Document:

EX-4.1

EXHIBIT 4.1

FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

This FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is
entered into as of June 9, 2006 (the “Effective Date”) by and among Park-Ohio Industries,
Inc., an Ohio corporation (the “Company”), the other Loan Parties (as defined in the Credit
Agreement (as defined below)), the Lenders (as defined in the Credit Agreement), and JPMorgan Chase
Bank, N.A. (successor by merger to Bank One, NA), a national banking association (the
“Agent”).

WHEREAS, the Company, the other Loan Parties, the Lenders, and the Agent entered into a
certain Amended and Restated Credit Agreement dated as of November 5, 2003, as amended by that
certain First Amendment to Amended and Restated Credit Agreement dated as of September 30, 2004,
that certain Second Amendment to Amended and Restated Credit Agreement dated as of December 29,
2004 and that certain Third Amendment to Amended and Restated Credit Agreement dated as of May 5,
2006 (as amended, and as may from time to time be further amended, restated, modified, or
supplemented, the “Credit Agreement”);

WHEREAS, the Company, the other Loan Parties, the Lenders, and the Agent have agreed to amend
the Credit Agreement as set forth herein; and

WHEREAS, the defined terms used but not defined herein shall have the meanings ascribed to
such terms in the Credit Agreement.

NOW, THEREFORE, for valuable consideration received to their mutual satisfaction, the parties
hereby agree as follows:

1. Amendment to Article I — Revised Definitions. The definition of “Aggregate
Commitment” in Article I of the Credit Agreement is hereby deleted in their entirety and
replaced with the following:

“Aggregate Commitment” means the amount of $220,000,000, as reduced
from time to time pursuant to the terms hereof.

2. Amendment to Section 2.1.2. Section 2.1.2(a)(i) of the Credit Agreement is hereby
amended by deleting the text “$20,000,000” contained therein and replacing it with the text
“$40,000,000”.

3. Amendment to the Second Amended Commitment Schedule. The Second Amended Commitment
Schedule attached to the Credit Agreement is hereby amended by deleting it in its entirety and
replacing it with the Commitment Schedule attached hereto and titled “Third Amended Commitment
Schedule”. The Third Amended Commitment Schedule includes the assignment to the Lenders of all
of Harris Trust & Savings Bank’s Commitment.

4. Sale and Leaseback Transactions. The Company has notified the Agent and the Lenders
that it desires to enter into Sale and Leaseback Transactions with respect to certain real Property
located at 30100 Stephenson Highway, Madison Heights, Michigan and 30000 Stephenson Highway,
Madison Heights, Michigan (collectively, the “Transactions”). Notwithstanding Section 6.32 of the
Credit Agreement or any other provision of the Loan Documents, the Agent and the Lenders hereby
consent to the Transactions subject to the following conditions:

(a) the Company shall apply all of the Net Cash Proceeds of the Transactions to the Domestic
Revolving Loans. The Company, the Lenders and the Agent agree that such application shall not be
considered a final application and that such payment is a temporary reduction in the Revolving
Loans;

(b) the Company shall utilize an amount equal to such Net Cash Proceeds in accordance with the
terms and conditions of Section 4.10 of the Indenture;

(c) if Availability falls below $20,000,000 at any time prior to the utilization of all of
such Net Cash Proceeds in accordance with Section 4.10 of the Indenture, the Agent, on behalf of
the Lenders, shall have the right, in its sole and absolute discretion, to implement a reserve
against the Domestic Borrowing Base and the Domestic Commitment in an amount equal to the unused
portion of such Net Cash Proceeds; and

(d) at any time the Company submits an Inventory Certificate in accordance with the terms of
the Credit Agreement, but in any event, no less than one (1) time per month, the Company shall
indicate the dollar amount of capital assets the Company purchased with such Net Cash Proceeds.

5. Creation of Snow Dragon.

(a) The Company has notified the Agent and the Lenders that it has formed a Subsidiary named
Snow Dragon LLC, an Ohio limited liability company. The Company holds an eighty percent (80%)
ownership interest in Snow Dragon, LLC. Pursuant to the provisions of Section 6.14(a) of
the Credit Agreement, each Subsidiary of the Company shall become a Loan Party and a Guarantor to
the Credit Agreement. Furthermore, pursuant to the provisions of Section 6.14(b) of the
Credit Agreement, each Loan Party shall grant Liens to the Agent in respect of the Obligations.
Finally, pursuant to the provisions of Section 6.14(c) of the Credit Agreement, upon the
occurrence and at all time during the existence of a Default, the Company shall cause all of the
issued and outstanding Capital Stock of each Domestic Subsidiary to be subject to a Lien in favor
of the Agent. The Company has requested that the Lenders waive each of the above requirements with
respect to Snow Dragon LLC. The Lenders are willing accommodate the Company’s request and hereby
waive such requirements with respect to Snow Dragon LLC.

(b) The Company has also notified the Agent and the Lenders that is desires to make an
Investment in Snow Dragon LLC consisting of certain Property of Feco, Inc. (the “Feco Property”).
The Company has requested that the Lenders release its Lien on the Feco Property. The Lenders are
willing to accommodate the Company’s request and hereby authorizes and instructs Agent to release
its Lien on the Feco Property. The Agent, on behalf of the Lenders, also hereby agrees to execute
and deliver, at the sole cost and expense of the Company (including reasonable fees and costs of
counsel), such termination statements, discharges, assignments and other instruments necessary to
further evidence the foregoing.

6. Postponement of Equipment and Real Property Appraisals. Pursuant to the provisions
of Section 6.10 of the Credit Agreement, once every three Fiscal Years, the Company and the
other Loan Parties are required to provide the Agent with appraisals of their Equipment and real
Property. The Company has requested that the Lenders postpone the requirement for these appraisals
for the 2006 Fiscal Year. The Lenders are willing accommodate the Company’s request and hereby
postpone such requirement for the 2006 Fiscal Year until the 2007 Fiscal Year. This postponement
shall not apply to any other appraisals required to be delivered pursuant to the terms of the
Credit Agreement.

7. Post-Closing Conditions. Notwithstanding anything herein to the contrary, the
occurrence of any one or more of the following events shall constitute a Default under the Credit
Agreement:

(a) within thirty (30) days after the Effective Date, (i) the Company and the other Loan
Parties have not either delivered to the Agent a leasehold Mortgage for the real Property owned by
Richmond Power and Light located in Richmond, Indiana; or (ii) the Company has not directed the
Agent to file and perfect a Mortgage on the real Property owned by Gamco Components Group LLC
located in Wapakoneta, Ohio notwithstanding any provision of Section 6.14 of the Credit
Agreement to the contrary; or

(b) within ninety (90) days after the Effective Date, the Company and the other Loan Parties
have not commenced an updated appraisal on their Inventory pursuant to the provisions of
Section 6.10 of the Credit Agreement.

8. Representations and Warranties. Each Loan Party represents and warrants to the
Agent and the Lenders that (a) it has the power and authority and legal right to execute and
deliver this Amendment, (b) the execution and delivery by such Loan Party of this Amendment, and
the performance of its obligations hereunder, have been duly authorized by proper proceedings, and
(c) this Amendment constitutes a legal, valid and binding obligation of such Loan Party enforceable
against such Loan Party in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and
except as the same may be subject to general principles of equity.

 

9. General Terms. This Amendment shall be effective as of the Effective Date. Except
as specifically amended herein, directly or be reference, all of the terms and conditions set forth
in the Credit Agreement are confirmed and ratified, and shall remain as originally written. This
Amendment shall be construed in accordance with the laws of the State of Ohio, without regard to
principles of conflicts of laws. The Credit Agreement and all other Loan Documents shall remain in
full force and effect in all respects as if the unpaid balance of the principal outstanding,
together with interest accrued thereon, had originally been payable and secured as provided for
therein, as amended from time to time as modified by this Amendment. Nothing herein shall affect
or impair any rights and powers which the Company, and Loan Party, and Lender or the Agent may have
under the Credit Agreement and any and all other Loan Documents.

10. No Effect. The parties hereto agree that this Amendment shall in no manner affect
or impair the liens and security interests evidenced by the Credit Agreement and/or any other
instruments evidencing, securing or related to the Obligations.

11. Consideration. As consideration for this Amendment, the Company shall pay to the
Agent, for the benefit of the Lenders, an amendment fee in the amount of $76,364. The Company
hereby further agrees to reimburse the Agent for any and all reasonable out-of-pocket costs, fees
and expenses incurred in connection with this Amendment, including, without limitation, reasonable
attorneys’ fees.

12. Counterparts; Facsimile Signatures; Headings. This Amendment may be executed in
counterparts and all such counterparts shall constitute one agreement binding on all parties,
notwithstanding that the parties are not signatories to the same counterpart. The parties may
execute this Amendment by facsimile, and all such facsimile signatures shall have the same force
and effect as manual signatures delivered in person. Headings and footers in this Amendment are
for convenience of reference only and shall not govern the interpretation of any of the provisions
of this Amendment.

[Remainder of Page Intentionally Left Blank]

1

IN WITNESS WHEREOF, the Company, the other Loan Parties, the Lenders and the Agent have
executed this Agreement as of the date first above written.

DOMESTIC BORROWER:

PARK-OHIO INDUSTRIES, INC.

By: Richard Paul Elliott

Name: Richard Paul Elliott

Title: Vice President and CFO

CANADIAN BORROWER:

RB&W CORPORATION OF CANADA

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Vice President

UK BORROWERS:

AJAX TOCCO INTERNATIONAL

LIMITED

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Secretary and Director

By: Richard Paul Elliott

Name: Richard Paul Elliott

Title: Director

INTEGRATED LOGISTICS SOLUTIONS LIMITED

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Director

By: Matthew V. Crawford

Name: Matthew V. Crawford

Title: Director

DOMESTIC SUBSIDIARIES:

	 	 	 
	THE AJAX MANUFACTURING COMPANY

	 	LEWIS & PARK SCREW & BOLT COMPANY
	 
	 	 
	AJAX TOCCO MAGNETHERMIC

CORPORATION

	 	

PARK AVENUE TRAVEL LTD.
	 
	 	 
	ATBD, INC.

	 	PARK-OHIO FORGED & MACHINED

PRODUCTS LLC
	 
	 	 
	BLUE FALCON TRAVEL, INC.

	 	PARK-OHIO PRODUCTS, INC.
	 
	 	 
	THE CLANCY BING COMPANY

	 	PHARMACEUTICAL LOGISTICS INC.
	 
	 	 
	CONTROL TRANSFORMER, INC.

	 	PHARMACY WHOLESALE LOGISTICS,

INC.
	 
	 	 
	DONEGAL BAY LTD.

	 	PMC INDUSTRIES CORP.
	 
	 	 
	FECO, INC.

	 	PMC-COLINET, INC.
	 
	 	 
	FORGING PARTS & MACHINING COMPANY

	 	P-O REALTY LLC
	 
	 	 
	GAMCO COMPONENTS GROUP LLC

	 	POVI L.L.C.
	 
	 	 
	GATEWAY INDUSTRIAL SUPPLY LLC

	 	PRECISION MACHINING CONNECTION

LLC
	 
	 	 
	GENERAL ALUMINUM MFG. COMPANY LLC

	 	RB&W LTD.
	 
	 	 
	ILS ACQUISITION LLC

	 	RB&W MANUFACTURING LLC
	 
	 	 
	ILS TECHNOLOGY LLC

	 	RED BIRD, INC.
	 
	 	 
	INTEGRATED HOLDING COMPANY

	 	SOUTHWEST STEEL PROCESSING LLC
	 
	 	 
	INTEGRATED LOGISTICS HOLDING COMPANY

	 	SUMMERSPACE, INC.
	 
	 	 
	INTEGRATED LOGISTICS SOLUTIONS, INC.

	 	TOCCO, INC.
	 
	 	 
	INTEGRATED LOGISTICS SOLUTIONS LLC

	 	TRICKERATION, INC.
	 
	 	 
	LALLEGRO, INC.

	 	WB&R ACQUISITION COMPANY, INC.

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Vice President

CANADIAN SUBSIDIARIES:

AJAX TOCCO MAGNETHERMIC CANADA LIMITED

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Vice President

INTEGRATED LOGISTICS COMPANY OF CANADA

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Vice President

RB&W LOGISTICS CANADA, INC. / LOGISTIQUE RB&W

CANADA, INC.

By: Robert D. Vilsack

Name: Robert D. Vilsack

Title: Vice President

LENDERS:

JPMORGAN CHASE BANK, N.A.

Individually, as the Agent, a Lender,

and LC Issuer

By: David J. Waugh

Name: David J. Waugh

Title: Vice President

KEYBANK NATIONAL ASSOCIATION

as Syndication Agent

By: John P. Dunn

Name: John P. Dunn

Title: Vice President

CITIZENS BANK OF PENNSYLVANIA

as a Lender

By: Paul Rebholz

Name: Paul Rebholz

Title: Vice President

U.S. BANK NATIONAL ASSOCIATION

as a Lender

By: Joseph J. Scaglione

Name:  Joseph J. Scaglione

Title: Vice President

PNC BUSINESS CREDIT

as a Lender

By: Douglas Hoffman

Name: Douglas Hoffman

Title: Vice President

FIFTH THIRD BANK

as a Lender

By: Roy C. Lanctot

Name: Roy C. Lanctot

Title: Vice President

NATIONAL CITY BUSINESS CREDIT, INC.

as a Lender

By: Jason Hanes

Name: Jason Hanes

Title: Vice President

2

THIRD AMENDED COMMITMENT SCHEDULE

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Canadian
	 	 	 	 	 	 	Commitment	 	UK Sub- Commitment	 	Sub-Commitment of
	Lender	 	Domestic Commitment	 	Percentage	 	Of UK Lenders*	 	Canadian Lenders*
	JPMorgan Chase
Bank, N.A.
	 	$	45,000,000	 	 	 	20.4546	%	 	 	10,000,000	 	 	 	12,000,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	KeyBank National
Association
	 	$	40,000,000	 	 	 	18.1818	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	U.S. Bank National
Association
	 	$	31,000,000	 	 	 	14.0909	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Citizens Bank of
Pennsylvania
	 	$	29,000,000	 	 	 	13.1818	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PNC Business Credit
	 	$	29,000,000	 	 	 	13.1818	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fifth Third Bank
	 	$	22,000,000	 	 	 	10.0000	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	National City
Business Credit,
Inc.
	 	$	24,000,000	 	 	 	10.9091	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Aggregate Commitment
	 	$	220,000,000	 	 	 	100	%	 	$	10,000,000	 	 	$	12,000,000	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

*The UK Sub-Commitment and Canadian Sub-Commitment are Sub-Commitments of the Domestic Commitment
and not separate Commitments.

3EX-10.62

	 
	CREDIT AND SECURITY AGREEMENT

BY AND BETWEEN

STAAR SURGICAL COMPANY

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION

ACTING THROUGH ITS WELLS FARGO BUSINESS

CREDIT OPERATING DIVISION

	 

	June 8, 2006

	 

	 

	 	 	 	 	 	 	 	 	 
	ARTICLE IDEFINITIONS
	 	 	1	 	 	 	 	 
	Section 1.1
	 	Definitions
	 	 	1	 
	Section 1.2
	 	Other Definitional Terms; Rules of Interpretation
	 	 	11	 
	ARTICLE IIAMOUNT AND TERMS OF THE CREDIT FACILITY
	 	 	11	 
	Section 2.1
	 	Revolving Advances
	 	 	11	 
	Section 2.2
	 	Procedures for Requesting Advances
	 	 	12	 
	Section 2.3
	 	[Intentionally Omitted]	 	 	12	 
	Section 2.4
	 	Letters of Credit
	 	 	12	 
	Section 2.5
	 	Special Account
	 	 	13	 

	 	 	 	Section 2.6 Interest; Minimum Interest Charge; Default Interest Rate; Application of
Payments; Participations; Usury 13	 

	 	 	 	Section 2.7 Fees 15	 

	 	 	 	Section 2.8 Time for Interest Payments; Payment on Non-Business Days; Computation of
Interest and Fees 16	 

	 	 	 	Section 2.9 Lockbox and Collateral Account; Sweep of Funds 17	 

	 	 	 	Section 2.10 Voluntary Prepayment; Termination of the Credit Facility by the
Borrower 17	 

	 	 	 	 	 	 	 	 	 
	Section 2.11Mandatory Prepayment
	 	 	 	 	 	 	18	 
	Section 2.12Revolving Advances to Pay Obligations
	 	 	 	 	 	 	18	 
	Section 2.13Use of Proceeds
	 	 	 	 	 	 	18	 
	Section 2.14Liability Records
	 	 	 	 	 	 	18	 
	ARTICLE III
	 	SECURITY INTEREST; OCCUPANCY; SETOFF
	 	 	18	 
	Section 3.1Grant of Security Interest
	 	 	 	 	 	 	18	 
	Section 3.2Notification of Account Debtors and Other Obligors
	 	 	19	 
	Section 3.3Assignment of Insurance
	 	 	 	 	 	 	19	 
	Section 3.4Occupancy
	 	 	 	 	 	 	20	 
	Section 3.5License
	 	 	 	 	 	 	20	 
	Section 3.6Financing Statement
	 	 	 	 	 	 	20	 
	Section 3.7Setoff
	 	 	 	 	 	 	21	 
	Section 3.8Collateral
	 	 	 	 	 	 	21	 
	ARTICLE IV
	 	CONDITIONS OF LENDING
	 	 	21	 
	Section 4.1Conditions Precedent to the Initial Advances and Letter of Credit
	 	 	21	 
	Section 4.2Conditions Precedent to All Advances and Letters of Credit
	 	 	23	 
	ARTICLE V
	 	REPRESENTATIONS AND WARRANTIES
	 	 	24	 

	 	 	 	Section 5.1 Existence and Power; Name; Chief Executive Office; Inventory and
Equipment Locations; Federal Employer Identification Number and Organizational
Identification Number 24	 

	 	 	 	 	 	 	 	 	 
	Section 5.2
	 	Capitalization
	 	 	24	 
	Section 5.3	 	Authorization of Borrowing; No Conflict as to Law or Agreements24

	Section 5.4
	 	Legal Agreements
	 	 	25	 
	Section 5.5
	 	Subsidiaries
	 	 	25	 
	Section 5.6
	 	Financial Condition; No Adverse Change
	 	 	25	 
	Section 5.7
	 	Litigation
	 	 	25	 
	Section 5.8
	 	Regulation U
	 	 	25	 
	Section 5.9
	 	Taxes
	 	 	25	 
	Section 5.10
	 	Titles and Liens
	 	 	25	 
	Section 5.11
	 	Intellectual Property Rights
	 	 	25	 
	Section 5.12
	 	Plans
	 	 	27	 
	Section 5.13
	 	Default
	 	 	27	 
	Section 5.14
	 	Environmental Matters
	 	 	27	 
	Section 5.15
	 	Submissions to Lender
	 	 	28	 
	Section 5.16
	 	Financing Statements
	 	 	28	 
	Section 5.17
	 	Rights to Payment
	 	 	28	 
	Section 5.18
	 	Financial Solvency
	 	 	28	 
	Section 5.19
	 	Compliance with FDA Requirements
	 	 	29	 
	ARTICLE VICOVENANTS
	 	 	 	 	 	 	29	 
	Section 6.1
	 	Reporting Requirements
	 	 	29	 
	Section 6.2
	 	Financial Covenants
	 	 	32	 
	Section 6.3
	 	Permitted Liens; Financing Statements
	 	 	33	 
	Section 6.4
	 	Indebtedness
	 	 	34	 
	Section 6.5
	 	Guaranties
	 	 	34	 
	Section 6.6
	 	Investments and Subsidiaries
	 	 	34	 
	Section 6.7
	 	Dividends and Distributions
	 	 	35	 
	Section 6.8
	 	Salaries
	 	 	35	 
	Section 6.9
	 	[Intentionally Omitted]	 	 	35	 

	 	 	 	Section 6.10 Books and Records; Collateral Examination, Inspection and Appraisals 35	 

	 	 	 	 	 	 	 	 	 
	Section 6.11
	 	Account Verification
	 	 	36	 
	Section 6.12
	 	Compliance with Laws
	 	 	36	 
	Section 6.13
	 	Payment of Taxes and Other Claims
	 	 	36	 
	Section 6.14
	 	Maintenance of Properties
	 	 	37	 
	Section 6.15
	 	Insurance
	 	 	37	 
	Section 6.16
	 	Preservation of Existence
	 	 	37	 
	Section 6.17
	 	Delivery of Instruments, etc
	 	 	37	 
	Section 6.18
	 	Sale or Transfer of Assets; Suspension of Business Operations
	 	 	38	 
	Section 6.19
	 	Consolidation and Merger; Asset Acquisitions
	 	 	38	 
	Section 6.20
	 	Sale and Leaseback
	 	 	38	 
	Section 6.21
	 	Restrictions on Nature of Business
	 	 	38	 
	Section 6.22
	 	Accounting
	 	 	38	 
	Section 6.23
	 	Discounts, etc
	 	 	38	 
	Section 6.24
	 	Plans
	 	 	38	 
	Section 6.25
	 	Place of Business; Name
	 	 	39	 
	Section 6.26
	 	Constituent Documents
	 	 	39	 
	Section 6.27
	 	Performance by the Lender
	 	 	39	 
	Section 6.28
	 	Minimum Balance in Securities Account
	 	 	39	 
	ARTICLE VIIEVENTS OF DEFAULT, RIGHTS AND REMEDIES
	 	 	40	 
	Section 7.1
	 	Events of Default
	 	 	40	 
	Section 7.2
	 	Rights and Remedies
	 	 	42	 
	Section 7.3
	 	Certain Notices
	 	 	43	 
	ARTICLE VIIIMISCELLANEOUS
	 	 	 	 	 	 	43	 
	Section 8.1
	 	No Waiver; Cumulative Remedies; Compliance with Laws
	 	 	43	 
	Section 8.2
	 	Amendments, Etc
	 	 	43	 

	 	 	 	Section 8.3 Notices; Communication of Confidential Information; Requests for
Accounting 43	 

	 	 	 	 	 	 	 	 	 
	Section 8.4
	 	Further Documents
	 	 	44	 
	Section 8.5
	 	Costs and Expenses
	 	 	44	 
	Section 8.6
	 	Indemnity
	 	 	44	 
	Section 8.7
	 	Participants
	 	 	45	 
	Section 8.8
	 	Execution in Counterparts; Telefacsimile Execution
	 	 	45	 
	Section 8.9
	 	Retention of Borrower’s Records
	 	 	45	 

	 	 	 	Section 8.10 Binding Effect; Assignment; Complete Agreement; Sharing Information 46	 

	 	 	 	 	 	 	 	 	 
	Section 8.11
	 	Severability of Provisions
	 	 	46	 
	Section 8.12
	 	Headings
	 	 	46	 
	Section 8.13
	 	Governing Law; Jurisdiction, Venue; Waiver of Jury Trial
	 	 	46	 
	Section 8.14
	 	Arbitration
	 	 	46	 

1

CREDIT AND SECURITY AGREEMENT

Dated as of June 8, 2006

STAAR SURGICAL COMPANY, a Delaware corporation (the “Borrower”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Lender”) through its WELLS FARGO BUSINESS CREDIT operating division, hereby
agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions. Except as otherwise expressly provided in this Agreement,
the following terms shall have the meanings given them in this Section:

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

“Accounts Advance Rate” means up to eighty-five percent (85%), or such lesser rate as the
Lender in its sole discretion may deem appropriate from time to time; provided that, as of any date
of determination, the Accounts Advance Rate shall be reduced by one (1) percentage point for each
percentage or fraction thereof by which Dilution is in excess of 4%.

“Advance” means a Revolving Advance.

“Affiliate” or “Affiliates” means any Person controlled by, controlling or under common
control with the Borrower, including any Subsidiary of the Borrower. For purposes of this
definition, “control,” when used with respect to any specified Person, means the power to direct
the management and policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise.

“Aggregate Face Amount” is defined in Section 2.9(e).

“Agreement” means this Credit and Security Agreement.

“Availability” means the amount, if any, by which the Borrowing Base exceeds the sum of
(i) the outstanding principal balance of the Revolving Note and (ii) the L/C Amount.

“Book Net Worth” means the aggregate of the common and preferred stockholders’ equity in the
Borrower, determined in accordance with GAAP and adjusted dollar for dollar for any non-cash
expenses for stock options reflected after March 31, 2006.

“Borrowing Base” means at any time the lesser of:

(a) The Maximum Line Amount; or

(b) Subject to change from time to time in the Lender’s sole discretion, the sum of:

(i) the product of the Accounts Advance Rate times Eligible Accounts, less

(ii) The Borrowing Base Reserve, less

(iii) Obligations that the Borrower owes to the Lender that have not yet been advanced on the
Revolving Note, and the dollar amount that the Lender in its discretion believes is a reasonable
determination of the Borrower’s credit exposure with respect to Wells Fargo Affiliate Obligations.

“Borrowing Base Reserve” means, as of any date of determination, such amounts (expressed as
either a specified amount or as a percentage of a specified category or item) as the Lender may
from time to time establish and adjust in reducing Availability (a) to reflect events, conditions,
contingencies or risks which, as determined by the Lender in the reasonable exercise of its
discretion, do or may affect (i) the Collateral or its value, (ii) the assets, business or
prospects of the Borrower, or (iii) the security interests and other rights of the Lender in the
Collateral (including the enforceability, perfection and priority thereof), or (b) to reflect the
Lender’s reasonable judgment that any collateral report or financial information furnished by or on
behalf of the Borrower to the Lender is or may have been incomplete, inaccurate or misleading in
any material respect, or (c) in respect of any state of facts that the Lender determines
constitutes a Default or an Event of Default.

“Business Day” means a day on which the Federal Reserve Bank of New York is open for business.

“Capital Expenditures” means for a period, any expenditure of money during such period (i) for
the purchase or construction of assets, or for improvements or additions thereto, which are
capitalized on the Borrower’s balance sheet, or (ii) for the lease, purchase or other acquisition
of any capital asset, or for the lease of any other asset whether payable currently or in the
future, including but not limited to Equipment Leases.

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

(a) Any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, except that a Person will be deemed to have “beneficial
ownership” of all securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or indirectly, of more than
fifteen percent (15%) of the voting power of all classes of Owners of the Borrower;

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

(c) David Bailey shall cease to actively manage the Borrower’s day-to-day business activities.

“Collateral” means all of the Borrower’s Accounts, chattel paper and electronic chattel paper,
deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory,
Investment Property, letter-of-credit rights, letters of credit, all sums on deposit in any
Collateral Account, and any items in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) in the case of all goods, all
accessions; (iii) all accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all warehouse receipts, bills of
lading and other documents of title now or hereafter covering such goods; (v) all collateral
subject to the Lien of any Security Document; (vi) any money, or other assets of the Borrower that
now or hereafter come into the possession, custody, or control of the Lender; (vii) all sums on
deposit in the Special Account; (viii) proceeds of any and all of the foregoing; (ix) books and
records of the Borrower, including all mail or electronic mail addressed to the Borrower; and (x)
all of the foregoing, whether now owned or existing or hereafter acquired or arising or in which
the Borrower now has or hereafter acquires any rights.

“Collateral Account” means the “Lender Account” as defined in the Wholesale Lockbox and
Collection Account Agreement.

“Collection Account Agreement” means the Collection Account Agreement by and between the
Borrower and the Lender, dated the same date as this Agreement.

“Commercial Letter of Credit Agreement” means an agreement governing the issuance of
documentary letters of credit by the Lender, entered into between the Borrower as applicant and the
Lender as issuer.

“Commitment” means the Lender’s commitment to make Advances to, and to issue Letters of Credit
for the account of, the Borrower.

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

“Credit Facility” means the credit facility under which Revolving Advances and Letters of
Credit may be made available to the Borrower by the Lender under Article II.

“Cut-off Time” means 11:00 a.m., Pasadena, California time.

“Debt” means of a Person as of a given date, all items of indebtedness or liability which in
accordance with GAAP would be included in determining total liabilities as shown on the liabilities
side of a balance sheet for such Person and shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a capitalized lease under
GAAP.

“Default” means an event that, with giving of notice or passage of time or both, would
constitute an Event of Default.

“Default Period” means any period of time beginning on the day a Default or Event of Default
occurs and ending on the date identified by the Lender in writing as the date that such Default or
Event of Default has been cured or waived.

“Default Rate” means an annual interest rate in effect during a Default Period or following
the Termination Date, which interest rate shall be equal to three percent (3%) over the applicable
Floating Rate, as such rate may change from time to time.

“Dilution” means, as of any date of determination, a percentage, based upon the experience of
the trailing six (6) month period ending on the date of determination, which is the result of
dividing (a) actual bad debt write-downs, discounts, advertising allowances, credits, or other
dilutive items with respect to the Accounts as determined by Lender in its sole discretion during
such period, by (b) Borrower’s net sales during such period (excluding extraordinary items) plus
the amount of clause (a).

“Director” means a director if the Borrower is a corporation, a governor or manager if the
Borrower is a limited liability company, or a general partner if the Borrower is a partnership.

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

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

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

(a) That portion of Accounts unpaid 30 days or more after the invoice date with respect to
Accounts with N10 day terms and that portion of Accounts unpaid 90 days or more after the invoice
date with respect to all other Accounts;

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

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

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

(e) Accounts owed by any unit of government, whether foreign or domestic (provided,
however, that there shall be included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided evidence satisfactory to the Lender
that (A) the Lender has a first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of government under all applicable laws);

(f) Accounts denominated in any currency other than United States dollars;

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

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

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

(j) Accounts not subject to a duly perfected security interest in the Lender’s favor or which
are subject to any Lien in favor of any Person other than the Lender;

(k) That portion of Accounts that has been restructured, extended, amended or modified;

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

(m) Accounts owed by an account debtor, regardless of whether otherwise eligible, to the
extent that the aggregate balance of such Accounts exceeds 15% of the aggregate amount of all
Accounts;

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

(o) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its sole
discretion.

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

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

“Equipment Lease” means one or more lease entered into by Borrower with respect to the leasing
of capital assets by Borrower, so long as such Equipment Leases do not exceed the amounts set forth
in Section 6.2(c) in the aggregate at any time.

“Event of Default” is defined in Section 7.1.

“Financial Covenants” means the covenants set forth in Section 6.2.

“Floating Rate” means an annual interest rate equal to the sum of the Prime Rate plus one and
one-half of one percent (1.5%), which interest rate shall change when and as the Prime Rate
changes.

“Floating Rate Advance” means an Advance bearing interest at the Floating Rate.

“Funding Date” is defined in Section 2.1.

“GAAP” means generally accepted accounting principles, applied on a basis consistent with the
accounting practices applied in the financial statements described in Section 5.6.

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

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

“Indemnified Liabilities” is defined in Section 8.6

“Indemnitees” is defined in Section 8.6.

“IRC” means the Internal Revenue Code of 1986, as amended from time to time.

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

“Intellectual Property Rights” means all actual or prospective rights arising in connection
with any intellectual property or other proprietary rights, including all rights arising in
connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade
names or mask works.

“Interest Payment Date” is defined in Section 2.8(a).

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

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

“L/C Amount” means the sum of (i) the aggregate face amount of any issued and outstanding
Letters of Credit and (ii) the unpaid amount of the Obligation of Reimbursement.

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

“Letter of Credit” is defined in Section 2.4(a).

“Licensed Intellectual Property” is defined in Section 5.11(c) .

“Lien” means any security interest, mortgage, deed of trust, pledge, lien, charge,
encumbrance, title retention agreement or analogous instrument or device, including the interest of
each lessor under any capitalized lease and the interest of any bondsman under any payment or
performance bond, in, of or on any assets or properties of a Person, whether now owned or
subsequently acquired and whether arising by agreement or operation of law.

“Liquidity” means the sum of (i) Borrower’s cash on hand, minus, (ii) any outstanding
Advance hereunder, minus (iii) any cash subject to a lien in favor of any party other than
Lender, plus (iv) the balance in the Securities Account provided for in Section 6.28.

“Loan Documents” means this Agreement, the Revolving Note, any L/C Applications and the
Security Documents, together with every other agreement, note, document, contract or instrument to
which the Borrower now or in the future may be a party and which is required by the Lender.

“Lockbox” means “Lockbox” as defined in the Wholesale Lockbox and Collection Account Agreement
or any other post office box maintained in the name of Borrower subject to a control agreement in
favor of Lender.

“Material Adverse Effect” means any of the following:

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

(b) A material adverse effect on the ability of the Borrower to perform its obligations under
the Loan Documents;

(c) A material adverse effect on the ability of the Lender to enforce the Obligations or to
realize the intended benefits of the Security Documents, including a material adverse effect on the
validity or enforceability of any Loan Document, or on the status, existence, perfection, priority
(subject to Permitted Liens) or enforceability of any Lien securing payment or performance of the
Obligations; or

(d) Any claim against the Borrower or threat of litigation which if determined adversely to
the Borrower would cause the Borrower to be liable to pay an amount exceeding $100,000 or would
result in the occurrence of an event described in clauses (a), (b) and (c) above.

“Maturity Date” means June 8, 2009.

“Maximum Line Amount” means $3,000,000.

“Minimum Interest Charge” is defined in Section 2.6(c).

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

“Net Cash Proceeds” means in connection with any asset sale, the cash proceeds (including any
cash payments received by way of deferred payment whether pursuant to a note, installment
receivable or otherwise, but only as and when actually received) from such asset sale, net of
(i) attorneys’ fees, accountants’ fees, investment banking fees, brokerage commissions and amounts
required to be applied to the repayment of any portion of the Debt secured by a Lien not prohibited
hereunder on the asset which is the subject of such sale, and (ii)taxes paid or reasonably
estimated to be payable as a result of such asset sale.

“Net Income” means fiscal year-to-date after-tax net income from continuing operations,
including extraordinary losses but excluding extraordinary gains, all as determined in accordance
with GAAP, and adjusted dollar for dollar for any non-cash expenses for stock options reflected
after March 31, 2006.

“Net Loss” means fiscal year-to-date after-tax net loss from continuing operations as
determined in accordance with GAAP, and adjusted dollar for dollar for any non-cash expenses for
stock options reflected after March 31, 2006.

“Net Orderly Liquidation Value” means a professional opinion of the estimated most probable
Net Cash Proceeds which could typically be realized at a properly advertised and professionally
managed liquidation sale, conducted under orderly sale conditions for an extended period of time
(usually six to nine months), under the economic trends existing at the time of the appraisal.

“Obligation of Reimbursement” means the obligation of the Borrower to reimburse the Lender
pursuant to the terms of the Standby Letter of Credit Agreement or the Commercial Letter of Credit
Agreement and any applicable L/C Application.

“Obligations” means the Revolving Note, the Obligation of Reimbursement and each and every
other debt, liability and obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or obligation now exists or is
hereafter created or incurred, whether it arises in a transaction involving the Lender alone or in
a transaction involving other creditors of the Borrower, and whether it is direct or indirect, due
or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or
sole, joint, several or joint and several, and including all indebtedness of the Borrower arising
under any Loan Document or guaranty between the Borrower and the Lender, whether now in effect or
subsequently entered into, and all Wells Fargo Affiliate Obligations.

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

“OFAC” is defined in Section 6.12(c).

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

“Owned Intellectual Property” is defined in Section 5.11(a).

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

“Patent and Trademark Security Agreement” means each and every Patent and Trademark Security
Agreement now or hereafter executed by the Borrower in favor of the Lender.

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

“Permitted Lien” and “Permitted Liens” are defined in Section 6.3(a) .

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

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

“Premises” means all locations where the Borrower conducts its business or has any rights of
possession, including the locations legally described in Exhibit C attached hereto.

“Prime Rate” means at any time the rate of interest most recently announced by the Lender at
its principal office as its Prime Rate, with the understanding that the Prime Rate is one of the
Lender’s base rates, and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording thereof in such
internal publication or publications as the Lender may designate. Each change in the rate of
interest shall become effective on the date each Prime Rate change is announced by the Lender.

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

“Revolving Advance” is defined in Section 2.1.

“Revolving Note” means the Borrower’s revolving promissory note, payable to the order of the
Lender in substantially the form of Exhibit A hereto, as same may be renewed and amended from time
to time, and all replacements thereto.

“Security Documents” means this Agreement, the Wholesale Lockbox and Collection Account
Agreement, the Patent and Trademark Security Agreement(s), and any other document delivered to the
Lender from time to time to secure the Obligations.

“Security Interest” is defined in Section 3.1.

“Special Account” means a specified cash collateral account maintained with Lender or another
financial institution acceptable to the Lender in connection with Letters of Credit, as
contemplated by Section 2.5.

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

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

“Termination Date” means the earliest of (i) the Maturity Date, (ii) the date the Borrower
terminates the Credit Facility, or (iii) the date the Lender demands payment of the Obligations,
following an Event of Default, pursuant to Section 7.2.

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

“Unused Amount” is defined in Section 2.7(b).

“Wells Fargo Affiliate Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower or its Subsidiaries to any
Person that is owned in material part by the Lender, and that relates to any service or facility
extended to the Borrower or its Subsidiaries, including: (a) credit cards, (b) credit card
processing services, (c) debit cards, and (d) purchase cards, as well as any other services or
facilities from time to time specified by the Lender, whether direct or indirect, absolute or
contingent, due or to become due, and whether existing now or in the future.

“Wholesale Lockbox and Collection Account Agreement” means the Wholesale Lockbox and
Collection Account Agreement by and between the Borrower and the Lender dated the same date as this
Agreement.

Section 1.2 Other Definitional Terms; Rules of Interpretation. The words “hereof”,
“herein” and “hereunder” and words of similar import when used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision of this Agreement. All accounting
terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP. All
terms defined in the UCC and not otherwise defined herein have the meanings assigned to them in the
UCC. References to Articles, Sections, subsections, Exhibits, Schedules and the like, are to
Articles, Sections and subsections of, or Exhibits or Schedules attached to, this Agreement unless
otherwise expressly provided. The words “include”, “includes” and “including” shall be deemed to
be followed by the phrase “without limitation”. Unless the context in which used herein otherwise
clearly requires, “or” has the inclusive meaning represented by the phrase “and/or”. Defined terms
include in the singular number the plural and in the plural number the singular. Reference to any
agreement (including the Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance with the terms
thereof (and, if applicable, in accordance with the terms hereof and the other Loan Documents),
except where otherwise explicitly provided, and reference to any promissory note includes any
promissory note which is an extension or renewal thereof or a substitute or replacement therefor.
Reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or
interpretation means as amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect on the determination date, including rules and regulations promulgated thereunder.

ARTICLE II

AMOUNT AND TERMS OF THE CREDIT FACILITY

Section 2.1 Revolving Advances. The Lender agrees, subject to the terms and
conditions of this Agreement, to make advances (“Revolving Advances”) to the Borrower from time to
time from the date that all of the conditions set forth in Section 4.1 are satisfied (the “Funding
Date”) to and until (but not including) the Termination Date in an amount not in excess of the
Maximum Line Amount. The Lender shall have no obligation to make a Revolving Advance to the extent
that the amount of the requested Revolving Advance exceeds Availability. Furthermore, Lender shall
also have no obligation to make a Revolving Advance if at the time a request for a Revolving
Advance is made, at the time a Revolving Advance to be made, or at any time since the most recent
Revolving Advance was made, Borrower is not or has not been in compliance with the Financial
Covenants. The Borrower’s obligation to pay the Revolving Advances shall be evidenced by the
Revolving Note and shall be secured by the Collateral. Within the limits set forth in this
Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.10, and reborrow.

Section 2.2 Procedures for Requesting Advances. The Borrower shall comply with the
following procedures in requesting Revolving Advances:

(a) Time for Requests. The Borrower shall request each Advance not later than the Cut-off
Time on the Business Day on which the Advance is to be made; provided, that if no
Obligations remain outstanding at the time of such request and the funds in any Lockbox are being
credited directly to Borrower as set forth in Section 2.9(b), Borrower shall use its best efforts
to make such request by no later than two (2) weeks prior to the Business Day on which the Advance
is to be made. Each request that conforms to the terms of this Agreement shall be effective upon
receipt by the Lender, shall be in writing or by telephone or telecopy transmission, and shall be
confirmed in writing by the Borrower if so requested by the Lender, by (i) an Officer of the
Borrower; or (ii) a Person designated as the Borrower’s agent by an Officer of the Borrower in a
writing delivered to the Lender; or (iii) a Person whom the Lender reasonably believes to be an
Officer of the Borrower or such a designated agent. The Borrower shall repay all Advances even if
the Lender does not receive such confirmation and even if the Person requesting an Advance was not
in fact authorized to do so. Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.

(b) Disbursement. Upon fulfillment of the applicable conditions set forth in Article IV, the
Lender shall disburse the proceeds of the requested Advance by crediting the same to the Borrower’s
demand deposit account maintained with the Lender unless the Lender and the Borrower shall agree in
writing to another manner of disbursement.

	 	 	 
	Section 2.3	 	[Intentionally Omitted].
	Section 2.4

	 	Letters of Credit.
	
 
	 	 

(a) The Lender agrees, subject to the terms and conditions of this Agreement, to issue, at any
time after the Funding Date and prior to the Termination Date, one or more irrevocable standby or
documentary letters of credit (each, a “Letter of Credit”) for the Borrower’s account. The Lender
will not issue any Letter of Credit if the face amount of the Letter of Credit to be issued would
exceed the lesser of:

(i) $1,000,000 less the L/C Amount, or

(ii) Availability.

Each Letter of Credit, if any, shall be issued pursuant to a separate L/C Application made by the
Borrower to the Lender, which must be completed in a manner satisfactory to the Lender. The terms
and conditions set forth in each such L/C Application shall supplement the terms and conditions of
the Standby Letter of Credit Agreement or the Commercial Letter of Credit Agreement, as applicable.

(b) No Letter of Credit shall be issued with an expiry date later than one (1) year from the
date of issuance or the Maturity Date in effect as of the date of issuance, whichever is earlier.

(c) Any request for issuance of a Letter of Credit shall be deemed to be a representation by
the Borrower that the conditions set forth in Section 4.2 have been satisfied as of the date of the
request.

(d) If a draft is submitted under a Letter of Credit when the Borrower is unable, because a
Default Period exists or for any other reason, to obtain a Revolving Advance to pay the Obligation
of Reimbursement, the Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with interest, accrued from the date
of the draft until payment in full at the Default Rate. Notwithstanding the Borrower’s inability
to obtain a Revolving Advance for any reason, the Lender is irrevocably authorized, in its sole
discretion, to make a Revolving Advance in an amount sufficient to discharge the Obligation of
Reimbursement and all accrued but unpaid interest thereon.

Section 2.5 Special Account. If the Credit Facility is terminated for any reason
while any Letter of Credit is outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an amount equal to the L/C Amount
plus any anticipated fees and costs. If the Borrower fails to promptly make any such payment in
the amount required hereunder, then the Lender may make a Revolving Advance against the Credit
Facility in an amount sufficient to fulfill this obligation and deposit the proceeds to the Special
Account. The Special Account shall be an interest bearing account either maintained with the
Lender or with a financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account. The Lender may apply
amounts on deposit in the Special Account at any time or from time to time to the Obligations in
the Lender’s sole discretion. The Borrower may not withdraw any amounts on deposit in the Special
Account as long as the Lender maintains a security interest therein. The Lender agrees to transfer
any balance in the Special Account to the Borrower when the Lender is required to release its
security interest in the Special Account under applicable law.

Section 2.6 Interest; Minimum Interest Charge; Default Interest Rate; Application of
Payments; Participations; Usury.

(a) Interest. Except as provided in Section 2.6(d) and Section 2.6(g), the principal amount
of each Advance shall bear interest as a Floating Rate Advance.

(b) [Intentionally omitted].

(c) Minimum Interest Charge. Notwithstanding any other terms of this Agreement to the
contrary, the Borrower shall pay to the Lender interest of not less than $10,000 per calendar month
(the “Minimum Interest Charge”) during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest otherwise calculated
under Section 2.6(a) on the first day of each month and on the Termination Date. When calculating
this deficiency, the Default Rate, if applicable, shall be disregarded, and any interest that
accrues on a payment following its receipt on those days specified in Section 2.6(e) shall be
excluded in determining the total amount of interest otherwise calculated under Section 2.6(a).

(d) Default Interest Rate. At any time during any Default Period or following the Termination
Date, in the Lender’s sole discretion and without waiving any of its other rights or remedies, the
principal of the Revolving Note shall bear interest at the Default Rate or such lesser rate as the
Lender may determine, effective as of the first day of the month in which any Default Period begins
through the last day of such Default Period, or any shorter time period that the Lender may
determine. The decision of the Lender to impose a rate that is less than the Default Rate or to
not impose the Default Rate for the entire duration of the Default Period shall be made by the
Lender in its sole discretion and shall not be a waiver of any of its other rights and remedies,
including its right to retroactively impose the full Default Rate for the entirety of any such
Default Period or following the Termination Date.

(e) Application of Payments. Payments shall be applied to the Obligations on the Business Day
of receipt by the Lender in the Lender’s general account, but the amount of principal paid shall
continue to accrue interest at the interest rate applicable under the terms of this Agreement from
the calendar day the Lender receives the payment, and continuing through the end of the first
Business Day following receipt of the payment.

(f) Participations. If any Person shall acquire a participation in the Advances or the
Obligation of Reimbursement, the Borrower shall be obligated to the Lender to pay the full amount
of all interest calculated under this Section 2.6, along with all other fees, charges and other
amounts due under this Agreement, regardless if such Person elects to accept interest with respect
to its participation at a lower rate than that calculated under this Section 2.6, or otherwise
elects to accept less than its prorata share of such fees, charges and other amounts due under this
Agreement.

(g) Usury. In any event no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law. Notwithstanding anything to the contrary contained
in any Loan Document, all agreements which either now are or which shall become agreements between
the Borrower and the Lender are hereby limited so that in no contingency or event whatsoever shall
the total liability for payments in the nature of interest, additional interest and other charges
exceed the applicable limits imposed by any applicable usury laws. If any payments in the nature
of interest, additional interest and other charges made under any Loan Document are held to be in
excess of the limits imposed by any applicable usury laws, it is agreed that any such amount held
to be in excess shall be considered payment of principal hereunder, and the indebtedness evidenced
hereby shall be reduced by such amount so that the total liability for payments in the nature of
interest, additional interest and other charges shall not exceed the applicable limits imposed by
any applicable usury laws, in compliance with the desires of the Borrower and the Lender. This
provision shall never be superseded or waived and shall control every other provision of the Loan
Documents and all agreements between the Borrower and the Lender, or their successors and assigns.

Section 2.7 Fees.

(a) Origination Fee. The Borrower shall pay the Lender a fully earned and non-refundable
origination fee of $50,000, due and payable upon the execution of this Agreement. The Lender has
received $25,000 towards payment of this fee.

(b) Unused Line Fee. For the purposes of this Section 2.7(b), “Unused Amount” means the
Maximum Line Amount reduced by outstanding Revolving Advances and the L/C Amount. The Borrower
agrees to pay to the Lender an unused line fee at the rate of one-quarter of one percent (0.25%)
per annum on the average daily Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable monthly in arrears on the first day of the month and on the
Termination Date.

(c) Annual Fee. The Borrower agrees to pay to the Lender an annual fee at the rate of
one-half of one percent (0.5%) of the Maximum Line Amount, which facility fee shall be due and
payable on June 8, 2006, on each June 8 thereafter.

(d) Aging Review Fee. The Borrower agrees to pay to the Lender a monthly fee for the review
of Borrower’s agings reports which fee shall be in the amount of $300 and shall be due and payable
on the first day of each month from the date of this Agreement to and including the Termination
Date.

(e) Collateral Exam Fees. The Borrower shall pay the Lender fees in connection with any
collateral exams, audits or inspections conducted by or on behalf of the Lender of any Collateral
or the Borrower’s operations or business at the rates established from time to time by the Lender
as its collateral exam fees (which fees are currently $95 per hour per collateral examiner),
together with all actual out-of-pocket costs and expenses incurred in conducting any such
collateral examination or inspection.

(f) Letter of Credit Fees. The Borrower shall pay to the Lender a fee with respect to each
Letter of Credit that has been issued, if any, which fee shall be calculated on a per diem basis at
an annual rate equal to one and one-half of one percent (1.5%) of the aggregate amount that may
then be drawn under the Letter of Credit, assuming compliance with all conditions for drawing (the
“Aggregate Face Amount”), from and including the date of issuance of the Letter of Credit until the
date that the Letter of Credit terminates or is returned to the Lender, which fee shall be due and
payable monthly in arrears on the first day of each month and on the date that the Letter of Credit
terminates or is returned to the Lender; provided, however, effective as of the
first day of the month in which any Default Period begins through the last day of such Default
Period, or any shorter time period that the Lender may determine, in the Lender’s sole discretion
and without waiving any of its other rights and remedies, such fee shall increase to four and
one-half of one percent (4.5%) of the Aggregate Face Amount. The foregoing fee shall be in
addition to any and all other fees, commissions and charges imposed by Lender with respect to or in
connection with such Letter of Credit.

(g) Letter of Credit Administrative Fees. The Borrower shall pay all administrative fees
charged by Lender in connection with the honoring of drafts under any Letter of Credit, amendments
thereto, transfers thereof and all other activity with respect to the Letters of Credit at the then
– current rates published by Lender for such services rendered on behalf of customers of Lender
generally.

(h) Termination Fee. If (i) the Lender terminates the Credit Facility during a Default
Period, or if (ii) the Borrower terminates the Credit Facility on a date prior to the Maturity
Date, then the Borrower shall pay the Lender as liquidated damages and not as a penalty a
termination fee in an amount equal to a percentage of the Maximum Line Amount calculated as
follows: (A) three percent (3.0%) if the termination occurs on or before the first anniversary of
the Funding Date; (B) two percent (2.0%) if the termination occurs after the first anniversary of
the Funding Date, but on or before the second anniversary of the Funding Date; and (C) one percent
(1.0%) if the termination occurs after the second anniversary of the Funding Date.

(i) [Intentionally Omitted].

(j) [Intentionally Omitted].

(k) Waiver of Termination Fee. The Borrower, at the Lender’s discretion, will be excused from
the payment of termination fees otherwise due under Section 2.7(g) if such termination is made
because of refinancing through another division of Lender.

(l) Overadvance Fees. The Borrower shall pay an Overadvance fee in the amount of $500.00 for
each day or portion thereof during which an Overadvance exists, regardless of how the Overadvance
arises or whether or not the Overadvance has been agreed to in advance by the Lender. The
acceptance of payment of an Overadvance fee by the Lender shall not be deemed to constitute either
consent to the Overadvance or a waiver of the resulting Event of Default, unless the Lender
specifically consents to the Overadvance in writing and waives the Event of Default on whatever
conditions the Lender deems appropriate.

(m) Other Fees and Charges. The Lender may from time to time impose additional fees and
charges as consideration for Advances made in excess of Availability or for other events that
constitute an Event of Default or a Default hereunder, including fees and charges for the
administration of Collateral by the Lender, and fees and charges for the late delivery of reports,
which may be assessed in the Lender’s sole discretion on either an hourly, periodic, or flat fee
basis, and in lieu of or in addition to imposing interest at the Default Rate.

Section 2.8 Time for Interest Payments; Payment on Non-Business Days; Computation of
Interest and Fees.

(a) Time For Interest Payments. Accrued and unpaid interest shall be due and payable on the
first day of each month and on the Termination Date (each an “Interest Payment Date”), or if any
such day is not a Business Day, on the next succeeding Business Day. Interest will accrue from the
most recent date to which interest has been paid or, if no interest has been paid, from the date of
advance to the Interest Payment Date. If an Interest Payment Date is not a Business Day, payment
shall be made on the next succeeding Business Day.

(b) Payment on Non-Business Days. Whenever any payment to be made hereunder shall be stated
to be due on a day which is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.

(c) Computation of Interest and Fees. Interest accruing on the outstanding principal balance
of the Advances and fees hereunder outstanding from time to time shall be computed on the basis of
actual number of days elapsed in a year of 360 days.

Section 2.9 Lockbox and Collateral Account; Sweep of Funds.

(a) Lockbox and Collateral Account.

(i) The Borrower shall instruct all account debtors to pay all Accounts directly to a Lockbox.
If, notwithstanding such instructions, the Borrower receives any payments on Accounts, the
Borrower shall deposit such payments into the Collateral Account. The Borrower shall also deposit
all other cash proceeds of Collateral regardless of source or nature directly into the Collateral
Account. Until so deposited, the Borrower shall hold all such payments and cash proceeds in trust
for and as the property of the Lender and shall not commingle such property with any of its other
funds or property. All deposits in the Collateral Account shall constitute proceeds of Collateral
and shall not constitute payment of the Obligations.

(ii) All items deposited in the Collateral Account shall be subject to final payment. If any
such item is returned uncollected, the Borrower will immediately pay the Lender, or, for items
deposited in the Collateral Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the Borrower’s commercial account or
other account. The Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.

(b) Sweep of Funds. The Lender shall from time to time, in accordance with the Wholesale
Lockbox and Collection Account Agreement, cause funds in the Collateral Account to be transferred
to the Lender’s general account for payment of the Obligations; provided, that if no
Obligations remain outstanding, at the written request of Borrower the funds in the Collateral
Account shall be transferred to the Borrower’s demand deposit account maintained with the Lender.
Amounts deposited in the Collateral Account shall not be subject to withdrawal by the Borrower,
except after payment in full and discharge of all Obligations. []

Section 2.10 Voluntary Prepayment; Termination of the Credit Facility by the Borrower.
Except as otherwise provided herein, the Borrower may prepay the Advances in whole at any time or
from time to time in part. The Borrower may terminate the Credit Facility at any time if it
(i) gives the Lender at least 90 days advance written notice prior to the proposed Termination
Date, and (ii) pays the Lender applicable termination fees in accordance with Section 2.7(g). If
the Borrower terminates the Credit Facility, all Obligations shall be immediately due and payable,
and if the Borrower gives the Lender less than the required 90 days advance written notice, then
the interest rate applicable to borrowings evidenced by Revolving Note shall be the Default Rate
for the period of time commencing 90 days prior to the proposed Termination Date through the date
that the Lender actually receives such written notice. If the Borrower does not wish the Lender to
consider renewal of the Credit Facility on the next Maturity Date, then the Borrower shall give the
Lender at least 90 days written notice prior to the Maturity Date that it will not be requesting
renewal. If the Borrower fails to give the Lender such timely notice, then the interest rate
applicable to borrowings evidenced by the Revolving Note shall be the Default Rate for the period
of time commencing 90 days prior to the Maturity Date through the date that the Lender actually
receives such written notice.

Section 2.11 Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the Revolving Advances plus the L/C Amount shall at any time
exceed the Borrowing Base, the Borrower shall (i) first, immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess; and (ii) if prepayment in full of the Revolving
Advances is insufficient to eliminate such excess, pay to the Lender in immediately available funds
for deposit in the Special Account an amount equal to the remaining excess. Any payment received
by the Lender hereunder or under Section 2.10 may be applied to the Obligations, in such order and
in such amounts as the Lender in its sole discretion may determine from time to time.

Section 2.12 Revolving Advances to Pay Obligations. Notwithstanding the terms of
Section 2.1, the Lender may, in its discretion at any time or from time to time, without the
Borrower’s request and even if the conditions set forth in Section 4.2 would not be satisfied, make
a Revolving Advance in an amount equal to the portion of the Obligations from time to time due and
payable, and may deliver the proceeds of any such Revolving Advance to any affiliate of the Lender
in satisfaction of any Wells Fargo Affiliate Obligations.

Section 2.13 Use of Proceeds. The Borrower shall use the proceeds of Advances and
each Letter of Credit for ordinary working capital purposes.

Section 2.14 Liability Records. The Lender may maintain from time to time, at its
discretion, records as to the Obligations. All entries made on any such record shall be presumed
correct until the Borrower establishes the contrary. Upon the Lender’s demand, the Borrower will
admit and certify in writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the Lender shall be
conclusive and fully binding on the Borrower unless the Borrower gives the Lender specific written
notice of exception within 30 days after receipt.

ARTICLE III

SECURITY INTEREST; OCCUPANCY; SETOFF

Section 3.1 Grant of Security Interest. The Borrower hereby pledges, assigns and
grants to the Lender, for the benefit of itself and as agent for any affiliate of the Lender that
may provide credit or services to the Borrower that constitute Wells Fargo Affiliate Obligations, a
lien and security interest (collectively referred to as the “Security Interest”) in the Collateral,
as security for the payment and performance of the Obligations. Upon request by the Lender, the
Borrower will grant the Lender, for the benefit of itself and as agent for any affiliate of the
Lender that may provide credit or services to the Borrower that constitute Wells Fargo Affiliate
Obligations, a security interest in all commercial tort claims that the Borrower may have against
any Person.

Section 3.2 Notification of Account Debtors and Other Obligors. The Lender may at any
time (whether or not a Default Period then exists) notify any account debtor or other Person
obligated to pay the amount due that such right to payment has been assigned or transferred to the
Lender for security and shall be paid directly to the Lender. The Borrower will join in giving
such notice if the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in the Lender’s name or
in the Borrower’s name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or grant any extension
to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or other obligor. The
Lender may, in the Lender’s name or in the Borrower’s name, as the Borrower’s agent and
attorney-in-fact, notify the United States Postal Service to change the address for delivery of the
Borrower’s mail to any address designated by the Lender, otherwise intercept the Borrower’s mail,
and receive, open and dispose of the Borrower’s mail, applying all Collateral as permitted under
this Agreement and holding all other mail for the Borrower’s account or forwarding such mail to the
Borrower’s last known address.

Section 3.3 Assignment of Insurance. As additional security for the payment and
performance of the Obligations, the Borrower hereby assigns to the Lender any and all monies
(including proceeds of insurance and refunds of unearned premiums) due or to become due under, and
all other rights of the Borrower with respect to, any and all policies of insurance now or at any
time hereafter covering the Collateral or any evidence thereof or any business records or valuable
papers pertaining thereto, and the Borrower hereby directs the issuer of any such policy to pay all
such monies directly to the Lender. At any time, whether or not a Default Period then exists, the
Lender may (but need not), in the Lender’s name or in the Borrower’s name, execute and deliver
proof of claim, receive all such monies, endorse checks and other instruments representing payment
of such monies, and adjust, litigate, compromise or release any claim against the issuer of any
such policy. So long as any Obligations remain outstanding hereunder, any monies received as
payment for any loss under any insurance policy mentioned above (other than liability insurance
policies) or as payment of any award or compensation for condemnation or taking by eminent domain,
shall be paid over to the Lender to be applied, at the option of the Lender, either to the
prepayment of the Obligations or shall be disbursed to the Borrower under staged payment terms
reasonably satisfactory to the Lender for application to the cost of repairs, replacements, or
restorations. Any such repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or property destroyed
prior to such damage or destruction.

Section 3.4 Occupancy.(a) The Borrower hereby irrevocably grants to the Lender the
right to take exclusive possession of the Premises at any time during a Default Period without
notice or consent.

(b) The Lender may use the Premises only to hold, process, manufacture, sell, use, store,
liquidate, realize upon or otherwise dispose of goods that are Collateral and for other purposes
that the Lender may in good faith deem to be related or incidental purposes.

(c) The Lender’s right to hold the Premises shall cease and terminate upon the earlier of
(i) payment in full and discharge of all Obligations and termination of the Credit Facility, and
(ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods
to purchasers.

(d) The Lender shall not be obligated to pay or account for any rent or other compensation for
the possession, occupancy or use of any of the Premises; provided, however, that if
the Lender does pay or account for any rent or other compensation for the possession, occupancy or
use of any of the Premises, the Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees, duties,
imposts, charges and expenses at any time incurred by or imposed upon the Lender by reason of the
execution, delivery, existence, recordation, performance or enforcement of this Agreement or the
provisions of this Section 3.4.

Section 3.5 License. Without limiting the generality of any other Security Document,
the Borrower hereby grants to the Lender a non-exclusive, worldwide and royalty-free license to use
or otherwise exploit all Intellectual Property Rights of the Borrower for the purpose of:
(a) completing the manufacture of any in-process materials during any Default Period so that such
materials become saleable Inventory, all in accordance with the same quality standards previously
adopted by the Borrower for its own manufacturing and subject to the Borrower’s reasonable exercise
of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during
any Default Period.

Section 3.6 Financing Statement. The Borrower authorizes the Lender to file from time
to time, such financing statements against collateral described as “all personal property” or “all
assets” or describing specific items of collateral including commercial tort claims as the Lender
deems necessary or useful to perfect the Security Interest. All financing statements filed before
the date hereof to perfect the Security Interest were authorized by the Borrower and are hereby
re-authorized. A carbon, photographic or other reproduction of this Agreement or of any financing
statements signed by the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted hereby. For this
purpose, the Borrower represents and warrants that the following information is true and correct:

Name and address of Debtor:

Staar Surgical Company

1911 Walker Avenue

Monrovia, California 91016

Federal Employer Identification No. 95-3797439

Organizational Identification No. 2087487

Name and address of Secured Party:

Wells Fargo Business Credit

245 South Los Robles Avenue

Suite 700

Pasadena, California 91101

Section 3.7 Setoff. The Lender may at any time or from time to time, at its sole
discretion and without demand and without notice to anyone, setoff any liability owed to the
Borrower by the Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations shall have the
right to appropriate or setoff any deposit or other liability then owed by such Person to the
Borrower, whether or not due, and apply the same to the payment of said participating interest, as
fully as if such Person had lent directly to the Borrower the amount of such participating
interest.

Section 3.8 Collateral. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper, and, as provided by law, the Borrower is entitled to any surplus
and shall remain liable for any deficiency. The Lender’s duty of care with respect to Collateral
in its possession (as imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third Person, exercises reasonable care in the selection of the bailee or other
third Person, and the Lender need not otherwise preserve, protect, insure or care for any
Collateral. The Lender shall not be obligated to preserve any rights the Borrower may have against
prior parties, to realize on the Collateral at all or in any particular manner or order or to apply
any cash proceeds of the Collateral in any particular order of application. The Lender has no
obligation to clean-up or otherwise prepare the Collateral for sale. The Borrower waives any right
it may have to require the Lender to pursue any third Person for any of the Obligations.

ARTICLE IV

CONDITIONS OF LENDING

Section 4.1 Conditions Precedent to the Initial Advances and Letter of Credit. The
Lender’s obligation to make the initial Advances or to cause any Letters of Credit to be issued
shall be subject to the condition precedent that the Lender shall have received all of the
following, each properly executed by the appropriate party and in form and substance satisfactory
to the Lender:

(a) This Agreement.

(b) The Revolving Note.

(c) A Standby Letter of Credit Agreement and a Commercial Letter of Credit Agreement, and L/C
Application for each Letter of Credit that the Borrower wishes to have issued thereunder.

(d) A true and correct copy of any and all leases pursuant to which the Borrower is leasing
the Premises, together with a landlord’s disclaimer and consent with respect to each such lease.

(e) A listing (by location and dollar amount at each location) of any and all agreements
pursuant to which the Borrower’s property is in the possession of any Person other than the
Borrower as of the date hereof, together with, in the case of any goods held by such Person for
resale.

(f) An acknowledgment and waiver of Liens from each warehouse in which the Borrower is storing
Inventory.

(g) A true and correct copy of any and all agreements pursuant to which the Borrower’s
property, having liquidation value in excess of $25,000, is in the possession of any Person other
than the Borrower, together with, (i) an acknowledgment and waiver of Liens from each subcontractor
who has possession of the Borrower’s goods from time to time, (ii) UCC financing statements
sufficient to protect the Borrower’s and the Lender’s interests in such goods, and (iii) UCC
searches showing that no other secured party has filed a financing statement covering such Person’s
property other than the Borrower, or if there exists any such secured party, evidence that each
such secured party has received notice from the Borrower and the Lender sufficient to protect the
Borrower’s and the Lender’s interests in the Borrower’s goods from any claim by such secured party.

(h) The Wholesale Lockbox and Collection Account Agreement.

(i) Control agreements with each bank at which the Borrower maintains deposit accounts.

(j) A Patent and Trademark Security Agreement.

(k) Current searches of appropriate filing offices showing that (i) no Liens have been filed
and remain in effect against the Borrower except Permitted Liens or Liens held by Persons who have
agreed in writing that upon receipt of proceeds of the initial Advances, they will satisfy, release
or terminate such Liens in a manner satisfactory to the Lender, and (ii) the Lender has duly filed
all financing statements necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.

(l) A certificate of the Borrower’s Secretary or Assistant Secretary certifying that attached
to such certificate are (i) the resolutions of the Borrower’s Directors and, if required, Owners,
authorizing the execution, delivery and performance of the Loan Documents, (ii) true, correct and
complete copies of the Borrower’s Constituent Documents, and (iii) examples of the signatures of
the Borrower’s Officers or agents authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests, on the Borrower’s behalf.

(m) A current certificate issued by the Secretary of State of Delaware, certifying that the
Borrower is in compliance with all applicable organizational requirements of the State of Delaware.

(n) Evidence that the Borrower is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary.

(o) A certificate of an Officer of the Borrower confirming, in his personal capacity, the
representations and warranties set forth in Article V.

(p) Certificates of the insurance required hereunder, with all hazard insurance containing a
lender’s loss payable endorsement in the Lender’s favor and with all liability insurance naming the
Lender as an additional insured.

(q) Payment of the fees and commissions due under Section 2.7 through the date of the initial
Advance or Letter of Credit and expenses incurred by the Lender through such date and required to
be paid by the Borrower under Section 8.5, including all legal expenses incurred through the date
of this Agreement.

(r) Evidence that after making the initial Revolving Advance (if any), satisfying all trade
payables older than 60 days from invoice date, book overdrafts and closing costs, Availability
(including cash on-hand on the Closing Date) shall be not less than $5,000,000.

(s) A Customer Identification Information form and such other forms and verification as the
Lender may need to comply with the U.S.A. Patriot Act.

(i) Such other documents as the Lender in its sole discretion may require.

Section 4.2 Conditions Precedent to All Advances and Letters of Credit. The Lender’s
obligation to make each Advance or to cause the issuance of a Letter of Credit shall be subject to
the further conditions precedent that:

(a) the representations and warranties contained in Article V are correct on and as of the
date of such Advance or issuance of a Letter of Credit as though made on and as of such date,
except to the extent that such representations and warranties relate solely to an earlier date; and

(b) no event has occurred and is continuing, or would result from such Advance or issuance of
a Letter of Credit which constitutes a Default or an Event of Default.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Lender as follows:

Section 5.1 Existence and Power; Name; Chief Executive Office; Inventory and Equipment
Locations; Federal Employer Identification Number and Organizational Identification Number.
The Borrower is a corporation, duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary. The Borrower has all requisite
power and authority to conduct its business, to own its properties and to execute and deliver, and
to perform all of its obligations under, the Loan Documents. During its existence, the Borrower
has done business solely under the names set forth in Schedule 5.1. The Borrower’s chief executive
office and principal place of business is located at the address set forth in Schedule 5.1, and all
of the Borrower’s records relating to its business or the Collateral are kept at that location.
All Inventory and Equipment is located at that location or at one of the other locations listed in
Schedule 5.1. The Borrower’s federal employer identification number and organization
identification number are correctly set forth in Section 3.6.

Section 5.2 Capitalization. Schedule 5.2 constitutes a correct and complete list of
all Persons holding ownership interests and rights to acquire ownership interests which if fully
exercised would cause such Person to hold more than five percent (5%) of all ownership interests of
the Borrower on a fully diluted basis, and an organizational chart showing the ownership structure
of all Subsidiaries of the Borrower.

Section 5.3 Authorization of Borrowing; No Conflict as to Law or Agreements. The
execution, delivery and performance by the Borrower of the Loan Documents and the borrowings from
time to time hereunder have been duly authorized by all necessary corporate action and do not and
will not (i) require any consent or approval of the Borrower’s Owners; (ii) require any
authorization, consent or approval by, or registration, declaration or filing with, or notice to,
any governmental department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any third party, except such authorization, consent, approval, registration,
declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof;
(iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of
Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the Borrower’s Constituent Documents; (iv) result
in a breach of or constitute a default under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected; or (v) result in, or require, the creation or imposition of
any Lien (other than the Security Interest) upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower.

Section 5.4 Legal Agreements. This Agreement constitutes and, upon due execution by
the Borrower, the other Loan Documents will constitute the legal, valid and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their respective terms.

Section 5.5 Subsidiaries. Except as set forth in Schedule 5.5 hereto, the Borrower
has no Subsidiaries.

Section 5.6 Financial Condition; No Adverse Change. The Borrower has furnished to the
Lender its audited financial statements for its fiscal year ended December 31, 2005, and unaudited
financial statements for the fiscal-year-to-date period ended March 31, 2006, and those statements
fairly present the Borrower’s financial condition on the dates thereof and the results of its
operations and cash flows for the periods then ended and were prepared in accordance with GAAP.
Since the date of the most recent financial statements, there has been no change in the Borrower’s
business, properties or condition (financial or otherwise) which has had a Material Adverse Effect.

Section 5.7 Litigation. Except as set forth on Schedule 5.7, there are no actions,
suits or proceedings pending or, to the Borrower’s knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of its Affiliates before
any court or governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any of its Affiliates, would
have a Material Adverse Effect on the financial condition, properties or operations of the Borrower
or any of its Affiliates.

Section 5.8 Regulation U. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.

Section 5.9 Taxes. The Borrower and its Affiliates have paid or caused to be paid to
the proper authorities when due all federal, state and local taxes required to be withheld by each
of them. The Borrower and its Affiliates have filed all federal, state and local tax returns which
to the knowledge of the Officers of the Borrower or any Affiliate, as the case may be, are required
to be filed, and the Borrower and its Affiliates have paid or caused to be paid to the respective
taxing authorities all taxes as shown on said returns or on any assessment received by any of them
to the extent such taxes have become due.

Section 5.10 Titles and Liens. The Borrower has good and absolute title to all
Collateral free and clear of all Liens other than Permitted Liens. No financing statement naming
the Borrower as debtor is on file in any office except to perfect only Permitted Liens.

Section 5.11 Intellectual Property Rights.

(a) Owned Intellectual Property. Schedule 5.11 is a complete list of all patents,
applications for patents, trademarks, applications to register trademarks, service marks,
applications to register service marks, mask works, trade dress and copyrights for which the
Borrower is the owner of record (the “Owned Intellectual Property”). Except as disclosed on
Schedule 5.11, (i) the Borrower owns the Owned Intellectual Property free and clear of all
restrictions (including covenants not to sue a third party), court orders, injunctions, decrees,
writs or Liens, whether by written agreement or otherwise, (ii) no Person other than the Borrower
owns or has been granted any right in the Owned Intellectual Property, (iii) all Owned Intellectual
Property is valid, subsisting and enforceable and (iv) the Borrower has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual Property.

(b) Agreements with Employees and Contractors. The Borrower has entered into a legally
enforceable agreement with each of its employees and subcontractors obligating each such Person to
assign to the Borrower, without any additional compensation, any Intellectual Property Rights
created, discovered or invented by such Person in the course of such Person’s employment or
engagement with the Borrower (except to the extent prohibited by law), and further requiring such
Person to cooperate with the Borrower, without any additional compensation, in connection with
securing and enforcing any Intellectual Property Rights therein; provided, however,
that the foregoing shall not apply with respect to employees and subcontractors whose job
descriptions are of the type such that no such assignments are reasonably foreseeable.

(c) Intellectual Property Rights Licensed from Others. Schedule 5.11 is a complete list of
all agreements under which the Borrower has licensed Intellectual Property Rights from another
Person (“Licensed Intellectual Property”) other than readily available, non-negotiated licenses of
computer software and other intellectual property used solely for performing accounting, word
processing and similar administrative tasks (“Off-the-shelf Software”) and a summary of any ongoing
payments the Borrower is obligated to make with respect thereto. Except as disclosed on
Schedule 5.11 and in written agreements, copies of which have been given to the Lender, the
Borrower’s licenses to use the Licensed Intellectual Property are free and clear of all
restrictions, Liens, court orders, injunctions, decrees, or writs, whether by written agreement or
otherwise. Except as disclosed on Schedule 5.11, the Borrower is not obligated or under any
liability whatsoever to make any payments of a material nature by way of royalties, fees or
otherwise to any owner of, licensor of, or other claimant to, any Intellectual Property Rights.

(d) Other Intellectual Property Needed for Business. Except for Off-the-shelf Software and as
disclosed on Schedule 5.11, the Owned Intellectual Property and the Licensed Intellectual Property
constitute all Intellectual Property Rights used or necessary to conduct the Borrower’s business as
it is presently conducted or as the Borrower reasonably foresees conducting it.

(e) Infringement. Except as disclosed on Schedule 5.11, the Borrower has no knowledge of, and
has not received any written claim or notice alleging, any Infringement of another Person’s
Intellectual Property Rights (including any written claim that the Borrower must license or refrain
from using the Intellectual Property Rights of any third party) nor, to the Borrower’s knowledge,
is there any threatened claim or any reasonable basis for any such claim.

Section 5.12 Plans. Except as disclosed to the Lender in writing prior to the date
hereof, neither the Borrower nor any ERISA Affiliate (i) maintains or has maintained any Pension
Plan, (ii) contributes or has contributed to any Multiemployer Plan or (iii) provides or has
provided post-retirement medical or insurance benefits with respect to employees or former
employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC or
applicable state law). Neither the Borrower nor any ERISA Affiliate has received any notice or has
any knowledge to the effect that it is not in full compliance with any of the requirements of
ERISA, the IRC or applicable state law with respect to any Plan. No Reportable Event exists in
connection with any Pension Plan. Each Plan which is intended to qualify under the IRC is so
qualified, and no fact or circumstance exists which may have an adverse effect on the Plan’s
tax-qualified status. Neither the Borrower nor any ERISA Affiliate has (i) any accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether
or not waived, (ii) any liability under Section 4201 or 4243 of ERISA for any withdrawal, partial
withdrawal, reorganization or other event under any Multiemployer Plan or (iii) any liability or
knowledge of any facts or circumstances which could result in any liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than routine claims for benefits under the Plan).

Section 5.13 Default. The Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which it or its property
is bound or affected, the breach or default of which could have a Material Adverse Effect.

Section 5.14 Environmental Matters.

(a) Except as disclosed on Schedule 5.14, there are not present in, on or under the Premises
any Hazardous Substances in such form or quantity as to create any material liability or obligation
for either the Borrower or the Lender under the common law of any jurisdiction or under any
Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way as to create any such
material liability.

(b) Except as disclosed on Schedule 5.14, the Borrower has not disposed of Hazardous
Substances in such a manner as to create any material liability under any Environmental Law.

(c) Except as disclosed on Schedule 5.14, there have not existed in the past, nor are there
any threatened or impending requests, claims, notices, investigations, demands, administrative
proceedings, hearings or litigation relating in any way to the Premises or the Borrower, alleging
material liability under, violation of, or noncompliance with any Environmental Law or any license,
permit or other authorization issued pursuant thereto.

(d) Except as disclosed on Schedule 5.14, the Borrower’s businesses are and have in the past
always been conducted in accordance with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower’s possession and are in full force and
effect, nor has the Borrower been denied insurance on grounds related to potential environmental
liability. No permit required under any Environmental Law is scheduled to expire within 12 months
and there is no threat that any such permit will be withdrawn, terminated, limited or materially
changed.

(e) Except as disclosed on Schedule 5.14, the Premises are not and never have been listed on
the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list, schedule, log, inventory or
database.

(f) The Borrower has delivered to the Lender all environmental assessments, audits, reports,
permits, licenses and other documents describing or relating in any way to the Premises or the
Borrower’s businesses.

Section 5.15 Submissions to Lender. All financial and other information provided to
the Lender by or on behalf of the Borrower in connection with the Borrower’s request for the credit
facilities contemplated hereby (i) is true and correct in all material respects, (ii) does not omit
any material fact necessary to make such information not misleading and, (iii) as to projections,
valuations or proforma financial statements, presents a good faith opinion as to such projections,
valuations and proforma condition and results.

Section 5.16 Financing Statements. The Borrower has authorized the filing of
financing statements sufficient when filed to perfect the Security Interest and the other security
interests created by the Security Documents. When such financing statements are filed in the
offices noted therein, the Lender will have a valid and perfected security interest in all
Collateral which is capable of being perfected by filing financing statements. None of the
Collateral is or will become a fixture on real estate, unless a sufficient fixture filing is in
effect with respect thereto.

Section 5.17 Rights to Payment. Each right to payment and each instrument, document,
chattel paper and other agreement constituting or evidencing Collateral is (or, in the case of all
future Collateral, will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim, of the account debtor or other obligor
named therein or in the Borrower’s records pertaining thereto as being obligated to pay such
obligation.

Section 5.18 Financial Solvency. Both before and after giving effect to the
transactions contemplated in the Loan Documents, none of the Borrower or its Affiliates:

(a) Was or will be insolvent, as that term is used and defined in Section 101(32) of the
United States Bankruptcy Code and Section 2 of the Uniform Fraudulent Transfer Act;

(b) Has unreasonably small capital or is engaged or about to engage in a business or a
transaction for which any remaining assets of the Borrower or such Affiliate are unreasonably
small;

(c) By executing, delivering or performing its obligations under the Loan Documents or other
documents to which it is a party or by taking any action with respect thereto, intends to, nor
believes that it will, incur debts beyond its ability to pay them as they mature;

(d) By executing, delivering or performing its obligations under the Loan Documents or other
documents to which it is a party or by taking any action with respect thereto, intends to hinder,
delay or defraud either its present or future creditors; and

(e) At this time contemplates filing a petition in bankruptcy or for an arrangement or
reorganization or similar proceeding under any law of any jurisdiction, nor, to the best knowledge
of the Borrower, is the subject of any actual, pending or threatened bankruptcy, insolvency or
similar proceedings under any law of any jurisdiction.

Section 5.19 Compliance with FDA Requirements. The Borrower is in substantial
compliance with all governmental requirements, rules or regulations applicable to Borrower’s
business, including all requirements, rules and regulations imposed on the Borrower by the United
States Food and Drug Administration.

ARTICLE VI

COVENANTS

So long as the Obligations shall remain unpaid, or the Credit Facility shall remain
outstanding, the Borrower will comply with the following requirements, unless the Lender shall
otherwise consent in writing:

Section 6.1 Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and detail acceptable to the
Lender:

(a) Annual Financial Statements. As soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, the Borrower’s audited financial statements with the
unqualified opinion of independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall include the Borrower’s balance
sheet as at the end of such fiscal year and the related statements of the Borrower’s income,
retained earnings and cash flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail and prepared in accordance
with GAAP, together with (i) copies of all management letters prepared by such accountants; (ii) a
report signed by such accountants stating that in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically stated, of any Default or Event of
Default and all relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the Financial Covenants; and (iii) a certificate
of the Borrower’s chief financial officer stating that such financial statements have been prepared
in accordance with GAAP, fairly represent the Borrower’s financial position and the results of its
operations, and whether or not such Officer has knowledge of the occurrence of any Default or Event
of Default and, if so, stating in reasonable detail the facts with respect thereto.

(b) Monthly Financial Statements. As soon as available and in any event within 20 days after
the end of each month, the unaudited/internal balance sheet and statements of income and retained
earnings of the Borrower as at the end of and for such month and for the year to date period then
ended, prepared, if the Lender so requests, on a consolidating and consolidated basis to include
any Affiliates, in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end audit adjustments and which fairly represent the Borrower’s financial position and the
results of its operations; and accompanied by a certificate of the Borrower’s chief financial
officer, substantially in the form of Exhibit B hereto, stating (i) that such financial statements
have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly
represent the Borrower’s financial position and the results of its operations, (ii) whether or not
such Officer has knowledge of the occurrence of any Default or Event of Default not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and
(iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or
not the Borrower is in compliance with the Financial Covenants.

(c) Collateral Reports. Within 15 days after the end of each month or more frequently if the
Lender so requires, a Borrowing Base certificate in form and substance satisfactory to Lender, the
agings of the Borrower’s accounts receivable and its accounts payable, an inventory certification
report, and a calculation of the Borrower’s Accounts, and Eligible Accounts as at the end of such
month or shorter time period.

(d) Projections. No later than the 30 days prior the beginning of each fiscal year, the
Borrower’s projected balance sheets, income statements, statements of cash flow and projected
Availability for each month of such fiscal year, prepared on a consolidating and consolidated basis
to include any Affiliates, each in reasonable detail. Such items will be certified by the Officer
who is the Borrower’s chief financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning purposes and be delivered
with a statement of underlying assumptions and such supporting schedules and information as the
Lender may in its discretion require.

(e) Supplemental Reports. (i) Weekly, the Borrower’s “weekly collateral reports” and
reporting of cash collections, and (ii) weekly reporting of sales assignments, credit
memos/adjustments, and deposits.

(f) Litigation. Within five (5) Business Days after the Borrower receives notice thereof,
notice in writing of all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower (i) of the type described in Section 5.14(c) or (ii) which seek a
monetary recovery against the Borrower in excess of $250,000.

(g) Defaults. When any Officer of the Borrower becomes aware of the probable occurrence of
any Default or Event of Default, and no later than three (3) Business Days after such Officer
becomes aware of such Default or Event of Default, notice of such occurrence, together with a
detailed statement by a responsible Officer of the Borrower of the steps being taken by the
Borrower to cure the effect thereof.

(h) Plans. As soon as possible, and in any event within 30 days after the Borrower knows or
has reason to know that any Reportable Event with respect to any Pension Plan has occurred, a
statement signed by the Officer who is the Borrower’s chief financial officer setting forth details
as to such Reportable Event and the action which the Borrower proposes to take with respect
thereto, together with a copy of the notice of such Reportable Event to the Pension Benefit
Guaranty Corporation. As soon as possible, and in any event within 10 days after the Borrower
fails to make any quarterly contribution required with respect to any Pension Plan under
Section 412(m) of the IRC, the Borrower will deliver to the Lender a statement signed by the
Officer who is the Borrower’s chief financial officer setting forth details as to such failure and
the action which the Borrower proposes to take with respect thereto, together with a copy of any
notice of such failure required to be provided to the Pension Benefit Guaranty Corporation. As
soon as possible, and in any event within ten days after the Borrower knows or has reason to know
that it has or is reasonably expected to have any liability under Sections 4201 or 4243 of ERISA
for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan,
the Borrower will deliver to the Lender a statement of the Borrower’s chief financial officer
setting forth details as to such liability and the action which the Borrower proposes to take with
respect thereto.

(i) Disputes. Promptly upon knowledge thereof, notice of (i) any disputes or claims by the
Borrower’s customers; (ii) credit memos; and (iii) any goods returned to or recovered by the
Borrower, that in any case exceeds $25,000 in a single occurrence.

(j) Officers and Directors. Promptly upon knowledge thereof, notice of any change in the
persons constituting the Borrower’s Officers and Directors.

(k) Collateral. Promptly upon knowledge thereof, notice of any loss of or material damage to
any Collateral or of any substantial adverse change in any Collateral or the prospect of payment
thereof, in either case in an amount exceeding $25,000.

(l) Commercial Tort Claims. Promptly upon knowledge thereof, notice of any commercial tort
claims it may bring against any Person, including the name and address of each defendant, a summary
of the facts, an estimate of the Borrower’s damages, copies of any complaint or demand letter
submitted by the Borrower, and such other information as the Lender may request.

(m) Intellectual Property.

(i) 30 days’ prior written notice of Borrower’s intent to acquire material Intellectual
Property Rights; except for transfers permitted under Section 6.18, the Borrower will give the
Lender 30 days prior written notice of its intent to dispose of material Intellectual Property
Rights and upon request shall provide the Lender with copies of all proposed documents and
agreements concerning such rights.

(ii) Promptly upon knowledge thereof, notice of (A) any material Infringement of its
Intellectual Property Rights by others, (B) claims that the Borrower is materially Infringing
another Person’s Intellectual Property Rights and (C) any threatened cancellation, termination or
material limitation of its Intellectual Property Rights.

(iii) Promptly upon receipt, copies of all registrations and filings with respect to its
Intellectual Property Rights.

(n) Reports to Owners. Promptly upon their distribution, copies of all financial statements,
reports and proxy statements which the Borrower shall have sent to its Owners.

(o) SEC Filings. Promptly after the sending or filing thereof, copies of all regular and
periodic reports which the Borrower shall file with the Securities and Exchange Commission or any
national securities exchange.

(p) Tax Returns of Borrower. As soon as possible, and in any event no later than five (5)
Business Days after they are due to be filed, copies of the state and federal income tax returns
and all schedules thereto of the Borrower.

(q) Violations of Law. Promptly upon knowledge thereof, notice of the Borrower’s violation of
any law, rule or regulation, the non-compliance with which could have a Material Adverse Effect on
the Borrower.

(r) Other Reports. From time to time, with reasonable promptness, any and all receivables
schedules, inventory reports, collection reports, deposit records, equipment schedules, copies of
invoices to account debtors, shipment documents and delivery receipts for goods sold, and such
other material, reports, records or information as the Lender may request.

Section 6.2 Financial Covenants. The Financial Covenants shall be measured by Lender
and Borrower shall comply with such Financial Covenants at any time an Advance has been made and is
outstanding, or any Obligation of Reimbursement remains outstanding. Furthermore, Lender shall
also have no obligation to make a Revolving Advance if at the time a request for a Revolving
Advance is made, at the time a Revolving Advance to be made, or at any time since the most recent
Revolving Advance was made, Borrower is not or has not been in compliance with the Financial
Covenants.

(a) Minimum Book Net Worth. The Borrower will maintain, during each month described below,
its Book Net Worth, determined as of the last day of each month, in an amount not less than the
amount set forth for each such month

	 	 	 	 	 
	Month
	 	Minimum Book Net Worth

	April 2006
	 	$	19,940,000	 
	May 2006
	 	$	18,850,000	 
	June 2006
	 	$	18,400,000	 
	July 2006
	 	$	17,875,000	 
	August 2006
	 	$	16,940,000	 
	September 2006
	 	$	17,460,000	 
	October 2006
	 	$	16,750,000	 
	November 2006
	 	$	15,980,000	 
	December 2006 and each month thereafter
	 	$	16,060,000	 

(b) Maximum Net Loss. The Borrower will achieve, for each quarter described below, Net Loss
of not more than the amount set forth for each such quarter, determined as of the last day of each
quarter on a year-to-date basis (except as otherwise specified):

	 	 	 	 	 
	Quarter Ending	 	Maximum Net Loss
	June 30, 2006

	 	$	6,850,000	 
	 
	 	 	 	 
	September 30, 2006

	 	$	9,030,000	 
	 
	 	 	 	 
	December 31, 2006

	 	$	10,650,000	 
	 
	 	 	 	 
	March 31, 2007 and each quarter thereafter measured

quarterly

	 	

$1,500,000

(c) Capital Expenditures. The Borrower will not incur or contract to incur Capital
Expenditures of more than (i) $1,500,000 in the aggregate during fiscal year ending December 31,
2006, and (ii) $1,750,000 in the aggregate during any subsequent fiscal year.

(d) Liquidity. The Borrower will at all times maintain Liquidity in an amount not less than
$2,000,000.

Section 6.3 Permitted Liens; Financing Statements.

(a) The Borrower will not create, incur or suffer to exist any Lien upon or of any of its
assets, now owned or hereafter acquired, to secure any indebtedness; excluding, however, from the
operation of the foregoing, the following (each a “Permitted Lien”; collectively, “Permitted
Liens”):

(i) In the case of any of the Borrower’s property which is not Collateral, covenants,
restrictions, rights, easements and minor irregularities in title which do not materially interfere
with the Borrower’s business or operations as presently conducted;

(ii) Liens in existence on the date hereof and listed in Schedule 6.3 hereto, securing
indebtedness for borrowed money permitted under Section 6.4;

(iii) The Security Interest and Liens created by the Security Documents;

(iv) Purchase money Liens relating to the acquisition of machinery and equipment of the
Borrower not exceeding the lesser of cost or fair market value thereof and so long as no Default
Period is then in existence and none would exist immediately after such acquisition;

(v) Any financing statement filed to protect a lessor’s interest in leased assets pursuant to
an Equipment Lease so long as such financing statement in no way reflects a security interest or
lien against any assets or Borrower; and

(vi) Liens on any certificates of deposit or other cash collateral pledged to a lessor under
an Equipment Lease so long as such pledge has been disclosed to Lender prior to its effectiveness.

(b) The Borrower will not amend any financing statements in favor of the Lender except as
permitted by law. Any authorization by the Lender to any Person to amend financing statements in
favor of the Lender shall be in writing.

Section 6.4 Indebtedness. The Borrower will not incur, create, assume or permit to
exist any indebtedness or liability on account of deposits or advances or any indebtedness for
borrowed money or letters of credit issued on the Borrower’s behalf, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:

(a) Indebtedness arising hereunder;

(b) Indebtedness of the Borrower in existence on the date hereof and listed in Schedule 6.4
hereto; and

(c) Indebtedness relating to Permitted Liens.

Section 6.5 Guaranties. The Borrower will not assume, guarantee, endorse or otherwise
become directly or contingently liable in connection with any obligations of any other Person,
except:

(a) The endorsement of negotiable instruments by the Borrower for deposit or collection or
similar transactions in the ordinary course of business; and

(b) Guaranties, endorsements and other direct or contingent liabilities in connection with the
obligations of other Persons, in existence on the date hereof and listed in Schedule 6.4 hereto.

Section 6.6 Investments and Subsidiaries. The Borrower will not make or permit to
exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any
other Person or Affiliate, including any partnership or joint venture, nor purchase or hold
beneficially any stock or other securities or evidence of indebtedness of any other Person or
Affiliate, except:

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

(b) Travel advances or loans to the Borrower’s Officers and employees not exceeding at any one
time an aggregate of $100,000;

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

(d) Current investments in the Subsidiaries in existence on the date hereof and listed in
Schedule 5.5 hereto.

Section 6.7 Dividends and Distributions. The Borrower will not declare or pay any
dividends on any class of its stock, or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock, or other securities or evidence of its indebtedness
or make any distribution in respect thereof, either directly or indirectly.

Section 6.8 Salaries. The Borrower will not pay excessive or unreasonable salaries,
bonuses, commissions, consultant fees or other compensation.

Section 6.9 [Intentionally Omitted].

Section 6.10  Books and Records; Collateral Examination, Inspection and Appraisals.

(a) The Borrower will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower’s business and financial condition and such other matters
as the Lender may from time to time request in which true and complete entries will be made in
accordance with GAAP and, upon the Lender’s request, will permit any officer, employee, attorney,
accountant or other agent of the Lender to audit, review, make extracts from or copy any and all
company and financial books and records of the Borrower at all times during ordinary business
hours, to send and discuss with account debtors and other obligors requests for verification of
amounts owed to the Borrower, and to discuss the Borrower’s affairs with any of its Directors,
Officers, employees or agents.

(b) The Borrower hereby irrevocably authorizes all accountants and third parties to disclose
and deliver to the Lender or its designated agent, at the Borrower’s expense, all financial
information, books and records, work papers, management reports and other information in their
possession regarding the Borrower.

(c) The Borrower will permit the Lender or its employees, accountants, attorneys or agents, to
examine and inspect any Collateral or any other property of the Borrower at any time during
ordinary business hours.

(d) The Lender may, at any time Collateral Coverage falls below 4.0:1.0 or a Default Period
Exists, obtain at the Borrower’s expense an appraisal of Collateral by an appraiser acceptable to
the Lender in its sole discretion; provided, however, that unless a Default Period then exists, the
Borrower shall not be obligated to reimburse the Lender for more than one (1) such appraisal during
any fiscal year of the Borrower. For the purposes of this Section 6.10(d), “Collateral Coverage”
shall mean, at the time of determination, the ratio of (A) sum of Liquidity, plus Availability to
(B) outstanding Obligations.

Section 6.11 Account Verification.

(a) The Lender or its agent may at any time and from time to time send or require the Borrower
to send requests for verification of accounts or notices of assignment to account debtors and other
obligors. The Lender or its agent may also at any time and from time to time telephone account
debtors and other obligors to verify accounts.

(b) The Borrower shall pay when due each account payable due to a Person holding a Permitted
Lien (as a result of such payable) on any Collateral.

Section 6.12 Compliance with Laws.

(a) The Borrower shall (i) comply, and cause each Subsidiary to comply, with the requirements
of applicable laws and regulations, the non-compliance with which would materially and adversely
affect its business or its financial condition and (ii) use and keep the Collateral, and require
that others use and keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.

(b) Without limiting the foregoing undertakings, the Borrower specifically agrees that it will
comply, and cause each Subsidiary to comply, with all applicable Environmental Laws and obtain and
comply with all permits, licenses and similar approvals required by any Environmental Laws, and
will not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a
manner as to create any material liability or obligation under the common law of any jurisdiction
or any Environmental Law.

(c) The Borrower shall (i) ensure, and cause each Subsidiary to ensure, that no Owner shall be
listed on the Specially Designated Nationals and Blocked Person List or other similar lists
maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or
included in any Executive Orders, (ii) not use or permit the use of the proceeds of the Credit
Facility or any other financial accommodation from the Lender to violate any of the foreign asset
control regulations of OFAC or other applicable law, (iii) comply, and cause each Subsidiary to
comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time,
and (iv) otherwise comply with the USA Patriot Act as required by federal law and the Lender’s
policies and practices.

Section 6.13 Payment of Taxes and Other Claims. The Borrower will pay or discharge,
when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its
income or profits, upon any properties belonging to it (including the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior to the date on
which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by
it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law
become a Lien upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount, applicability or validity
is being contested in good faith by appropriate proceedings and for which proper reserves have been
made.

Section 6.14 Maintenance of Properties.

(a) The Borrower will keep and maintain the Collateral and all of its other properties
necessary or useful in its business in good condition, repair and working order (normal wear and
tear excepted) and will from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this covenant shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if such discontinuance is, in
the Borrower’s judgment, desirable in the conduct of the Borrower’s business and not
disadvantageous in any material respect to the Lender. The Borrower will take all commercially
reasonable steps necessary to protect and maintain its material Intellectual Property Rights.

(b) The Borrower will defend the Collateral against all Liens, claims or demands of all
Persons (other than the Lender) claiming the Collateral or any interest therein. The Borrower will
keep all Collateral free and clear of all Liens except Permitted Liens. The Borrower will take all
commercially reasonable steps necessary to prosecute any Person Infringing its Intellectual
Property Rights and to defend itself against any Person accusing it of Infringing any Person’s
Intellectual Property Rights.

Section 6.15 Insurance. The Borrower will obtain and at all times maintain insurance
with insurers acceptable to the Lender, in such amounts, on such terms (including any deductibles)
and against such risks as may from time to time be required by the Lender, but in all events in
such amounts and against such risks as is usually carried by companies engaged in similar business
and owning similar properties in the same general areas in which the Borrower operates. Without
limiting the generality of the foregoing, the Borrower will at all times maintain business
interruption insurance including coverage for force majeure and keep all tangible Collateral
insured against risks of fire (including so-called extended coverage), theft, collision (for
Collateral consisting of motor vehicles), and such other risks and in such amounts as the Lender
may reasonably request, with any loss payable to the Lender to the extent of its interest, and all
policies of such insurance shall contain a lender’s loss payable endorsement for the Lender’s
benefit. All policies of liability (including products liability) insurance required hereunder
shall name the Lender as an additional insured.

Section 6.16 Preservation of Existence. The Borrower will preserve and maintain its
existence and all of its rights, privileges and franchises necessary or desirable in the normal
conduct of its business and shall conduct its business in an orderly, efficient and regular manner.

Section 6.17 Delivery of Instruments, etc. Upon request by the Lender, the Borrower
will promptly deliver to the Lender in pledge all instruments, documents and chattel paper
constituting Collateral, duly endorsed or assigned by the Borrower.

Section 6.18 Sale or Transfer of Assets; Suspension of Business Operations. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the stock of any
Subsidiary, (ii) all or a substantial part of its assets, or (iii) any Collateral or any interest
therein (whether in one transaction or in a series of transactions) to any other Person other than
the sale of Inventory in the ordinary course of business and will not liquidate, dissolve or
suspend business operations. The Borrower will not transfer any part of its ownership interest in
any Intellectual Property Rights and will not permit any agreement under which it has licensed
Licensed Intellectual Property to lapse, except that the Borrower may transfer such rights or
permit such agreements to lapse if it shall have reasonably determined that the applicable
Intellectual Property Rights are no longer useful in its business. If the Borrower transfers any
Intellectual Property Rights for value, the Borrower will pay over the proceeds to the Lender for
application to the Obligations. The Borrower will not license any other Person to use any of the
Borrower’s Intellectual Property Rights, except that the Borrower may grant licenses in the
ordinary course of its business in connection with sales of Inventory or provision of services to
its customers. Notwithstanding anything stated to the contrary herein, the Borrower may sell or
otherwise transfer the stock or sell the assets of any Subsidiary who is organized in a
jurisdiction outside of the United States of America, so long as such Subsidiary is not a guarantor
of the Obligations.

Section 6.19 Consolidation and Merger; Asset Acquisitions. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire
(in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially
all the assets of any other Person.

Section 6.20 Sale and Leaseback. Except for Equipment Leases permitted hereunder, the
Borrower will not enter into any arrangement, directly or indirectly, with any other Person whereby
the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter
acquired, and then or thereafter rent or lease as lessee such property or any part thereof or any
other property which the Borrower intends to use for substantially the same purpose or purposes as
the property being sold or transferred.

Section 6.21 Restrictions on Nature of Business. The Borrower will not engage in any
line of business materially different from that presently engaged in by the Borrower and will not
purchase, lease or otherwise acquire assets not related to its business.

Section 6.22 Accounting. The Borrower will not adopt any material change in
accounting principles other than as required by GAAP. The Borrower will not adopt, permit or
consent to any change in its fiscal year.

Section 6.23 Discounts, etc. After notice from the Lender, the Borrower will not
grant any discount, credit or allowance to any customer of the Borrower or accept any return of
goods sold. The Borrower will not at any time modify, amend, subordinate, cancel or terminate the
obligation of any account debtor or other obligor of the Borrower.

Section 6.24 Plans. Unless disclosed to the Lender pursuant to Section 5.12, neither
the Borrower nor any ERISA Affiliate will (i) adopt, create, assume or become a party to any
Pension Plan, (ii) incur any obligation to contribute to any Multiemployer Plan, (iii) incur any
obligation to provide post-retirement medical or insurance benefits with respect to employees or
former employees (other than benefits required by law) or (iv) amend any Plan in a manner that
would materially increase its funding obligations.

Section 6.25 Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or sell any business
location. The Borrower will not permit any tangible Collateral or any records pertaining to the
Collateral to be located in any state or area in which, in the event of such location, a financing
statement covering such Collateral would be required to be, but has not in fact been, filed in
order to perfect the Security Interest. The Borrower will not change its name or jurisdiction of
organization.

Section 6.26 Constituent Documents. The Borrower will not amend its Constituent
Documents.

Section 6.27 Performance by the Lender. If the Borrower at any time fails to perform
or observe any of the foregoing covenants contained in this Article VI or elsewhere herein, and if
such failure shall continue for a period of ten calendar days after the Lender gives the Borrower
written notice thereof (or in the case of the agreements contained in Section 6.13 and
Section 6.15, immediately upon the occurrence of such failure, without notice or lapse of time),
the Lender may, but need not, perform or observe such covenant on behalf and in the name, place and
stead of the Borrower (or, at the Lender’s option, in the Lender’s name) and may, but need not,
take any and all other actions which the Lender may reasonably deem necessary to cure or correct
such failure (including the payment of taxes, the satisfaction of Liens, the performance of
obligations owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender on demand the
amount of all monies expended and all costs and expenses (including reasonable attorneys’ fees and
legal expenses) incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Default Rate. To facilitate the Lender’s
performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably
appoints the Lender, or the Lender’s delegate, acting alone, as the Borrower’s attorney in fact
(which appointment is coupled with an interest) with the right (but not the duty) from time to time
to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of the
Borrower any and all instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower hereunder.

Section 6.28 Minimum Balance in Securities Account. At any time any Advance has been
made and is outstanding, the balance of the Borrower’s securities account held by Wells Fargo
Institutional Securities, LLC, bearing account number 12809224 (“Securities Account”), shall not be
less than $2,000,000. Furthermore, Lender shall not be obligated to make any Advance hereunder if
at any time such Advance is to be made the balance of the Securities Account is less than
$2,000,000.

ARTICLE VII

EVENTS OF DEFAULT, RIGHTS AND REMEDIES

Section 7.1 Events of Default. “Event of Default”, wherever used herein, means any
one of the following events:

(a) A default in the payment of any Obligations when they become due and payable;

(b) A default in the performance, or breach of, any covenant or agreement of the Borrower
contained in this Agreement;

(c) An Overadvance arises as the result of any reduction in the Borrowing Base, or arises in
any manner on terms not otherwise approved of in advance by the Lender in writing;

(d) A Change of Control shall occur;

(e) Any Financial Covenant shall become inapplicable due to the lapse of time and the failure
to amend any such covenant to cover future periods;

(f) The Borrower shall be or become insolvent, or admit in writing its or his inability to pay
its debts as they mature, or makes an assignment for the benefit of creditors; or the Borrower
shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it
or for all or any substantial part of its property; or such receiver, trustee or similar officer
shall be appointed without the application or consent of the Borrower; or the Borrower shall
institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding
relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied against a substantial part of
the property of the Borrower;

(g) A petition shall be filed by or against the Borrower under the United States Bankruptcy
Code or the laws of any other jurisdiction naming the Borrower as debtor;

(h) [Intentionally Omitted];

(i) Any representation or warranty made by the Borrower in this Agreement, or by the Borrower
(or any of its Officers) in any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in connection with this Agreement
shall prove to have been incorrect in any material respect when deemed to be effective;

(j) The rendering against the Borrower of an arbitration award, final judgment, decree or
order for the payment of money in excess of $100,000 and the continuance of such arbitration award,
judgment, decree or order unsatisfied and in effect for any period of 30 consecutive days without a
stay of execution;

(k) A default under any bond, debenture, note or other evidence of material indebtedness of
the Borrower owed to any Person other than the Lender, or under any indenture or other instrument
under which any such evidence of indebtedness has been issued or by which it is governed, or under
any material lease or other contract, and the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture, other instrument, lease or contract;

(l) Any Reportable Event, which the Lender determines in good faith might constitute grounds
for the termination of any Pension Plan or for the appointment by the appropriate United States
District Court of a trustee to administer any Pension Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to the Borrower by the Lender; or
a trustee shall have been appointed by an appropriate United States District Court to administer
any Pension Plan; or the Pension Benefit Guaranty Corporation shall have instituted proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; or the Borrower
or any ERISA Affiliate shall have filed for a distress termination of any Pension Plan under
Title IV of ERISA; or the Borrower or any ERISA Affiliate shall have failed to make any quarterly
contribution required with respect to any Pension Plan under Section 412(m) of the IRC, which the
Lender determines in good faith may by itself, or in combination with any such failures that the
Lender may determine are likely to occur in the future, result in the imposition of a Lien on the
Borrower’s assets in favor of the Pension Plan; or any withdrawal, partial withdrawal,
reorganization or other event occurs with respect to a Multiemployer Plan which results or could
reasonably be expected to result in a material liability of the Borrower to the Multiemployer Plan
under Title IV of ERISA;

(m) An event of default (as defined therein) shall occur under any Security Document;

(n) The Borrower shall liquidate, dissolve, terminate or suspend its business operations or
otherwise fail to operate its business in the ordinary course, merge with another Person unless the
Borrower is the surviving entity; or sell or attempt to sell all or substantially all of its
assets, without the Lender’s prior written consent;

(o) A default in the payment of any amount owed by the Borrower to the Lender other than any
indebtedness arising hereunder;

(p) Any event or circumstance with respect to the Borrower shall occur such that the Lender
shall believe in good faith that the prospect of payment of all or any part of the Obligations or
the performance by the Borrower under the Loan Documents is impaired or any material adverse change
in the business or financial condition of the Borrower shall occur;

(q) Any breach, default or event of default by or attributable to any Affiliate under any
agreement between such Affiliate and the Lender shall occur and continue for five (5) Business Days
after notice thereof to the Borrower; or

(r) The indictment of any Director or Officer of the Borrower for a felony offense under state
or federal law.

Section 7.2 Rights and Remedies. During any Default Period, the Lender may exercise
any or all of the following rights and remedies:

(a) The Lender may, by notice to the Borrower, declare the Commitment to be terminated,
whereupon the same shall forthwith terminate;

(b) The Lender may, by notice to the Borrower, declare the Obligations to be forthwith due and
payable, whereupon all Obligations shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;

(c) The Lender may, without notice to the Borrower and without further action, apply any and
all money owing by the Lender to the Borrower to the payment of the Obligations;

(d) The Lender may exercise and enforce any and all rights and remedies available upon default
to a secured party under the UCC, including the right to take possession of Collateral, or any
evidence thereof, proceeding without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease
or otherwise dispose of any or all of the Collateral (with or without giving any warranties as to
the Collateral, title to the Collateral or similar warranties), and, in connection therewith, the
Borrower will on demand assemble the Collateral and make it available to the Lender at a place to
be designated by the Lender which is reasonably convenient to both parties;

(e) The Lender may make demand upon the Borrower and, forthwith upon such demand, the Borrower
will pay to the Lender in immediately available funds for deposit in the Special Account pursuant
to Section 2.5 an amount equal to the aggregate maximum amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all conditions for drawing thereunder;

(f) The Lender may exercise and enforce its rights and remedies under the Loan Documents;

(g) The Lender may, without regard to any waste, adequacy of the security or solvency of the
Borrower, apply for the appointment of a receiver of the Collateral, to which appointment the
Borrower hereby consents, whether or not foreclosure proceedings have been commenced under the
Security Documents and whether or not a foreclosure sale has occurred; and

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

Notwithstanding the foregoing, upon the occurrence of an Event of Default described in
Section 7.1(f) or (g), the Obligations shall be immediately due and payable automatically without
presentment, demand, protest or notice of any kind. If the Lender sells any of the Collateral on
credit, the Obligations will be reduced only to the extent of payments actually received. If the
purchaser fails to pay for the Collateral, the Lender may resell the Collateral and shall apply any
proceeds actually received to the Obligations.

Section 7.3 Certain Notices. If notice to the Borrower of any intended disposition of
Collateral or any other intended action is required by law in a particular instance, such notice
shall be deemed commercially reasonable if given (in the manner specified in Section 8.3) at least
ten calendar days before the date of intended disposition or other action.

ARTICLE VIII

MISCELLANEOUS

Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws. No failure or delay
by the Lender in exercising any right, power or remedy under the Loan Documents shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other right, power or remedy
under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not
exclusive of any remedies provided by law. The Lender may comply with any applicable state or
federal law requirements in connection with a disposition of the Collateral and such compliance
will not be considered adversely to affect the commercial reasonableness of any sale of the
Collateral.

Section 8.2 Amendments, Etc. No amendment, modification, termination or waiver of any
provision of any Loan Document or consent to any departure by the Borrower therefrom or any release
of a Security Interest shall be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or other circumstances.

Section 8.3 Notices; Communication of Confidential Information; Requests for
Accounting. Except as otherwise expressly provided herein, all notices, requests, demands and
other communications provided for under the Loan Documents shall be in writing and shall be
(a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier
of national reputation, (d) transmitted by telecopy, or (e) sent as electronic mail, in each case
delivered or sent to the party to whom notice is being given to the business address, telecopier
number, or e mail address set forth below next to its signature or, as to each party, at such other
business address, telecopier number, or e mail address as it may hereafter designate in writing to
the other party pursuant to the terms of this Section. All such notices, requests, demands and
other communications shall be deemed to be an authenticated record communicated or given on (a) the
date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the
date delivered to the courier if delivered by overnight courier, or (d) the date of transmission if
sent by telecopy or by e-mail, except that notices or requests delivered to the Lender pursuant to
any of the provisions of Article II shall not be effective until received by the Lender. All
notices, financial information, or other business records sent by either party to this Agreement
may be transmitted, sent, or otherwise communicated via such medium as the sending party may deem
appropriate and commercially reasonable; provided, however, that the risk that the
confidentiality or privacy of such notices, financial information, or other business records sent
by either party may be compromised shall be borne exclusively by the Borrower. All requests for an
accounting under Section 9-210 of the UCC (i) shall be made in a writing signed by a Person
authorized under Section 2.2(b), (ii) shall be personally delivered, sent by registered or
certified mail, return receipt requested, or by overnight courier of national reputation,
(iii) shall be deemed to be sent when received by the Lender and (iv) shall otherwise comply with
the requirements of Section 9-210. The Borrower requests that the Lender respond to all such
requests which on their face appear to come from an authorized individual and releases the Lender
from any liability for so responding. The Borrower shall pay the Lender the maximum amount allowed
by law for responding to such requests.

Section 8.4 Further Documents. The Borrower will from time to time execute, deliver,
endorse and authorize the filing of any and all instruments, documents, conveyances, assignments,
security agreements, financing statements, control agreements and other agreements and writings
that the Lender may reasonably request in order to secure, protect, perfect or enforce the Security
Interest or the Lender’s rights under the Loan Documents (but any failure to request or assure that
the Borrower executes, delivers, endorses or authorizes the filing of any such item shall not
affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).

Section 8.5 Costs and Expenses. The Borrower shall pay on demand all costs and
expenses, including reasonable attorneys’ fees, incurred by the Lender in connection with the
Obligations, this Agreement, the Loan Documents, any Letter of Credit and any other document or
agreement related hereto or thereto, and the transactions contemplated hereby, including all such
costs, expenses and fees incurred in connection with the negotiation, preparation, execution,
amendment, administration, performance, collection and enforcement of the Obligations and all such
documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or
enforcement of the Security Interest.

Section 8.6 Indemnity. In addition to the payment of expenses pursuant to
Section 8.5, the Borrower shall indemnify, defend and hold harmless the Lender, and any of its
participants, parent corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees, attorneys and agents of
the foregoing (the “Indemnitees”) from and against any of the following (collectively, “Indemnified
Liabilities”):

(i) Any and all transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of the Loan Documents or the making
of the Advances;

(ii) Any claims, loss or damage to which any Indemnitee may be subjected if any representation
or warranty contained in Section 5.14 proves to be incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.12(b) ; and

(iii) Any and all other liabilities, losses, damages, penalties, judgments, suits, claims,
costs and expenses of any kind or nature whatsoever (including the reasonable fees and
disbursements of counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party
thereto, which may be imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of the Advances and the Loan
Documents or the use or intended use of the proceeds of the Advances. Notwithstanding the
foregoing, the Borrower shall not be obligated to indemnify any Indemnitee for any Indemnified
Liability caused by the gross negligence or willful misconduct of such Indemnitee.

If any investigative, judicial or administrative proceeding arising from any of the foregoing is
brought against any Indemnitee, upon such Indemnitee’s request, the Borrower, or counsel designated
by the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at the Borrower’s sole costs
and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such
action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless
may be held to be unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The Borrower’s obligation under
this Section 8.6 shall survive the termination of this Agreement and the discharge of the
Borrower’s other obligations hereunder.

Section 8.7 Participants. The Lender and its participants, if any, are not partners
or joint venturers, and the Lender shall not have any liability or responsibility for any
obligation, act or omission of any of its participants. All rights and powers specifically
conferred upon the Lender may be transferred or delegated to any of the Lender’s participants,
successors or assigns.

Section 8.8 Execution in Counterparts; Telefacsimile Execution. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same instrument. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure
to deliver an original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement.

Section 8.9 Retention of Borrower’s Records. The Lender shall have no obligation to
maintain any electronic records or any documents, schedules, invoices, agings, or other papers
delivered to the Lender by the Borrower or in connection with the Loan Documents for more than 30
days after receipt by the Lender. If there is a special need to retain specific records, the
Borrower must inform the Lender of its need to retain those records with particularity, which must
be delivered in accordance with the notice provisions of Section 8.3 within 30 days of the Lender
taking control of same.

Section 8.10 Binding Effect; Assignment; Complete Agreement; Sharing Information. The
Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and
their respective successors and assigns, except that the Borrower shall not have the right to
assign its rights thereunder or any interest therein without the Lender’s prior written consent.
To the extent permitted by law, the Borrower waives and will not assert against any assignee any
claims, defenses or set-offs which the Borrower could assert against the Lender. This Agreement
shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement,
together with the Loan Documents, comprises the complete and integrated agreement of the parties on
the subject matter hereof and supersedes all prior agreements, written or oral, on the subject
matter hereof. To the extent that any provision of this Agreement contradicts other provisions of
the Loan Documents, this Agreement shall control. Without limiting the Lender’s right to share
information regarding the Borrower and its Affiliates with the Lender’s participants, accountants,
lawyers and other advisors, the Lender and Wells Fargo Bank may share any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the Borrower waives any
right of confidentiality it may have with respect to such sharing of information.

Section 8.11 Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.

Section 8.12 Headings. Article, Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

Section 8.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
Documents shall be governed by and construed in accordance with the substantive laws (other than
conflict laws) of the State of California. The parties hereto hereby (i) consent to the personal
jurisdiction of the state and federal courts located in the State of California in connection with
any controversy related to this Agreement; (ii) waive any argument that venue in any such forum is
not convenient; (iii) agree that any litigation initiated by the Lender or the Borrower in
connection with this Agreement or the other Loan Documents may be venued in either the state or
federal courts located in the County of Los Angeles, California; and (iv) agree that a final
judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.

Section 8.14 Arbitration.

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

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

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement
does not limit the right of any party to (i) foreclose against Collateral or real estate
collateral; (ii) exercise self-help remedies relating to Collateral or proceeds of Collateral such
as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin,
injunctive relief, attachment or the appointment of a receiver, before during or after the pendency
of any arbitration proceeding. This exclusion does not constitute a waiver of the right or
obligation of any party to submit any dispute to arbitration or reference hereunder, including
those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in
controversy is $500,000.00 or less will be decided by a single arbitrator selected according to the
Rules, and who shall not render an award of greater than $500,000.00. Any dispute in which the
amount in controversy exceeds $500,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively participate in all hearings
and deliberations. The arbitrator will be a neutral attorney licensed in the State of California
or a neutral retired judge of the state or federal judiciary of California, in either case with a
minimum of ten years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable
and will give effect to the statutes of limitation in determining any claim. In any arbitration
proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a
claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance
with the substantive law of California and may grant any remedy or relief that a court of such
state could order or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to
the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California
Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with
the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute
being arbitrated and must be completed no later than 20 days before the hearing date and within 180
days of the filing of the dispute with the AAA. Any requests for an extension of the discovery
periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a
showing that the request for discovery is essential for the party’s presentation and that no
alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to
the terms of this Agreement shall be determined by a separate arbitration proceeding and such
dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses
of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the
contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured
directly or indirectly, in whole or in part, by any real property unless (i) the holder of the deed
of trust, mortgage, lien or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue
to them by virtue of the single action rule statute of California, thereby agreeing that all
indebtedness and obligations of the parties, and all deeds of trust, mortgages, liens and security
interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If
any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in
accordance with California Code of Civil Procedure Section 638 et seq., and this general reference
agreement is intended to be specifically enforceable in accordance with said Section 638. A
referee with the qualifications required herein for arbitrators shall be selected pursuant to the
AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in
the court in which such proceeding was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.

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

[Signatures follow on next page]

2

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective officers thereunto duly authorized as of the date first above written.

	 	 	 
	Staar Surgical Company

1911 Walker Avenue

Monrovia, California 91016

Telecopier: 626-303-0233

Attention: Deborah Andrews

e-mail: dandrews@staar.com

	 	

STAAR SURGICAL COMPANY

By: /s/ Deborah Andrews

Name: Deborah Andrews

Title: CFO
	 
	 	 
	Wells Fargo Bank, National

Association, acting through its

Wells Fargo Business Credit

operating division

245 South Los Robles Avenue

Suite 700

Pasadena, California 91101

Telecopier: 626-844-9063

Attention: Vincent Maddela

e-mail: maddelv1@wellsfargo.com

	 	

WELLS FARGO BANK, NATIONAL ASSOCIATION,

acting through its Wells Fargo Business

Credit operating division

By: /s/ Vincent L. Maddela

Name: Vincent L. Maddela

Title: Assistant Vice President and Portfolio

Manager

3

Table of Exhibits and Schedules

	 	 	 
	Exhibit A

Exhibit B

Exhibit C

Schedule 5.1

Schedule 5.2

Schedule 5.5

Schedule 5.7

Schedule 5.11

Schedule 5.14

Schedule 6.3

Schedule 6.4

	 	Form of Revolving Note

Compliance Certificate

Premises

Trade Names, Chief Executive Office, Principal Place

of Business, and Locations of Collateral

Capitalization and Organizational Chart

Subsidiaries

Litigation Matters

Intellectual Property Disclosures

Environmental Matters

Permitted Liens

Permitted Indebtedness and Guaranties

4

Exhibit A to Credit and Security Agreement

REVOLVING NOTE

$3,000,000 June 6, 2006

For value received, the undersigned, STAAR SURGICAL COMPANY, a Delaware corporation (the
“Borrower”), hereby promises to pay on the Termination Date under the Credit Agreement (defined
below), to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Lender”), acting through its
Wells Fargo Business Credit operating division, at its office in 245 South Los Robles Avenue, Suite
700, Pasadena, California 91101, or at any other place designated at any time by the holder hereof,
in lawful money of the United States of America and in immediately available funds, the principal
sum of Three Million Dollars ($3,000,000) or the aggregate unpaid principal amount of all Revolving
Advances made by the Lender to the Borrower under the Credit Agreement (defined below) together
with interest on the principal amount hereunder remaining unpaid from time to time, computed on the
basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note
is fully paid at the rate from time to time in effect under the Credit and Security Agreement dated
the same date as this Note (the “Credit Agreement”) by and between the Lender and the Borrower.
The principal hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement.

This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among
other things, for acceleration hereof. This Note is the Revolving Note referred to in the Credit
Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the
Security Documents as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments or agreements.

The Borrower shall pay all costs of collection, including reasonable attorneys’ fees and legal
expenses if this Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived.

	 
	 

	STAAR SURGICAL COMPANY

By:

	 

	Name:

	 

	Title:

	 

5

Exhibit B to Credit and Security Agreement

COMPLIANCE CERTIFICATE

	 	 	 
	To:Wells Fargo Business Credit

	 
	 	 
	Date:___________________, 200____

	 
	 	 
	Subject:

	 	Financial Statements

In accordance with our Credit and Security Agreement dated as of June 6, 2006 (the “Credit
Agreement”), attached are the financial statements of Staar Surgical Company (the “Borrower”) as of
and for      , 200     (the “Reporting Date”) and the year-to-date period then ended (the
“Current Financials”). All terms used in this certificate have the meanings given in the Credit
Agreement.

I certify that the Current Financials have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and fairly present the Borrower’s financial condition as of the date
thereof.

I further hereby certify as follows: Events of Default. (Check one):

The undersigned does not have knowledge of the occurrence of a Default or Event of
Default under the Credit Agreement except as previously reported in writing to the
Lender.

The undersigned has knowledge of the occurrence of a Default or Event of Default
under the Credit Agreement not previously reported in writing to the Lender and
attached hereto is a statement of the facts with respect to thereto. The Borrower
acknowledges that pursuant to Section 2.6(d) of the Credit Agreement, the Lender may
impose the Default Rate at any time during the resulting Default Period.

Material Adverse Change in Litigation Matters of the Borrower. I further hereby
certify as follows (check one):

The undersigned has no knowledge of any material adverse change to the litigation
exposure of the Borrower or any of its Affiliates.

The undersigned has knowledge of material adverse changes to the litigation exposure
of the Borrower or any of its Affiliates not previously disclosed in Schedule 5.7.
Attached to this Certificate is a statement of the facts with respect thereto.

Financial Covenants. I further hereby certify as follows (check and complete each of
the following):

1. Minimum Book Net Worth. Pursuant to Section 6.2(a) of the Credit Agreement, as of the
Reporting Date, the Borrower’s Book Net Worth was $     , which satisfies does not satisfy
the requirement that such amount be not less than $     on the Reporting Date.

2. Maximum Net Loss. Pursuant to Section 6.2(b) of the Credit Agreement, the Borrower’s Net
Loss for the      period ending on the Reporting Date, was $     , which   satisfies
  does not satisfy the requirement that such amount be not more than $     on the
Reporting Date.

3. Capital Expenditures. Pursuant to Section 6.2(c) of the Credit Agreement, for the
year-to-date period ending on the Reporting Date, the Borrower has expended or contracted to expend
during the year ended      , 200     , for Capital Expenditures, $     in the
aggregate and at most $     in any one transaction, which satisfies  does not satisfy
the requirement that such expenditures not exceed $     in the aggregate and $     for
any one transaction during such year.

4. Liquidity. Pursuant to Section 6.2(d) of the Credit Agreement, the Borrower’s cash on hand
for the      period ending on the Reporting Date, was $     , which   satisfies
  does not satisfy the requirement that such amount be not more than $     on the
Reporting Date.

5. Salaries. As of the Reporting Date, the Borrower has not paid excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation, or increased the salary,
bonus, commissions, consultant fees or other compensation of any Director, Officer or consultant,
or any member of their families, by more than 10% over the amount paid in the Borrower’s previous
fiscal year, either individually or for all such persons in the aggregate, and has not paid any
increase from any source other than profits earned in the year of payment, and as a consequence  is
 is not in compliance with Section 6.8 of the Credit Agreement.

Attached hereto are all relevant facts in reasonable detail to evidence, and the computations
of the financial covenants referred to above. These computations were made in accordance with
GAAP.

FDA Requirements. I further hereby certify that the Borrower is in compliance with
all governmental requirements, rules or regulations applicable to Borrower’s business, including
all requirements, rules and regulations imposed on the Borrower by the United States Food and Drug
Administration.

	 
	 

	STAAR SURGICAL COMPANY

By:

	 

	Its Chief Financial Officer

6

Exhibit C to Credit and Security Agreement

PREMISES

The Premises referred to in the Credit and Security Agreement are legally described as
follows:

[To be completed by Borrower]

7

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