Document:

exv10w4

 

Exhibit 10.4

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

     THIS THIRD AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT (this “Amendment”) dated as
of June ___, 2006, is entered into by and among ATLAS PIPELINE PARTNERS, L.P., a Delaware limited
partnership (“Borrower”); ATLAS PIPELINE NEW YORK, LLC, a Pennsylvania limited liability company
(“APL New York”); ATLAS PIPELINE OHIO, LLC, a Pennsylvania limited liability company (“APL Ohio”);
ATLAS PIPELINE PENNSYLVANIA, LLC, a Pennsylvania limited liability company (“APL Pennsylvania”);
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“APL Operating”); ATLAS
PIPELINE MID-CONTINENT LLC, a Delaware limited liability company (“APL Mid-Continent”); ELK CITY
OKLAHOMA PIPELINE, L.P., a Texas limited partnership (“Elk City”); ELK CITY OKLAHOMA GP, LLC, a
Delaware limited liability company (“Elk City GP”); ATLAS ARKANSAS PIPELINE LLC, an Oklahoma
limited liability company (“Atlas Arkansas”); MID-CONTINENT ARKANSAS PIPELINE, LLC, an Arkansas
limited liability company (“AAPL2”); NOARK PIPELINE SYSTEM, LIMITED PARTNERSHIP, an Arkansas
limited partnership (“NOARK”); NOARK Energy Services, L.L.C., an Oklahoma limited liability company
(“NOARK Energy”); Ozark Gas Gathering, L.L.C., an Oklahoma limited liability company (“OGG”); and
Ozark Gas Transmission, L.L.C., an Oklahoma limited liability company (“OGT”; OGT, OGG, NOARK
Energy, NOARK, AAPL2, Atlas Arkansas, Elk City GP, Elk City, APL Mid-Continent, APL New York, APL
Ohio, APL Pennsylvania and APL Operating are collectively referred to herein as the “Guarantors,”
and Borrower and Guarantors are collectively referred to herein as the “Obligors”); each of the
lenders party hereto (individually, together with its successors and assigns, a “Lender,” and
collectively, “Lenders”); and WACHOVIA BANK, NATIONAL ASSOCIATION, as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, “Administrative Agent”).

R E C I T A L S

     A. Borrower, certain Guarantors, Administrative Agent and the Lenders have entered into that
certain Revolving Credit and Term Loan Agreement dated as of April 14, 2005, as amended by that
certain First Amendment to Revolving Credit and Term Loan Agreement dated as of October 31, 2005,
and that certain Second Amendment to Revolving Credit and Term Loan Agreement dated as of May 1,
2006 (as further renewed, extended, amended or restated from time to time, the “Credit Agreement”).

     B. Borrower has requested that the Lenders amend the Credit Agreement as set forth herein.

     C. Administrative Agent and the Lenders have agreed to amend the Credit Agreement as so
requested, subject to the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the foregoing, and intending to be legally bound, the
parties agree as follows:

     SECTION 1. Terms Defined in Credit Agreement. As used in this Amendment, except as
may otherwise be provided herein, all capitalized terms which are defined in the Credit Agreement
shall have the same meaning herein as therein, all of such terms and their definitions being
incorporated herein by reference.

     SECTION 2. Amendments to Credit Agreement. Subject to the conditions set forth in
Section 3 hereof, the Credit Agreement is hereby amended as follows:

 

 

     (a) The definition of “Applicable Margin” in Section 1.02 of the Credit Agreement
(Definitions) is hereby amended in its entirety to read as follows:

     “Applicable Margin shall mean with respect to Revolver Loans and the Term Loan, the
applicable per annum percentage set forth at the appropriate intersection in the table shown
below, based on the Leverage Ratio as in effect from time to time:

	 	 	 	 	 	 	 	 	 
	 	 	Applicable Margin
	 	 	LIBOR	 	 
	 	 	Loans and	 	Base Rate
	Leverage Ratio	 	L/C Fees	 	Loans
	Less than or equal to 3.00 to 1.00
	 	 	1.25	%	 	 	0.25	%
	 
	 	 	 	 	 	 	 	 
	Greater than 3.00 to 1.00,
but less than or equal to 3.50 to 1.00
	 	 	1.50	%	 	 	0.50	%
	 
	 	 	 	 	 	 	 	 
	Greater than 3.50 to 1.00,
but less than or equal 4.00 to 1.00
	 	 	1.75	%	 	 	0.75	%
	 
	 	 	 	 	 	 	 	 
	Greater than 4.00 to 1.00, but less
than or equal to 4.50 to 1:00
	 	 	2.00	%	 	 	1.00	%
	 
	 	 	 	 	 	 	 	 
	Greater than 4.50 to 1.00, but less
than or equal to 5.25 to 1:00
	 	 	2.25	%	 	 	1.25	%
	 
	 	 	 	 	 	 	 	 
	Greater than 5.25 to 1.00
	 	 	2.50	%	 	 	1.50	%

Each change in the Applicable Margin resulting from a change in the Leverage Ratio shall
take effect on the date of delivery by the Borrower to the Administrative Agent of notice
thereof pursuant to Section 8.01(j). However, if the Borrower fails to deliver a compliance
certificate when required pursuant to Section 8.01(j), then the Applicable Margin shall be
set at the highest level until such date as the Borrower delivers such compliance
certificate to the Administrative Agent.”

     (b) The definition of “Termination Date” in Section 1.02 of the Credit Agreement
(Definitions) is hereby amended by replacing each occurrence of the words “April 13, 2010” therein
with the words “June 29, 2011”.

     (c) The following definition is hereby added to Section 1.02 of the Credit Agreement where
alphabetically appropriate:

     “Specified Acquisition Period means, if the Borrower makes a acquisition permitted
under Section 9.03(i) hereof after the fiscal quarter ending June 30, 2006 for a purchase
price in excess of $30,000,000, the period from the date such acquisition is closed until
the earliest of: (i) the closing of an Equity Offering by the Borrower; (ii) the last day of
the third fiscal quarter following the closing date of such acquisition; and (iii) 270 days
from the date such acquisition is

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closed; provided that another Specified Acquisition Period shall not commence until the
current Specified Acquisition Period shall have terminated and there shall have been at
least one fiscal quarter when there was no Specified Acquisition Period in effect and during
such fiscal quarter when no Specified Acquisition Period was in effect the Borrower was in
compliance with the Sections 9.14 and 9.15.”

     (d) Section 2.04(a) of the Credit Agreement (Commitment Fee) is hereby amended in its entirety
to read as follows:

     “(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for
the account of each Revolver Lender a commitment fee on the daily average unused amount of
the aggregate Revolver Commitments, up to, but excluding, the Termination Date in respect of
the Revolver Facility at a rate per annum equal to: (i) 0.25% during any period in which
the Leverage Ratio is less than or equal to 3.00 to 1.00; (ii) 0.30% during any period in
which the Leverage Ratio is greater than 3.00 to 1.00 but less than or equal to 3.50 to
1.00; (iii) 0.375% during any period in which the Leverage Ratio is greater than 3.50 to
1.00 but less than or equal to 5.25 to 1.00; or (iv) 0.50% during any period in which the
Leverage Ratio is greater than 5.25 to 1.00. Accrued commitment fees shall be payable
quarterly in arrears on each Quarterly Date and on the Termination Date in respect of the
Revolver Facility. Each change in the commitment fee resulting from a change in the
Leverage Ratio shall take effect on the date of delivery by the Borrower to the
Administrative Agent of notice thereof pursuant to Section 8.01(j). If the Borrower fails
to deliver a compliance certificate when required pursuant to Section 8.01(j), then the
commitment fee shall equal 0.50% until such date as the Borrower delivers such compliance
certificate to the Administrative Agent.”

     (e) Section 8.13 of the Credit Agreement (Guaranties) is hereby amended by replacing the
phrase “at the time of” each time it occurs with the phrase “within fifteen (15) days of”
(maintaining capitalized first letters if such phrase appears at the beginning of a sentence).

     (f) Section 9.14 of the Credit Agreement (Leverage Ratio) is hereby amended in its entirety to
read as follows:

     “Section 9.14 Consolidated Funded Debt to Consolidated EBITDA. The Borrower will not
permit the ratio of its Consolidated Funded Debt to Consolidated EBITDA (the “Leverage
Ratio”) as of the end of any fiscal quarter of the Borrower (calculated quarterly based upon
the four most recently completed quarters, and including pro forma adjustments acceptable to
the Administrative Agent following any material acquisition) to be more than: (i) 5.25 to
1.00 at any time other than during a Specified Acquisition Period; and (ii) 5.75 to 1.00
during a Specified Acquisition Period.”

     (g) Section 9.15 of the Credit Agreement (Senior Secured Leverage Ratio) is hereby amended in
its entirety to read as follows:

     “Section 9.15 Consolidated Senior Secured Debt to Consolidated EBITDA. The Borrower
will not permit the ratio of its Consolidated Senior Secured Debt to Consolidated EBITDA
(the “Senior Secured Leverage Ratio”) as of the end of any fiscal quarter of the Borrower
(calculated quarterly based upon the four most recently completed quarters, and including
pro forma adjustments acceptable to the Administrative Agent following any material
acquisition) to be more than: (i) 4.00 to 1.00 at any time other than during a Specified
Acquisition Period; and (ii) 4.50 to 1.00 during a Specified Acquisition Period.”

3

 

     (h) Section 9.19 of the Credit Agreement (Subsidiaries) is hereby amended by replacing the
first sentence thereof with the following sentence:

     “The Obligors shall not create or add any additional Subsidiaries (other than
Unrestricted Entities) that do not become Guarantors hereunder within fifteen (15) days of
such creation or addition.”

     SECTION 3. Amendment Effective Date. This Amendment shall be binding upon all parties
to the Credit Agreement as of the date (the “Amendment Effective Date”) that Administrative Agent
receives the following:

     (a) sufficient counterparts of this Amendment, executed and delivered to Administrative Agent
by (i) each Obligor, (ii) Administrative Agent, (iii) Issuing Bank, and (iv) all Lenders;

     (b) receipt of all fees and expenses due and payable by the Obligors hereunder; and

     (c) such other agreements, certificates, documents and evidence of authority as Co-Lead
Arrangers, any Lender or counsel to the Co-Lead Arrangers may reasonably request.

     SECTION 4. Representations and Warranties of Obligors. Each of the Obligors
represents and warrants to Administrative Agent, Issuing Bank and Lenders, with full knowledge that
Administrative Agent, Issuing Bank, and Lenders are relying on the following representations and
warranties in executing this Amendment, as follows:

     (a) each Obligor has the organizational power and authority to execute, deliver and perform
this Amendment and such other Loan Documents executed in connection herewith, and all
organizational action on the part of such Person requisite for the due execution, delivery and
performance of this Amendment and such other Loan Documents executed in connection herewith has
been duly and effectively taken;

     (b) the Credit Agreement, as amended by this Amendment, the Loan Documents and each and every
other document executed and delivered in connection with this Amendment to which any Obligor is a
party constitute the legal, valid and binding obligations of each Obligor to the extent it is a
party thereto, enforceable against such Person in accordance with their respective terms;

     (c) this Amendment does not and will not violate any provisions of any of the organizational
documents of any Obligor, or any contract, agreement, instrument or requirement of any Governmental
Authority to which any Obligor is subject. Obligors’ execution of this Amendment will not result
in the creation or imposition of any lien upon any properties of any Obligor, other than those
permitted by the Credit Agreement and this Amendment;

     (d) the execution, delivery and performance of this Amendment by Obligors does not require the
consent or approval of any other Person, including, without limitation, any regulatory authority or
governmental body of the United States of America or any state thereof or any political subdivision
of the United States of America or any state thereof; and

     (e) no Default exists, and all of the representations and warranties contained in the Credit
Agreement and all instruments and documents executed pursuant thereto or contemplated thereby are
true and correct in all material respects on and as of this date, other than those which have been
disclosed to Administrative Agent, Issuing Bank and Lenders in writing.

4

 

     SECTION 5. Reference to and Effect on the Agreement.

     (a) On and after the Amendment Effective Date, each reference in the Credit Agreement to “this
Agreement,” “hereunder,” “hereof,” “herein,” or words of like import shall mean and be a reference
to the Credit Agreement, as amended hereby.

     (b) Except as otherwise expressly provided herein, the Credit Agreement and the other Loan
Documents are not amended, modified or affected by this Amendment. Obligors ratify and confirm
that (a) except as expressly amended hereby, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the Credit Agreement remain in full force
and effect, (b) each of the other Loan Documents are and remain in full force and effect in
accordance with their respective terms, and (c) the collateral under the Security Instruments is
unimpaired by this Amendment.

     SECTION 6. Costs, Expenses and Taxes. Borrower agrees to pay on demand all reasonable
costs and expenses of Administrative Agent in connection with the preparation, reproduction,
execution and delivery of this Amendment, and the other instruments and documents to be delivered
hereunder, including reasonable attorneys’ fees and out-of-pocket expenses of Administrative Agent.
In addition, Borrower shall pay any and all recording and filing fees payable or determined to be
payable in connection with the execution and delivery, filing or recording of this Amendment and
the other instruments and documents to be delivered hereunder, and agrees to save Administrative
Agent harmless from and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes or fees.

     SECTION 7. Disclosure of Claims. As additional consideration to the execution,
delivery, and performance of this Amendment by the parties hereto and in order to induce
Administrative Agent, Issuing Bank and Lenders to enter into this Amendment, each Obligor
represents and warrants that it knows of no defenses, counterclaims or rights of setoff to the
payment of any Indebtedness.

     SECTION 8. Affirmation of Guaranty Agreements, Security Interest.

     (a) Each of the undersigned Guarantors hereby consents to and accepts the terms and conditions
of this Amendment, and the transactions contemplated hereby, agrees to be bound by the terms and
conditions hereof, and ratifies and confirms that each Guaranty Agreement and each of the other
Loan Documents to which it is a party is, and shall remain, in full force and effect after giving
effect to this Amendment.

     (b) Obligors hereby confirm and agree that any and all liens, security interests and other
security or collateral now or hereafter held by Administrative Agent for the benefit of Lenders as
security for payment and performance of the Obligations hereby under such Security Instruments to
which such Obligor is a party are renewed and carried forth to secure payment and performance of
all of the Obligations. The Security Instruments are and remain legal, valid and binding
obligations of the parties thereto, enforceable in accordance with their respective terms.

     SECTION 9. Execution and Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument. Delivery of an executed counterpart of this Amendment
by facsimile and other Loan Documents shall be equally as effective as delivery of a manually
executed counterpart of this Amendment and such other Loan Documents.

5

 

     SECTION 10. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.

     SECTION 11. Headings. Section headings in this Amendment are included herein for
convenience and reference only and shall not constitute a part of this Amendment for any other
purpose.

     SECTION 12. NO ORAL AGREEMENTS. THE CREDIT AGREEMENT (AS AMENDED BY THIS AMENDMENT)
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[The remainder of this page intentionally blank. Signature pages to follow.]

6

 

     In Witness Whereof, the parties have executed this Third Amendment to Credit
Agreement as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	ATLAS PIPELINE PARTNERS, L.P.
	 	 	By:	 	Atlas Pipeline Partners GP, LLC its general partner
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Michael Staines
	 

	 	 	 	 	 	President and Chief Operating Officer
	 
	 	 	 	 	 	 
	 	 	ATLAS PIPELINE FINANCE CORPORATION
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 	 	 	 	Michael Staines
	 	 	 	 	President and Chief Operating Officer
	 
	 	 	 	 	 	 
	 	 	ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
	 	 	By:	 	Atlas Pipeline Partners GP, LLC its general partner
	 
	 	 	 	 	 	 
	 	 	ATLAS PIPELINE NEW YORK, LLC
	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its

general partner
	 
	 	 	 	 	 	 
	 	 	ATLAS PIPELINE OHIO, LLC
	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its

general partner
	 
	 	 	 	 	 	 
	 	 	ATLAS PIPELINE PENNSYLVANIA, LLC
	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its

general partner
	 
	 	 	 	 	 	 
	 	 	ATLAS PIPELINE MID-CONTINENT LLC
	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its

general partner

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	ELK CITY OKLAHOMA GP, LLC
	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, its sole member
	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 	 	 	 	 	 	By:	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	ELK CITY OKLAHOMA PIPELINE, L.P.
	 	 	By:	 	Elk City Oklahoma GP, LLC its general partner
	 	 	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, its sole member
	 	 	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	 	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	ATLAS ARKANSAS PIPELINE LLC
	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, its sole member
	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 	 	 	 	 	 	By:	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	MID-CONTINENT ARKANSAS PIPELINE, LLC
	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, its sole member
	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 	 	 	 	 	 	By:	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	NOARK PIPELINE SYSTEM, LIMITED PARTNERSHIP
	 	 	By:	 	Atlas Arkansas Pipeline LLC and Mid-Continent Arkansas Pipeline, LLC, its general partners
	 	 	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, their sole member
	 	 	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	 	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its general partner

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	OZARK GAS GATHERING, L.L.C.
	 	 	By:	 	NOARK Pipeline System, Limited Partnership, its sole member
	 	 	 	 	By:	 	Atlas Arkansas Pipeline LLC and Mid-Continent Arkansas Pipeline, LLC, its general partners
	 	 	 	 	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, their sole member
	 	 	 	 	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	 	 	 	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	OZARK GAS TRANSMISSION, L.L.C.
	 	 	By:	 	NOARK Pipeline System, Limited Partnership, its sole member
	 	 	 	 	By:	 	Atlas Arkansas Pipeline LLC and Mid-Continent Arkansas Pipeline, LLC, its general partners
	 	 	 	 	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, their sole member
	 	 	 	 	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	 	 	 	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	NOARK ENERGY SERVICES, L.L.C.
	 	 	By:	 	NOARK Pipeline System, Limited Partnership, its sole member
	 	 	 	 	By:	 	Atlas Arkansas Pipeline LLC and Mid-Continent Arkansas Pipeline, LLC, its general partners
	 	 	 	 	 	 	By:	 	Atlas Pipeline Mid-Continent LLC, their sole member
	 	 	 	 	 	 	 	 	By:	 	Atlas Pipeline Operating Partnership, L.P., its sole member
	 

	 	 	 	 	 	 	 	 	 	By:
	 	Atlas Pipeline Partners GP, LLC, its general partner
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	By:	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	Michael Staines, President
	 

	 	 	 	 	 	 	 	 	 	 	 	and Chief Operating Officer

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	ADMINISTRATIVE AGENT, ISSUING BANK

AND A LENDER:

WACHOVIA BANK, NATIONAL ASSOCIATION

 	 
	 	By:  	 	 
	 	 	Jay Buckman 	 
	 	 	Vice President 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	LENDERS:

BANK OF AMERICA, N.A.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	BANK OF OKLAHOMA N.A.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	KEYBANK NATIONAL ASSOCIATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	WELLS FARGO BANK, N.A.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	BNP PARIBAS

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	NEWCOURT CAPITAL USA INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	COMERICA BANK

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	COMPASS BANK

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	CITIBANK TEXAS, N.A.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	FORTIS CAPITAL CORP.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	GUARANTY BANK

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	NATIONAL CITY BANK

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	NATEXIS BANQUES POPULAIRES

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	UFJ BANK LIMITED, NEW YORK BRANCH

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENT

 

 

	 	 	 	 	 
	 	WESTLB AG, NEW YORK BRANCH

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

SIGNATURE PAGE TO

THIRD AMENDMENT TO REVOLVING CREDIT

AND TERM LOAN AGREEMENTExhibit 10.4 

AMENDED AND RESTATED
PREFERRED STOCK PURCHASE AGREEMENT 

dated as of May 25, 2006 

by and among 

HANGER ORTHOPEDIC
GROUP, INC. 

and 

THE PURCHASERS
SIGNATORY HERETO 

AMENDED AND RESTATED
PREFERRED STOCK PURCHASE AGREEMENT 

        This
Amended and Restated Preferred Stock Purchase Agreement is entered into and dated as of
May 25, 2006 (this “Agreement”), by and among HANGER ORTHOPEDIC GROUP, INC., a
corporation incorporated under the laws of the state of Delaware (the
“Company”), and each of LEHMAN BROTHERS INC. and CITIGROUP GLOBAL MARKETS
INC. (each, an “Initial Purchaser” and, collectively, the
“Initial Purchasers”) and the subsequent purchaser identified on the
signature pages hereto (the “Subsequent Purchaser”). The Initial
Purchasers and the Subsequent Purchaser are each referred to as a
“Purchaser” and are collectively referred to as the
“Purchasers.” 

        WHEREAS
the parties hereto are parties to a Preferred Stock Purchase Agreement dated as of May 3,
2006 (the “Original Purchase Agreement”). The parties hereto now wish to
amend and restate such Original Purchase Agreement in its entirety with this Agreement. 

        WHEREAS,
subject to the terms and conditions set forth in this Agreement and in accordance with the
Securities Act (as defined below) and the rules and regulations promulgated thereunder,
the Company desires to issue and sell to each Initial Purchaser, and each Initial
Purchaser, severally and not jointly, desires to purchase from the Company, certain
securities of the Company pursuant to the terms set forth herein. 

        WHEREAS,
subject to the terms and conditions set forth in this Agreement and in accordance with the
Securities Act and the rules and regulations promulgated thereunder, the Initial
Purchasers desire to sell to the Subsequent Purchaser, and the Subsequent Purchaser
desires to purchase from the Initial Purchasers, certain securities of the Company
pursuant to the terms set forth herein. 

        NOW,
THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for
other good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and each Purchaser, severally and not jointly, agree as follows: 

ARTICLE I.  
DEFINITIONS  

        1.1
Definitions. In addition to the terms defined elsewhere in this Agreement, the
following terms shall have the meanings set forth in this Section 1.1:  

            “$”
means U.S. Dollars. 

            “Affiliate”
of a Person means any other Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the first
Person. Without limiting the foregoing with respect to a Purchaser, any investment fund or
managed account that is managed by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser. 

            “Ares”
means Ares Corporate Opportunities Fund, L.P. and any successor or assignee thereof. 

            “Business
Day” means any day except Saturday, Sunday and any day on which banking
institutions in New York City are authorized or required by law or other governmental
action to close. 

            “Certificate
of Designations” means the certificate of designations of the Preferred Stock, in
the form of Exhibit A. 

            “Closing”
means the closing of the purchase and sale of the Shares pursuant to
Section 2.1. 

            “Commission”
means the U.S. Securities and Exchange Commission. 

            “Common
Share Equivalents” means, collectively, Options and Convertible Securities. 

            “Common Shares”
means the common shares of the Company and any securities into which such shares may
hereafter be reclassified. 

            “Company
Counsel” means Foley & Lardner LLP, counsel to the Company. 

            “Convertible
Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for Common Shares. 

            “Debt
Refinancing” means (a) the repayment in full and refinancing of the
Company’s existing credit facilities, (b) the refinancing in full of the
Company’s 10 3/8% senior notes, (c) the refinancing in full of the Company’s
111⁄4% senior subordinated notes, and (d) irrevocable provision for the redemption of
all the Company’s outstanding preferred stock, with the proceeds of (i) new revolving
credit and term loan facilities, and (ii) the issuance of new senior notes. 

            “Employees”
means the employees of the Company and the Subsidiaries. 

            “Employment
Laws” means any and all applicable laws, including all statutes, codes,
ordinances, decrees, regulations, municipal by-laws, judicial or arbitral or
administrative or ministerial or departmental or regulatory judgments, orders, decisions,
rulings or awards, policies, guidelines and general principles of common and civil law and
equity, binding on or affecting the Person referred to in the context in which the word is
used and in respect of matters pertaining to employment. 

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

            “Excluded Stock”
means (a) any Common Shares or Common Share Equivalents, restricted stock, stock
options or stock appreciation rights issued or issuable to Employees, consultants or
directors of the Company pursuant to a stock option plan, stock purchase plan, stock bonus
plan, deferred compensation plan, employee benefit plan or management grant
(“Incentives”), in each case as in effect on the Closing Date or as
approved by the Company’s Board of Directors (including a designee of Ares at any
time after a designee of Ares is first appointed to the Board of Directors) after the
Closing Date and Common Shares issued or issuable upon the exercise of any of the
foregoing Incentives and (b) Common Shares or Common Share Equivalents issued or
issuable in connection with a bona fide business acquisition by the Company of another
company or entity, not principally for the purpose of acquiring cash. 

            “GAAP”
means United States generally accepted accounting principles, as recognized by the
American Institute of Certified Public Accountants or the Financial Accounting Standards
Board, consistently applied and maintained on a consistent basis for the Company and its
Subsidiaries throughout the period indicated. 

            “Governmental
Authority” shall mean any government or political subdivision or any agency,
authority, bureau, central bank, commission, department or instrumentality, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic. 

3 

            “Hazardous
Materials” means petroleum, petroleum products, petroleum-derived substances,
radioactive materials, hazardous wastes, polychlorinated biphenyls, lead based paint,
radon, urea formaldehyde, asbestos or any materials containing asbestos, and any
chemicals, materials or substances regulated under Environmental Laws or defined as or
included in the definition of “hazardous substances,” “hazardous
wastes,” “extremely hazardous substances,” “hazardous materials,”
“hazardous constituents,” “toxic substances,” “pollutants,”
“contaminants” or any similar denomination intended to classify or regulate
substances by reason of toxicity, carcinogenicity, ignitability, corrosivity or reactivity
under any Environmental Law. 

            “Health
Care Services” shall mean the provision of any services to patients for the
provision of durable medical equipment, orthotics, prosthetics, physical and/or
occupational therapy, or any other service or supply that is billable by a provider or
supplier, either as a separate service or as part of a bundled service, to Medicare,
Medicaid, any Federal Health Care Program, any health insurance carrier, managed care
organization, third party payor or patient. 

            “Indebtedness”
of any Person means (a) all indebtedness representing money borrowed which is
created, assumed, incurred or guaranteed in any manner by such Person or for which such
Person is responsible or liable (whether by guarantee of such indebtedness, agreement to
purchase indebtedness of, or to supply funds to or invest in, others or otherwise),
(b) any direct or contingent obligations of such person arising under any letter of
credit (including standby and commercial), bankers acceptances, bank guaranties, surety
bonds and similar instruments, and (c) all indebtedness pursuant to clauses (a) and
(b) above of another entity secured by any Lien existing on property or assets owned by
such Person. 

            “Initial
Purchasers Counsel” means Weil, Gotshal & Manges LLP, counsel to the Initial
Purchasers. 

            “Intellectual
Property” means (a) patents (including all reissues, divisions,
continuations, continuations-in-part, re-examinations and extensions thereof), patent
applications, utility models and design rights; (b) unregistered trademarks,
trademark registrations, trademark applications, unregistered service marks, service mark
registrations and service mark applications; (c) unregistered copyrights, copyright
registrations and copyright applications and renewals in connection therewith, together
with all translations, adaptations, derivations and combinations thereof;
(d) Internet domain names, applications and reservations therefor, uniform resource
locators and the corresponding Internet sites; (e) any other proprietary information not
otherwise listed in (a) through (d) above relating to Linkia or the WalkAide System; (f)
any good will associated with any of the foregoing; and (g) all copies and tangible
embodiments thereof (in whatever form or medium), and registrations, applications and
renewals for any of the foregoing assets listed above. 

            “knowledge,”
“known,” and words and phrases of similar import, when used with respect
to the Company mean the actual knowledge of any one of the following: Ivan R. Sabel,
Thomas F. Kirk, George E. McHenry, Richmond L. Taylor, Ron N. May, Thomas C. Hofmeister,
Jason P. Owen, Rebecca Hast, Jeff Martin and Brian A. Wheeler. 

            “Losses”
means any and all damages, fines, penalties, deficiencies, liabilities, claims, losses
(including loss of value), judgments, awards, settlements, taxes, actions, obligations and
costs and expenses in connection therewith (including, without limitation, interest, court
costs and fees and expenses of attorneys, accountants and other experts, and any other
expenses of litigation or other Proceedings (including costs of investigation, preparation
and travel) or of any default or assessment). 

            “Material
Contract” means any agreement that is or would be required to be filed as
an exhibit to an SEC Report pursuant to Item 601(b)(10) of Regulation S-K of the
Commission. 

4 

            “Options”
means any rights, warrants or options to, directly or indirectly, subscribe for or
purchase Common Shares or Convertible Securities. 

            “Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company, government (or
an agency or subdivision thereof) or other entity of any kind. 

            “Preferred
Stock” means the Company’s Series A Convertible Preferred Stock, par value
$0.01 per share, which is convertible into Common Shares. 

            “Proceeding”
means an action, claim, suit, grievance, arbitration, complaint, notice of violation,
investigation or proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition). 

            “Registration
Rights Agreement” that certain Registration Rights Agreement, dated as of
the Closing Date, by and among the Company and the Subsequent Purchaser, substantially in
the form of Exhibit B, as the same may be amended, modified or supplemented from
time to time. 

            “Related
Person” means any Affiliate of a Purchaser and any officer, director,
partner, controlling person, employee or agent of a Purchaser or any of its Affiliates. 

            “Rule
144” and “Rule 424” means Rule 144 and Rule 424,
respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules
may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule. 

            “Securities”
means the Shares and the Underlying Shares issued or issuable (as applicable) to the
applicable Purchaser pursuant to the Transaction Documents. 

            “Securities
Act” means the Securities Act of 1933, as amended. 

            “SEC
Reports” has the meaning set forth in Section 3.1(h). 

            “Shares”
means the aggregate of 50,000 shares of Preferred Stock which are being purchased by the
Initial Purchasers and resold to the Subsequent Purchaser pursuant to this Agreement. 

            “Subsequent
Public Financing” means any instance in which the Company or any
Subsidiary offers or sells any Common Shares or Common Share Equivalents in a public
offering registered under the Securities Act (other than a Subsequent Private Financing). 

            “Subsequent
Private Financing” means any instance in which the Company or any
Subsidiary offers, sells, grants any option to purchase, or otherwise disposes of (or
announces any offer, sale, grant or any option to purchase or other disposition of), any
of its or any Subsidiary’s equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at any time
during its life and under any circumstances, convertible into or exchangeable or
exercisable for Common Shares or Common Share Equivalents, other than Excluded Stock, in
any transaction exempt from registration under the Securities Act or in a negotiated
transaction under a shelf registration statement. 

            “Subsequent
Purchaser Counsel” means Proskauer Rose LLP, counsel to Ares. 

5 

            “Trading
Day” means (a) any day on which the Common Shares are listed or quoted and
traded on the Trading Market, or (b) if the Common Shares are not then listed or
quoted and traded on the Trading Market, then any Business Day. 

            “Trading
Market” means the New York Stock Exchange or, at any time the Common Shares are
not listed for trading on the New York Stock Exchange, any other national exchange or the
NASDAQ, if the Common Shares are then listed or quoted on such exchange or the NASDAQ. 

            “Transaction
Documents” means this Agreement, the Securities, the Registration Rights
Agreement, the Certificate of Designations, and any other documents or agreements executed
in connection with the transactions contemplated hereunder. 

            “Underlying
Shares” means the Common Shares issuable upon conversion of the Shares and in
satisfaction of any other obligation or right of the Company to issue Common Shares
pursuant to the Transaction Documents, and in each case, any securities issued or issuable
in exchange for or in respect of such securities. 

            “U.S.”
means the United States of America. 

            All
references to “the date hereof” or similar references (including without
limitation any reference to the date of this Agreement in any other Transaction Document)
shall be deemed to be a reference to May 3, 2006, the date of the Original Purchase
Agreement. 

ARTICLE II.  
PURCHASE
AND SALE  

        2.1    
Closing. Subject to the terms and conditions set forth in this Agreement, at the
Closing, the Company shall issue and sell to the Initial Purchasers, and the Initial
Purchasers shall purchase from the Company, the Shares for a purchase price of $990 per
share and an aggregate purchase price of $49,500,000 (FORTY-NINE MILLION FIVE HUNDRED
THOUSAND DOLLARS) (the “Aggregate Initial Purchase Price”), as indicated
below each Initial Purchaser’s name on the signature pages of this Agreement under
the heading “Initial Purchase Price delivered to Company.” Subject to the terms
and conditions set forth in this Agreement, at the Closing, each Initial Purchaser shall
sell to the Subsequent Purchaser, and the Subsequent Purchaser shall purchase from each
Initial Purchaser, the Shares for a purchase price of $1,000 per share and an aggregate
purchase price of $50,000,000 (FIFTY MILLION DOLLARS) (the “Aggregate Purchase
Price”), as indicated below the Subsequent Purchaser’s name on the
signature pages of this Agreement under the heading “Aggregate Purchase Price
delivered to Initial Purchasers.” The Closing shall take place at the New York
offices of Initial Purchaser’s Counsel on the closing date of the Debt Refinancing,
after the satisfaction or waiver of all of the conditions set forth in Article V (other
than those conditions that by their nature must be satisfied on the Closing Date), or at
such other location or time as the parties may agree (such date on which the Closing
occurs being hereinafter referred to as the “Closing Date”).  

        2.2    
Closing Deliveries.  

            (a)              At
the Closing, the Company shall deliver or cause to be delivered to each
          Purchaser the following:  

                (i)              evidence
that the Certificate of Designations has been filed and become           effective on or
prior to the Closing Date with the Secretary of State of the           State of Delaware;  

6 

                (ii)              the
legal opinion of Company Counsel, customary in form and substance and
          reasonably acceptable to the Purchasers and their respective counsel, executed
          by such counsel;  

                (iii)              a
certificate dated as of the Closing Date and signed by the chief executive
          officer of the Company certifying as to the fulfillment of each of the
          conditions set forth in Section 5.1;  

                (iv)              a
letter addressed to each of the Purchasers from (i) Company Counsel and (ii)
          counsel to the initial purchasers for the Company’s issuance of new senior
          notes, pursuant to which the Purchasers are expressly permitted to rely on the
          negative assurance letters delivered by such counsel in connection with the
          Offering Memorandum; and  

                (v)              any
other document reasonably requested by the Purchasers or counsel to the
          Purchasers.  

            (b)              In
addition, at the Closing, the Company shall deliver or cause to be delivered           to
each Initial Purchaser the following:  

                (i)              certificates
representing the number of the Shares indicated below each Initial           Purchaser’s
name on the signature page of this Agreement under the heading           “Shares,” registered
in the name of each corresponding Initial           Purchaser.  

            (c)              In
addition, at the Closing, the Company shall deliver or cause to be delivered           to
the Subsequent Purchaser the following:  

                (i)              the
letter agreement in the form of Exhibit C (the “Board Rights
          Letter”), duly executed by the Company;  

                (ii)              the
letter agreement in the form of Exhibit E (the “Management
          Rights Letter”), duly executed by the Company;  

                (iii)              the
Registration Rights Agreement, duly executed by the Company; and  

                (iv)              certificates
representing the number of the Shares indicated below the           Subsequent Purchaser’s
name on the signature page of this Agreement under           the heading “Shares,” registered
in the name of the Subsequent           Purchaser.  

            (d)              At
the Closing, each Initial Purchaser shall deliver or cause to be delivered to
          the Company the following: (i) the purchase price indicated below such Initial
          Purchaser’s name on the signature page of this Agreement under the heading
          “Purchase Price,” in U.S. Dollars and in immediately available funds,
          by wire transfer to an account designated in writing by the Company for such
          purpose; (ii) each Transaction Document to which such Initial Purchaser is a
          signatory, duly executed by such Initial Purchaser and (iii) upon consummation
          of the sale of the Shares to the Subsequent Purchaser, the certificates
          delivered pursuant to Section 2.2(b)(i) above.  

            (e)              At
the Closing, the Subsequent Purchaser shall deliver or cause to be delivered:
          (i) to the Initial Purchasers, the purchase price indicated below the
Subsequent           Purchaser’s name on the signature page of this Agreement under
the heading           “Purchase Price,” in U.S. Dollars and in immediately
available funds,           by wire transfer to an account designated in writing by the
Initial Purchasers           for such purpose; and (ii) to the Company and the Initial
Purchasers, each           Transaction Document to which the Subsequent Purchaser and
such other Person is           a signatory, duly executed by the Subsequent Purchaser.  

7 

ARTICLE III.
 
REPRESENTATIONS AND WARRANTIES  

        3.1    
Representations and Warranties of the Company. The Company hereby makes the following
representations and warranties to thePurchasers:  

            (a)    Subsidiaries.
The Company does not directly or indirectly control or own           any interest in any
other corporation, partnership, joint venture or other           business association or
entity, other than those listed in Schedule           3.1(a) (each of which is
referred to as a “Subsidiary”).           Except as disclosed in Schedule
3.1(a), the Company owns, directly or           indirectly, all of the capital stock
of each Subsidiary free and clear of any           lien, charge, claim, security
interest, encumbrance, right of first refusal or           other restriction
(collectively, “Liens”), other than           restrictions on transfer
under the Transaction Documents or arising under U.S.           federal or state
securities laws and regulations, and all the issued and           outstanding shares of
capital stock of each Subsidiary are validly issued and           are fully paid,
non-assessable and free of preemptive and similar rights.  

            (b)    Organization
and Qualification. Except as disclosed in Schedule           3.1(b), each of
the Company and the Subsidiaries is an entity duly           incorporated, validly
existing and in good standing under the laws of the           jurisdiction of its
incorporation, with the requisite power and authority to own           and use its
properties and assets and to carry on its business as currently           conducted or
contemplated to be conducted, except in the case of Subsidiaries           where the
failure to be in good standing could not, individually or in the           aggregate,
reasonably be expected to have a Material Adverse Effect (as defined           below).
Except as disclosed in Schedule 3.1(b), each of the Company and the
          Subsidiaries is duly qualified to conduct business and is in good standing as a
          foreign corporation in each jurisdiction in which the nature of the business
          conducted or property owned by it makes such qualification necessary, except
          where the failure to be so qualified or in good standing, as the case may be,
          could not, individually or in the aggregate, (i) adversely affect in any
          material respect the legality, validity or enforceability of any Transaction
          Document, (ii) have or result in a material adverse effect on the results
          of operations, assets, liabilities, business or condition (financial or
          otherwise) of the Company and the Subsidiaries, taken as a whole, or
          (iii) adversely impair in any material respect the Company’s or any
          Subsidiary’s ability to perform fully on a timely basis its obligations
          under any Transaction Document, or (any of (i), (ii), or (iii), a
          “Material Adverse Effect”).  

            (c)    Authorization;
Enforcement. The Company has the requisite power and           authority to enter
into and to consummate the transactions contemplated by the           Transaction
Documents (the “Transactions”) and otherwise to           carry out its
obligations hereunder and thereunder. The execution and delivery           of each of the
Transaction Documents by the Company and the consummation of the           Transactions
have been duly authorized by all necessary action on the part of           the Company
and no further consent or action is required by the Company, its           board of
directors or its stockholders. Each Transaction Document has been (or           upon
delivery will have been) duly executed by the Company and, when delivered           in
accordance with the terms hereof, will constitute the valid and binding
          obligation of the Company enforceable against the Company in accordance with
its           terms.  

            (d)    No
Conflicts. The execution, delivery and performance of the Transaction
          Documents by the Company and the consummation of the Transactions do not and
          will not (i) conflict with or violate any provision of the Company’s or
any           Subsidiary’s certificate or articles of incorporation, bylaws or other
          organizational or charter documents, or (ii) conflict with, or constitute a
          default (or an event that with notice or lapse of time or both would become a
          default) under, or give to others any rights of termination, amendment,
          acceleration or cancellation (with or without notice, lapse of time or both)
of,           any Material Contract, or (iii) result in a violation of any law, rule,
          regulation, order (including federal and state securities laws and regulations)
          or the rules and regulations of any self-regulatory organization to which the
          Company or its securities are subject, or by which any property or asset of the
          Company or a Subsidiary is bound or affected (collectively           “Laws”),
or to the Company’s knowledge any judgment           injunction, decree or other
restriction of any court or governmental authority           to which the Company or a
Subsidiary is subject.  

8 

            (e)    Filings,
Consents and Approvals. Neither the Company nor any Subsidiary           is required
to obtain any consent, waiver, authorization or order of, or make           any filing or
registration with, any Governmental Authority or other Person in           connection
with the execution or delivery by the Company of the Transaction           Documents or
the consummation of the Transactions, other than (i) the required           filing of the
Certificate of Designations pursuant to Section 2.2(a)(i),           (ii) the
filing with the Commission of any Registration Statement pursuant to           the
Registration Rights Agreement, (iii) the application to the Trading Market           for
the listing of the Underlying Shares for trading thereon on a when issued
          basis, in the time and manner required thereby, and (iv) applicable Blue Sky
          filings, (collectively, the “Required Approvals”).  

            (f)    Issuance
of the Securities. The Securities are duly authorized and, when           issued and
paid for in accordance with the Transaction Documents, will be           validly issued,
fully paid and nonassessable, free and clear of all Liens and           shall not be
subject to preemptive rights or similar rights of stockholders. The           Company has
reserved from its duly authorized capital stock a number of Common           Shares for
issuance upon the conversion of the Shares not less than the total           number of
Underlying Shares. None of the issuance of the Shares to the Initial
          Purchasers, the subsequent sale of the Shares to the Subsequent Purchaser or
the           issuance of the Underlying Shares upon conversion of the Shares, will
subject           the Purchasers to any liability or obligation of any kind in respect of
or           relating to the operation of the business of the Company.  

            (g)    Capitalization.
The number of shares and type of all authorized, issued           and outstanding capital
stock of the Company is set forth in Schedule           3.1(g). Except as set
forth on Schedule 3.1(g) no securities of the           Company are entitled to
preemptive or similar rights, and no Person has any           right of first refusal,
preemptive right, right of participation, or any similar           right to participate
in the transactions contemplated by the Transaction           Documents. All outstanding
shares of capital of the Company have been duly           authorized, validly issued,
fully paid and are nonassessable and have been           issued in compliance with all
applicable federal and state securities and           corporate laws. Except as a result
of the purchase and sale of the Securities           and except as disclosed in the SEC
Reports, there are no outstanding options,           warrants, scrip rights to subscribe
to, calls or commitments of any character           whatsoever relating to, or
securities, rights or obligations convertible into or           exchangeable for, or
giving any Person any right to subscribe for or acquire,           any Common Shares, or
contracts, commitments, understandings or arrangements by           which the Company or
any Subsidiary is or may become bound to issue additional           Common Shares, or
securities or rights convertible or exchangeable into Common           Shares. Except as
set forth in Schedule 3.1(g), the issue and sale of the           Securities will
not obligate the Company to issue Common Shares or other           securities to any
Person (other than the Underlying Shares to the Purchasers or           their successors
or assigns upon conversion of the Shares) and will not result           in a right of any
holder of Company securities to adjust the exercise,           conversion, exchange or
reset price under such securities, or to take any other           action punitive to the
Company or any Subsidiary.  

9  

            (h)    SEC
Reports; Press Releases; Financial Statements. The Company has filed           all
reports required to be filed by it under the Securities Act and the Exchange
          Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
          preceding the date hereof (the foregoing materials being collectively referred
          to herein as the “SEC Reports” and, together with this
          Agreement and the Schedules to this Agreement, the “Disclosure
          Materials”) on a timely basis. The Company has delivered to the
          Purchasers a copy of all SEC Reports filed within the 10 days preceding the
date           hereof. As of their respective dates, the SEC Reports complied in all
material           respects with the requirements of the Securities Act and the Exchange
Act and           the rules and regulations of the Commission promulgated thereunder, and
none of           the SEC Reports, when filed, contained any untrue statement of a
material fact           or omitted to state a material fact required to be stated therein
or necessary           in order to make the statements therein, in light of the
circumstances under           which they were made, not misleading. The financial
statements of the Company           included in the SEC Reports comply in all material
respects with applicable           accounting requirements and the rules and regulations
of the Commission with           respect thereto as in effect at the time of filing. Such
financial statements           have been prepared in accordance with GAAP and fairly
present in all material           respects the financial position of the Company and its
consolidated subsidiaries           as of and for the dates thereof and the results of
operations and cash flows for           the periods then ended, subject, in the case of
unaudited statements, to normal,           year-end audit adjustments. All Material
Contracts to which the Company or any           Subsidiary is a party or to which the
property or assets of the Company or any           Subsidiary are subject are included as
exhibits to or specifically identified in           the applicable SEC Reports. To the
knowledge of the Company, neither the Company           nor any Subsidiary has any
material liabilities or obligations of any nature,           whether accrued, absolute,
contingent, asserted, unasserted or otherwise, except           liabilities or
obligations (i) stated or adequately reserved against in the           Company’s
most recent balance sheet included within the SEC Reports (the           “Base
Balance Sheet”), (ii) incurred as a result of or arising           out of the
transactions contemplated under this Agreement, (iii) incurred in the           ordinary
course of business consistent with prior operating history since the           date of
the Base Balance Sheet or (iv) as set forth in Schedule 3.1(h).           The
Company does not have pending before the Commission any request for
          confidential treatment of information. The Company is in compliance with
          applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable rules
          and regulations promulgated by the Commission thereunder in effect as of
          the date of this Agreement, except where such noncompliance, individually or in
          the aggregate, has not resulted in, and could not reasonably be expected to
          result in, a Material Adverse Effect.  

            (i)    Taxes.
Except as set forth in Schedule 3.1(i), the Company and the           Subsidiaries
have prepared and timely filed all federal and state income tax           returns and
other material tax returns that are required to be filed, and have           paid, or
made provision in accordance with GAAP for the payment of, all taxes           that have
or may have become due pursuant to said returns or pursuant to any           assessments
that have been received by the Company or the Subsidiaries. All tax           returns are
true and correct in all material respects. All taxes shown to be due           and
payable by the Company or the Subsidiaries have been paid or will be paid           prior
to the time they become delinquent. The Company has withheld and collected           all
amounts required by applicable law to be withheld or collected and has           remitted
all such amounts to the appropriate governmental entity within the time
          prescribed under applicable law. No material tax returns of the Company have
          been audited, and to the Company’s knowledge, no deficiency assessment or
          proposed adjustment of the Company’s or the Subsidiaries material taxes is
          pending.  

            (j)    Material
Changes. Since the date of the Base Balance Sheet, except as           specifically
disclosed in the SEC Reports or as described in Schedule 3.1(j) of the Disclosure
Schedule, there has been no event, occurrence or           development that, individually
or in the aggregate, has resulted in, or that           could reasonably be expected to
result in, a Material Adverse Effect, and           neither the Company nor any of its
Subsidiaries has (i) incurred any liabilities           (contingent or otherwise) other
than (A) trade payables and accrued expenses           incurred in the ordinary course of
business consistent with past practice and           (B) liabilities not required to be
reflected in the Company’s financial           statements pursuant to GAAP or
required to be disclosed in filings made with the           Commission, (ii) altered its
method of accounting or the identity of its           auditors, (iii) declared or made
any dividend or distribution of cash or other           property to its stockholders or
purchased, redeemed or made any agreements to           purchase or redeem any shares of
its capital stock or (iv) issued any equity           securities to any officer, director
or Affiliate, except pursuant to existing           Company stock option plans.  

10 

            (k)    Litigation.
There is no Proceeding pending or, to the knowledge of the           Company, threatened
against or affecting the Company, any Subsidiary or any of           their respective
properties which (i) adversely affects or challenges the           legality,
validity or enforceability of any of the Transaction Documents, the
          Transactions or the Securities or (ii) except as disclosed in Schedule
3.1(k), has, individually or in the aggregate, resulted in, or could, if
          there were an unfavorable decision, reasonably be expected to result in, a
          Material Adverse Effect. Except as disclosed in the SEC Reports, neither the
          Company nor any Subsidiary, nor, to the Company’s knowledge, any director
          or officer thereof (in his or her capacity as such), is or has been the subject
          of any Proceeding involving a claim of violation of or liability under federal
          or state securities laws or a claim of breach of fiduciary duty. There has not
          been, and to the knowledge of the Company, there is not pending or
contemplated,           any investigation by the Commission involving the Company or any
current or           former director or officer of the Company (in his or her capacity as
such). The           Commission has not issued any stop order or other order suspending
the           effectiveness of any registration statement filed by the Company or any
          Subsidiary under the Exchange Act or the Securities Act.  

            (l)    Labor
Relations. The Company and the Subsidiaries (i) are in material           compliance
with all terms and conditions of employment and all Employment Laws           including,
pay equity, wages and hours of work, occupational health and safety           and (ii)
have not and are not engaged in any unfair labor practice and no unfair           labor
practice complaint, grievance or arbitration proceeding is pending or, to           the
knowledge of the Company, threatened against the Company or any Subsidiary.           No
collective agreement is currently in force or is currently being negotiated           by
the Company, any Subsidiary or any other Person in respect of the business of
          the Company or any Subsidiary or any of the Employees. No trade union, council
          of trade unions, employee bargaining agency or affiliated bargaining agent
holds           bargaining rights with respect to any of the Employees by way of
certification,           interim certification, voluntary recognition, or succession
rights, or has           applied or, to the knowledge of the Company, threatened to apply
to be certified           as the bargaining agent of the Employees. To the knowledge of
the Company, there           are no threatened or pending union organizing activities
involving any of the           Employees. There is no labor strike, dispute, work
slowdown or stoppage pending           or involving or, to the knowledge of the Company
threatened against the Company           or any Subsidiary. There are no charges pending
under the Occupational Health           and Safety Act (“OHSA”) in
respect of the Company or any           Subsidiary. The Company and the Subsidiaries have
complied in all material           respects with any orders issued under OHSA and there
are no appeals of any           orders under OHSA currently outstanding.  

            (m)    Employee
Benefit Plans.  

                (i)              Except
as set forth in Schedule 3.1(m)(i), there are no employee benefit           or
compensation plans, agreements, arrangements or commitments (including           “employee
benefit plans,” as defined in Section 3(3) of the Employee           Retirement
Income Security Act of 1974, as amended (“ERISA”))           or any
other plans, policies, trust funds or arrangements (whether written or
          unwritten, insured or self-insured) established, maintained, sponsored or
          contributed to (or with respect to any obligation that has been undertaken) by
          the Company, any Subsidiary or any entity that would be treated as a single
          employer with the Company under Section 414(b), (c), (m) or (o) of the Internal
          Revenue Code of 1986, as amended (the “Code”) or Section 4001
          of ERISA (an “ERISA Affiliate”) for any employee, officer,
          director, consultant or stockholder or their beneficiaries of the Company or
any           Subsidiary or with respect to which the Company or any Subsidiary has
liability,           or makes or has an obligation to make contributions on behalf of any
such           employee, officer, director, consultant or stockholder or beneficiary
(each a           “Company Employee Plan” and collectively the “Company
          Employee Plans”).  

11 

                (ii)              Except
as set forth in Schedule 3.1(m)(ii), and except for medical
          reimbursement spending accounts under Code Section 125, each Company Employee
          Plan that is an employee welfare benefit plan as defined under Section 3(l) of
          ERISA or a group benefits plan for employees or officers is funded through an
          insurance company contract. Except as set forth in Schedule 3.1(m)(ii),
          each Company Employee Plan has been registered if so required, by its terms and
          operation is in material compliance with all applicable laws and all required
          filings, if any, with respect to such Company Employee Plan have been timely
          made. Neither the Company, any Subsidiary nor any ERISA Affiliate has at any
          time maintained, contributed to or been required to contribute to or has (or
has           had) any liability with respect to, any plan subject to Section 412 of the
Code,           Section 302 of ERISA or Title IV of ERISA, including, without limitation,
any           “multiemployer plan” (within the meaning of Sections 3(37) or
          4001(a)(3) of ERISA or Section 414(f) of the Code), any single employer pension
          plan (within the meaning of Section 4001(a)(15) of ERISA) which is subject to
          Sections 4063, 4064 and 4069 of ERISA or any pension plan within the meaning of
          federal or state pension standards legislation). The Company’s various
          non-qualified for U.S. employees and officers deferred compensation plans
          satisfy the requirements of Section 201(2) of ERISA. The events contemplated by
          this Agreement (either alone or together with any other event) will not (A)
          entitle any employee, director or stockholder of the Company or any Subsidiary
          (whether current, former or retired) or their beneficiaries to severance pay,
          unemployment compensation, or other similar payments under any Company Employee
          Plan or Employment Law, (B) accelerate the time of payment or vesting or
          increase the amount of benefits due under any Company Employee Plan or
          compensation to any Employees or (C) result in any payments (including any
          payment that could be characterized as an “excess parachute payment”          (as
defined in Section 280G(b)(1) of the Code)) under any Company Employee Plan           or
Employment Laws becoming due to any employee, director or stockholder of the
          Company or any Subsidiary (whether current, former or retired) or their
          beneficiaries. Except as set forth in Schedule 3.1(m)(ii), no amount
          payable under any Company Employee Plan would fail to be deductible under Code
          Section 162(m).  

                (iii)              Except
as set forth in Schedule 3.1(m)(iii), with respect to each of the
          Company Employee Plans: (1) each Company Employee Plan that is intended to be
          qualified under Section 401(a) of the Code has received a determination letter,
          opinion letter, advisory letter or notification letter, as applicable, from the
          Internal Revenue Service (the “IRS”) regarding its qualified
          status under the Code for all amendments required prior to the Economic Growth
          and Tax Relief Reconciliation Act of 2001 or, if reliance is permitted, relies
          on the favorable opinion letter or advisory letter of the master and prototype
          or volume submitter plan sponsor of such plan, and nothing has occurred,
whether           by action or by failure to act, that caused or could cause the loss of
such           qualification or the imposition of any penalty or tax liability; (2) all
          payments required by the Company Employee Plans, any collective bargaining
          agreement or other agreement, or by applicable law (including, without
          limitation, all contributions, insurance premiums or intercompany charges) with
          respect to all periods through the Closing Date shall have been made prior to
          the Closing Date (on a pro rata basis where such payments are otherwise
          discretionary at year end) or provided for by the Company as applicable, in
          accordance with the provisions of each of the Company Employee Plans,
applicable           law and GAAP; (3) no action has been instituted or commenced or, to
the           knowledge of the Company, has been threatened or is anticipated against any
of           the Company Employee Plans (other than non-material routine claims for
benefits           and appeals of such claims), any trustee or fiduciaries thereof, the
Company,           any Subsidiary or any ERISA Affiliate, any director, officer or
employee           thereof, or any of the assets of any trust of any of the Company
Employee Plans;           (4) no Company Employee Plan is or is expected to be under
audit or           investigation by the IRS, Department of Labor or any other
governmental entity           and no such completed audit, if any, has resulted in the
imposition of any tax           or penalty; and (5) no Company Employee Plan provides
post-retirement benefits.  

12 

            (n)    Compliance.
Neither the Company nor any Subsidiary (i) is in default           under or in
violation of (and no event has occurred that has not been waived           that, with
notice or lapse of time or both, would result in a default by the           Company or
any Subsidiary under), nor has the Company or any Subsidiary received           notice of
a claim that it is in default under or that it is in violation of, any
          indenture, loan or credit agreement or any other agreement or instrument to
          which it is a party or by which it or any of its properties is bound (whether
or           not such default or violation has been waived) except as, individually or in
the           aggregate, has not resulted in, and could not reasonably be expected to
result           in, a Material Adverse Effect, or (ii) is in violation of any order
of any           Governmental Authority. Neither the Company, any Subsidiary nor, to the
          Company’ knowledge, any Employee has violated the U.S. Foreign Corrupt
          Practices Act, as amended. To the Company’s knowledge, no stockholder,
          director, officer, employee or agent of the Company or of a Subsidiary has,
          directly or indirectly, made or agreed to make, any unlawful or illegal (i)
          payment, (ii) gift or (iii) political contribution to, or taken any other
          unlawful or illegal action, for the benefit of any customer, supplier,
          governmental employee or other Person who is or may be in a position to assist
          or hinder the business of the Company or a Subsidiary.  

            (o)    Regulatory
Permits. The Company and the Subsidiaries possess and are in           compliance
with the terms and conditions of, all certificates, authorizations,           approvals
and permits necessary for the Company or any such Subsidiary to own,           lease and
operate its properties or to conduct their respective businesses as           described
in the SEC Reports (including, without limitation, all certificates,
          authorizations, approvals and permits required under Environmental Laws, the
          Federal Food, Drug and Cosmetic Act of 1938, as amended (the           “FDCA”),
the Public Health Service Act of 1944, as amended (the           “PHSA”)
and the regulations of the U.S. Food and Drug           Administration (the “FDA”)
promulgated thereunder),           (collectively, “Permits”), except
where the failure to posses           or comply with a Permit, individually or in the
aggregate, has not resulted in,           and could not reasonably be expected to result
in, a Material Adverse Effect,           and to the Company’s knowledge neither the
Company nor any Subsidiary has           received any written notice of Proceedings
relating to the revocation or           modification of any Permit. The Company and its
Subsidiaries are in compliance           with all Laws with respect to manufacturing,
clinical research and development,           marketing and sale of all of their products,
except where the failure to comply,           individually or in the aggregate, has not
resulted in, and could not reasonably           be expected to result in, a Material
Adverse Effect. There are no pending or, to           the knowledge of the Company,
threatened actions or proceedings by the FDA or           any applicable foreign
equivalent which would prohibit or impede the sale of any           product currently
manufactured or sold by the Company or any of its Subsidiaries           into any market.  

            (p)    Patents
and Trademarks. Except as set forth in Schedule 3.1(p),           the Company
and the Subsidiaries own, or possess a valid and enforceable written           license to
use, all Intellectual Property that is used or held for use by the           Company or
its Subsidiaries in connection with their respective businesses as           described in
the SEC Reports, as currently conducted (collectively, the           “Company
Intellectual Property Rights”). To the Company’s           knowledge,
except as set forth in Schedule 3.1(p), (i) the operation of           the
business of the Company and the Subsidiaries, and the products or services           in
development or which are marketed or sold (or proposed to be marketed or           sold)
by the Company or any Subsidiary, do not violate any license or infringe           any
Intellectual Property rights of any party and (ii) there is no unauthorized
          use, infringement or misappropriation of any Company Intellectual Property
          Rights by any third party. Except as set forth in Schedule 3.1(p), (i)
          other than with respect to commercially available software products which the
          Company or the Subsidiaries license under standard end-user object code license
          agreements, there are no outstanding material licenses, agreements, claims,
          encumbrances or shared ownership interests of any kind relating to any of the
          Company’s Intellectual Property, (ii) neither the Company nor any the
          Subsidiary (A) is obligated to make to any third party any payments related to
          the Company’s Intellectual Property or (B) has agreed to indemnify any
          third party with respect to any Intellectual Property. Except as set forth in
Schedule 3.1(p), no third party has made a claim in writing to the
          Company or any Subsidiary that the Company or any Subsidiary has violated or,
by           conducting their business, would violate any Intellectual Property rights of
any           other person or entity and no such claim has been threatened in writing to
the           Company or any Subsidiary. All of the Company Intellectual Property Rights
which           are registered or have been filed for registration are in good standing
and all           of the fees and filings due with respect thereto have been duly made.
No           Proceedings involving the Company or any of its Subsidiaries, or, to the
          Company’s knowledge, no Proceeding or investigation challenging or
          threatening the validity, enforceability, effectiveness or ownership by the
          Company or any of its Subsidiaries of any Company Intellectual Property Rights
          have been made or are outstanding. Neither the Company nor any of its
          Subsidiaries is or, as a result of the execution or delivery of this Agreement,
          or the performance of the Company’s obligations hereunder, will be in
          violation of any license, sublicense, agreement or instrument involving
          Intellectual Property to which the Company or any of its Subsidiaries is a
party           or otherwise bound (an “Intellectual Property Agreement”),
nor           will the execution or delivery of the Transaction Documents or the
consummation           of the Transactions, cause the diminution, license, transfer,
termination or           forfeiture of the Company’s or any of its Subsidiaries’ rights
in any           Company Intellectual Property Rights. Each of the Company and the
Subsidiaries           has taken commercially reasonable measures to protect the
proprietary nature of           the Company Intellectual Property Rights.  

13 

            (q)    Insurance.
The Company and the Subsidiaries are insured against such           losses and risks and
in such amounts as are reasonably prudent and customary in           the businesses in
which the Company and the Subsidiaries are engaged. Neither           the Company nor any
Subsidiary has any reason to believe that it will not be           able to renew its
existing insurance coverage as and when such coverage expires           or to obtain
similar coverage from similar insurers as may be necessary to           continue its
business on terms consistent with the market for the Company’s           and such
Subsidiaries’ respective lines of business. Except as set forth on Schedule 3.1(q),
there are currently no Proceedings pending against the           Company or any
Subsidiary under any insurance policies currently in effect and           covering the
property, business or employees of the Company and the           Subsidiaries, and all
premiums due and payable with respect to the insurance           policies maintained by
the Company and the Subsidiaries have been paid to date.  

            (r)    Transactions
With Affiliates. Except as set forth in the SEC Reports,           none of the
officers or directors or other Affiliates of the Company or any           Subsidiary is
presently a party to any transaction with the Company or any           Subsidiary (other
than for services as officers and directors), including any           contract, agreement
or other arrangement providing for the furnishing of           services to or by,
providing for rental of real or personal property to or from,           or otherwise
requiring payments to or from any officer, director, or such           Affiliate or, to
the knowledge of the Company, any entity in which any officer,           director, or
Affiliate has a substantial interest or is an officer, director,           trustee or
partner. Except as set forth in the SEC Reports, to the knowledge of           the
Company, none of the Employees of the Company or any Subsidiary is presently           a
party to any transaction with the Company or any Subsidiary (other than for
          services as an Employee, and other than immaterial arrangements inherited in
          connection with an acquisition by the Company of a business with which that
          Employee was previously associated), including any contract, agreement or other
          arrangement providing for the furnishing of services to or by, providing for
          rental of real or personal property to or from, or otherwise requiring payments
          to or from any Employee or, to the knowledge of the Company, any entity in
which           any Employee has a substantial interest or is an officer, director,
trustee or           partner.  

            (s)    Certain
Fees. Except as set forth in Schedule 3.1(s), no brokerage           or finder’s
fees or commissions are or will be payable by the Company to           any broker,
financial advisor or consultant, finder, placement agent, investment           banker,
bank or other Person with respect to the transactions provided for in           this
Agreement. The Purchasers shall have no obligation with respect to any fees           or
with respect to any claims (other than such fees or commissions owed by a
          Purchaser pursuant to written agreements executed by such Purchaser which fees
          or commissions shall be the sole responsibility of such Purchaser) made by or
on           behalf of other Persons for fees of a type contemplated in this Section that
may           be due in connection with the transactions contemplated by this Agreement.
The           Company shall indemnify and hold harmless the Purchasers, their employees,
          officers, directors, agents, and partners, and their respective Affiliates,
from           and against all claims, Losses, damages, costs (including the costs of
          preparation and attorney’s fees) and expenses suffered in respect of any
          such claimed or existing fees, as such fees and expenses are incurred.  

14 

            (t)    Private
Placement. Neither the Company nor any Person acting on the           Company’s
behalf has sold or offered to sell or solicited any offer to buy           the Securities
by means of any form of general solicitation or advertising.           Neither the
Company nor any of its Affiliates nor any Person acting on the           Company’s
behalf has, directly or indirectly, at any time within the past           six months,
made any offer or sale of any security or solicitation of any offer           to buy any
security under circumstances that would (i) eliminate the           availability of the
exemption from registration under Section 4(2) of the           Securities Act or
Regulation D under the Securities Act in connection with the           offer and sale of
the Securities to the Initial Purchasers, or the availability           of exemptions
from registration under the Securities Act in connection with the           subsequent
resale of the Securities by the Initial Purchasers to the Subsequent           Purchaser,
in each case, as contemplated hereby or (ii) cause the offering of           the
Securities pursuant to the Transaction Documents to be integrated with prior
          offerings by the Company for purposes of any applicable law, regulation or
          stockholder approval provisions, including without limitation under the rules
          and regulations of the Trading Market.  

            (u)    Listing
and Maintenance Requirements. The Common Shares are listed and           posted for
trading on the Trading Market and the Company has not, in the two           years
preceding the date hereof, received notice from the Trading Market to the
          effect that the Company is not in compliance with the listing or maintenance
          requirements of such Trading Market. The Company is in compliance in all
          material respects with all such listing and maintenance requirements.  

            (v)    Registration
Rights. Except as described in Schedule 3.1(v), the           Company has not
granted or agreed to grant to any Person any rights (including           “piggy back” registration
rights) to have any securities of the           Company registered with the Commission or
any other governmental authority that           are currently pending and that have not
been satisfied.  

            (w)    Application
of Takeover Protections. The Company and its board of           directors have taken
all necessary action, if any, in order to render           inapplicable any control share
acquisition, business combination, poison pill           (including any distribution
under a rights agreement) or other similar           anti-takeover provision under the
Company’s Certificate of Incorporation           (or similar charter documents) or
the laws of its state of incorporation that is           or could become applicable to
the Purchasers as a result of the Purchasers and           the Company fulfilling their
obligations or exercising their rights under the           Transaction Documents,
including without limitation the Company’s issuance           of the Securities and
the Purchasers’ ownership of the Securities.  

            (x)    Investment
Company; FIRPTA. The Company is not, and is not an Affiliate           of, an
investment company within the meaning of the Investment Company Act of           1940, as
amended. The Company is not a U.S. real property holding corporation           within the
meaning of the Foreign Investment in Real Property Tax Act of 1980.  

            (y)    Material
Contracts. Each Material Contract is in full force and effect           and is a
legal, valid and binding obligation of the Company or any Subsidiary,           as
applicable. Neither the Company nor any Subsidiary is and, to the knowledge           of
the Company, no other party is, in default (and, to the knowledge of the
          Company, no condition exists that, with notice or lapse of time or both, would
          constitute a default by the Company or any Subsidiary) in the performance,
          observance or fulfillment of any obligation, covenant or condition contained in
          any such Material Contract, which default would give the other party the right
          to terminate or modify in any material respect such Material Contract or would
          accelerate any payment or material obligation by the Company or any Subsidiary,
          nor, to knowledge of the Company is any other party to any Material Contract in
          default thereunder (or, does any condition exist that, with notice or lapse of
          time or both, would constitute a default by any such party), except such
          defaults which, individually or in the aggregate, have not resulted in, and
          could not reasonably be expected to result in, a Material Adverse Effect. The
          validity, effectiveness and continuation of each of the Material Contracts will
          not be adversely affected by the transactions contemplated by this Agreement or
          any other Transaction Document. To the knowledge of the Company, no party to
any           of the Material Contracts has exercised any option granted to it to cancel,
          terminate or shorten the term of its Material Contract.  

            (z)    
Suppliers and           Customers. Schedule 3.1(z) sets forth the ten
largest suppliers and           ten largest customers of the Company and the Subsidiaries
as of the date hereof,           based on the dollar amount of sales for the twelve-month
period ending December           31, 2005. Since December 31, 2004 none of these
suppliers or customers has:           (i) terminated, cancelled or threatened to
terminate or cancel their           business relationship with the Company or any
Subsidiary; or (ii) demanded any           material modification, termination or
limitation of its business relationship           with the Company or any Subsidiary.  

15 

            (aa)    Health
Regulatory Compliance.  

                (i)              To
the knowledge of the Company, each of the Subsidiaries that provides orthotic
          and/or prosthetic patient-care services (hereinafter “Patient Care
          Centers”) (a) is duly licensed to provide such services in every
          jurisdiction in which it conducts business, where such jurisdiction requires
          licensure of Patient Care Centers; and (b) has enrolled in and has received a
          supplier billing number from the Medicare program, the Medicaid program, the
          Indian Health Services program, the Tri-Care program and the Veterans
          Administration program (collectively referred to hereinafter as           “Government
Programs”). To the knowledge of the Company, in           every jurisdiction in
which a license or board certification is required as a           condition of payment
for services, each professional employee that performs           orthotic and/or
prosthetic patient-care services for a Subsidiary that provides           orthotic and/or
prosthetic patient-care services (hereinafter, a“Practitioner”)
has the appropriate license or board           certification in such jurisdiction.
Neither the Company nor any Subsidiary           (other than the Patient Care Centers)
provides any patient care services that           are material to the Company and its
Subsidiaries, taken as a whole, and none of           the Patient Care Centers provides
any patient care services that are material to           the Company and its
Subsidiaries, taken as a whole, other than orthotic and/or           prosthetic patient
care services.  

                (ii)              The
execution and delivery of this Agreement, and each of the Company’s and
          the Subsidiaries’ performance thereunder, will not materially reduce or
          delay receipt of the ongoing Medicaid, Medicare, Government Programs, insurance
          carrier, managed care organization or other third party payments or
          reimbursements or the private payor payments or reimbursement that each of the
          Company and any Subsidiary is receiving as of the date hereof.  

                (iii)              Each
Patient Care Center is currently operated (A) with all material Permits
          necessary for enrollment under the Government Programs; (B) is an orthotics and
          prosthetics supplier enrolled under titles XVIII (Medicare) and XIX (Medicaid)
          of the federal Social Security Act; and (C) is in compliance in all material
          respects with all Health Care Laws, including titles XVIII and XIX of the
          federal Social Security Act and state health care lawsapplicable to
          orthotics and prosthetics suppliers. Neither the Company nor any Subsidiary is
          subject to or has been notified of an intent to impose any material civil
          monetary penalties, termination or exclusion from Medicare or Medicaid, or
          debarment from any Government Program, and no Company or Subsidiary has
received           any written notice of any such matter.  

16 

                (iv)              Except
for Subsidiaries listed on Schedule 3.1(aa)(iv), each Patient Care
          Center is enrolled in the federal Medicare, all applicable state Medicaid
          programs, and the Government Programs for the provision of orthotic and
          prosthetic devices and related services. Neither the Company nor any Subsidiary
          nor any Practitioner has any material Liabilities to Medicare, any state
          Medicaid program, any third party fiscal intermediary or carrier administering
          the Government Programs, or directly to any Government Program for the
          recoupment of any amounts previously paid to the Company or a Subsidiary by
          Medicare, any state Medicaid program, any such third party fiscal intermediary,
          carrier, or Government Program. Except as set forth on Schedule
          3.1(aa)(iv), there are no pending or threatened investigations or audits by
          any third party fiscal intermediary or carrier administering Medicare, the
          Government Programs, or by the Department of Health and Human Services, by the
          Department of Veterans Affairs, any state Medicaid agency, intermediary or
          carrier, to impose a material recoupment, set-off, or suspension of payments
to,           or demand a refund from, or terminate the supplier agreements with, or
asserting           any claim, demand, penalty, fine, or other sanction with respect to
any of the           activities, practices or policies of, any Company or Subsidiary,
and, to the           knowledge of the Company and its Subsidiaries, there are no
material grounds to           anticipate any such audit or investigation. To the
knowledge of the Company, no           Subsidiary that provides orthotic and/or
prosthetic patient-care services has           violated (in any material respect) any
condition of enrollment, or any material           rule, regulation, policy or standard
of, Medicare, any state Medicaid program,           or any Government Program.  

                (v)              Except
as set forth on Schedule 3.1(aa)(v), to the knowledge of the           Company,
neither the Company, nor any Subsidiary, nor any Practitioner has           engaged in
any activities which are cause for material civil monetary penalties           or
mandatory or permissive exclusion from Medicare, any state Medicaid program,
          any Government Program under 42 U.S.C. Sections 1320a-7, 1320a-7a, 1320a-7b, or
          1395nn, or the Federal False Claim Act, 31. U.S.C. Section 3729, or the
          regulations promulgated pursuant to such statutes or for debarment from
          participation in any Government Program.  

                (vi)              To
the knowledge of the Company, each of the Company, the Subsidiaries, and
          Practitioners has complied in all material respects with all applicable
security           and privacy standards regarding protected health information under the
Health           Insurance Portability and Accountability Act of 1996 and all applicable
state           privacy Laws, and with all applicable regulations promulgated under any
such           legislation.  

                (vii)              To
the knowledge of the Company, neither the Company nor any Subsidiary, nor any
          Practitioner, has violated in any material respect any applicable self-referral
          Law, including the Federal Ethics in Patient Referrals Act, 42 U.S.C. Section
          1395nn (the “Stark Law”), or any applicable state
self-referral           Law.  

                (viii)              To
the knowledge of the Company, the Company and each Subsidiary has conducted           or
will conduct all required background checks on Employees, and to the           knowledge
of the Company, neither the Company nor any Subsidiary employs any           persons
excluded from participation in Medicare or Medicaid, pursuant to 42           U.S.C.
Section 1320a-7, or who are debarred from participating in government
          contracts.  

                (ix)                 To
the knowledge of Company, neither the Company nor any Subsidiary nor any
          Practitioner has knowingly or willfully violated in any material respect the
          Federal Anti-Kickback Statute, 42 U.S.C. Section 1320-7b(b) (known as the “Anti-Kickback
Statute”).  

            (bb)    Product
Warranty; Product Liability. Each product manufactured, sold or           delivered
by the Company or any of the Subsidiaries in conducting business has           been in
conformity in all material respects with all product specifications and           all
express and implied warranties of the Company or any Subsidiary. Neither the
          Company nor any of the Subsidiaries has any liability for replacement or repair
          of any such products or other damages in connection therewith or any other
          customer or product obligations not reserved against on the balance sheet (if
          required to be reserved under GAAP).  

            (cc)    Environmental
Matters.  

17 

                (i)              All
of the current and past operations of the Company, the Subsidiaries and any
          real property currently owned, operated, used or leased by the Company or any
          Subsidiary (the “Real Property”) comply and have at all times
          complied with all federal, state and local laws, judgments, decrees, orders,
          consent agreements, authorizations, permits, licenses, rules, regulations,
          codes, ordinances, common or decision law (including, without limitation,
          principles of negligence and strict liability) relating to the pollution,
          protection, investigation, remediation, monitoring, damages to, or restoration
          of the environment (including, without limitation, natural resources) or the
          health or safety matters of humans and other living organisms (the
          “Environmental Laws”), except where the failure to comply,
          individually or in the aggregate, has not resulted in, and could not reasonably
          be expected to result in, a Material Adverse Effect. All real property formerly
          owned, operated, used or leased by the Company or any Subsidiary (the
          “Former Real Property”) complied at all times during the term
          of the Company’s or such Subsidiary’s ownership, operation, use or
          lease thereof with all applicable Environmental Laws, except where the failure
          to comply, individually or in the aggregate, has not resulted in, and could not
          reasonably be expected to result in, a Material Adverse Effect.  

                (ii)              Except
as set forth in Schedule 3.1(cc)(ii), (A) the Company has no           knowledge
of any claim, and neither it nor any Subsidiary has received written           notice of
a complaint, loss order, claim, request for information, violation or           citation,
and to the Company’s knowledge no proceeding has been instituted           or
threatened raising a claim against the Company or any Subsidiary or any
          predecessor thereto or any of their respective Real Property, Former Real
          Property or other assets indicating or alleging any damage to the environment
or           any liability or obligation under or violation of any Environmental Law,
except           where any such claim, complaint, loss order, claim, request for
information,           violation, citation or proceeding, individually or in the
aggregate, has not           resulted in, and could not reasonably be expected to result
in, a Material           Adverse Effect, and (B) to the knowledge of the Company, neither
the Company nor           any Subsidiary is subject to any order, decree or injunction of
any Governmental           Authority under any applicable Environmental Law.  

                (iii)              Except
as set forth in Schedule 3.1(cc)(iii), (A) neither the Company nor           any
Subsidiary has used and, to the Company’s knowledge, no other Person           has
used any portion of any Real Property or Former Real Property during the           term
of the Company’s or any Subsidiary’s ownership, operation, use or
          lease thereof for the generation, handling, processing, treatment, storage or
          disposal of any Hazardous Materials except in accordance with applicable
          Environmental Laws, except where any such use, individually or in the
aggregate,           has not resulted in, and could not reasonably be expected to result
in, a           Material Adverse Effect; (B) neither the Company nor any Subsidiary owns
or           operates any underground tank and to the Company’s knowledge there are
no           underground tanks or other underground storage receptacles, or any friable
          asbestos-containing materials or other Hazardous Materials located in any
          portion of any Real Property not in compliance with applicable Environmental
          Laws in all material respects and (C) neither the Company nor any Subsidiary
          nor, to the Company’s knowledge, any other Person, has caused or suffered
          to occur any releases of Hazardous Materials on, at, in, under, above, to, from
          or about any Real Property or Former Real Property during the term of the
          Company’s or any Subsidiary’s ownership, operation, use or lease
          thereof, except where any such release, individually or in the aggregate, has
          not resulted in, and could not reasonably be expected to result in, a Material
          Adverse Effect. The Company has not contractually, by operation of law,
          including the Environmental Laws, or otherwise assumed or succeeded to any
          environmental liabilities of any predecessors or any other person or entity,
          except as, individually or in the aggregate, has not resulted in, and could not
          reasonably be expected to result in, a Material Adverse Effect.  

            (dd)    Export
Controls. None of the Company, any Subsidiary or, to the           Company’s
knowledge, the Employees have violated any law pertaining to           export controls,
technology transfer or industrial security including, without           limitation, the
Export Administration Act, as amended, the International           Emergency Economic
Powers Act, as amended, the Arms Export Control Act, as           amended, the National
Industrial Security Program Operating Manual, as amended,           or any regulation,
order, license or other legal requirement issued pursuant to           the foregoing
(including, without limitation, the Export Administration           Regulations and the
International Traffic in Arms Regulations), except where any           such violation,
individually or in the aggregate, has not resulted in, and could           not reasonably
be expected to result in, a Material Adverse Effect. Neither the           Company, any
Subsidiary nor, to the Company’s knowledge, any Employee is           the subject of
a Proceeding by a Governmental Authority that restricts such           person’s
ability to engage in export transactions.  

18 

            (ee)    Disclosure.
All disclosure provided to the Purchasers regarding the           Company, its business
and the transactions contemplated hereby, including the           Schedules to this
Agreement, furnished by or on behalf of the Company is true           and correct in all
material respects. No event or circumstance has occurred or           information exists
with respect to the Company or any of its Subsidiaries or its           or their
business, properties, prospects, operations or financial conditions,           which,
under applicable law, rule or regulation, requires public disclosure or
          announcement by the Company but which has not been so publicly announced or
          disclosed (assuming for this purpose that the Company’s reports filed
under           the 1934 Act are being incorporated into an effective registration
statement           filed by the Company under the 1933 Act).  

            (ff)    Class
of Shares. When issued and delivered pursuant to this Agreement,           the Shares
will not be of the same class (within the meaning of Rule 144A(d)(3)           under the
Securities Act) as securities of the Company that are listed on a           national
securities exchange registered under Section 6 of the Exchange Act or           that are
quoted in a U.S. automated inter-dealer quotation system.  

        3.2    
Representations and Warranties of the Initial Purchasers. Each Initial Purchaser
hereby, as to itself only and for no other Initial Purchaser, represents and warrants to
the Company as follows:  

            (a)     Investment
Intent. Such Initial Purchaser is not acquiring the Securities           with a view
to any distribution thereof or with any present intention of           offering or
selling any of the Shares in a transaction that would violate the           Securities
Act or any state securities laws or any other applicable           jurisdiction, without
prejudice, however, to such Initial Purchaser’s right           at all times to sell
or otherwise dispose of all or any part of such Securities           in compliance with
applicable federal or state securities laws. Nothing           contained herein shall be
deemed a representation or warranty by such Initial           Purchaser to hold the
Securities for any period of time. Such Initial Purchaser           understands that the
Securities have not been registered under the Securities           Act, and therefore the
Securities may not be sold, assigned or transferred in           the U.S. other than
pursuant to (i) a registration statement under the           Securities Act, or (ii) an
exemption from such registration requirements.  

            (b)     Purchaser
Status. Such Initial Purchaser is a “qualified           institutional buyer” (a
“QIB”) within the meaning of the           rules and regulations
promulgated by the Commission under the Securities Act           with such knowledge and
experience in financial and business matters as are           necessary in order to
evaluate the merits and risks of an investment in the           Securities.  

            (c)     General
Solicitation. Such Initial Purchaser is not purchasing the           Securities as a
result of any advertisement, article, notice or other           communication regarding
the Securities published in any newspaper, magazine or           similar media or
broadcast over television or radio or presented at any seminar           or any other
general solicitation or general advertisement.  

            (d)     Reliance
on Exemptions. Such Initial Purchaser understands that the           Securities are
being offered and sold to it in reliance on specific exemptions           from the
registration requirements of U.S. federal and state securities laws and           that
the Company is relying in part upon the truth and accuracy of, and such           Initial
Purchaser’s representations and warranties set forth herein in           order to
determine the availability of such exemptions and the eligibility of           such
Initial Purchaser to acquire the Securities.  

19 

            3.3    
Representations and Warranties of the Subsequent Purchaser. The Subsequent
Purchaser hereby represents and warrants to the Company and to the Initial Purchasers as
follows:  

            (a)    Organization;
Authority. The Subsequent Purchaser is an entity duly           organized, validly
existing and in good standing under the laws of the           jurisdiction of its
organization with the requisite corporate, limited liability           company or
partnership power and authority to enter into and to consummate the
          transactions contemplated by the Transaction Documents and otherwise to carry
          out its obligations hereunder and thereunder. The execution, delivery and
          performance by the Subsequent Purchaser of the Transaction Documents to which
it           is a party have been duly authorized by all necessary corporate or, if the
          Subsequent Purchaser is not a corporation, such partnership, limited liability
          company or other applicable like action, on the part of the Subsequent
          Purchaser. Each of the Transaction Documents to which the Subsequent Purchaser
          is a party has been duly executed by the Subsequent Purchaser and, when
          delivered by the Subsequent Purchaser in accordance with terms hereof, will
          constitute the valid and legally binding obligation of the Subsequent
Purchaser,           enforceable against it in accordance with its terms.  

            (b)    Investment
Intent. The Subsequent Purchaser is acquiring the Securities           as principal
for its own account for investment purposes and not with a view to           distributing
or reselling such Securities or any part thereof in violation of           applicable
securities laws, without prejudice, however, to the Subsequent           Purchaser’s
right at all times to sell or otherwise dispose of all or any           part of such
Securities in compliance with applicable federal or state           securities laws.
Nothing contained herein shall be deemed a representation or           warranty by the
Subsequent Purchaser to hold the Securities for any period of           time. The
Subsequent Purchaser understands that the Securities have not been           registered
under the Securities Act, and therefore the Securities may not be           sold,
assigned or transferred in the U.S. other than pursuant to (i) a           registration
statement under the Securities Act, or (ii) an exemption from such           registration
requirements.  

            (c)    Purchaser
Status and Non-Reliance on Initial Purchasers. The Subsequent           Purchaser is
a QIB with such knowledge and experience in financial and business           matters as
are necessary in order to evaluate the merits and risks of an           investment in the
Securities. The Subsequent Purchaser further acknowledges,           represents and
warrants, only to each Initial Purchaser, that: (i) the Initial           Purchasers may
be, and the Subsequent Purchaser are proceeding on the assumption           that the
Initial Purchasers are, in possession of material, non-public           information
concerning the Company (the “Information”) which is           not or may
not be known to the Subsequent Purchaser and that the Initial           Purchasers have
not disclosed to the Subsequent Purchaser; (ii) the Subsequent           Purchaser is
voluntarily assuming all risks associated with the purchase of the           Securities
and warrants and represents that (x) the Initial Purchasers have not           made, and
the Subsequent Purchaser disclaims the existence of or its reliance           on, any
representation by the Initial Purchasers concerning the Company or the
          Securities and (y) the Subsequent Purchaser are not relying on any disclosure
or           non-disclosure made or not made by the Initial Purchasers, or the
completeness           thereof, in connection with or arising out of the purchase of the
Securities           from the Initial Purchasers, and therefore have no claims against
the Initial           Purchasers with respect thereto; and (iii) if any such claim may
exist, the           Subsequent Purchaser, recognizing its disclaimer of reliance and the
Initial           Purchasers’ reliance on such disclaimer as a condition to entering
into           this Agreement, covenants and agrees not to assert it against any Initial
          Purchaser or any Related Person whether under applicable securities law or
          otherwise, based on the Initial Purchasers’ knowledge, possession or
          non-disclosure to the Subsequent Purchaser of the Information.  

20 

        In
addition, the Subsequent Purchaser acknowledges to and agrees with the Initial Purchasers
only that it has conducted to its satisfaction, its own independent investigation of the
condition, operations and business of the Company and the Subsidiaries and, in making its
determination to proceed with the transactions contemplated by this Agreement, the
Subsequent Purchaser has relied on the results of its own independent investigation and
the representations and warranties of the Company contained herein and not on any
information provided or deemed to have been provided by the Initial Purchasers. Nothing
contained in this Section 3.3(c) shall limit in any respect any of the
representations, warranties or agreements of the Company in this Agreement or otherwise,
or the right of the Subsequent Purchaser to rely thereon. 

            (d)    General
Solicitation. The Subsequent Purchaser is not purchasing the           Securities as
a result of any advertisement, article, notice or other           communication regarding
the Securities published in any newspaper, magazine or           similar media or
broadcast over television or radio or presented at any seminar           or any other
general solicitation or general advertisement.  

            (e)    Reliance
on Exemptions. The Subsequent Purchaser understands that the           Securities are
being offered and sold to it in reliance on one or more specific           exemptions,
including under Rule 144A promulgated under the Securities Act, from           the
registration requirements of U.S. federal and state securities laws and that
          each of the Company and the Initial Purchasers is relying in part upon the
truth           and accuracy of the Subsequent Purchaser’s representations and
warranties           set forth herein in order to determine the availability of such
exemption.  

ARTICLE IV.  
OTHER
AGREEMENTS OF THE PARTIES  

        4.1    
Transfer Restrictions.  

            (a)              The
Securities may only be disposed of pursuant to an effective registration
          statement under the Securities Act or pursuant to an available exemption from
          the registration requirements of the Securities Act, and in compliance with any
          applicable state securities laws. In connection with any transfer of Securities
          other than (i) pursuant to an effective registration statement, (ii) to the
          Company, (iii) pursuant to Rule 144(k) or (iv) the initial resale of the
          Securities by the Initial Purchasers to the Subsequent Purchaser, except as
          otherwise set forth herein, the Company may require the transferor to provide
to           the Company an opinion of counsel selected by the transferor, the form and
          substance of which opinion shall be reasonably satisfactory to the Company, to
          the effect that such transfer does not require registration under the
Securities           Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to           register on the books of the Company and with its transfer agent,
without any           such legal opinion, any transfer of Securities by a Purchaser to an
Affiliate of           such Purchaser.  

            (b)              The
Purchasers agree to the imprinting on any certificate evidencing Securities,
          except as otherwise permitted by Section 4.1(c), of a restrictive legend
          in substantially the form as follows, together with any additional legend
          required by (i) any applicable state securities laws and (ii) any securities
          exchange upon which such Securities may be listed:  

	 	
“NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED TO AN “ACCREDITED
INVESTOR” WITHIN THE MEANING OF RULE 501(A) UNDER THE SECURITIES ACT IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.” 

21 

            (c)              Certificates
evidencing Securities shall not be required to contain such legend           or any other
legend (i) following any sale of Securities pursuant to an           effective
Registration Statement covering the resale of such Securities under           the
Securities Act, or (ii) following any sale of such Securities pursuant to           Rule
144, or (iii) if such Securities are eligible for sale under Rule 144(k),           or
(iv) if such legend is not required under applicable requirements of the
          Securities Act (including judicial interpretations and pronouncements issued by
          the Staff of the Commission). At such time as a legend is no longer required
for           certain Securities, the Company will, no later than three Trading Days
following           the delivery by a Purchaser to the Company or the Company’s
transfer agent           of a legended certificate representing such Securities, deliver
or cause to be           delivered to such Purchaser a certificate representing such
Securities that is           free from all restrictive and other legends. The Company may
not give           instructions to any transfer agent of the Company that enlarge the
restrictions           on transfer set forth in this Section. For so long as any
Purchaser owns           Securities, the Company will not effect or publicly announce its
intention to           effect any exchange, recapitalization or other transaction that
effectively           requires or rewards physical delivery of certificates evidencing
the Common           Shares.  

            (d)              The
Company acknowledges and agrees that a Purchaser may from time to time           pledge
or grant a security interest in some or all of the Securities in           connection
with a bona fide margin agreement or other loan or financing           arrangement
secured by the Securities and, if required under the terms of such           agreement,
loan or arrangement, such Purchaser may transfer pledged or secured           Securities
to the pledgees or secured parties. Such a pledge or transfer would           not be
subject to approval of the Company and no legal opinion of the pledgee,           secured
party or pledgor shall be required in connection therewith. Further, no           notice
shall be required of such pledge. At the appropriate Purchaser’s           expense,
the Company will execute and deliver such reasonable documentation as a           pledgee
or secured party of Securities may reasonably request in connection with           a
pledge or transfer of the Securities, including, so long as the Company is
          obligated to maintain a resale Registration Statement with respect to the
          Underlying Shares, the preparation and filing of any required prospectus
          supplement under Rule 424(b)(3) of the Securities Act or other applicable
          provision of the Securities Act to appropriately amend the list of Selling
          Stockholders thereunder.  

        4.2    
Furnishing of Information. The Company covenants that it will take such action as
any holder of Securities may reasonably request, all to the extent required from time to
time to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.  

        4.3    
Integration. The Company shall not, and shall use its best efforts to ensure that
no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the sale of the Securities to
the Purchasers, or that would be integrated with the offer or sale of the Securities for
purposes of the rules and regulations of the Trading Market.  

        4.4    
Reservation and Listing of Securities.  

22 

            (a)              The
Company shall maintain a reserve from its duly authorized Common Shares for
          issuance pursuant to the Transaction Documents in such amount as may be
required           to fulfill its obligations in full under the Transaction Documents.  

            (b)              The
Company shall (i) prepare and timely file with the Trading Market an           additional
shares listing application covering all of the Underlying Shares           issued or
issuable under the Transaction Documents, (ii) use best efforts           to cause
such Underlying Shares to be approved for listing on the Trading Market           as soon
as practicable thereafter, (iii) provide to the Purchasers evidence           of
such listing, and (iv) use best efforts to maintain the listing of such
          Underlying Shares on such Trading Market.  

        4.5    
Subsequent Financings. From the date hereof until the earlier of (i) the
termination of this Agreement or (ii) after the sale of the Shares to the Subsequent
Purchaser, the date that the Subsequent Purchaser owns less than 1,984,126 Common Shares,
on an as-converted basis (subject to appropriate adjustment for stock splits,
subdivisions, dividends or distributions payable in Common Shares (or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly Common Shares), combinations or other similar recapitalizations or events, and
including all Common Shares issuable upon conversion of the Shares), the Company will
not, directly or indirectly, effect any Subsequent Public Financing or any Subsequent
Private Financing unless the Company shall have first complied with this Section 4.5.  

            (a)              If
at any time the Company, directly or indirectly, desires to consummate a
          Subsequent Private Financing, the Company shall first deliver to the Subsequent
          Purchaser a written notice (the “Initial Financing Notice”),
          which Initial Financing Notice shall set forth in reasonable detail the general
          parameters of the intended Subsequent Private Financing, the Company’s
          preference, if any, for equity or exchangeable or convertible debt financing,
          the minimum and maximum amounts of such financing and the Company’s
          intended use of the funds received from any such Subsequent Private Financing.
          Upon receipt of such Initial Financing Notice, the Subsequent Purchaser shall
          have 20 days to provide the Company with a commitment letter (subject to
          specified terms and conditions as set forth thereon) proposing terms with
          respect to such Subsequent Private Financing (the “Purchaser’s
          Offer”). The Company may, at its option, elect to (A) accept the terms
          set forth in the Purchaser’s Offer within the period set forth in the
          Purchaser’s Offer, in which case the Company and the Subsequent Purchaser
          shall consummate a Subsequent Private Financing pursuant to the terms specified
          in the Purchaser’s Offer, subject in all cases to the preparation,
          execution and delivery by the Company and the Subsequent Purchaser choosing to
          participate in such Subsequent Private Financing of definitive documentation
          relating to such Subsequent Private Financing reasonably satisfactory in form
          and substance to the Subsequent Purchaser participating in such Subsequent
          Private Financing and their respective counsel, or (B) choose to seek
          alternative offers with respect to such Subsequent Private Financing from third
          parties, in which case the Company may not consummate any such Subsequent
          Private Financing with any third party unless (x) such Subsequent Private
          Financing shall be on terms more favorable to the Company and the Subsidiaries
          than the terms set forth in the Purchaser’s Offer, (y) the Company
complies           with the remainder of this Section 4.5 and (z) the Company
Offer (as           defined below) is delivered within 60 days of the delivery of the
          Purchaser’s Offer. If the Subsequent Purchasers does not deliver a
          Purchaser’s Offer within the 20-day period provided for above, then the
          Company may seek offers with respect to such Subsequent Private Financing from
          third parties, in which case the Company may not consummate any such Subsequent
          Private Financing with any third party unless (x) the Company complies with the
          remainder of this Section 4.5 and (y) the Company Offer (as defined
          below) is delivered within 60 days of the expiration of such 20-day period.  

23 

            (b)              If
the Company desires, directly or indirectly, to consummate a Subsequent           Private
Financing (and has not accepted a Purchaser’s Offer or no           Purchaser’s
Offer has been delivered pursuant to Section 4.5(a)          above) and the
Company has obtained a written term sheet or commitment letter           from a third
party with respect to a Subsequent Private Financing that is           generally
consistent with the terms set forth in the Initial Financing Notice,           then the
Company shall deliver to the Subsequent Purchaser a written notice (the           “Company
Offer”) of any proposed or intended issuance or sale           or exchange of
the securities being offered either to such third party or in           such Subsequent
Private Financing (the “Offered Securities”),           which Company
Offer shall (A) identify and describe the Offered Securities,           (B) describe
the price and other terms upon which they are to be issued,           sold or exchanged,
and the number or amount of the Offered Securities to be           issued, sold or
exchanged, (C) identify the Persons or entities to which or with           which the
Offered Securities are to be offered, issued, sold or exchanged and           (D) offer
to issue and sell to or exchange with the Subsequent Purchaser           (x) up to
their Pro Rata Portion (as defined below) of the Offered           Securities, and (y) in
the event there is more than one Subsequent           Purchaser, with respect to any
Subsequent Purchaser that elects to purchase its           Pro Rata Portion, any
additional portion of the Offered Securities attributable           to the Pro Rata
Portions of other Subsequent Purchasers as such Subsequent           Purchaser shall
indicate it will purchase or acquire should the other Subsequent           Purchasers
subscribe for less than their Pro Rata Portions (the “Undersubscription Amount”).
The term “Pro Rata           Portion” means, as to each Subsequent
Purchaser, a fraction, the           numerator of which is equal to the number of Common
Shares held by such           Subsequent Purchaser (on a fully diluted as-converted
basis), and the           denominator of which is all issued and outstanding Common
Shares, in each case           as determined on the date the Company Offer is delivered
pursuant to this Section 4.5(b).  

            (c)              To
accept a Company Offer, in whole or in part, a Subsequent Purchaser must
          deliver a written notice to the Company prior to the end of the 10-Trading Day
          period after the Company Offer is delivered, setting forth the portion of the
          Subsequent Purchaser’s Pro Rata Portion that such Subsequent Purchaser
          elects to purchase and, if such Subsequent Purchaser shall elect to purchase
all           of its Pro Rata Portion, the Undersubscription Amount, if any, that such
          Subsequent Purchaser elects to purchase (in either case, the “Notice of
          Acceptance”). If the Pro Rata Portions subscribed for by all
Subsequent           Purchasers are less than the total of all of the Pro Rata Portions,
then each           Subsequent Purchaser who has set forth an Undersubscription Amount in
its Notice           of Acceptance shall be entitled to purchase, in addition to the Pro
Rata Portion           subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts subscribed for
exceed the           difference between the total of all the Pro Rata Portions and the
Pro Rata           Portions subscribed for (the “Available Undersubscription
          Amount”), each Subsequent Purchaser who has subscribed for any
          Undersubscription Amount shall be entitled to purchase only that portion of the
          Available Undersubscription Amount as the Pro Rata Portion of such Subsequent
          Purchaser bears to the total Pro Rata Portions of all Subsequent Purchasers
that           have subscribed for Undersubscription Amounts, subject to rounding by to
the           extent reasonably necessary.  

            (d)              The
Company shall have 30 Trading Days from the expiration of the period set           forth
in Section 4.5(c) above, subject to extension as provided in
          Section 4.5(f) to issue, sell or exchange all or any part of such Offered
          Securities as to which a Notice of Acceptance has not been given by the
          Subsequent Purchasers (the “Refused Securities”), but only to
          the offerees described in the Company Offer and only upon terms and conditions
          (including, without limitation, unit prices and interest rates) that are not
          more favorable to the acquiring Person or Persons (the “3rd          Party
Purchasers”) or less favorable to the Company than those set           forth in
the Company Offer.  

            (e)              In
the event the Company shall propose to sell less than all of the Refused
          Securities (any such sale to be in the manner and on the terms specified in Section 4.5(d) above),
then each Subsequent Purchaser may, at its           sole option and in its sole
discretion, reduce the number or amount of the           Offered Securities specified in
its Notice of Acceptance to an amount that shall           be not less than the number or
amount of the Offered Securities that the           Subsequent Purchasers elected to
purchase pursuant to Section 4.5(c)          above multiplied by a fraction, (A) the
numerator of which shall be the           number or amount of Offered Securities the
Company actually proposes to issue,           sell or exchange (including Offered
Securities to be issued or sold to           Subsequent Purchasers pursuant to Section
4.5(c) above prior to such           reduction) and (B) the denominator of which
shall be the original amount of           the Offered Securities. In the event that any
Subsequent Purchaser so elects to           reduce the number or amount of Offered
Securities specified in its Notice of           Acceptance, the Company may not issue,
sell or exchange more than the reduced           number or amount of the Offered
Securities unless and until the Company shall           have again complied with the
provisions of this Section 4.5.  

24 

            (f)              The
sale by the Company and purchase by the Subsequent Purchasers in a           Subsequent
Private Financing of the number or amount of Offered Securities           specified in
the Notices of Acceptance, as such number or amount may be reduced           pursuant to
Section 4.5(e), shall be made pursuant to a purchase           agreement and any
related ancillary documentation substantially in the same form           and substance as
the stock purchase agreement and any related ancillary           documentation (the “Financing
Documentation”) that the Company           enters into with the 3rd Party
Purchasers, and shall close at substantially the           same time as the 3rd Party
Purchasers financing; provided, however, that such           Financing Documentation
shall not contain any provision that treats any of the           Subsequent Purchasers
less favorably than, or that affects any Subsequent           Purchaser differently than
any 3rd Party Purchaser. The Company shall           deliver a final version
of the Financing Documentation to the Subsequent           Purchasers (and, upon request,
their counsel) not later than 7 Trading Days           prior to the proposed closing date
of the 3rd Party Purchasers financing. In the           event a Subsequent Purchaser is
unwilling to proceed with the proposed financing           on the terms and conditions
set forth in the definitive Financing Documentation,           it shall have the right to
withdraw its Notice of Acceptance by delivering a           written notice of such
withdrawal not later than the second Trading Day prior to           the proposed closing
date, and any Offered Securities that had been subject to           such Notice of
Acceptance shall thereafter be deemed to be Refused Securities.           Notwithstanding
the 30 day period provided for in Section 4.5(d), the           Company shall have
5 Trading Days from the delivery of any withdrawal notice to           issue, sell or
exchange all or any part of the Refused Securities.  

            (g)              Any
Offered Securities not acquired by the Subsequent Purchasers or other           persons
in accordance with Section 4.5(d) above may not be issued, sold           or
exchanged until they are again offered to the Subsequent Purchasers under the
          procedures specified in this Agreement.  

            (h)              In
the event that the Company desires to consummate a Subsequent Public           Financing,
it shall use all commercially reasonable efforts to allow each           Subsequent
Purchasers to participate in such Subsequent Public Financing and to           purchase
up to such portion of the number of Common Shares and/or Common Share
          Equivalents offered thereunder equal to a fraction, the numerator of which is
          equal to the number or Common Shares held by such Subsequent Purchaser (on a
          fully-diluted and as-converted basis), and the denominator of which is equal to
          all issued and outstanding Common Shares, in each case as determined on the
date           of the commencement of the public offering.  

        4.6
Fundamental Changes. In addition to any other rights provided by law or set forth
herein, from and after the date of this Agreement and for so long as Ares, together with
all of its Affiliates, owns at least 1,984,126 Common Shares (subject to appropriate
adjustment for stock splits, subdivisions, dividends or distributions payable in Common
Shares (or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly Common Shares), combinations or other similar
recapitalizations or events, and including all Common Shares issuable upon conversion of
the Shares), neither the Company nor any Subsidiary shall, without first obtaining the
written consent of Ares:  

            (a)              dissolve
or liquidate the Company;  

25 

            (b)              purchase,
redeem (other than pursuant to the Company’s stock option plan or           similar
employee incentive plan as described in Schedule 3.1(m)(i) giving           the
Company the right to repurchase shares at cost upon the termination of an
          employee’s or director’s services not to exceed $250,000 in any 12
          month period or $500,000 in the aggregate) or set aside any sums for the
          purchase or redemption of, or declare or pay any cash dividend, or declare or
          pay any dividends or make any distributions of cash, property or securities of
          the Company in respect to any Common Shares or any other class of its capital
          stock or any other securities that are convertible into or exercisable for such
          stock, other than a stock buy-back program applied pro-rata among all
          stockholders of the Company;  

            (c)              acquire
any other corporation or business concern, whether by acquisition of           assets,
capital stock, merger or otherwise, and whether in consideration of the           payment
of cash, the issuance of capital stock or otherwise, other than           acquisitions of
up to $50,000,000 per annum;  

            (d)              enter
into (i) the sale, disposition, license or transfer, directly or           indirectly, of
any assets or property (including any Company Intellectual           Property Rights)
with a value equal to or greater than $100,000,000 or that are           otherwise
material to the Company or its business; (ii) any acquisition by any           person (or
group of affiliated or associated persons) of beneficial ownership of           a
majority of the equity of the Company (whether or not newly-issued shares) in           a
single transaction or a series of related transactions; (iii) the redemption           or
repurchase of shares representing a majority of the voting power of the
          outstanding shares of capital stock of the Company; or (iv) any other change of
          control of 50% or more of the outstanding voting power of the Company;
provided,           however, that nothing contained in Sections 4.6(d)(i), (ii) or
(iv) shall prevent the Board of Directors of the Company from taking any
          action in connection with the events or matters described therein if the Board
          of Directors determines in good faith after consultation with legal counsel
that           the taking of such action is required to fulfill its fiduciary obligations
or is           required for the Board of Directors or the Company to comply with any
applicable           Laws; provided, further, however, that nothing contained in this
Section 4.6(d)           shall prevent the Company from taking any action described above
if the holders           of the Common Shares are entitled to vote on such action under
any applicable           Laws or any rules of the Trading Market and such action is
submitted to those           holders for approval.  

            (e)              fail
to maintain its corporate existence, or change the nature of the           Company’s
principal business to any business which is fundamentally           distinct and separate
from the principal business currently conducted by the           Company;  

            (f)              create,
incur, assume or suffer to exist any Indebtedness, other than (i) trade
          Indebtedness incurred to finance the purchase of equipment, components and
other           similar property and operating assets, in each case, in the ordinary
course of           business consistent with past practice, and any extensions,
refinancings and           renewals of any of the foregoing, provided that such
extensions, refinancings or           renewals do not or will not impose more burdensome
terms, conditions or           obligations upon the Company or any Subsidiary or increase
the commitments or           loan amounts thereunder; and (ii) inter-company Indebtedness
between the Company           and any wholly-owned Subsidiary incurred in the ordinary
course of business and           consistent with past practice; and (iii) any other
Indebtedness permitted under           the indenture governing the new senior notes to be
issued in connection with the           Debt Refinancing as in effect on the date of
issuance;  

            (g)              create,
incur, assume or suffer to exist any Lien upon any of its property,           assets or
revenues, whether now owned or hereafter acquired, other than:           (i) Liens
incurred by the Company or the Subsidiaries, permitted under the           financings
permitted under Section 4.6(f) above; (ii) Liens arising           from
taxes, assessments, charges or claims that are not yet due or that remain
          payable without penalty; and (iii) Liens on real property that do not
          materially affect the value of such property and do not materially interfere
          with the use made and currently proposed to be made of such property by the
          Company and the Subsidiaries; or  

26 

            (h)              enter
into any agreement to do any of the foregoing or cause or permit any           Subsidiary
of the Company directly or indirectly to take any actions described           in clauses
(a) through (h) above.  

        4.7    
Access. In addition to any other rights provided by law or set forth herein, from
and after the date of this Agreement and for so long as Ares together with its Affiliates
owns at least 1,984,126 Common Shares, on an as-converted basis (subject to appropriate
adjustment for stock splits, subdivisions, dividends or distributions payable in Common
Shares (or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly Common Shares), combinations or other similar
recapitalizations or events, and including all Common Shares issuable upon conversion of
the Shares), the Company shall, and shall cause each of the Subsidiaries, to give Ares
and its representatives, at the request of the Purchasers, access, during reasonable
business hours, to (a) all properties, assets, books, contracts, commitments,
reports and records relating to the Company and the Subsidiaries, and (b) the
management, and, to the extent within the control of the Company, the accountants,
lenders, customers and suppliers of the Company and the Subsidiaries; provided, however,
that the Company shall not be required to provide Ares access to any information or
Persons if the Company reasonably determines that access to such information or Persons
cannot be provided to the Purchasers in a manner that would avoid the adverse affect on
the attorney-client privilege between the Company and its counsel or the disclosure of
trade secrets, material nonpublic information or other confidential or proprietary
information, as applicable.  

        4.8    
Use of Proceeds; Debt Repayment. The Company shall use substantially all of the
net proceeds from the sale of the Securities hereunder to redeem or repurchase existing
preferred stock or as otherwise consented to by the Subsequent Purchaser. Within 60 days
after Closing, all existing preferred stock and all outstanding debt described in the
definition of Debt Refinancing shall have been redeemed or repaid in full.  

        4.9    
D & O Insurance; Board. So long as any Purchaser has a designee on the Company’s
board of directors, the Company shall maintain directors’ and officers’ liability
insurance providing coverage in such amounts and on such terms as is customary for a
publicly traded company of similar size to the Company but in no event in an amount less
than $15,000,000. Such insurance shall include coverage for all directors of the Company,
including any director designated by any Purchaser. The Company shall use its reasonable
best efforts to ensure that meetings of its board of directors are held at least four
times each year.  

        4.10    
Properties, Business Insurance. The Company shall obtain and maintain and cause
each of its Subsidiaries to maintain as to their respective properties and business, with
financially sound and reputable insurers, insurance against such casualties,
contingencies and other risks and hazards and of such types and in such amounts as is
customary for companies similarly situated.  

        4.11    
Exclusivity. From and after the date hereof and up to and through the Closing,
neither the Company nor its agents shall, directly or indirectly, solicit, initiate,
respond to, except as required by law, or encourage any proposal or offer from any other
party relating to any equity or equity linked financing transaction, or any sale of all
or any material part of the Company’s or any Subsidiary’s business or assets,
including, without limitation, any asset sale, exclusive license, merger, reorganization
or other form of business combination having an effect or result similar to the
transaction contemplated herein, or any transaction that would otherwise be inconsistent
with the transactions contemplated by this Agreement. The Company will promptly notify
the Purchasers in writing describing any contact between the Company or a Subsidiary or
any of their respective agents or representatives and any other person or entity
regarding any such discussion, offer, proposal or inquiry prior to and including the
Closing Date, and in all cases the Purchasers will be given the opportunity to match the
terms of any alternative transaction that the Company is required by law to consider
prior to and including the Closing Date.  

27 

        4.12    
Indemnification.  

            (a)     Indemnification
of Purchasers. The Company shall indemnify, to the           fullest extent lawful,
and hold harmless (a) each Purchaser and Related Person           from and against any
and all Losses, as incurred, directly or indirectly arising           out of, based upon
or relating to (i) any breach by the Company of any of the           representations,
warranties or covenants made by the Company in this Agreement           or any other
Transaction Document, or any allegation by a third party that, if           true, would
constitute such a breach or (ii) any Proceeding brought by or           against any
Person, directly or indirectly, in connection with or as a result of           any of the
Transactions, and (b) each Initial Purchaser from and against any and           all
Losses, as incurred, directly or indirectly arising out of, base upon or
          relating to (i) any untrue statement or alleged untrue statement of a material
          fact contained in this Agreement or any other Transaction Document or the
          Offering Memorandum (as hereinafter defined) or arising out of or based upon
the           omission or alleged omission to state in this Agreement, the Offering
Memorandum           or any other Transaction Document a material fact necessary in order
to make the           statements therein, in light of the circumstances under which they
were made,           not misleading or (ii) any termination by the Company of, or failure
by the           Company to consummate the Transactions. The indemnification and expense
          reimbursement obligations of the Company under this paragraph shall be in
          addition to any liability that the Company may otherwise have and shall be
          binding upon and inure to the benefit of any successors, assigns, heirs and
          personal representatives of the applicable Purchasers and any such Related
          Persons of such Purchasers. If the Company breaches its obligations under any
          Transaction Document, then, in addition to any other liabilities the Company
may           have under any Transaction Document or applicable law, the Company shall
pay or           reimburse the Purchasers on demand for all costs of collection and
enforcement           (including reasonable attorneys fees and expenses). Without
limiting the           generality of the foregoing, the Company specifically agrees to
reimburse the           Purchasers on demand for all costs of enforcing the
indemnification obligations           in this paragraph.  

            (b)     Exculpation
by the Company. The Company agrees that no Initial Purchaser           shall have any
liability to the Company or any person asserting claims on behalf           of or in
right of the Company in connection with this Agreement or the Initial           Purchasers’ position
as Initial Purchasers hereunder, except for           liabilities determined in a final
judgment by a court of competent jurisdiction           to have resulted directly from
any acts or omissions undertaken or omitted to be           taken by such Initial
Purchaser through its gross negligence or willful           misconduct.  

            (c)     Exculpation
by the Subsequent Purchaser. The Subsequent Purchaser agrees           that no
Initial Purchaser shall have any liability to the Subsequent Purchaser           or any
person asserting claims on behalf of or in right of the Subsequent           Purchaser in
connection with this Agreement or the Initial Purchasers’          position as
Initial Purchasers hereunder, except for liabilities determined in a           final
judgment by a court of competent jurisdiction to have resulted directly           from
any acts or omissions undertaken or omitted to be taken by such Initial
          Purchaser through its gross negligence or willful misconduct.  

            (d)     Non-Exclusive
Remedy. For purposes of clarity, the provisions contained           in this Section
4.12 shall not constitute the exclusive remedies of any           Purchaser
hereunder.  

        4.13    
Approvals; Further Assurances; Taking of Actions. The Company shall use its
commercially reasonable best efforts to (i) take or cause to be taken all actions,
and to do or cause to be done all other things, necessary, proper or advisable to
consummate the transactions contemplated by the Agreement and any other Transaction
Document as promptly as practicable, and (ii) obtain in a timely manner all
necessary waivers, consents and approvals and effect all necessary registrations and
filings, including without limitation the approval of the Trading Market. The Purchasers
and the Company shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the non-filing party and its
advisors prior to filing. The Purchasers and the Company shall use their respective
commercially reasonable efforts to furnish to each other all information required for any
application or other filing to be made pursuant to the rules and regulations of any
applicable law in connection with the transactions contemplated by this Agreement and any
other Transaction Document. The Company shall give any notices to third parties, and use
their commercially reasonable efforts to obtain any third party consents related to or
required in connection with or to consummate the transactions contemplated hereby.  

28 

        4.14    
Covenants relating to Debt Refinancing. The Company shall use its best
efforts to consummate the Debt Refinancing on commercially reasonable terms.  If at
any time the Company believes that it will be unable to consummate the debt refinancing
referred to in clauses (i) and (ii) of the definition of Debt Refinancing on or before
June 15, 2006, the Company shall (a) promptly notify the Subsequent Purchaser and give
the Subsequent Purchaser the opportunity to identify financing sources, and (b) cooperate
with any such sources identified to consummate the Debt Refinancing.  If the debt
refinancing referred to in clauses (i) and (ii) of the definition of Debt Refinancing are
not consummated on or prior to June 15, 2006, the Company will not, prior to December 31,
2006, consummate any direct or indirect equity financing (including, but not limited to,
any Subsequent Private Financing or Subsequent Public Financing) without first giving the
Purchaser the opportunity to provide such financing on the terms provided in Section
4.5(a), mutatis, mutandis, without regard to (a) any references to the other
provisions of Section 4.5 contained therein or (b) any provisions relating to the
delivery of the Company Offer.  This Section 4.14 shall survive any
termination of this Agreement.  

        4.15    
Cash Dividends. In connection with the negotiation of any agreement or instrument
relating to debt that the Company may incur from time to time, the Company shall use
commercially reasonable efforts to retain its ability to pay dividends in cash on the
Shares.  

ARTICLE V.  
CONDITIONS  

        5.1    
Conditions Precedent to the Obligations of the Purchasers. The obligation of each
Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver
by such Purchaser, at or before the Closing, of each of the following conditions:  

            (a)    Representations
and Warranties. The representations and warranties of           each of the Company
and, in the case of the Initial Purchasers obligations, the           Subsequent
Purchaser, contained herein shall be true and correct in all material           respects
(without giving effect to any qualifications as to materiality therein)           as of
the date when made and as of the Closing as though made on and as of such           date;  

            (b)    Performance.
Each of the Company and, in the case of the Initial           Purchasers obligations, the
Subsequent Purchaser, shall have performed,           satisfied and complied in all
material respects with all covenants, agreements           and conditions required by the
Transaction Documents to be performed, satisfied           or complied with by it at or
prior to the Closing, including, without           limitation, delivering or causing the
delivery of those items required to be           delivered pursuant to Section 2.2;  

            (c)    No
Injunction. No statute, rule, regulation, executive order, decree,           ruling
or injunction shall have been enacted, entered, promulgated or endorsed           by any
court or governmental authority of competent jurisdiction that prohibits           the
consummation of any of the transactions contemplated by the Transaction
          Documents;  

29 

            (d)    Certificate
of Designations. The Certificate of Designations shall have           been duly
adopted and executed and filed with the Secretary of State of the           State of
Delaware. The Company shall not have adopted or filed any other           document
designating terms, relative rights or preferences of the Shares. The
          Certificate of Designations shall be in full force and effect as of the Closing
          under the laws of Delaware and shall not have been amended or modified, and a
          copy of the Certificate of Designations certified by the Secretary of State of
          the State of Delaware shall have been delivered to Purchaser Counsel.  

            (e)    Adverse
Changes. Since the date of execution of this Agreement, no event           or series
of events shall have occurred that has had or reasonably could be           expected to
have or result in a Material Adverse Effect; and  

            (f)    No
Suspensions of Trading in Common Shares; Listing. Trading in the           Common
Shares shall not have been suspended by the Commission or the Trading           Market
(except for any suspensions of trading of not more than one Trading Day           solely
to permit dissemination of material information regarding the Company) at           any
time since the date of execution of this Agreement, and the Common Shares           shall
have been at all times since such date listed for trading on the Trading
          Market.  

            (g)    Consummation
of Debt Refinancing. The Company shall substantially           concurrently
consummate the debt refinancing referred to in clauses (i) and (ii)           of the
definition of Debt Refinancing, which shall provide for aggregate funded           and
committed indebtedness of the Company and its Subsidiaries not exceeding
          $500,000,000 at an average cost not exceeding 10.0%, and not more than
          $430,000,000 of new indebtedness to be funded at Closing.  

        5.2    
Conditions Precedent to the Obligations of the Company. The obligation of the
Company to sell Securities at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:  

            (a)    Representations
and Warranties. The representations and warranties of the           Purchasers
contained herein shall be true and correct in all material respects           as of the
date when made and as of the Closing Date as though made on and as of           such
date;  

            (b)    Performance.
The Purchasers shall have performed, satisfied and complied           in all material
respects with all covenants, agreements and conditions required           by the
Transaction Documents to be performed, satisfied or complied with by the
          Purchasers at or prior to the Closing, including, without limitation,
delivering           or causing the delivery of those items required to be delivered
pursuant to Section 2.2(b); and  

            (c)    No
Injunction. No statute, rule, regulation, executive order, decree,           ruling
or injunction shall have been enacted, entered, promulgated or endorsed           by any
court or governmental authority of competent jurisdiction that prohibits           the
consummation of any of the transactions contemplated by the Transaction
          Documents.  

            (d)    Consummation
of Debt Refinancing. The Company shall substantially           concurrently
consummate the debt refinancing referred to in clauses (i) and (ii)           of the
definition of Debt Refinancing.  

ARTICLE VI.
 
MISCELLANEOUS  

30 

        6.1    
Termination.  

            (a)              This
Agreement may be terminated and the transactions contemplated hereby may be
          abandoned at any time prior to the Closing Date:  

                (i)              By
the mutual consent of the Company, the Initial Purchasers and the Majority
          Purchasers;  

                (ii)              By
(x) any party hereto if the Closing has not been consummated by July 15,           2006;
or (y) the Majority Purchasers (as to all Purchasers) if the Company is in
          material breach of its obligations under this Agreement and such breach
          continues for more than five (5) Trading Days after the Company has received
          written notice of such breach.  

                (iii)              By
the Subsequent Purchaser (as to all Purchasers), if the final offering
          memorandum with respect to the Company’s proposed new senior notes
offering           (the “Offering Memorandum”), as delivered by the
Company to the           Purchasers prior to the Closing, contains any information
concerning periods           covered by the SEC Reports in existence as of the date of
this Agreement, which           information evidences that such SEC Reports contained any
untrue statement of a           material fact or omitted to state a material fact
required to be stated therein           or necessary in order to make the statements
therein, in light of the           circumstances under which they were made, not
misleading.  

                (iv)     Sections
4.12 and 4.14 and Article VI of this Agreement shall           survive any
termination of this Agreement.  

            (b)              No
termination of this Agreement shall affect the right of any party to sue for
          any breach by the other party (or parties).  

        6.2    
Fees and Expenses. Whether or not the Closing occurs, the Company shall pay to
Ares the reasonable legal, accounting, consulting, travel and all other out-of-pocket
expenses incurred by it in connection with due diligence and the preparation and
negotiation of the Transaction Documents and otherwise in connection with the
Transactions, from time to time at Ares’ request. The Company shall satisfy this
obligation by directing funds to Purchaser Counsel at the Closing or paying such amount
to Ares at Ares’s request. In addition, at the Closing the Company shall pay to Ares
a fee equal to one percent (1%) of the Aggregate Purchase Price. The Company shall pay
all transfer agent fees, stamp taxes and other taxes and duties levied in connection with
the issuance of any Securities. In addition, whether or not the Closing occurs, you
hereby agree to reimburse each of the Initial Purchasers and their respective Affiliates,
promptly upon demand, for all reasonable out-of-pocket costs and expenses incurred by
them in connection with the transactions contemplated by this Agreement, whether incurred
prior or subsequent to the date hereof, including, without limitation, travel expenses,
professional fees or other expenses incurred in connection with their due diligence
investigation of the Company and the reasonable fees and disbursements of Initial
Purchasers Counsel.  

        6.3    
Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, including but not limited to the Original Purchase
Agreement, which the parties acknowledge have been merged into such documents, exhibits
and schedules. At or after the Closing, and without further consideration, the Company
will execute and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties under the
Transaction Documents. The Company acknowledges that no Purchaser has made any
representations, warranties, promises or commitments other than as set forth in this
Agreement, including any promises or commitments for any additional investment by any
such Purchaser in the Company.  

31 

        6.4    
Notices. Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this
Section prior to 4:30 p.m. (New York City time) on a Trading Day, (ii) the Trading Day
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Agreement later than 4:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the Trading Day following the date of sending, if sent by nationally
recognized overnight courier service, specifying next business day delivery or (iv) upon
actual receipt by the party to whom such notice is required to be given if delivered by
hand. The address for such notices and communications shall be as follows:  

	 	         If to the Company: 	HANGER
ORTHOPEDIC GROUP, INC.                                                              
Two
Bethesda Metro Center                                                              
Suite
1300                                                              
Bethesda, MD 20814
                                                             
Attn: Corporate Secretary
                                                             
Phone:(301) 986.0701
                                                             
Fax:(301) 986.0702 

	 	         With a copy to: 	With
a copy to:                                                              
FOLEY & LARDNER
LLP                                                              
3000 K Street, N.W.
                                                             
Suite 500
                                                             
Washington, DC 20007
                                                             
Attn:   Jay W. Freedman
                                                             
Phone: (202) 295-4008
                                                             
Fax: 202-672-5399 

	 	         If to the Purchasers: 	To
the address set forth under such Purchaser’s name on
                                                             
the signature pages attached
hereto. 

        or
such other address as may be designated in writing hereafter, in the same manner, by such
Person by two Trading Days’ prior notice to the other party in accordance with this
Section 6.4. 

        6.5    
Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the Company and
the Subsequent Purchaser(s) who, if prior to the Closing, have agreed to purchase not
less than two-thirds of the Shares pursuant to Section 2.1 of this Agreement, and
if after the Closing Date, hold not less than two-thirds of the Securities on a fully
diluted as-converted basis (the “Majority Purchasers”), or, in the case
of a waiver, by the Majority Purchasers; and, if prior to the sale of the Shares to the
Subsequent Purchaser(s), the Initial Purchasers. Any waiver executed by the Majority
Purchasers shall be binding on the Company and all holders of Securities. No waiver of
any default with respect to any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor shall
any delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. Notwithstanding the foregoing, Section 4.12 may
not be amended or waived absent the consent of each of the parties hereto.  

32 

        6.6    
Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rules of strict construction will be
applied against any party.  

        6.7    
Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not
assign this Agreement or any rights or obligations hereunder without the prior written
consent of the Purchasers. Any Purchaser may assign its rights under this Agreement to
any Person to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred Securities, by
the provisions hereof and of the applicable Transaction Documents that apply to the “Purchasers.” Notwithstanding
the foregoing, no Purchaser may assign any of its rights under (i) Section 4.5(“Subsequent
Financings”), Section 4.6 (“Fundamental Changes”), Section 4.7 (“Access”),
Section 4.9 (“D&O Insurance; Board”) or Section 4.12 (“Indemnification”)
of this Agreement, (ii) the Board Rights Letter or (iii) the Management Rights Letter, to
any Person that is not an Affiliate of any of the Purchasers without the Company’s
prior written consent (which consent shall not be unreasonably withheld). In the event of
any assignment of the rights of the Subsequent Purchaser to more than one Person in
accordance with this section, the provisions of this Agreement shall be deemed amended to
reflect more than one Subsequent Purchaser, mutatis mutandis. Notwithstanding
anything to the contrary herein, Securities may be pledged to any Person in connection
with a bona fide margin account secured by such Securities.  

        6.8    
No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person, except that
each Related Person is an intended third party beneficiary of Section 4.12 and (in
each case) may enforce the provisions of such Section directly against the parties with
obligations thereunder.  

        6.9    
Governing Law; Venue; Waiver of Jury Trial. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK. EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATIONS,
ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION
DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES,
DIRECTORS, OFFICERS, STOCKHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN
THE STATE AND U.S. FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.
EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND U.S. FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION
CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY
OF THIS AGREEMENT), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE
ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE
SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING
CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTION
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. IF EITHER PARTY SHALL
COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS AGREEMENT OR ANY
TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE
REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE ATTORNEYS FEES AND OTHER REASONABLE
COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH
ACTION OR PROCEEDING.  

33 

        6.10    
Survival. The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable.  

        6.11    
Execution. This Agreement may be executed in two or more counterparts, all of
which when taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other
party, it being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such facsimile
signature page were an original thereof.  

        6.12    
Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and
provisions of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt in good faith to agree upon a valid and enforceable provision that
is a reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.  

        6.13    
Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the
periods therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future actions and
rights.  

        6.14    
Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the Company
will be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and hereby agrees
to waive in any Proceeding for specific performance of any such obligation the defense
that a remedy at law would be adequate.  

        6.15    
Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in Common Shares (or other securities or
rights convertible into, or entitling the holder thereof to receive, directly or
indirectly, Common Shares), combination or other similar recapitalization or event
occurring after the date hereof, each reference in this Agreement to a number of shares
or a price per share shall be amended to appropriately account for such event.  

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK  
SIGNATURE PAGES FOLLOW]  

34 

        IN
WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Preferred Stock
Purchase Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above. 

		HANGER ORTHOPEDIC GROUP, INC.
	

 	By:___________________________________
		      Name:
		      Title:

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK                                                
SIGNATURE PAGES
OF PURCHASER(S) FOLLOW.] 

		INITIAL PURCHASER:
	
 	LEHMAN BROTHERS INC.
	

 	By:___________________________________
		      Name:
		      Title:
	

	Initial Purchase Price
		      delivered to Company:    $29,700,000
	
 	Shares:         30,000

	 	
Address
for Notice:

	 	
Lehman
Brothers Inc.

	 	
745
Seventh Avenue                                                       
New York, NY
                                                      
Phone: (212) 526.7000
                                                      
Fax: (212) 520.0421
                                                      
Attention: Office of the General
Counsel

	 	
With
a copy to:

	 	
Weil,
Gotshal & Manges LLP                                                       
767 Fifth
Avenue                                                       
New York, NY  10153
                                                      
Phone: (212) 310.8000
                                                      
Fax.:  (212) 310-8007
                                                      
Attention:  Rod Miller

		INITIAL PURCHASER:
	
 	CITIGROUP GLOBAL MARKETS INC.
	

 	By:___________________________________
		      Name:
		      Title:
	

 	Initial Purchase Price
		      delivered to Company:    $19,800,000
		Shares:         20,000

	 	
Address
for Notice:

	 	
Citigroup
Global Markets Inc.

	 	
388
Greenwich Street                                                       
New York, NY 10013
                                                      
Phone: (212) 816.6000
                                                      
Fax: (212) 816.7912
                                                      
Attention: General Counsel

	 	
With
a copy to:

	 	
Weil,
Gotshal & Manges LLP                                                       
767 Fifth
Avenue                                                       
New York, NY  10153
                                                      
Phone: (212) 310.8000
                                                      
Fax.:  (212) 310-8007
                                                      
Attention:  Rod Miller

		SUBSEQUENT PURCHASER:
	
 	ARES CORPORATE OPPORTUNITIES FUND, L.P.
	
 	By:  ACOF MANAGEMENT, L.P.,
		        Its General Partner
	
 	        By:  ACOF OPERATING MANAGER, L.P.,
		                Its General Partner
	
 	                By:  ARES MANAGEMENT, INC.,
		                        Its General Partner
	
 	                        By:______________________________
	

 	Aggregate Purchase Price
		      delivered to Initial Purchasers:    $50,000,000
	
 	Shares:         50,000

	 	
Address
for Notice:

	 	
Ares
Corporate Opportunities Fund, L.P.                                            
C/O Ares
Management, Inc.                                            
1999 Avenue of the Stars
                                          
 Suite 1900
                                           
Los Angeles, California  90067
                                           
Phone: (310) 201.4100
                                           
Fax: (310) 201.4157
                                           
Attention: Bennett Rosenthal and
                                                            
                 Adam Stein

	 	
With
a copy to:

	 	
Proskauer
Rose LLP                                            
1585 Broadway
                                           
New York, NY  10036-8299
                                           
Facsimile No.:  (212) 969-2900
                                           
Attn:  Michael A. Woronoff, Esq. and
                                                    
                Adam J. Kansler, Esq.

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