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Exhibit 10.6  

 
 

EMPLOYMENT AGREEMENT    
    

        THIS
EMPLOYMENT AGREEMENT (the "Agreement"), made this 23rd day of January, 2006, is entered into among Daniel J. Lacienski ("Employee"), Alphatec Spine, Inc., a
California corporation (the "Company"), and Alphatec Holdings, Inc., a Delaware corporation ("Parent"). 

        1.    Employment.    Employee's employment with the Company shall commence on February 6, 2006 (the
"Commencement Date") and shall continue upon the terms set forth in this Agreement for the period set forth in Section 2 hereof. 

        2.    Term of Employment.    

        (a)   Until
such time as either the Employee or the Company terminates the employment as set forth herein, the term of the Employee's employment shall be three years from the
Commencement Date (the "Initial Term"). 

        (b)   The
Initial Term shall be automatically renewed as of each anniversary of the Commencement Date for an additional twelve-month period unless the Company or the Employee
delivers to the other, at least 30 days prior to each anniversary date, written notice specifying that the Employee's employment will not be renewed at the end of the
then-applicable term of the Agreement. 

        3.    Title; Capacity; Office.    

        (a)
The Company shall employ Employee, and Employee agrees to work for the Company as its Executive Vice President, Operations. Employee shall perform the duties and responsibilities
inherent in the position in which he serves and such other duties and responsibilities as the Chairman shall from time to time reasonably assign to him. Employee shall report to the Chairman. 

        (b)
Employee's office shall be located at the Company's headquarters in Carlsbad, California, or at such other corporate headquarters approved by the Board of Directors (the "Board").
Employee agrees that, while he will retain his residence in the Western Massachusetts area, he will not be, and will act in a way that he will not be perceived as, a commuter executive. 

        4.    Compensation and Benefits.    While employed by the Company, Employee shall be entitled to the following (it
being agreed, for the avoidance of doubt, that, except as provided in Section 6.2, amounts payable on the happening of any specified event will not be payable if the Employee is not employed by
the Company upon the happening of such event): 

        4.1    Salary.    The Company shall pay Employee an annual base salary of $285,000.00, less applicable payroll
withholdings, payable in accordance with the Company's customary payroll practices, with salary increases, if any, to be determined by the Chairman on an annual basis beginning January, 2007. 

        4.2    Performance Bonus.    Employee will be eligible to receive a cash performance bonus each fiscal year, payable
the conclusion of the Company's end of the fiscal year audit, in an amount of up to 50% of the base salary received by Employee for such fiscal year. Performance bonuses shall be based upon the
achievement of objectives established by the Chairman. 

        4.3    Fringe Benefits.    Employee will be entitled to participate in all benefit programs that the Company
establishes and makes available to its management Employees. Employee will also be entitled to take fully paid vacation in accordance with Company policy, which shall be not less than four
(4) weeks per calendar year, with no forfeiture for unused vacation days. 

        4.4    Reimbursement of Expenses.    Employee shall be entitled to prompt reimbursement for reasonable expenses set
forth on Schedule I incurred or paid by his in connection with, or related 

 

to
the performance of, his duties, responsibilities or services under this Agreement, upon presentation by Employee of documentation, expense statements, vouchers and/or such other supporting
information as the Company may reasonably request. 

        4.5    Equity.    Upon the Commencement Date, Employee shall be granted options to purchase 35,000 shares of
Series A-1 Common Stock of Parent. The options shall be issued at the fair market value of the Series A-1 Common Stock on the date of issuance and shall be issued
pursuant to an incentive stock option agreement that shall, among other things, contain a five-year vesting period with immediate vesting upon a change of control. 

        5.    Termination of Employment Period.    The Agreement shall terminate upon the occurrence of any of the following: 

        5.1    Termination for Cause.    At the election of the Company, for Cause. For the purposes of this
Section 5.1, "Cause" for termination shall be deemed to exist upon the occurrence of any of the following: 

        (a)   a
written finding by the Chairman made after reasonable investigation that Employee has engaged in dishonesty, gross negligence or gross misconduct that is injurious to
the Company, and notice to such Employee of such written finding; 

        (b)   Employee's
conviction or entry of nolo contendere to any felony or crime involving moral turpitude, fraud or embezzlement of Company property; and 

        (c)   a
written finding by the Chairman that Employee has engaged in a material breach of this Agreement, and that, after written notice of the right to cure within thirty
(30) days, has not cured such material breach. 

        5.2    Termination by the Company Without Cause.    At the election of the Company, without Cause, at any time, upon
thirty (30) days written notice to Employee. Except as provided in Section 3(a) hereof, any material change in the duties or reporting responsibilities of Employee shall be treated, at
the election of Employee, as a termination without cause. 

        5.3    Voluntary Termination—At the election of the Employee, for any reason, upon thirty (30) days notice to
the Company.    

        6.    Effect of Termination.    

        6.1    Termination for Cause or at the Election of Employee.    In the event that Employee's employment is terminated
for Cause pursuant to Section 5.1 or at the Election of the Employee pursuant to Section 5.3, the Company shall have no further obligations under this Agreement other than to pay to
Employee the compensation and benefits, including payment for accrued but untaken vacation days, otherwise payable to his under Section 4 through the last day of his actual employment by the
Company. 

        6.2    Termination by the Company Without Cause.    In the event that Employee's employment is terminated pursuant to
Section 5.2, the Company shall continue for a period of 12 months (the "Severance Period") to pay to Employee his annual base salary then in effect in the manner set forth in
Section 4.1 and payment for accrued but untaken vacation days, and to provide benefits as set forth in section 4.5. Employee shall also continue to be eligible for bonuses pursuant to
Section 4.2, despite Employee's termination, for such 12-month period; provided, however, that in the event Employee is terminated
pursuant to Section 5.2 after a change in control, the Employee's bonus pursuant to Section 4.2 for the fiscal year in which Employee is terminated shall be paid upon termination, and
shall not be less than 100% of his target bonus (i.e., target bonus defined as 35% of then base salary), prorated by multiplying the target bonus by the number of full or partial weeks Employee was
employed during such fiscal year divided by 52 and the 

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Employee
shall continue to vest in is options granted pursuant to Section 4.5 during the Severance Period. 

        7.    Non-disclosure and Non-competition.    

        7.1    Proprietary Information.    

        (a)   Employee
agrees that all information and know-how, whether or not in writing, of a private, secret or confidential nature concerning the Company's business
or financial affairs (collectively, "Proprietary Information") is and shall be the exclusive property of the Company. By way of illustration, but not limitation, Proprietary Information may include
inventions, products, processes, methods, techniques, formulas, compositions, compounds, projects, developments, plans, research data, clinical data, financial data, personnel data, computer programs,
and customer and supplier lists. Employee will not disclose any Proprietary Information to others outside the Company or use the same for any unauthorized purposes without written approval by an
officer of the Company, either during or after his employment, unless and until such Proprietary Information has become public knowledge without fault by Employee. 

        (b)   Employee
agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings, or other written, photographic,
or other tangible material containing Proprietary Information, whether created by Employee or others, which shall come into his custody or possession, shall be and are the exclusive property of the
Company to be used by Employee only in the performance of his duties for the Company. 

        (c)   Employee
agrees that his obligation not to disclose or use information, know-how and records of the types set forth in paragraphs (a) and
(b) above, also extends to such types of information, know-how, records and tangible property of subsidiaries and joint ventures of the Company, customers of the Company or
suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to Employee in the course of the Company's business. 

        (d)   Employee
agrees that all Creations (as herein defined) shall be the property of the Company. "Creations" shall mean all ideas, prospect and customer lists, inventions,
research, plans for products or services, potential marketing and sales relationships, business development strategies, marketing plans, designs, logos, branding, layouts, templates, computer software
(including, without limitation, source code), computer programs, original works of authorship, copyrightable expression, characters, know-how, trade secrets, information, data,
developments, discoveries, improvements, modifications, technology, methodologies, algorithms and designs, whether or not subject to patent or copyright protection, made, conceived, expressed,
developed, or actually or constructively reduced to practice by Executive solely or jointly with others to the extent relating to or otherwise in connection with Executive's employment by the Company.
Employee agrees to cooperate in all respects regarding requests by the Company relating to the Company's intellectual property rights in the Creations, whether such cooperation is required during or
after the termination of the employment period. 

        7.2    Noncompetition; Nonsolicitation; Nondisparagement.    

        (a)   During
his employment with the Company, Employee shall not, directly or indirectly, render services of a business, professional or commercial nature to any other person
or entity that competes with the Company's business, whether for compensation or otherwise, or engage in any business activities competitive with the Company's business, whether alone, as an Employee,
as a partner, or as a shareholder (other than as the holder of not more than one percent of the combined voting power of the outstanding stock of a public company), officer 

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or
director of any corporation or other business entity, or as a trustee, fiduciary or in any other similar representative capacity of any other entity. Notwithstanding the foregoing, the expenditure
of reasonable amounts of time as a member of other companies' Board of Directors shall not be deemed a breach of this if those activities do not materially interfere with the services required under
this Agreement. 

        (b)   For
a period of one (1) year after termination of Employee's employment for any reason, Employee will not recruit solicit or induce, or attempt to induce, any
Employee or Employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company; provided, however,
that this provision shall not apply in the event that Employee is terminated pursuant to section 5.2 following a change in control. 

        (c)   During
his employment with the Company and at all times thereafter, Employee shall not make any statements that are professionally or personally disparaging about, or
adverse to, the interests of the Company or any of its divisions, affiliates, subsidiaries or other related entities, or their respective directors, officers, employees, agents, successors and assigns
(collectively, "Company-Related Parties"), including, but not limited to, any statements that disparage any person, product, service, finances, financial condition, capability or any other aspect of
the business of any Company-Related Party, and that Employee will not engage in any conduct which could reasonably be expected to harm professionally or personally the reputation of any
Company-Related Party. 

        7.3   If
any restriction set forth in this Section 7 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to
which it may be enforceable. 

        7.4   The
restrictions contained in this Section 7 are necessary for the protection of the business and goodwill of the Company and are considered by Employee to be
reasonable for such purpose. Employee agrees that any breach of this Section 7 will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief. 

        8.    Other Agreements.    Employee represents that his performance of all the terms of this Agreement as an Employee
of the Company does not and will not breach any (i) agreement to keep in confidence proprietary information, knowledge or data acquired by his in confidence or in trust prior to his employment
with the Company or (ii) agreement to refrain from competing, directly or indirectly, with the business of any previous employer or any other party. 

        9.    Notices.    All notices required or permitted under this Agreement shall be in writing and shall be deemed
effective upon (a) a personal delivery, or (b) deposit in the United States Post Office, by registered or certified mail, postage prepaid. 

        10.    Entire Agreement.    This Agreement constitutes the entire agreement between the parties and supersedes all
prior agreements and understandings, whether written or oral relating to the subject matter of this Agreement 

        11.    Amendment.    This Agreement may be amended or modified only by a written instrument executed by both the
Company and Employee. 

        12.    Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of both parties and
their respective successors and assigns, including any corporation into which the Company may be merged or which may succeed to its assets or business,  provided, however, that the 

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obligations
of Employee are personal and shall not be assigned by his, and that the Agreement may not be assigned by the Company to any other entity without the Employee's written consent. 

        13.    Miscellaneous.    

        13.1    No Waiver.    No delay or omission by the Company in exercising any right under this Agreement shall operate
as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right
on any other occasion. 

        13.2    Severability.    In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable,
the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. 

        13.3    Governing Law.    This Agreement shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York. 

        13.4    Consent to Jurisdiction.    Each of the parties hereto irrevocably consents and submits to the jurisdiction of
the courts of the State of New York, sitting in the Borough of Manhattan, and the United States District Court for the Southern District of New York, sitting in the Borough of Manhattan, as the
exclusive jurisdiction and venue for any actions or proceedings brought against either party hereto, arising out of or relating to this Agreement. In any such action or proceeding brought in such
courts, the parties hereto irrevocably (i) waive any objection or jurisdiction or venue, (ii) waive personal service of the summons, complaint and other process and (iii) agree
that service thereof may be made by certified or registered first-class mail directed to the party to be served. 

        13.5    Waiver of Jury Trial.    Each of the parties hereto irrevocably waives its right to a trial by jury in any
action arising out of or related to this Agreement. 

        13.6    Counterparts.    This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument. 

        IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. 

	 
	 	 

	 	 	/s/  DANIEL J. LACIENSKI      
 Daniel J. Lacienski
	

 	
 	

ALPHATEC SPINE, INC.
	

 	
 	

By: /s/  JOHN H. FOSTER      
 John H. Foster

Chairman
	

 	
 	

ALPHATEC HOLDINGS, INC.
	

 	
 	

By: /s/  JOHN H. FOSTER      
 John H. Foster

Chairman

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Schedule I    
    

During
the term of employment, Company to provide: 

	(a)
	Residence
in California—Company to provide for rental living, e.g., comfortable furnished town home with normal maintenance and upkeep (i.e.,
one-to-two bedrooms) in appropriate neighborhood, with Company to approve and sign lease;

	(b)
	Travel
expenses—Company to reimburse for first-class air travel to and from Western Massachusetts at discretion of Employee but subject to the agreement set forth in
Section 3(b) hereof;

	(c)
	Vehicle
expenses—Company to provide rental car in California;

	(d)
	Other
Expenses—Company to reimburse, at the discretion of the Chairman, for normal business expenses associated with executive status relating to travel, airline clubs,
dry cleaning and laundry while in California, meal allowance while in California, and parking while in California. 

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EMPLOYMENT AGREEMENT

Schedule IExhibit 10.16

 

CREDIT
AGREEMENT

 

(ACCOUNTS
RECEIVABLE LINE OF CREDIT)

 

(FOREIGN EXCHANGE SUB-FACILITY)

 

This Agreement (the “Agreement”) is made and entered
into as of 1/24/06, 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.

 

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 finished

 

1

 

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.

 

(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.

 

2

 

(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 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

 

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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, 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

 

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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 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

 

5

 

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 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:

 

6

 

(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 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)

 

7

 

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

 

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

 

8

 

(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.

 

(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 judgement 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

 

9

 

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 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.

 

10

 

(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

 

(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

 

11

 

(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.

 

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

 

12

 

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

 

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

 

13

 

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

 

(vi)                              Inventory may be held on consignment

 

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
(“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

 

14

 

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 pm.  (Pacific
time) on any day shall be deemed received on the next succeeding Business Day;
and (iii) clear and 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 prior to any extraordinary
charges, including but not limited to, payment in kind dividends, put
amortization, stock compensation, amortization of purchased intangibles,
inventory step-up and amortization of research and development in process.

 

(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

 

15

 

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, 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.

 

16

 

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, except for any refinancing of
existing Indebtedness owned by Alphatec Pacific, Inc

 

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 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

 

17

 

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.

 

(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

 

18

 

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

 

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

 

19

 

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 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

 

20

 

(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 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

 

21

 

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 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:

 

22

 

(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.

 

(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.

 

23

 

	
  To the Borrower:

  	
   

  	
  To the Bank:

  
	
   

  	
   

  	
   

  
	
  ALPHATEC SPINE, INC.

  	
   

  	
  BANK OF THE WEST

  
	
  2051 Palomar Airport Road, Suite 100

  	
   

  	
  San Diego Office (CBC)

  
	
  Carisbad, CA 92011

  	
   

  	
  1280 4th Avenue

  
	
  Attn:

  	
  Scott Palka

  	
   

  	
  San Diego, CA 92101

  
	
   

  	
  Treasurer and CFO

  	
   

  	
  Attn:

  	
  Kris Ilkov

  
	
   

  	
   

  	
   

  	
  Vice President 

  
	
   

  	
   

  	
   

  
	
  FAX: (760) 431-1624

  	
   

  	
  FAX: (619) 595-1918

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  With a copy to:

  
	
  VP-LEGAL

  	
   

  	
  BANK OF THE WEST

  
	
  FAX: (760) 431-1624

  	
   

  	
   

  
	
   

  	
   

  	
  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.

 

 

24

 

 

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 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

  	
  ALPHATECSPINE, INC.

  
	
   

  	
   

  
	
  BY:

  	
  /s/ Kris Ilkov

  	
   

  	
  BY:

  	
  /s/ Scott Palka

  	
   

  
	
  NAME: Kris Ilkov, Vice President

  	
  NAME: Scott Palka, Treasurer and CFO

  
						

 

 

25

 

FIRST AMENDMENT TO CREDIT
AGREEMENT

 

This FIRST Amendment to Credit Agreement (the
“Amendment”) is made and entered into as of 3/7/06, by and between BANK OF THE
WEST (the “Bank”) and ALPHATEC SPINE, INC. (the “Borrower”) with respect to the
following:

 

This Amendment shall be deemed to be a part of and
subject to that certain Credit Agreement dated as of January 24, 2006, as it
may be amended from time to time, and any and all addenda and riders thereto
(collectively the “Agreement”).  Unless
otherwise defined herein, all terms used in this Amendment shall have the same
meanings as in the Agreement.  To the extent
that any of the terms or provisions of this Amendment conflict with those
contained in the Agreement, the terms and provisions contained herein shall
control.

 

WHEREAS, the Borrower and the Bank mutually desire to
extend and/or modify the Agreement.

 

NOW THEREFORE, for value received and hereby
acknowledged, the Borrower and the Bank agree as follows:

 

1.                                       Modification of Certain Defined
Terms/Permitted Liens.   The definition of Permitted Liens set forth in
Section 1.1.40 of the Agreement is hereby deleted and replaced in its entirely
with the following:  “Permitted Liens”:
shall mean: (i) liens and security interests securing indebtedness owned by the
Borrower to the Bank; (ii) liens for taxes, assessments or similar changes not
yet due; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other
like 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, including, up to $4,000,000.00 for
fiscal year 2006; (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 Borrowers assets.

 

2.                                       Representations and Warranties.   The Borrower hereby
reaffirms the representations and warranties contained in the Agreement and
represents that no event, which with notice or lapse of time, could become an
Event of Default, has occurred or is continuing.

 

3.                                       Confirmation of Other Terms and
Conditions of the Agreement.   Except as specifically provided in
this Amendment, all other terms, conditions and covenants of the Agreement
unaffected by this Amendment shall remain unchanged and shall continue in full
force and effect and the Borrower hereby covenants and agrees to perform and
observe all terms, covenants and agreements provided for in the Agreement, as
hereby amended.

 

4.                                       Governing Law.   This Amendment shall
be governed and construed in accordance with the laws of the State of
California to which jurisdiction the parties hereto hereby consent and submit.

 

5.                                       Counterparts.   This Amendment may be
executed in one or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one and the same instrument.

 

 

1

 

IN WITNESS WHEREOF, this Amendment has been executed by the parties
hereto as of the date first hereinabove written.

 

	
  BANK:

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
  BANK OF THE WEST

  	
   

  	
  ALPHATEC SPINE, INC.

  
	
   

  	
   

  	
   

  
	
  BY:

  	
  /s/ Cory Brazas SVP for Jack Lenhof

  	
   

  	
  BY:

  	
  /s/ Stephen Dixon

  
	
  NAME: Jack Lenhof, Regional Vice President

  	
   

  	
  NAME:          Stephen
  Dixon

  
	
   

  	
   

  	
  TITLE:          CFO
  - VP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ADDRESS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2051 Palomar Airport
  Road, Suite 100

  Carisbad, CA 92011

  
					

 

2

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