rates then in effect
under this Agreement.

 

9.3                                 Disposal of Invoices:  All
documents, schedules, invoices or other papers received by the Bank from the
Borrower may be destroyed or disposed of six (6) months after receipt by
the Bank, unless the Borrower requests in writing the return thereof, which
shall be done at the Borrower’s expense.

 

9.4                                 Rights of the Bank With or
Without Default:  The Borrower agrees that the Bank may at any
time and at its option, whether or not the Borrower is in default:

 

(i)                                     Require the Borrower to direct all Account
Debtors to forward all remittances, payments and proceeds of the Collateral
directly to the Bank at such address as the Bank may designate. In connection
therewith, the Borrower hereby irrevocably constitutes and appoints the Bank as
its attorney-in-fact to endorse the Borrower’s name on any notes, acceptances,
checks, drafts, money orders or other evidence of payment that may come into
the Bank’s possession.

 

(ii)                                  Require the Borrower to deliver to the Bank,
at such times designated by the Bank, records and schedules which show the
status and condition of the Collateral, where it is located and such contracts
or other matters which affect the Collateral.

 

(iii)                               Send verification requests to any Account
Debtor.

 

23

 

(iv)                              Make inquiries of the Borrower’s trade
vendors.

 

9.5                                 Indemnification:  The
Borrower agrees to hold the Bank harmless from and indemnify and defend the
Bank from any liability, claim, loss or expense (including, but not limited to,
attorneys’ fees) arising from any transaction between the Borrower and any
Account Debtor including, but not limited to, any loss, claim or liability
arising from:

 

(i)                                     Any violation of any federal or state
consumer protection law (including, but not limited to, the federal
Truth-In-Lending Act) and regulations promulgated thereunder.

 

(ii)                                  Improper collection practices or procedures
of the Borrower.

 

(iii)                               Any unlawful acts taken by the Borrower in
connection with the collection of any Account(s).

 

(iv)                              Any suit by any person against the Bank
resulting or arising from such person’s dealings with the Borrower.

 

9.6                                 Reliance and Further
Assurances:  Each warranty, representation, covenant, obligation
and agreement contained in this Agreement shall be conclusively presumed to
have been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition to
any other warranties, representations, covenants and agreements which the
Borrower now or hereafter shall give, or cause to be given, to the Bank.
Borrower agrees to execute all documents and instruments and to perform such
acts as the Bank may reasonably deem necessary to confirm and secure to the
Bank all rights and remedies conferred upon the Bank by this agreement and all
other documents related thereto.

 

9.7                                 Attorneys’ Fees:  Borrower shall pay to the Bank all costs and
expenses, including but not limited to reasonable attorneys fees, incurred by
Bank in connection with the administration, enforcement, including any
bankruptcy, appeal or the enforcement of any judgment or any refinancing or
restructuring of this Agreement or any document, instrument or agreement
executed with respect to, evidencing or securing the indebtedness hereunder.

 

9.8                                 Notices:  All
notices, payments, requests, information and demands which either party hereto
may desire, or may be required to give or make to the other party hereto, shall
be given or made to such party by hand delivery or through deposit in the
United States mail, postage prepaid, or by facsimile delivery, or to such other
address as may be specified from time to time in writing by either party to the
other.

 

	
  To the Borrower:

  	
   

  	
  To the Bank:

  
	
   

  	
   

  	
   

  
	
  ALPHATEC SPINE, INC.

  	
   

  	
  BANK OF THE WEST

  
	
  2051 Palomar Airport Road, Suite 100 Carlsbad, CA

  	
   

  	
  San Diego Office (CBC)

  
	
  Attn:

  	
  Scott Palka

  	
   

  	
  1280 4th Avenue

  
	
   

  	
  Treasurer and CFO

  	
   

  	
  San Diego, CA 92101

  
	
   

  	
   

  	
  Attn:

  	
  Kris Ilkov  

  
	
   

  	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
  FAX:  (    )         -

  	
   

  	
  FAX: (619) 595-1918

  

 

24

 

	
   

  	
   

  	
  With a copy to:

  
	
   

  	
   

  	
  BANK OF THE WEST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Asset-Based Finance

  
	
   

  	
   

  	
  300 S. Grand Avenue

  
	
   

  	
   

  	
  Los Angeles, CA 90071

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attn: Angela Alano Ranudo

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FAX: (213) 972 – 0566

  

 

9.9                                 Waiver:  Neither the failure nor delay by the Bank in
exercising any right hereunder or under any document, instrument or agreement
mentioned herein shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder or under any other document, instrument
or agreement mentioned herein preclude other or further exercise thereof or the
exercise of any other right; nor shall any waiver of any right or default
hereunder, or under any other document, instrument or agreement mentioned
herein, constitute a waiver of any other right or default or constitute a
waiver of any other default of the same or any other term or provision.

 

9.10                           Conflicting Provisions:  To
the extent the provisions contained in this Agreement are inconsistent with
those contained in any other document, instrument or agreement executed
pursuant hereto, the terms and provisions contained herein shall control.
Otherwise, such provisions shall be considered cumulative.

 

9.11                           Binding Effect; Assignment:  This
Agreement shall be binding upon and inure to the benefit of the Borrower and
the Bank and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Bank. The Bank may sell, assign or
grant participation in all or any portion of its rights and benefits hereunder.
The Borrower agrees that, in connection with any such sale, grant or
assignment, the Bank may deliver to the prospective buyer, participant or
assignee financial statements and other relevant information relating to the
Borrower and any guarantor.

 

9.12                           Jurisdiction:  This
Agreement, any notes issued hereunder, the rights of the parties hereunder to
and concerning the Collateral, and any documents, instruments or agreements
mentioned or referred to herein shall be governed by and construed according to
the laws of the State of California without regard to conflict of law
principles, to the jurisdiction of whose courts the parties hereby submit.

 

9.13                           Telephone Recording: The Borrower agrees that the Bank may
electronically record all telephone conversations between the Borrower and the
Bank with respect to any FX Transaction and that any such recording may be
submitted in evidence in any arbitration or other legal proceeding. Such recording
shall be deemed to be conclusive evidence as to the terms of any FX Transaction
in the event of a dispute.

 

9.14                           Counterparts: This Agreement may be executed in any number
of counterparts and all such counterparts taken together shall be deemed to
constitute one and the same instrument.

 

9.15                           Headings: The headings herein set forth are solely for
the purpose of identification and have no legal significance.

 

9.16                           Entire Agreement and Amendments:  This
Agreement and all documents, instruments and agreements mentioned herein
constitute the entire and complete understanding of the parties with respect to
the transactions contemplated hereunder. All previous conversations, memoranda
and writings between the parties pertaining to the transactions contemplated
hereunder not incorporated or referenced in this Agreement or in such
documents, instruments and agreements

 

25

 

are
superseded hereby. This Agreement may be amended only by an instrument in
writing signed by the Borrower and the Bank.

 

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

 

	
  BANK:

  	
  BORROWER:

  
	
   

  	
   

  
	
  BANK OF THE WEST

  	
  ALPHATEC SPINE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  BY:

  	
  /s/ Kris Ilkov

  	
   

  	
  BY:

  	
  /s/ Scott V. Palka

  	
   

  
	
  NAME: Kris Ilkov, Vice President

  	
  NAME: Scott Palka, Treasurer and CFO

  
						

 

26Exhibit 10.17

 

SECURITY AGREEMENT

 

This
Security Agreement is made and entered into this January 25, 2006, by and between
BANK OF THE WEST (the “Bank”) and the undersigned (the “Debtor”).

 

1.                                       Grant
of Security Interest.  The Debtor
hereby grants to the Bank a security interest in and to all of the following
property (hereinafter collectively referred to as the “Collateral”):

 

(a)                                  Investment Property.  Those
shares of stock, bonds, indentures, negotiable and non-negotiable securities
and instruments listed on the attached Exhibit “A” and on any additional
and supplemental exhibits to this Security Agreement, together with all warrants,
options, stock rights, rights to subscribe, liquidating dividends, cash dividends,
payments, dividends paid in stock, new securities or other property derived therefrom
or to which the Debtor may become entitled to receive on account thereof.

 

The Bank’s security interest in the Collateral shall
be a continuing lien and shall include all proceeds and products of the
Collateral including, but not limited to, the proceeds of any insurance
thereon.

 

Debtor hereby consents to and instructs Bank to file
financing statements in all locations deemed appropriate by the Bank from time
to time.

 

The security interest granted to Bank in the
Collateral shall not secure or be deemed to secure any Indebtedness of the
Debtor to the bank which is, at the time of its creation, subject to the
provisions of any state or federal consumer credit or truth-in-lending
disclosure statutes.

 

2.                                       The
Indebtedness.  The Collateral secures payment of
the indebtedness of the Debtor under that certain Guaranty dated as of January   ,
2006, in the principal amount of $12,000,000.00, given for the benefit of
ALPHATEC SPINE, INC.  together with any
and all modifications, extensions and renewals of such indebtedness
(hereinafter collectively referred to as the “Indebtedness”) and performance of
all the terms, covenants and agreements contained in this Security Agreement
and in any other document, instrument or agreement evidencing or related to the
Indebtedness or the Collateral.

 

The Indebtedness secured hereby shall not include
any indebtedness of the Debtor incurred for personal, family or household
purposes except to the extent any disclosure required under any consumer
protection law (including but not limited to the Truth in Lending Act) or any
regulation thereto, as now existing or hereafter amended, is or has been given.

 

3.                                       Debtor’s
Representations and Warranties.  The Debtor
hereby makes the following representations and warranties to the Bank, which
representations and warranties are continuing:

 

(a)           Status:  The Debtor’s correct legal name is as stated
in this Agreement and the Debtor is a corporation duly organized and validly
existing under the laws of the state of California, and with its chief
executive office in the state of California, and is properly licensed and is
qualified to do business and in good standing in, and, where necessary to
maintain the Debtor’s rights and privileges, has complied with the fictitious
name statute of every jurisdiction in which the Debtor is doing business.

 

(b)           Authority:  The execution, delivery and performance by the
Debtor of this Agreement and any instrument, document or agreement required
hereunder have been duly authorized

 

1

 

and do not and will not: (i) violate
any provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having application to the
Debtor; (ii) result in a breach of or constitute a default under any
material indenture or loan or credit agreement or other material agreement,
lease or instrument to which the Debtor is a party or by which it or its
properties may be bound or affected; or (iii) require any consent or
approval of its stockholders or violate any provision of its articles of
incorporation or by-laws; or (iv) violate any provision of its partnership
agreement; or (v) require any consent or approval of its members or
violate any provision of its articles of organization or operating agreement.

 

(c)           Legal Effect.  This Security Agreement constitutes, and any
document, instrument or agreement required hereunder when delivered will
constitute, legal, valid and binding obligations of the Debtor enforceable
against the Debtor in accordance with their respective terms.

 

(d)           Fictitious Trade Names:
 There are no fictitious trade names,
fictitious trade styles, assumed business names or trade names (defined herein
as “Trade Name”) used by the Debtor in connection with its business operations.  The Debtor shall notify the Bank not less
than 30 days prior to effecting any change in the matters described herein or
prior to using any other fictitious Trade Name at any future date, indicating
the Trade Name and state(s) of its use.

 

(e)           Title to Collateral;
Permitted Liens.  The Debtor
has good and marketable title to the Collateral and the same is not now and
shall not become subject to any security interest, encumbrance, lien or claim
of any third person other than: (i) liens and security interests to secure
the Indebtedness or other indebtedness owed to the Bank; (ii) liens for
taxes, assessments or similar charges either not yet due or being duly
contested in good faith; (iii) liens of mechanics, materialmen,
warehousemen or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (iv) liens and security
interests which, as of the date hereof, have been disclosed to and approved by
the Bank in writing; (v) purchase money liens or purchase money security
interests upon or in any property acquired or held by the Debtor in the
ordinary course of business to secure indebtedness outstanding on the date
hereof or permitted to be incurred hereunder; and (vi) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of the Debtor’s
assets (collectively “Permitted Liens”).

 

(f)            Financial Statements.  All financial statements, information and
other data now or hereafter submitted to the Bank in connection with the
transaction with respect to which this Security Agreement is entered into are
true, accurate and correct and have been or will be prepared in accordance with
generally accepted accounting principles consistently applied.  Since the most recent submission of any such
financial statement, information or other data to the Bank, the Debtor
represents and warrants that no material adverse change in the financial
condition or operations as disclosed therein or thereby has occurred which has
not been fully disclosed to the Bank in writing.

 

(g)           Litigation.  Except as have been disclosed to the Bank in
writing, there are no actions, suits or proceedings pending or, to the
knowledge of the Debtor, threatened against or affecting the Debtor or the
Debtor’s properties before any court or administrative agency which, if
determined adversely to the Debtor, would have a material adverse effect on the
Debtor’s financial condition or operations or on the Collateral.

 

2

 

(h)           Taxes.  The Debtor has filed all tax returns required
to be filed and paid all taxes shown thereon to be due, including interest and
penalties, other than taxes which are currently payable without penalty or
interest or those which are being duly contested in good faith.

 

(i)            Environmental
Compliance.  The operations of
the Debtor comply, and during the term of this Security Agreement will at all
times comply, in all respects with all Environmental Laws; the Debtor has
obtained all licenses, permits, authorizations and registrations required under
any Environmental Law (“Environmental Permits”) and necessary for its ordinary
course operations, all such Environmental Permits are in good standing, and the
Debtor is in compliance with all material terms and conditions of such
Environmental Permits; neither the Debtor nor any of its present property or
operations is subject to any outstanding written order from or agreement with
any governmental authority nor subject to any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental
Claim or Hazardous Material; there are no Hazardous Materials or other
conditions or circumstances existing, or arising from operations prior to the
date of this Agreement, with respect to any property of the Debtor that would
reasonably be expected to give rise to Environmental Claims; provided, however,
that with respect to property leased from an unrelated third party, the
foregoing representation is made to the best knowledge of the Debtor.  In addition, (i) the Debtor does not
have any underground storage tanks that are not properly registered or
permitted under applicable Environmental Laws, or that are leaking or disposing
of Hazardous Materials off-site, and (ii) the Debtor has notified all of
their employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.

 

For the purposes hereof:

 

(1)           “Environmental Claims” shall mean all claims, however
asserted, by any governmental authority or other person alleging potential
liability or responsibility for violation of any Environmental Law or for
release or injury to the environment or threat to public health, personal
injury (including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type of
relief, resulting from or based upon (a) the presence, placement,
discharge, emission or release (including intentional and unintentional,
negligent and non-negligent, sudden or non-sudden, accidental or non-accidental
placement, spills, leaks, discharges, emissions or releases) of any Hazardous
Material at, in, or from property, whether or not owned by the Debtor, or (b) any
other circumstances forming the basis of any violation, or alleged violation,
of any Environmental Law.

 

(2)           “Environmental Laws” shall mean all federal, state or
local laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, safety and land
use matters; including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (“CERCLA”), the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California Hazardous
Waste Control Law, the California Solid Waste Management, Resource, Recovery
and Recycling Act, the California Water Code and the California Health and
Safety Code.

 

3

 

(3)           “Hazardous Materials” means all those substances which are
regulated by, or which may form the basis of liability under, any Environmental
Law, including all substances identified under any Environmental Law as a
pollutant, contaminant, hazardous waste, hazardous constituent, special waste,
hazardous substance, hazardous material, or toxic substance, or petroleum or
petroleum derived substance or waste.

 

(j)            ERISA:  If the Debtor has a pension, profit sharing or
retirement plan subject to Employee Retirement Income Security Act of 1974 (“ERISA”),
such plan has been and will continue to be funded in accordance with its terms
and otherwise complies with and continues to comply with the requirements of
ERISA.

 

4.                                       Debtor’s
Covenants.  The Debtor covenants and agrees
that, unless the Bank otherwise consents in writing, the Debtor shall at all
times:

 

(a)           Maintenance of Insurance.  Keep and maintain the Collateral insured for
not less than its full replacement value against all risks of loss and damage
and maintain such other insurance as is usually carried by companies engaged in
similar businesses and owning similar properties in the same general areas in
which the Debtor operates and maintain such other insurance and coverages as
may be required by the Bank.  All such
insurance shall be in form and amount and with companies satisfactory to the
Bank.  With respect to insurance covering
the Collateral, such insurance shall name the Bank as loss payee pursuant to a
loss payable endorsement satisfactory to the Bank and shall not be altered or
canceled except upon 10 days’ prior written notice to the Bank.  Upon the Bank’s request, the Debtor shall
furnish the Bank with the original policy or binder of all such insurance.

 

(b)           Inspection Rights and
Accounting Records: The Debtor will maintain adequate books and
records in accordance with generally accepted accounting principals
consistently applied and in a manner otherwise acceptable to Bank, and, at any
reasonable time and from time to time, permit the Bank or any representative
thereof to examine and make copies of the records and visit the properties of
the Debtor and discuss the business and operations of the Borrower with any
employee or representative thereof.  If
the Debtor shall maintain any records (including, but not limited to, computer
generated records or computer programs for the generation of such records) in
the possession of a third party, the Debtor hereby agrees to notify such third party
to permit the Bank free access to such records at all reasonable times and to
provide the Bank with copies of any records which it may request, all at the
Debtor’s expense, the amount of which shall be payable immediately upon demand.  In addition, the Bank may, at any reasonable
time and from time to time, conduct inspections and audits of the Collateral
and the Debtor’s accounts payable, the cost and expenses of which shall be paid
by the Debtor to the Bank upon demand.

 

(c)           Reporting Requirements.
 Promptly upon the Bank’s request,
deliver or cause to be delivered to the Bank such information pertaining to the
Debtor, the Collateral or such other matters as the Bank may reasonably
request.

 

(d)           Payment of Obligations.  Pay all of its liabilities and obligations
when due.

 

(e)           Compensation of
Employees.  Compensate its
employees for services rendered at an hourly rate at least equal to the minimum
hourly rate prescribed by any applicable federal or state law or regulation.

 

(f)            Maintenance of Jurisdiction:
 Debtor shall maintain the jurisdiction
of its organization and chief executive office, or if applicable, principal
residence, as set forth herein

 

4

 

and not change such
jurisdiction name or form of organization without 30 days prior written notice
to Bank.

 

5.                                       Bank’s
Rights Without Default.  At its option
and without any obligation to do so, the Bank may, either in the name of the
Bank, the Bank’s nominee or the Debtor:

 

(a)           Collect, endorse and receive all sums, including, but not
limited to, dividends and interest, now or hereafter payable upon or on account
of the Collateral.

 

(b)           Enter into any agreement relating to or affecting the
Collateral and, in connection therewith, the Bank may surrender control of any
such Collateral, accept other property in exchange for such Collateral, and do
and perform such acts as it deems proper. 
Any money or property received in exchange for any such Collateral shall
be subject to and held by the Bank pursuant to the terms of this Security
Agreement.

 

(c)           Make any compromise or settlement with respect to the
Collateral that the Bank, in its sole and absolute discretion, deems proper.

 

(d)           Insure and do such other acts as the Bank deems necessary,
in its sole discretion, to preserve or protect the Collateral.

 

(e)           Cause the Collateral to be transferred to the Bank’s name
or the name of the Bank’s nominee.

 

(f)            With respect to the Collateral, exercise all rights,
powers and remedies of an owner but excluding any voting rights.

 

6.                                       Events
of Default.  Any one or more of the following
described events shall constitute an event of default (“Event of Default”)
hereunder:

 

(a)           Non-Payment:  The Debtor shall fail to pay the aggregate
principal amount of any Indebtedness when due or interest on the Indebtedness
within 5 days of when due.

 

(b)           Performance Under This
Agreement:  The Debtor shall
fail in any material respect to perform or observe any term, covenant or
agreement contained in this Security Agreement or in any document, instrument
or agreement relating to this Agreement and any such failure shall continue
unremedied for more than 30 days after written notice from the Bank to the
Borrower of the existence and character of such Event of Default.

 

(c)           Representations and Warranties;
Financial Statements:  Any
representation or warranty made by the Debtor under or in connection with this
Security Agreement or any financial statement given by the Debtor or any
guarantor shall prove to have been incorrect. 
in any material respect when made or given or when deemed to have been
made or given.

 

(d)           Other Agreements:
 If there is a default under any
agreement to which Debtor is a party with the Bank or with a third party or
parties resulting in a right by the Bank or such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness.

 

(e)           Insolvency:  The Debtor or any guarantor shall: (i) become
insolvent or be unable to pay its debts as they mature; (ii) make an
assignment for the benefit of creditors or to an agent authorized to liquidate
any substantial amount of its properties and assets; (iii) file a
voluntary petition in bankruptcy or seeking reorganization or to effect a plan
or other arrangement with creditors; (iv) file an answer admitting the
material allegations of an

 

5

 

involuntary petition
relating to bankruptcy or reorganization or join in any such petition; (v) become
or be adjudicated a bankrupt; (vi) apply for or consent to the appointment
of, or consent that an order be made, appointing any receiver, custodian or
trustee, for itself or any of its properties, assets or businesses; or (vii) any
receiver, custodian or trustee shall have been appointed for all or substantial
part of its properties, assets or businesses and shall not be discharged within
30 days after the date of such appointment.

 

(f)            Execution:  Any writ of execution or attachment or any
judgment lien shall be issued against any property of the Debtor and shall not
be discharged or bonded against or released within 30 days after the issuance
or attachment of such writ or lien.

 

(g)           Revocation or Limitation
of Guaranty:  Any guaranty
shall be revoked or limited or its enforceability or validity shall be
contested by any guarantor, by operation of law, legal proceeding or otherwise
or any guarantor who is a natural person shall die.

 

(h)           Revocation or Limitation
of Subordination Agreement:  Any subordination agreement shall be revoked
or limited or its enforceability or validity shall be contested by any creditor
signatory thereto, by operation of law, legal proceeding or otherwise.

 

(i)            Suspension:  The Debtor shall voluntarily suspend the
transaction of business or allow to be suspended, terminated, revoked or
expired any permit, license or approval of any governmental body necessary to
conduct the Debtor’s business as now conducted.

 

(j)            Material Adverse Change:
 If there occurs a material adverse
change in the Debtor’s business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Indebtedness or
there is a material impairment of the value or priority of the Bank’s security
interest in the Collateral.

 

(k)           Change in Ownership:
 There shall occur a sale, transfer, disposition
or encumbrance (whether voluntary or involuntary), or an agreement shall be
entered into to do so, with respect to more than 10% of the issued and
outstanding capital stock of the Debtor.

 

(l)            Impairment of
Collateral.  There shall occur
any injury or damage to all or any part of the Collateral or all or any part of
the Collateral shall be lost, stolen or destroyed.

 

7.                                       Bank’s
Rights and Remedies on Default.  Upon the
occurrence of any Event of Default, the Bank may, at its sole and absolute
election, without demand and only upon such notice as may be required by law:

 

(a)           Acceleration.  Declare the Indebtedness and any or all other
indebtedness owing to the Bank by the Debtor or any obligor on the Indebtedness
(however such indebtedness may be evidenced or secured) immediately due and
payable, whether or not otherwise due and payable.

 

(b)           Cease Extending Credit.  Cease extending credit to or for the account
of the Debtor or any obligor on the Indebtedness under any agreement now
existing or hereafter entered into with the Bank.

 

(c)           Termination.  Terminate any agreement as to any future
obligation of the Bank without affecting the Debtor’s obligations to the Bank
or the Bank’s rights and remedies under this Security Agreement or under any
other document, instrument or agreement.

 

6

 

(d)           Segregate Collections.  Require the Debtor to segregate all
collections and proceeds of the Collateral so that they are capable of
identification and to deliver such collections and proceeds to the Bank, in
kind, without commingling, at such times and in such manner as required by the
Bank.

 

(e)           Records of Collateral.  Require the Debtor to periodically deliver to
the Bank records and schedules showing the status, condition and location of
the Collateral and such contracts or other matters which affect the Collateral.  In connection herewith, the Bank may conduct
such audits or other examination of such records, including, but not limited
to, verification of balances owing by any account debtor of the Debtor, as the
Bank, in its sole and absolute discretion, deems necessary.

 

(f)            Compromise.  Grant extensions, compromise claims and
settle any account for less than the amount owing thereunder, all without
notice to the Debtor or any obligor on or any guarantor of the Indebtedness.

 

(g)           Protection of Security
Interest in Collateral.  Make
such payments and do such acts as the Bank, in its sole judgment, considers
necessary and reasonable to protect its security interest in the Collateral.  The Debtor hereby irrevocably authorizes the
Bank to pay, purchase, contest or compromise any encumbrance, lien or claim
which the Bank, in its sole judgment, deems to be prior or superior to its
security interest.  Further, the Debtor
hereby agrees to pay to the Bank, upon demand therefor, all expenses and
expenditures (including attorneys’ fees at trial and on appeal) incurred in
connection with the foregoing.

 

(h)           Foreclosure.  Enforce any security interest or lien given
or provided for under this Security Agreement or under any other document
relating to the Collateral, in such manner and such order, as to all or any
part of the Collateral, as the Bank, in its sole judgment, deems to be
necessary or appropriate and the Debtor hereby waives any and all rights,
obligations or defenses now or hereafter established by law relating to the
foregoing.  In the enforcement of its
security interest in the Collateral, the Bank is authorized to enter upon the
premises where any Collateral is located and take possession of the Collateral
or any part thereof, together with the Debtor’s records pertaining thereto, or
the Bank may require the Debtor to assemble the Collateral and records
pertaining thereto and make such Collateral and records available to the Bank
at a place designated by the Bank.  The
Bank may sell the Collateral or any portions thereof, together with all
additions, accessions and accessories thereto, giving only such notices and
following only such procedures as are required by law, at either a public or
private sale, or both, with or without having the Collateral present at the
time of sale, which sale shall be on such terms and conditions and conducted in
such manner as the Bank determines in its sole judgment to be commercially
reasonable.  The Collateral may be
disposed of in its then condition without any preparation or processing.  In connection with any disposition of the
Collateral, the Bank may disclaim any warranty relating to title, possession or
quiet enjoyment.  Any deficiency which
exists after the disposition or liquidation of the Collateral shall be a
continuing liability of any obligor on or any guarantor of the Indebtedness and
shall be immediately paid to the Bank.  Further,
the Debtor hereby agrees to pay to the Bank, upon demand therefor, all expenses
and expenditures (including attorney’s fees) incurred in connection with the
foregoing.

 

(i)            Non-Exclusivity of
Remedies.  Exercise one or
more of the Bank’s rights set forth herein or seek such other rights or pursue
such other remedies as may be provided by law, in equity or in any other
agreement now existing or hereafter entered into between the Bank and the
Debtor or any obligor on or guarantor of the Indebtedness, or otherwise.

 

7

 

(j)            Application of Proceeds.  All amounts received by the Bank as proceeds
from the disposition or liquidation of the Collateral shall be applied as
follows: first, to the costs and expenses of collection, including court costs
and reasonable attorneys’ fees, whether or not suit is commenced by the Bank;
next, to those costs and expenses incurred by the Bank in protecting,
preserving, enforcing, collecting, selling or disposing of the Collateral;
next, to the payment of accrued and unpaid interest on all of the Indebtedness;
next, to the payment of the outstanding principal balance of the Indebtedness;
and last, to the payment of any other indebtedness owed by the Debtor to the
Bank.  Any excess Collateral or excess
proceeds existing after the disposition or liquidation of the Collateral will
be returned or paid by the Bank to the Debtor.

 

If any non-cash proceeds are received in connection
with any sale of Collateral, the Bank shall not apply such non-cash proceeds to
the Obligations unless and until such proceeds are converted to such; provided,
however, that if such non-cash proceeds are not expected on the date of receipt
thereof to be converted to cash within one year after such date, the Bank shall
use commercially reasonable efforts to convert such non-cash proceeds to cash
within such one year period.

 

8.                                       Miscellaneous.

 

(a)           Amounts Payable Under
this Security Agreement.  If
the Debtor fails to pay on demand the amount of any obligations referred to in
this Security Agreement, the Bank may pay such amount at its option and without
any obligation to do so and without waiving any default occasioned by the
Debtor’s failure to pay such amount.  All
amounts so paid by the Bank, together with reasonable attorneys’ fees at trial
and on appeal and all other costs, charges and expenses relating to the
Indebtedness, shall be a part of the Indebtedness and shall bear interest at
the highest rate chargeable on any Indebtedness until paid in full.

 

(b)           Other Terms.  Terms not otherwise defined in this Security
Agreement shall have the meanings attributed to such terms in the Uniform
Commercial Code as in effect on July 1, 2001 and from time to time
thereafter.

 

(c)           Reliance.  Each warranty, representation, covenant and
agreement contained in this Security Agreement shall be conclusively presumed
to have been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition to
any other warranties, representations, covenants or agreements which the Debtor
shall now or hereafter give, or cause to be given, to the Bank.

 

(d)           Attorneys’ Fees.  Debtor shall pay to the Bank all costs and
expenses, including but not limited to reasonable attorneys fees, incurred by
Bank in connection with the administration, enforcement, including any
bankruptcy, at trial and on appeal or the enforcement of any judgment or any
refinancing or restructuring of this Security Agreement or any document,
instrument or agreement executed with respect to, evidencing or securing the
Indebtedness hereunder.

 

(e)           Notices.  All notices, payments, requests, information
and demands which either party hereto may desire, or be required to give or
make to the other party, shall be given or made to such party by hand delivery
or through deposit in the United States mail, postage prepaid, or by telephone
facsimile, addressed to the address set forth below such party’s signature to
this Security Agreement or to such other address as may be specified from time
to time in writing by either party to the other.

 

8

 

(f)            Waiver.  Neither the failure nor delay by the Bank in
exercising any right hereunder or under any document, instrument or agreement
mentioned herein shall operate as a waiver thereof, nor shall any single or
partial exercise of any right hereunder or under any other document, instrument
or agreement mentioned herein preclude other or further exercise thereof or the
exercise of any other right; nor shall any waiver of any right or default
hereunder or under any other document, instrument or agreement mentioned herein
constitute a waiver of any other right or default or constitute a waiver of any
other default of the same or any other term or provision.

 

(g)           Assignment.  This Security Agreement shall be binding upon
and inure to the benefit of the Debtor and the Bank and their respective
successors and assigns, except that the Debtor shall not have the right to
assign its rights hereunder or any interest herein without the Bank’s prior
written consent.  The Bank may sell or
assign all or any portion of its rights and benefits hereunder and, in
connection therewith, may deliver to such prospective buyer or assignee
financial statements and other relevant information pertaining to the Debtor or
any obligor on the Indebtedness.

 

(h)           Jurisdiction.  This Security Agreement and the rights of the
parties hereunder to and concerning the Collateral, and any documents,
instruments or agreements mentioned or referred to herein, shall be governed by
and construed according to the laws of the State of California, without regard
to conflict of law principles, to the jurisdiction of whose courts the parties
hereby submit.

 

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

 

	
   

  	
  DEBTOR(S):

  
	
   

  	
   

  
	
   

  	
  ALPHATEC HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Scott Palka

  	
   

  
	
   

  	
  NAME: Scott Palka, CFO and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ADDRESS:

  
	
   

  	
   

  
	
   

  	
  2051 Palomar Airport Road, Suite 100 Carlsbad, CA

  
	
   

  	
  92011

  
	
   

  	
   

  
	
   

  	
  BANK:

  
	
   

  	
   

  
	
   

  	
  BANK OF THE WEST

  
	
   

  	
   

  
	
   

  	
  BY: 

  	
  /s/ Kris Ilkov

  	
   

  
	
   

  	
  NAME: Kris Ilkov, Vice President

  

 

 

9

 

EXHIBIT “A”

 

DESCRIPTION OF SECURITIES AND
INSTRUMENTS

 

SECURITY AGREEMENT (GUARANTY)

 

The
securities and instruments described below are subject to the terms and conditions
of a certain Security Agreement dated as of January   , 2006
between BANK OF THE WEST (the “Bank”) and ALPHATEC HOLDINGS, INC. (the “Debtor”)
and are a part of the Collateral described therein:

 

	
  CERTIFICATE
  OR

  INSTRUMENT NO.

  	
   

  	
  NAME OF COMPANY OR

  DESCRIPTION OF

  INSTRUMENT

  	
   

  	
  NO. OF SHARES OR

  AMOUNT OF INSTRUMENT

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  001

  	
   

  	
  ALPHATEC SPINE, INC.

  	
   

  	
  1,000

  

 

10

AMENDMENT
TO

EMPLOYMENT
AGREEMENT OF

STEPHEN
T.D. DIXON

 

 

                This Amendment
to the Employment Agreement (this “Amendment”) is made as of February 6, 2006 by
and among Stephen T.D. Dixon (“Employee”), Alphatec Spine, Inc., a California
corporation (the “Company”), and Alphatec Holdings, Inc., a Delaware
corporation (collectively, the “Parties”). 
Capitalized terms undefined herein shall have the meaning ascribed them
in the Agreement.

RECITALS

Reference is made to that certain Employment Agreement dated Effective
as of February 6, 2006, by and among the Parties (the “Agreement”).

                The Parties desire to amend the Agreement as set
forth herein.

                Now, therefore, in consideration of the mutual
promises set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is acknowledged by the parties hereto, the
parties hereto agree as follows.

1.             AMENDMENTS

1.1          Replacement of Section 3(a).  Section 3(a) of the Agreement is hereby
deleted in the entirety and is replaced with the following:

 

“(a)
Beginning on February 6, 2006 the Employee shall be employed by the
Company.  On February ___, 2006, the
Company shall employ Employee, and Employee agrees to work for the Company as
its Chief Financial Officer, Treasurer and Vice President.  Employee shall at all times perform the
duties and responsibilities inherent in the position in which he serves and
such other duties and responsibilities as the Company’s President and Chief
Executive Officer (the “CEO”) shall from time to time reasonably assign to him.  The Employee shall report to the CEO.

 

2.             MISCELLANEOUS

 

In the event of any
conflict, ambiguity or inconsistency between the provisions of this amendment
and the Agreement, the provisions of this Amendment shall prevail.  Other than as set forth in this Amendment,
the remainder of the Agreement shall remain in full force and effect.

 

[Signature Page Follows]

 

                IN
WITNESS WEHREOF, the parties have executed this amendment to the Agreement on
the 6th day of February, 2006.

 

 

	
   

  	
   

  	
  /s/ Stephen T.D. Dixon

  
	
   

  	
   

  	
  Stephen T.D. Dixon

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ALPHATEC SPINE, INC.

  
	
   

  	
   

  	
  By:

  	
  /s/
  Ronald G. Hiscock                                         

  
	
   

  	
   

  	
  Ronald G. Hiscock

  
	
   

  	
   

  	
  President and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ALPAHTEC HOLDINGS, INC.

  
	
   

  	
   

  	
  By:

  	
  /s/
  Ronald G. Hiscock                                         

  
	
   

  	
   

  	
  Ronald G. Hiscock

  
	
   

  	
   

  	
  President and CEO

  

 

 

2

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