-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LD3D4+1TMfW5lcesPLvNrFkG5JIJU9lEYCoJVDn/0gTg3b1R2iKWHxrwawOpE6XS WUQ8McC+YLbnYaMV+xdHCw== 0000947871-04-000013.txt : 20040108 0000947871-04-000013.hdr.sgml : 20040108 20040107205508 ACCESSION NUMBER: 0000947871-04-000013 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040107 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTHOFIX INTERNATIONAL N V CENTRAL INDEX KEY: 0000884624 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19961 FILM NUMBER: 04514244 BUSINESS ADDRESS: STREET 1: 7 ABRAHAM DE VEERSTRAAT STREET 2: CURACAO CITY: NETHERLANDS ANTILLES STATE: P8 ZIP: 00000 8-K 1 f8k_010604.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 _____________________________ Date of Report (Date of earliest event reported): December 30, 2003 Orthofix International N.V. (Exact name of Registrant as specified in its charter)
Netherlands Antilles 0-19961 N/A (State or other jurisdiction Commission File Number (I.R.S. Employer Identification of incorporation) Number) _____________________________ 7 Abraham de Veerstraat Curacao Netherlands Antilles 011-59-99-465-8525 (Address of principal executive offices and telephone number, including area code) _____________________________
Item 2. Acquisition or Disposition of Assets. On December 30, 2003, a subsidiary of Orthofix International N.V. ("Orthofix") completed the previously announced acquisition of privately held BREG, Inc. ("BREG"). The acquisition was completed pursuant to an acquisition agreement among Orthofix, Trevor Acquisition, Inc., an acquisition subsidiary of Orthofix ("Trevor"), BREG and a representative of the shareholders of BREG. In the acquisition, Trevor merged with and into BREG, with BREG being the surviving corporation of the merger and becoming an indirect wholly owned subsidiary of Orthofix. The purchase price for the acquisition was approximately $159 million after closing adjustments and after valuing the Orthofix common stock issued in the transaction at current trading prices at the time of closing. The acquisition was financed with $110 million of debt, cash on hand and the issuance of 731,715 shares of Orthofix common stock. Pursuant to a voting and subscription agreement dated as of November 20, 2003, as amended and restated as of December 22, 2003, among Orthofix and certain significant shareholders of BREG, such shareholders agreed to vote in favor of the acquisition and agreed to apply a portion of the proceeds that they received from the acquisition to purchase, in the aggregate, 731,715 shares of Orthofix common stock. BREG, based in Vista, California, designs, manufactures and distributes orthopedic products for post-operative reconstruction and rehabilitative patient use. Approximately 53% of BREG's 2002 revenues came from the sale of bracing products, including: (1) functional braces for prevention of ligament injuries, (2) load-shifting braces for osteoarthritic pain management, (3) post-operative braces for protecting surgical repair and (4) foot and ankle supports that provide an alternative to casting. Approximately 31% of BREG's 2002 revenues came from the sale of cold therapy products used to minimize the pain and swelling following knee, shoulder, elbow and back injuries or surgery. Approximately 9% of BREG's 2002 revenues came from the sale of pain therapy products used in conjunction with common sports medicine procedures such as arthroscopy of the knee and shoulder for patient control over post-operative pain management. BREG sells its products through a network of domestic and international independent distributors. Concurrently with the closing of the acquisition, Colgate Medical Limited ("Colgate"), an indirect wholly owned subsidiary of Orthofix, entered into a new senior secured bank facility with a syndicate of financial institutions arranged by Wachovia Securities. The senior secured bank facility provides for (1) a five-year amortizing term loan facility of $110 million, the proceeds of which were used for partial payment of the purchase price of BREG, and (2) a five-year revolving credit facility of $15 million. Loans under the new senior secured bank facility bear interest at a rate per annum equal to LIBOR or a prime rate, plus a margin that is adjusted quarterly based on Colgate's leverage ratio. The current interest rate on the term loan is set at LIBOR plus 2.75%, or 3.91%, per annum. Orthofix and each of Colgate's direct and indirect subsidiaries, including Orthofix Inc. and BREG, have guaranteed or will guarantee the obligations of Colgate under the senior secured bank facility. The obligations of Colgate under the bank facility and Colgate's subsidiaries under their guarantees are secured by the pledge of their respective assets. Certain of Orthofix's other subsidiaries have also guaranteed the obligations of Colgate under the senior secured bank facility on a limited recourse basis. The credit agreement contains certain negative covenants applicable to Colgate and its subsidiaries, including restrictions on indebtedness, liens, dividends and mergers or sales of assets. The credit agreement also contains certain financial covenants, including a fixed charge coverage ratio, an interest coverage ratio and a leverage ratio applicable to Colgate, and a leverage ratio applicable to Orthofix. Item 7. Financial Statements and Exhibits. (a) Financial statements of businesses acquired. Orthofix will provide the financial statements required by paragraph (a) of Item 7 of Form 8-K, if any such information is required, on a Form 8-K/A on or before March 15, 2004. (b) Pro forma financial information. Orthofix will provide the pro forma financial information required by paragraph (b) of Item 7 of Form 8-K, if any such pro forma financial information is required, on a Form 8-K/A on or before March 15, 2004. (c) Exhibits. 10.1 Acquisition Agreement dated as of November 20, 2003, among Orthofix International N.V., Trevor Acquisition, Inc., BREG, Inc. and Bradley R. Mason, as shareholders' representative. 10.2 Amended and Restated Voting and Subscription Agreement dated as of December 22, 2003, among Orthofix International N.V. and shareholders of BREG, Inc. identified on the signature pages thereto. 10.3 Credit Agreement dated as of December 30, 2003, among Colgate Medical Limited, as borrower, and Orthofix International N.V and certain subsidiaries of the borrower, as guarantors, certain limited guarantors party thereto, the lenders parties thereto, Wachovia Bank, National Association, as administrative agent, and Wachovia Capital Markets, LLC, as sole lead arranger and book manager. 99.1 Press release dated December 31, 2003. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: January 7, 2004 ORTHOFIX INTERNATIONAL N.V. By: /S/ THOMAS HEIN ------------------------------------ Name: Thomas Hein Title: Chief Financial Officer EX-10.1 3 ex10-1_010604.txt ACQUISITION AGREEMENT EXECUTION COPY ================================================================================ ACQUISITION AGREEMENT Among ORTHOFIX INTERNATIONAL N.V., TREVOR ACQUISITION, INC., BREG, INC. and BRADLEY R. MASON, AS SHAREHOLDERS' REPRESENTATIVE Dated as of November 20, 2003 ================================================================================ TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.01. Certain Definitions..............................................2 SECTION 1.02. Definitions......................................................5 SECTION 1.03. Interpretation and Rules of Construction.........................8 ARTICLE II THE MERGER SECTION 2.01. The Merger.......................................................8 SECTION 2.02. Effective Time; Closing..........................................8 SECTION 2.03. Effect of the Merger.............................................9 SECTION 2.04. Articles of Incorporation; Bylaws................................9 SECTION 2.05. Directors and Officers...........................................9 ARTICLE III CONVERSION OF SECURITIES SECTION 3.01. Conversion of Securities.........................................9 SECTION 3.02. Exchange of Certificates........................................11 SECTION 3.03. Stock Transfer Books............................................13 SECTION 3.04. Company Stock Options...........................................13 SECTION 3.05. Dissenting Shares...............................................13 SECTION 3.06. Working Capital Adjustment......................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01. Organization and Qualification; Subsidiaries....................15 SECTION 4.02. Articles of Incorporation and Bylaws............................16 SECTION 4.03. Capitalization..................................................16 SECTION 4.04. Corporate Authority.............................................17 SECTION 4.05. No Conflict; Required Filings and Consents......................17 SECTION 4.06. Permits; Compliance.............................................18 SECTION 4.07. Financial Statements............................................19 SECTION 4.08. Absence of Certain Changes or Events............................21 SECTION 4.09. Absence of Litigation...........................................21 i SECTION 4.10. Employee Benefit Plans..........................................22 SECTION 4.11. Labor and Employment Matters....................................24 SECTION 4.12. Property and Leases.............................................25 SECTION 4.13. Intellectual Property...........................................26 SECTION 4.14. Taxes...........................................................27 SECTION 4.15. Environmental Matters...........................................28 SECTION 4.16. Material Contracts..............................................28 SECTION 4.17. Regulatory Matters..............................................30 SECTION 4.18. Customers and Suppliers.........................................32 SECTION 4.19. Product Liability; Product Warranties...........................33 SECTION 4.20. Certain Business Practices......................................33 SECTION 4.21. Interested Party Transactions...................................33 SECTION 4.22. Insurance.......................................................34 SECTION 4.23. Inventories.....................................................34 SECTION 4.24. Foreign Trade Matters...........................................34 SECTION 4.25. Board Approval; Vote Required...................................35 SECTION 4.26. Opinion of Financial Advisor....................................35 SECTION 4.27. Brokers.........................................................35 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB SECTION 5.01. Corporate Organization..........................................36 SECTION 5.02. Deed of Incorporation and Bylaws................................36 SECTION 5.03. Authority Relative to This Agreement............................36 SECTION 5.04. No Conflict; Required Filings and Consents......................36 SECTION 5.05. No Vote Required................................................37 SECTION 5.06. Operations of Merger Sub........................................37 SECTION 5.07. Financing Arrangements..........................................37 SECTION 5.08. PFIC............................................................38 SECTION 5.09. Brokers.........................................................38 ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER SECTION 6.01. Conduct of Business by the Company Pending the Merger...........38 SECTION 6.02. Inventory.......................................................40 ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.01. Shareholder Approval............................................40 SECTION 7.02. Access to Information; Confidentiality..........................41 ii SECTION 7.03. No Solicitation of Transactions.................................41 SECTION 7.04. Employee Benefits Matters.......................................42 SECTION 7.05. Directors' and Officers' Insurance; Indemnification.............43 SECTION 7.06. Notification of Certain Matters.................................43 SECTION 7.07. Further Action; Reasonable Best Efforts.........................44 SECTION 7.08. Obligations of Merger Sub.......................................44 SECTION 7.09. Public Announcements............................................44 SECTION 7.10. Expenses........................................................44 SECTION 7.11. Financing.......................................................45 SECTION 7.12. Payment of Promissory Notes and Other Amounts Due...............45 SECTION 7.13. Environmental Insurance Policy..................................46 SECTION 7.14. No Implied Representation and Warranties........................46 SECTION 7.15. Restrictions on Actions on Date of Effective Time...............46 ARTICLE VIII TAX MATTERS SECTION 8.01. Indemnity.......................................................46 SECTION 8.02. Returns and Payments............................................47 SECTION 8.03. Refunds.........................................................48 SECTION 8.04. Contests........................................................49 SECTION 8.05. Time of Payment.................................................50 SECTION 8.06. Cooperation and Exchange of Information.........................50 SECTION 8.07. Characterization of Payments....................................51 ARTICLE IX CONDITIONS TO THE MERGER SECTION 9.01. Conditions to the Obligations of Each Party.....................51 SECTION 9.02. Conditions to the Obligations of Parent and Merger Sub..........52 SECTION 9.03. Conditions to the Obligations of the Company....................54 ARTICLE X TERMINATION, AMENDMENT AND WAIVER SECTION 10.01. Termination....................................................55 SECTION 10.02. Effect of Termination..........................................56 SECTION 10.03. Amendment......................................................56 SECTION 10.04. Waiver.........................................................56 iii ARTICLE XI INDEMNIFICATION SECTION 11.01. Survival of Representations and Warranties.....................57 SECTION 11.02. Indemnification by the Shareholders............................57 SECTION 11.03. Indemnification by Parent......................................58 SECTION 11.04. Indemnification Procedures.....................................59 SECTION 11.05. Shareholders' Representative...................................60 SECTION 11.06. Exclusive Remedy...............................................61 ARTICLE XII GENERAL PROVISIONS SECTION 12.01. Notices........................................................61 SECTION 12.02. Severability...................................................63 SECTION 12.03. Entire Agreement...............................................63 SECTION 12.04. Assignment; Binding Effect.....................................63 SECTION 12.05. Parties in Interest............................................63 SECTION 12.06. Specific Performance...........................................64 SECTION 12.07. Governing Law..................................................64 SECTION 12.08. Waiver of Jury Trial...........................................64 SECTION 12.09. Headings.......................................................64 SECTION 12.10. Incorporation of Exhibits......................................64 SECTION 12.11. No Waiver......................................................64 SECTION 12.12. Counterparts...................................................65 iv ACQUISITION AGREEMENT, dated as of November 20, 2003 (this "Agreement"), among ORTHOFIX INTERNATIONAL N.V., a company organized under the laws of the Netherlands Antilles ("Parent"), TREVOR ACQUISITION, INC., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("Merger Sub"), BREG, INC., a California corporation (the "Company"), and BRADLEY R. MASON, as Shareholders' Representative (as defined in Section 11.05 hereof). WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of California (the "CGCL") and the General Corporation Law of the State of Delaware (the "DGCL"), Parent and the Company will enter into a business combination transaction pursuant to which Merger Sub will merge with and into the Company (the "Merger"); WHEREAS, the Board of Directors of the Company (the "Company Board") has (i) determined that the Merger is consistent with and in furtherance of the long-term business strategy of the Company and fair to, and in the best interests of, the Company and its shareholders and has approved and adopted this Agreement and approved the Merger and the other transactions contemplated by this Agreement and (ii) has recommended the approval and adoption of this Agreement by the shareholders of the Company; WHEREAS, the Board of Directors of Parent (the "Parent Board") has determined that the Merger is consistent with and in furtherance of the long-term business strategy of Parent and fair to, and in the best interests of, Parent and its shareholders and has approved and adopted this Agreement, the Merger and the other transactions contemplated by this Agreement; WHEREAS, as a condition and inducement to Parent and Merger Sub entering into this Agreement, concurrently with the execution and delivery of this Agreement Parent is entering into employment agreements with each of Bradley R. Mason, William R. Hopson, Mark Howard, Raymond Fujikawa, Stephen Oordt, Patrick Cawley, Kathleen Barber, Nancy Rogala, Mark Wobken, Jim Burke and Jeffrey Mason (the "Employment Agreements"); and WHEREAS, as a condition and inducement to Parent and Merger Sub entering into this Agreement, concurrently with the execution and delivery of this Agreement Parent and the shareholders of the Company set forth on Exhibit A hereto (the "Significant Shareholders") are entering into a Voting and Subscription Agreement (the "Voting and Subscription Agreement") substantially in the form of Exhibit B hereto providing that, among other things, (i) the Significant Shareholders will vote their shares of common stock, no par value, of the Company (the "Company Common Stock") in favor of this Agreement, the Merger and the other transactions contemplated by this Agreement, and (ii) the Significant Shareholders will purchase from Parent, and Parent will issue to the Significant Shareholders, immediately following the Effective Time (as defined herein), shares of common stock, par value $0.10 per share, of Parent ("Parent Common Stock") as set forth therein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Sub, the Company and the Shareholders' Representative hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Definitions. For purposes of this Agreement: "affiliate" of a specified person means a person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person. "beneficial owner", with respect to any Shares, has the meaning ascribed to such term under Rule 13d-3(a) of the Exchange Act. "business day" means any day on which banks are not required or authorized to close in the City of New York. "Code" means the Internal Revenue Code of 1986, as amended through the date hereof. "Company Disclosure Schedule" means the Disclosure Schedule attached hereto, dated as of the date hereof, delivered by the Company to Parent and Merger Sub in connection with this Agreement. "Company Material Adverse Effect" means any event, circumstance, change or effect that is or is reasonably likely to be materially adverse to (a) the business, financial condition, assets, liabilities or results of operations of the Company and the Subsidiary taken as a whole or (b) the ability of the Company to consummate the transactions contemplated by this Agreement; provided, however, that the foregoing clause (a) shall not include any event, circumstance, change or effect resulting from (v) any action taken by or under the direction of Parent, Merger Sub or any affiliate of Parent or Merger Sub; (w) any national or international political or social conditions, including the engagement of the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States; (x) changes in general economic conditions or Laws that do not have a disproportionate effect (relative to other industry participants) on the Company and the Subsidiary taken as a whole; (y) general changes in the industries in which the Company and the Subsidiary operate that do not have a disproportionate effect (relative to other industry participants) on the Company and the Subsidiary taken as a whole; or (z) the public announcement of the transactions contemplated hereby. "Company's Accountants" means Deloitte & Touche LLP, the Company's independent public accountants. "Company IP Agreements" means all (a) licenses of Intellectual Property by the Company or the Subsidiary to any third party, (b) licenses of Intellectual Property by any third party to the Company or the Subsidiary and (c) agreements between the Company 2 or the Subsidiary and any third party relating to the development or use of Intellectual Property; provided, however, that "Company IP Agreements" shall not include licenses for the use of "off-the-shelf" software that is commercially available for less than $10,000. "Company Licensed Intellectual Property" means all Intellectual Property owned by any third party and licensed to the Company or the Subsidiary for use in connection with its business. "Company Owned Intellectual Property" means all Intellectual Property owned by the Company or the Subsidiary and used or held for use in connection with its business. "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise. "Encumbrance" means any security interest, pledge, hypothecation, mortgage, lien (including environmental and tax liens), charge, encumbrance, servient easement, adverse claim, preferential arrangement or similar restriction. "Environmental Laws" means any United States federal, state or local or non-United States laws relating to (a) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances, (b) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances or (c) pollution or protection of the environment or natural resources. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fully Diluted Basis" means after taking into account all outstanding shares of Company Common Stock and assuming the exercise, conversion or exchange of all options, warrants, convertible or exchangeable securities and similar rights and the issuance of all shares of Company Common Stock that the Company is obligated to issue thereunder. "Governmental Authority" means United States federal, state, county or local or non-United States government, governmental, regulatory or administrative authority, agency, body, instrumentality or commission or any court, tribunal, or judicial or arbitral body. "Hazardous Substances" means (a) those substances and wastes defined as hazardous or toxic in, or regulated under, the following United States federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder: the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act, (b) petroleum and petroleum products, including crude oil and any fractions thereof, (c) natural gas, synthetic gas, and any mixtures thereof and (d) polychlorinated biphenyls and asbestos. 3 "Intellectual Property" means United States and non-United States (a) patents, patent applications and statutory invention registrations, (b) trademarks, service marks, trade dress, logos, trade names, domain names, corporate names and other source identifiers, and registrations and applications for registration thereof, (c) copyrights, and registrations and applications for registration thereof and (d) trade secrets or other confidential and proprietary information. "knowledge of the Company" or "the Company's knowledge" means the knowledge of Bradley R. Mason, William R. Hopson, Christine Bowden, Nancy Rogala, Teresa Clark, Steve Romeo, Jeffrey Mason, Jim Burke, Stephen Oordt, Mark Howard, Mark Wobken, Patrick Cawley, Kathleen Barber and Raymond Fujikawa. "Law" means United States or non-United States supranational, national, state, provincial, municipal or local statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order. "Parent Disclosure Schedule" means the Disclosure Schedule attached hereto, dated as of the date hereof, delivered by Parent and Merger Sub to the Company in connection with this Agreement. "Parent Material Adverse Effect" means any event, circumstance, change or effect that is or is reasonably likely to be materially adverse to the business, financial condition, assets, liabilities or results of operations of Parent and its subsidiaries taken as a whole; provided, however, that the foregoing shall not include any event, circumstance, change or effect resulting from (v) any action taken by or under the direction of the Company or any affiliate of the Company; (w) any national or international political or social conditions, including the engagement of the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States, or any of its territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States; (x) changes in general economic conditions or Laws or changes in the securities markets in general that do not have a disproportionate effect (relative to other industry participants) on Parent and its subsidiaries taken as a whole, (y) general changes in the industries in which Parent and its subsidiaries operate that do not have a disproportionate effect (relative to other industry participants) on Parent and its subsidiaries taken as a whole; or (z) the public announcement of the transactions contemplated hereby. "Payment Programs" means Medicare, TRICARE, Medicaid, Worker's Compensation, Blue Cross/Blue Shield programs, and all other health maintenance organizations, preferred provider organizations, health benefit plans, health insurance plans, and other third party reimbursement and payment programs. 4 "person" means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including a "person" as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government. "subsidiary" or "subsidiaries" of a person means an affiliate controlled by such person, directly or indirectly, through one or more intermediaries. "Subscription Agreements" means the Subscription Agreements to be entered into by Parent and certain shareholders of the Company after the date hereof and substantially in the form of Exhibit C hereto. "Taxes" means any and all taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts or charges imposed with respect thereto) imposed by any Governmental Authority or taxing authority, including: taxes or other charges on or with respect to income, franchise, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and customers' duties, tariffs and similar charges. "Total Current Assets" means the sum of the amounts of accounts receivable, inventory, prepaid expenses, deposits - current and other current assets as of the end of day for which the calculation is made. "Total Current Liabilities" means the sum of the amounts of accounts payable, salaries & wages payable, commissions payable and accrued expenses as of the end of the day for which the calculation is made. "Transactions" means the Merger and the other transactions contemplated by this Agreement, the Voting and Subscription Agreement and the Subscription Agreements. "Working Capital" means, as of any date, the amount equal to the amount of Total Current Assets as of the end of the day of such date less the amount of Total Current Liabilities as of the end of the day of such date. For the avoidance of doubt, Working Capital shall be calculated without regard to Taxes payable. SECTION 1.02. Definitions. The following terms have the meaning set forth in the Sections set forth below: Defined Term Location of Definition ------------ ---------------------- 2002 Balance Sheet................................. ss. 4.07(b) Acquisition Documents.............................. ss. 11.01 Action............................................. ss. 4.09 Agreement.......................................... Preamble Agreement of Merger................................ ss. 2.02 5 Defined Term Location of Definition ------------ ---------------------- Anti-Kickback Statute.............................. ss. 4.17(j) Arranger........................................... ss. 5.07 Blue Sky Laws...................................... ss. 4.05(b) Cash Escrow Fund................................... ss. 3.02(c) Certificate of Merger.............................. ss. 2.02 Certificates....................................... ss. 3.02(b) CGCL............................................... Recitals Closing............................................ ss. 2.02 Closing Cash....................................... ss. 3.01(a) Closing Working Capital Amount..................... ss. 3.06(c) Company............................................ Preamble Company Board...................................... Recitals Company Common Stock............................... Recitals Company Expense Amount............................. ss. 7.10 Company Permits.................................... ss. 4.06 Company Stock Option Plans......................... ss. 3.04 Company Stock Options.............................. ss. 3.04 Competing Transaction.............................. ss. 7.03(b) Confidentiality Agreement.......................... ss. 7.02(b) Credit Agreement................................... ss. 3.01(a) DGCL............................................... Recitals Dissenting Shares.................................. ss. 3.05(a) DMERC.............................................. ss. 4.17(e) EAR................................................ ss. 4.24(a) Effective Time..................................... ss. 2.02 Employment Agreements.............................. Recitals Environmental Insurance Policy..................... ss. 7.13 ERISA.............................................. ss. 4.10(a) Escrow Account..................................... ss. 3.02(c) Escrow Agent....................................... ss. 3.02(c) Escrow Agreement................................... ss. 3.02(c) Estimated Closing Working Capital.................. ss. 3.06(a) Estimated Working Capital Adjustment............... ss. 3.06(a) Estimated Working Capital Schedule................. ss. 3.06(a) Exchange Agent..................................... ss. 3.02(a) Exchange Fund...................................... ss. 3.02(a) FDA................................................ ss. 4.17(b) Final Closing Working Capital...................... ss. 3.06(b) Final Working Capital Schedule..................... ss. 3.06(b) Financial Statements............................... ss. 4.07(a) Financing.......................................... ss. 5.07 Financing Letter................................... ss. 5.07 HSR Act............................................ ss. 4.05(b) Indemnification Agreements......................... ss. 7.05(a) Indemnified Party.................................. ss. 11.04(a) 6 Defined Term Location of Definition ------------ ---------------------- Indemnified Person................................. ss. 7.05(a) Indemnifying Party................................. ss. 11.04(a) Independent Accounting Firm........................ ss. 3.06(c) Information Statement.............................. ss. 7.01(b) Interim Financial Statements....................... ss. 4.07(a) IRS................................................ ss. 4.10(a) Lease Documents.................................... ss. 4.12(b) Loss............................................... ss. 11.02(a) Material Contracts................................. ss. 4.16(a) Merger............................................. Recitals Merger Consideration............................... ss. 3.01(a) Merger Sub......................................... Preamble Multiemployer Plan................................. ss. 4.10(b) Multiple Employer Plan............................. ss. 4.10(b) Net Aggregate Value................................ ss. 3.01(a) Non - U.S. Benefit Plan............................ ss. 4.10(h) Order.............................................. ss. 9.01(b) Parent............................................. Preamble Parent Board....................................... Recitals Parent Common Stock................................ Recitals Parent Indemnified Parties......................... ss. 11.02(a) Per Share Escrow Amount............................ ss. 3.02(b) Plans.............................................. ss. 4.10(a) Representatives.................................... ss. 7.02(a) Returns............................................ ss. 8.01(a) September 30 Statement of Working Capital.......... ss. 3.06(b) Shareholder........................................ ss.11.02(a) Shareholder Indemnified Parties.................... ss.11.03(a) Shareholders' Representative....................... ss. 11.05 Shares............................................. ss. 3.01(a) Significant Shareholders........................... Recitals Stark Law.......................................... ss. 4.17(h) Subsidiary......................................... ss. 4.01(b) Surviving Corporation.............................. ss. 2.01 Target Working Capital............................. ss. 3.06(a) Terminating Company Breach......................... ss. 10.01(e) Terminating Parent Breach.......................... ss. 10.01(f) Third Party Claims ................................ ss. 11.04(b) Vista Lease........................................ ss. 9.02(p) Voting and Subscription Agreement.................. Recitals 7 SECTION 1.03. Interpretation and Rules of Construction. In this Agreement, except to the extent otherwise provided or that the context otherwise requires: (a) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated; (b) the table of contents and headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement; (c) whenever the words "include," "includes" or "including" are used in this Agreement, they are deemed to be followed by the words "without limitation"; (d) the words "hereof," "herein" and "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement; (e) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein; (f) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (g) references to a person are also to its successors and permitted assigns; and (h) the use of "or" is not intended to be exclusive unless expressly indicated otherwise. ARTICLE II THE MERGER SECTION 2.01. The Merger. Upon the terms and subject to the conditions set forth in Article IX, and in accordance with the CGCL and the DGCL, at the Effective Time (as defined in Section 2.02), Merger Sub shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). SECTION 2.02. Effective Time; Closing. As promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article IX, the parties hereto shall cause the Merger to be consummated by filing an agreement of merger (the "Agreement of Merger") with the Secretary of State of the State of California (substantially in the form attached hereto as Exhibit F) and a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as is required by, and executed in accordance with, the relevant provisions of the CGCL and the DGCL, respectively (the date and time upon which both such filings shall have been completed (or such later time as may be agreed by each 8 of the parties hereto and specified in the Agreement of Merger) being the "Effective Time"). Immediately prior to such filing of the Agreement of Merger and Certificate of Merger, a closing (the "Closing") shall be held at the offices of Shearman & Sterling LLP, 555 California Street, Suite 2000, San Francisco, CA 94104, or such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver, as the case may be, of the conditions set forth in Article IX. SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the CGCL and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. SECTION 2.04. Articles of Incorporation; Bylaws. (a) At the Effective Time, the Articles of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Articles of Incorporation. (b) Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time, the Bylaws of the Company, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by law, the Articles of Incorporation of the Surviving Corporation and such Bylaws. SECTION 2.05. Directors and Officers. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal. ARTICLE III CONVERSION OF SECURITIES SECTION 3.01. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities: (a) each share of Company Common Stock (all issued and outstanding shares of Company Common Stock being hereinafter collectively referred to as the "Shares") issued and outstanding immediately prior to the Effective Time (other than any Shares to be canceled pursuant to Section 3.01(b) and any Dissenting Shares (as hereinafter defined)) shall be canceled and shall be converted automatically, subject to Section 3.02 and Section 7.12(a), into the right to receive an amount in cash equal to the Merger 9 Consideration (as defined below), payable upon surrender, in the manner provided in Section 3.02, of the certificate that formerly evidenced such Share. Each share of Company Common Stock issued with respect to options to acquire Company Common Stock that have been exercised prior to the Effective Time shall be treated for purposes of this Agreement as issued and outstanding prior to the Effective Time. For purposes of this Section 3.01(a): "Merger Consideration" means the quotient determined by dividing the Net Aggregate Value by the number of Shares outstanding immediately prior to the Effective Time. "Net Aggregate Value" means $150,000,000 less (i) the sum of (A) the aggregate amount outstanding (including accrued interest) as of the end of the day of the Effective Time under the Credit Agreement plus (B) the aggregate amount outstanding (including accrued interest) as of the end of the day of the Effective Time under all promissory notes issued by the Company plus (C) the Company Expense Amount (as defined in Section 7.10) plus (D) $75,000 (one-half of the agreed credit balance accounts receivable amount) plus (E) $55,000 (one-half of the expected premium cost of the Environmental Insurance Policy), plus (ii) the sum of (A) the aggregate amount outstanding (including accrued interest, except for the accrued interest on the six $450,000 notes receivable from certain Breg executives) as of the end of the day of the Effective Time under all promissory notes held by the Company (not including the portion of any promissory note provided to the Company in connection with the exercise of Company Stock Options for the payment of income and employment taxes of the exercising option holder that the Company will pay to the applicable taxing authorities after the date of the Effective Time) plus (B) the aggregate cash amount paid to the Company after the date of this Agreement and prior to the end of the day of the Effective Time (other than by providing a promissory note to the Company for the exercise of Company Stock Options, which instead will be taken into account under (ii)(A) hereof) in connection with the exercise of Company Stock Options pursuant to Section 3.04 plus (C) the amount of cash held by the Company as of the end of the day of the Effective Time (the "Closing Cash") (not later than two business days prior to the Effective Time, the Company shall deliver to Parent a good faith estimate of the Closing Cash along with such supporting information as Parent may reasonably request), and plus or minus, as the case may be, (iii) the amount of any Estimated Working Capital Adjustment calculated pursuant to Section 3.06(a). Any cash payment made by an exercising option holder to exercise Company Stock Options after the date of this Agreement and prior to the Effective Time shall be taken into account under (ii)(B) and not (ii)(C) hereof. "Credit Agreement" means the Credit Agreement, dated May 29, 2003, by and between U.S. Bank, N.A. and the Company, as amended. (b) each Share owned by Merger Sub, Parent or any direct or indirect wholly owned subsidiary of Parent or of the Company immediately prior to the Effective Time shall be 10 canceled without any conversion thereof and no payment or distribution shall be made with respect thereto; and (c) each share of common stock, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation. SECTION 3.02. Exchange of Certificates. (a) Exchange Agent. Promptly after the Effective Time, Parent shall deposit, or shall cause to be deposited, with a bank or trust company designated by Parent and reasonably satisfactory to the Company (the "Exchange Agent"), for the benefit of the holders of Shares, for exchange in accordance with this Article III through the Exchange Agent, cash in an amount sufficient to pay the aggregate cash consideration pursuant to Section 3.01(a) (such cash being hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver the cash out of the Exchange Fund. Except as contemplated by Section 3.02(e) hereof, the Exchange Fund shall not be used for any other purpose. (b) Exchange Procedures. As promptly as practicable after the Effective Time, Parent shall cause the Exchange Agent to mail to each person who was, at the Effective Time, a holder of record of Shares entitled to receive the Merger Consideration pursuant to Section 3.01(a): (i) a letter of transmittal (which shall be in customary form and shall specify that delivery shall be effected, and risk of loss and title to the certificates evidencing such Shares (the "Certificates") shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and (ii) instructions for use in effecting the surrender of the Certificates pursuant to such letter of transmittal. Upon surrender to the Exchange Agent of a Certificate for cancellation together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefore that amount of cash (rounded down to the nearest whole cent) which such holder has the right to receive pursuant to Section 3.01(a) in respect of the Shares formerly represented by such Certificate in accordance with Section 3.01(a) (after taking into account all Shares then held by such holder) less (i) the Per Share Escrow Amount (as defined below), which represents the amount of cash that is to be placed in escrow with respect to such Certificate in accordance with Section 3.02(c) below and (ii) any withholding in accordance with Section 7.12(a) with respect to such holder. "Per Share Escrow Amount" means $12,000,000 divided by the number of Shares outstanding immediately prior to the Effective Time. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, the proper amount of cash to which such holder is entitled pursuant to Section 3.01(a) may be issued to a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 3.02, each Certificate shall be deemed at all 11 times after the Effective Time to represent only the right to receive, upon such surrender, the cash to which such holder is entitled pursuant to Section 3.01(a). (c) Escrow Fund. Prior to the Effective Time, Parent, the Company and the Shareholders' Representative shall enter into an escrow agreement (the "Escrow Agreement") with an escrow agent selected by Parent and reasonably acceptable to the Company (the "Escrow Agent") substantially in the form of Exhibit D hereto. Pursuant to the terms of the Escrow Agreement, at the Effective Time, Parent shall deposit into the escrow account (the "Escrow Account") to be held by the Escrow Agent in accordance with the Escrow Agreement the amount of cash equal to $12,000,000 (the cash so deposited being the "Escrow Amount"). The Escrow Amount and all interest and other amounts earned thereon (the "Cash Escrow Fund") shall be available to compensate Parent, the Surviving Corporation and the other Parent Indemnified Parties (as defined in Section 11.02(a)) for Losses (as defined in Section 11.02(a)) in accordance with the indemnification obligations of the Shareholders under Article VIII and Article XI of this Agreement and the Escrow Agreement. The portion of the Cash Escrow Fund contributed on behalf of each holder of Company Common Stock shall be in proportion to the number of Shares held by each such holder immediately prior to the Effective Time. Distributions from the Escrow Account shall be governed by the terms and conditions of the Escrow Agreement. (d) No Further Rights in Company Common Stock. The cash issued upon conversion of the Shares in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such Shares. (e) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of the Company Common Stock for six months after the Effective Time shall be delivered to Parent, upon demand, and any holders of the Company Common Stock who have not theretofore complied with this Article III shall thereafter look only to Parent for cash to which they are entitled pursuant to Section 3.01(a). Any portion of the Exchange Fund remaining unclaimed by holders of Shares as of a date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any government entity shall, to the extent permitted by applicable Law, become the property of Parent free and clear of any claims or interest of any person previously entitled thereto. (f) No Liability. None of the Exchange Agent, Parent or the Surviving Corporation shall be liable to any holder of Shares for any such Shares (or dividends or distributions with respect thereto), or cash delivered to a public official pursuant to any abandoned property, escheat or similar Law. (g) Withholding Rights. Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as it is required to deduct and withhold under the Code or any provision of state, local or foreign tax law with respect to the making of such payment or with respect to any exercise of Company Stock Options prior to the Effective Time to the extent that such holder has not already provided for the payment of withholding Taxes in connection with such exercise. To the extent that amounts are so withheld by Parent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by Parent. 12 (h) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond, in such reasonable amount and with such customary provisions as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the cash to which the holders thereof are entitled pursuant to Section 3.01(a). SECTION 3.03. Stock Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of Shares thereafter on the records of the Company. From and after the Effective Time, the holders of Certificates representing Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares, except as otherwise provided in this Agreement or by Law. SECTION 3.04. Company Stock Options. In accordance with the provisions of the 1996 and 2000 Executive Stock Option Plans and the 1996 Sales Organizations' Stock Option Plan (collectively, the "Company Stock Option Plans") and any underlying stock option agreement pursuant to the plans, all options (the "Company Stock Options") outstanding at the Effective Time under the Company Stock Option Plans shall terminate as of the Effective Time by virtue of the Merger and without any further action on the part of the Company or the holder thereof, and each holder of a terminated Company Stock Option shall not be entitled to receive any consideration for such termination. In accordance with the provisions of the Company Stock Option Plans and any underlying stock option agreements pursuant to the plans, the Company shall allow each holder of any Company Stock Option to exercise prior to the Effective Time such Company Stock Option, whether or not otherwise exercisable and whether or not otherwise vested. The exercise of Company Stock Options may be effectuated by the exercising option holder providing a promissory note to the Company, in form and substance reasonably satisfactory to Parent, for the exercise price and such option holder's applicable income and employment taxes resulting from such exercise. SECTION 3.05. Dissenting Shares. (a) Notwithstanding any provision of this Agreement to the contrary and to the extent available under the CGCL, Shares that are outstanding immediately prior to the Effective Time and that are held by Shareholders entitled to vote on the Merger who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have demanded properly in writing appraisal for such Shares in accordance with the CGCL (collectively, the "Dissenting Shares"), if any, shall not be converted into, or represent the right to receive, the Merger Consideration. Such Shareholders shall be entitled to receive payment of the appraised value of such Shares held by them in accordance with the provisions of the CGCL, except that all Dissenting Shares held by Shareholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such Shares under the CGCL shall thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 3.02, of the certificate or certificates that formerly evidenced such Shares. 13 (b) The Company shall give Parent (i) prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments served pursuant to the CGCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the CGCL. The Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands. SECTION 3.06. Working Capital Adjustment. (a) Not later than three business days prior to the scheduled Effective Time, the Company shall deliver to Parent a schedule (the "Estimated Working Capital Schedule") summarizing the Company's good faith estimate of the Total Current Assets, the Total Current Liabilities and the resulting Working Capital of the Company and the Subsidiary as of the end of the day of the Effective Time (such estimated Working Capital being the "Estimated Closing Working Capital"). The Company shall prepare the Estimated Working Capital Schedule using the same accounting policies, methodologies, practices and assumptions as used in the preparation of the Statement of Working Capital as of September 30, 2003 attached hereto as Exhibit E (the "September 30 Statement of Working Capital"). The Company shall provide Parent with such information as Parent may reasonably request to verify the Estimated Working Capital Schedule. The Net Aggregate Value shall be adjusted pursuant to clause (iii) of the definition of Net Aggregate Value in Section 3.01(a) either (x) upward by the amount the Estimated Closing Working Capital is greater than $7,610,000 (the "Target Working Capital"), or (y) downward by the amount the Estimated Closing Working Capital is less than the Target Working Capital (such adjustment being the "Estimated Working Capital Adjustment"). (b) As promptly as practicable, and in any event within 45 days, following the Effective Time, Parent shall deliver to the Shareholders' Representative a schedule (the "Final Working Capital Schedule") with reasonable supporting detail summarizing Parent's calculation of the Total Current Assets, the Total Current Liabilities and the resulting Working Capital of the Company and the Subsidiary as of the end of the day of the Effective Time (such Working Capital, subject to potential adjustments in accordance with Section 3.06(c), being the "Final Closing Working Capital"). Parent shall prepare the Final Working Capital Schedule using the same accounting policies, methodologies, practices and assumptions as used in the preparation of the September 30 Statement of Working Capital. Parent shall provide the Shareholders' Representative with such information as the Shareholders' Representative may reasonably request to verify the Final Working Capital Schedule. (c) The Shareholders' Representative may dispute any amounts reflected on the Final Working Capital Schedule, but only on the basis that the Final Working Capital Schedule has not been prepared using the same accounting policies, methodologies, practices and assumptions as used in preparing the September 30 Statement of Working Capital; provided, however, that the Shareholders' Representative shall have notified Parent in writing of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within 30 days of Parent's delivery of the Final Working Capital Schedule to the Shareholders' Representative. In the event of such a dispute, the Shareholders' Representative and Parent shall attempt to reconcile their differences, and any resolution by them as to any disputed amounts shall be final, binding and conclusive on the Shareholders' Representative and Parent. If the Shareholders' Representative and Parent are unable to reach a 14 resolution with such effect within 15 days after receipt by Parent of the Shareholders' Representative's written notice of dispute, the Shareholders' Representative and Parent shall submit the items remaining in dispute for resolution to an independent accounting firm of international reputation mutually acceptable to the Shareholders' Representative and Parent (the "Independent Accounting Firm"), which shall, within 30 days after such submission, deliver a report to Parent and the Shareholders' Representative setting forth the resolution of such disputed items and the adjustment, if any, to be made to the Final Closing Working Capital, and such report shall be final, binding and conclusive on the Shareholders' Representative and Parent. The fees and disbursements of the Independent Accounting Firm shall be allocated between the Shareholders' Representative and Parent in the same proportion that the aggregate amount of such disputed items submitted to the Independent Accounting Firm that are unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of such disputed items so submitted. In acting under this Agreement, the Independent Accounting Firm shall be entitled to the privileges and immunities of arbitrators. (d) If the Final Closing Working Capital is less than the Estimated Closing Working Capital, the amount of the difference between the Estimated Closing Working Capital and the Final Closing Working Capital shall be subject to indemnification by the Shareholders from the Cash Escrow Fund as provided in Section 11.02(a)(v). If the Final Closing Working Capital is greater than the Estimated Closing Working Capital, the amount of the difference between the Final Closing Working Capital and the Estimated Closing Working Capital shall be paid by Parent to the Shareholders' Representative on behalf of the Shareholders to be distributed to the Shareholders by the Shareholders' Representative in proportion to the number of shares of Company Common Stock held by each such Shareholder immediately prior to the Effective Time. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY As an inducement to Parent and Merger Sub to enter into this Agreement, the Company hereby represents and warrants to Parent and Merger Sub that: SECTION 4.01. Organization and Qualification; Subsidiaries. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has the requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. Except as provided in Section 4.01(a) of the Company Disclosure Schedule, the Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so qualified or licensed and in good standing that would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. 15 (b) Section 4.01(b) of the Company Disclosure Schedule lists the sole subsidiary of the Company (the "Subsidiary"), together with the jurisdiction of incorporation of the Subsidiary, the percentage of the outstanding capital stock or other equity interest of the Subsidiary owned by the Company and the directors and officers of the Subsidiary. Except as disclosed in Section 4.01(b) of the Company Disclosure Schedule, the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. The Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has the requisite power and authority and all necessary governmental licenses, authorizations, consents and approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. The Subsidiary is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so qualified or licensed and in good standing that would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. SECTION 4.02. Articles of Incorporation and Bylaws. The Company has heretofore furnished to Parent a complete and correct copy of the Articles of Incorporation and the Bylaws or equivalent organizational documents, each as amended to date, of the Company and the Subsidiary. Such Articles of Incorporation, Bylaws or equivalent organizational documents are in full force and effect. Neither the Company nor the Subsidiary is in violation of any of the provisions of its Articles of Incorporation, Bylaws or equivalent organizational documents. SECTION 4.03. Capitalization. (a) The authorized capital stock of the Company consists of 4,000,000 shares of Company Common Stock. As of the date hereof, (i) 2,458,648 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) no shares of Company Common Stock are held by the Subsidiary, and (iii) 233,766 shares of Company Common Stock are reserved for future issuance pursuant to outstanding employee stock options or stock incentive rights granted pursuant to the Company Stock Option Plans. According to the Company's records, as of the date hereof, the Shares are owned as set forth in Section 4.03(a) of the Company Disclosure Schedule. Except as set forth in Section 4.03(a) of the Company Disclosure Schedule, there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which the Company or the Subsidiary is a party relating to the issued or unissued capital stock of the Company or the Subsidiary or obligating the Company or the Subsidiary to issue or sell any shares of capital stock of, or other equity interests in, the Company or the Subsidiary. Section 4.03(a) of the Company Disclosure Schedule sets forth the following information with respect to each Company Stock Option outstanding as of the date of this Agreement: (i) the name and address of the optionee; (ii) the particular plan pursuant to which such Company Stock Option was granted; (iii) the number of shares of Company Common Stock subject to such Company Stock Option; (iv) the exercise price of such Company Stock Option; (v) the date on which such Company Stock Option was granted; (vi) the applicable vesting schedule; (vii) the 16 date on which such Company Stock Option expires; and (viii) whether the exercisability of such option will be accelerated in any way by the transactions contemplated by this Agreement, and indicates the extent of acceleration. The Company has made available to Parent complete and correct copies of all stock option plans pursuant to which Company has granted such Company Stock Options that are currently outstanding and the form of all stock option agreements evidencing such Company Stock Options. All shares of Company Common Stock subject to issuance as previously stated in this Section 4.03(a), upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. There are no outstanding contractual obligations of the Company or the Subsidiary to repurchase, redeem or otherwise acquire any shares of Company Common Stock or any capital stock or other equity interest of the Subsidiary or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, the Subsidiary or any other person. Except as set forth in Section 4.03(a) of the Company Disclosure Schedule, all outstanding shares of Company Common Stock, all outstanding Company Stock Options, and all outstanding shares of capital stock or other equity interest of the Subsidiary have been issued and granted in compliance with (i) all applicable securities Laws and other applicable Laws and (ii) all requirements set forth in applicable contracts. (b) Except as set forth on Section 4.03(b) of the Company Disclosure Schedule, each outstanding share of capital stock or other equity interest of the Subsidiary is duly authorized, validly issued, fully paid and nonassessable, and each such share or other equity interest is owned by the Company free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on the Company's voting rights, charges and other encumbrances of any nature whatsoever. SECTION 4.04. Corporate Authority. The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Merger or any of the other transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the Merger and the other transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement (other than, with respect to the Merger, the approval and adoption of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock, if and to the extent required by applicable Law, and the filing and recordation of appropriate merger documents as required by the CGCL and the DGCL). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. SECTION 4.05. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Articles of Incorporation or Bylaws or any equivalent organizational documents of the Company or the Subsidiary, (ii) conflict with or violate any Law applicable to the Company or the Subsidiary or by which any property or asset of the Company or the Subsidiary is bound or affected, or (iii) except as set forth on Section 17 4.05(a) of the Company Disclosure Schedule, result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of the Company or the Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. (b) Except as set forth in Section 4.05(b) of the Company Disclosure Schedule, the execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except (i) for applicable requirements, if any, of the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws") and state takeover laws, the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and filing and recordation of appropriate merger documents as required by the CGCL and the DGCL, (ii) for applicable requirements, if any, to update or give notice of any necessary change to the foreign investment registration of the Subsidiary and (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually or in the aggregate, prevent or materially delay consummation of any of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. SECTION 4.06. Permits; Compliance. Except as set forth in Section 4.06 of the Company Disclosure Schedule, each of the Company and the Subsidiary is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Authority necessary for each of the Company or the Subsidiary to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), except where the failure to have, or the suspension or cancellation of, any of the Company Permits would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. The Company has not received notice that any suspension or cancellation of any of the Company Permits is pending and, to the knowledge of the Company, no such suspension or cancellation is threatened, except for such suspension or cancellation of Company Permits that would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. Except as set forth in Section 4.06 of the Company Disclosure Schedule, neither the Company nor the Subsidiary is in conflict with, or in default, 18 breach or violation of, (a) any Law applicable to the Company or the Subsidiary or by which any property or asset of the Company or the Subsidiary is bound or affected, or (b) any note, bond, mortgage, indenture, contract, agreement, lease, license, Company Permit, franchise or other instrument or obligation to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary or any property or asset of the Company or the Subsidiary is bound, except for any such conflicts, defaults, breaches or violations that would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. None of the Company, the Subsidiary or their respective directors, officers, employees, independent contractors or agents have engaged in any activities that would lead to any material penalties of any kind against Company or the Subsidiary under Sections 1128A, 1128B or 1877 of the Social Security Act (42 U.S.C. ss.ss. 1320a-7a, 1320a-7b and 1395nn), the False Claims Act (31 U.S.C. ss. 3729 et seq.), the False Statements Act (18 U.S.C. ss. 1001), the Program Fraud Civil Penalties Act (31 U.S.C. ss. 3801 et seq.), the Food, Drug and Cosmetic Act (21 U.S.C. ss. 301 et. seq.) (all as amended or superseded), or the anti-fraud and abuse provisions of the Health Insurance Portability and Accountability Act of 1996 (18 U.S.C. ss. 1347, 18 U.S.C. ss. 669, 18 U.S.C. ss. 1035, 18 U.S.C. ss. 1518) and the corresponding fraud and abuse, false claims and anti-self referral, manufacturing and marketing statutes and regulations in each state or other jurisdictions where the Company or the Subsidiary has engaged in business operations. SECTION 4.07. Financial Statements. (a) Section 4.07(a) of the Company Disclosure Schedule contains true and complete copies of (i) the audited consolidated balance sheet of the Company as of December 31, 2001 and 2002, the related audited consolidated statements of income, shareholders' equity and cash flows of the Company for the fiscal years then ended, together with all related notes and schedules thereto, accompanied by the reports thereon of the Company's Accountants (collectively referred to herein as the "Financial Statements"), the unaudited consolidated balance sheet of the Company as of September 30, 2003 and the related consolidated statements of income, shareholders' equity and cash flows for the nine months then ended (collectively referred to herein as the "Interim Financial Statements"). Except as set forth in Section 4.07(a) of the Company Disclosure Schedule, the Financial Statements and the Interim Financial Statements (i) were prepared in accordance with the books of account and other financial records of the Company and the Subsidiary, (ii) present fairly in all material respects the consolidated financial condition and results of operations of the Company and the Subsidiary as of the dates thereof or for the periods covered thereby, subject (in the case of the Interim Financial Statements) to normal and recurring year-end audit adjustments that will not be material in amount, (iii) have been prepared in accordance with U.S. GAAP applied on a basis consistent with the past practices of the Company and the Subsidiary and (iv) include all adjustments (consisting only of normal recurring accruals) that are necessary to present fairly in all material respects the consolidated financial condition of the Company and the Subsidiary and the results of the operations of the Company and the Subsidiary as of the dates thereof or for the periods covered thereby. (b) Except as set forth in Section 4.07(b) of the Company Disclosure Schedule and except as and to the extent set forth on the consolidated balance sheet of the Company as of December 31, 2002, including the notes thereto (the "2002 Balance Sheet"), neither the 19 Company nor the Subsidiary has any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except for liabilities and obligations, incurred in the ordinary course of business consistent with past practice since December 31, 2002, which would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. Section 4.07(b) of the Company Disclosure Schedule (i) sets forth the aggregate amount outstanding under the Credit Agreement as of September 30, 2003 or the most recent practicable date, (ii) lists all promissory notes owed by the Company and the amount outstanding under each such note as of as of September 30, 2003 or the most recent practicable date and (iii) lists all promissory notes owed to the Company and the amount outstanding under each such note as of September 30, 2003 or the most recent practicable date. (c) Except as set forth on Section 4.07(c) of the Company Disclosure Schedule, the Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with U.S. GAAP. Except as set forth on Section 4.07(c) of the Company Disclosure Schedule, the Company and the Subsidiary maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Section 4.07(c) of the Company Disclosure Schedule lists, and the Company has made available to Parent complete and correct copies of, all written descriptions of, and all policies, manuals and other documents promulgating such internal accounting controls. (d) Since December 31, 2002, neither the Company nor the Subsidiary nor, to the knowledge of the Company, any director, officer, employee, auditor, accountant or representative of the Company or the Subsidiary, has received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or the Subsidiary or their respective internal accounting controls, including any complaint, allegation, assertion or claim that the Company or the Subsidiary has engaged in questionable accounting or auditing practices. No attorney representing the Company or the Subsidiary, whether or not employed by the Company or the Subsidiary, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its officers, directors, employees or agents to the Company Board or any committee thereof or to any director or officer of the Company. Since December 31, 2002, there have been no internal investigations regarding accounting or revenue recognition discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer, general counsel, the Company Board or any committee thereof. (e) To the knowledge of the Company, no employee of the Company or the Subsidiary has provided or is providing information to any law enforcement agency regarding 20 the commission or possible commission of any crime or the violation or possible violation of any applicable Law. Neither the Company nor the Subsidiary, nor any officer or employee or, to the knowledge of the Company, any contractor, subcontractor or agent of the Company or the Subsidiary, has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of the Company or the Subsidiary in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. ss. 1514A(a). (f) Except as set forth in Section 4.07(f) of the Company Disclosure Schedule, all accounts receivable of the Company and the Subsidiary reflected on the 2002 Balance Sheet or arising thereafter have arisen from bona fide transactions in the ordinary course of business consistent with past practices and in accordance with U.S. GAAP applied on a consistent basis and are not subject to valid defenses, setoffs or counterclaims. Except as set forth in Section 4.07(f) of the Company Disclosure Schedule, the Company's reserve for contractual allowances and doubtful accounts has been calculated in a manner consistent with past practices. Except as set forth on Section 4.07(f) of the Company Disclosure Schedule, since the date of the 2002 Balance Sheet, neither the Company nor the Subsidiary has modified or changed in any material respect its sales practices or methods including, without limitation, such practices or methods in accordance with which the Company or the Subsidiary sells goods, fills orders or records sales. (g) Except as set forth in Section 4.07(g) of the Company Disclosure Schedule, all accounts payable of the Company and the Subsidiary reflected on the 2002 Balance Sheet or arising thereafter are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due or payable. Since the date of the 2002 Balance Sheet, the Company and the Subsidiary have not altered in any material respects their practices for the payment of such accounts payable, including the timing of such payment. SECTION 4.08. Absence of Certain Changes or Events. Since December 31, 2002, except as set forth in Section 4.08 of the Company Disclosure Schedule, or as expressly contemplated by this Agreement, (a) the Company and the Subsidiary have conducted their businesses only in the ordinary course and in a manner consistent with past practice, (b) there has not been any Company Material Adverse Effect, and (c) neither the Company nor any Subsidiary has taken any action that, if taken after the date of this Agreement, would constitute a breach of any of the covenants set forth in Section 6.01; provided, however, that for purposes of this Section 4.08(c), (i) Section 6.01(b)(ii)(B) shall read as follows: "except in the ordinary course of business and in a manner consistent with past practice and except for the sale, pledge, disposal, grant or encumbrance of any asset with a fair market value of less than $10,000, any assets of the Company or the Subsidiary"; (ii) Section 6.01(b)(v)(C) shall read as follows: "enter into any contract or agreement other than in the ordinary course of business and consistent with past practice and except for any contract or agreement that involved consideration of less than $10,000"; and (iii) Section 6.01(b)(v)(D) shall read as follows: "authorize, or make any commitment with respect to, any single capital expenditure which is in excess of $100,000 or capital expenditures which are, in the aggregate, in excess of $1,000,000 for the Company and the Subsidiary taken as a whole." SECTION 4.09. Absence of Litigation. Except as set forth in Section 4.09 of the Company Disclosure Schedule, there is no litigation, suit, claim, action, arbitration, proceeding 21 or, to the knowledge of the Company, investigation (any of such matters, an "Action") pending or, to the knowledge of the Company, threatened against the Company or the Subsidiary, or any property or asset of the Company or the Subsidiary, by or before any Governmental Authority. Except as set forth in Section 4.09 of the Company Disclosure Schedule, neither the Company nor the Subsidiary nor any material property or asset of the Company or the Subsidiary is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of the Company, continuing investigation by, any Governmental Authority, or any order, writ, judgment, injunction, decree, or determination of any Governmental Authority that restricts, impedes, limits or adversely affects the business or operations of the Company and the Subsidiary. SECTION 4.10. Employee Benefit Plans. (a) Section 4.10(a) of the Company Disclosure Schedule lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, including each stock option agreement pursuant to the Company Stock Option Plans, whether legally enforceable or not, to which the Company or the Subsidiary is a party, with respect to which the Company or the Subsidiary has any obligation or which are maintained, contributed to or sponsored by the Company or the Subsidiary for the benefit of any current or former employee, officer or director of the Company or the Subsidiary, (ii) each employee benefit plan for which the Company or the Subsidiary could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated, (iii) any plan in respect of which the Company or the Subsidiary could incur liability under Section 4212(c) of ERISA, and (iv) any contracts, arrangements or understandings between the Company or the Subsidiary and any employee of the Company or the Subsidiary including any, without limitation, contracts, arrangements or understandings relating in any way to a sale of the Company or the Subsidiary (collectively, the "Plans"). Except as set forth on Section 4.10(a) of the Company Disclosure Schedule, each Plan is in writing and the Company has furnished to Parent a true and complete copy of each Plan and has delivered to Parent a true and complete copy of each material document, if any, prepared in connection with each such Plan, including (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS determination letter for each such Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such Plan. Except as set forth in Section 4.10(a) of the Company Disclosure Schedule, neither the Company nor the Subsidiary has any express or implied commitment, whether legally enforceable or not, (i) to create or incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual, or (iii) to modify, change or terminate any Plan, other than with respect to a modification, change or termination required by ERISA or the Code. (b) None of the Plans is a defined benefit plan subject to Title IV of ERISA. None of the Plans is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Company or the Subsidiary could incur liability 22 under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). Except as set forth in Section 4.10(b) of the Company Disclosure Schedule none of the Plans (i) provides for the payment of separation, severance, termination or similar-type benefits to any person, (ii) obligates the Company or the Subsidiary to pay separation, severance, termination or similar-type benefits solely or partially as a result of any transaction contemplated by this Agreement, or (iii) obligates the Company or the Subsidiary to make any payment or provide any benefit as a result of a "change in control," within the meaning of such term under Section 280G of the Code. None of the Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company or the Subsidiary except to the extent required by applicable Law. Each of the Plans is subject only to the Laws of the United States or a political subdivision thereof. (c) Each Plan is now and always has been operated in all material respects in accordance with its terms and the requirements of all applicable Laws including ERISA and the Code. The Company and the Subsidiary have performed all material obligations required to be performed by them under, are not in any respect in default under or in violation of, and have no knowledge of any default or violation by any party to, any Plan. No Action is pending or, to the knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could reasonably be expected to give rise to any such Action. (d) Except as set forth on Section 4.10(d) of the Company Disclosure Schedule, each Plan that is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code (i) has timely received a favorable determination letter from the IRS covering all of the provisions applicable to the Plan for which determination letters are currently available that the Plan is so qualified, (ii) may rely on an opinion letter issued to a volume submitter plan sponsor with respect to a standardized plan adopted by the Company in accordance with the requirements for such reliance, or (iii) is the subject of an application for such a determination letter (or has remaining time to apply for such a determination letter prior to the expiration of the requisite period under applicable Treasury regulations or IRS pronouncements), and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt, and no fact or event has occurred since the date of such letter or letters from the IRS that could reasonably be expected to adversely affect the qualified status of any such Plan or the exempt status of any such trust. Any trust established in connection with any Plan which is intended to be qualified under Section 4.01(a) of the Code is intended to be tax-exempt under Section 5.01(a) of the Code and such trust has been operated in a manner that would not reasonably be expected to jeopardize its tax-exempt status. (e) There has not been any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. Neither the Company nor the Subsidiary has incurred any liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course), including, without limitation, any liability in connection with (i) the termination or reorganization of any employee benefit plan subject to Title IV of ERISA, or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer 23 Plan, and no fact or event exists which could reasonably be expected to give rise to any such liability. (f) All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates, except to the extent any failure to be so paid would not be material. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Governmental Authority and, to the knowledge of the Company, no fact or event exists which could reasonably be expected to give rise to any such challenge or disallowance. (g) All directors, officers, management employees, and technical and professional employees of the Company and the Subsidiary are under written obligation to the Company and the Subsidiary to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment and to assign to the Company and the Subsidiary all inventions made by them within the scope of their employment during such employment and for a reasonable period thereafter. (h) In addition to the foregoing, with respect to each Plan that is not subject to United States law (a "Non-U.S. Benefit Plan"): (i) all employer and employee contributions to each Non-U.S. Benefit Plan required by Law or by the terms of such Non-U.S. Benefit Plan have been made, or, if applicable, accrued in accordance with normal accounting practices; (ii) the fair market value of the assets of each funded Non-U.S. Benefit Plan, the liability of each insurer for any Non-U.S. Benefit Plan funded through insurance or the book reserve established for any Non-U.S. Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the benefits determined on any ongoing basis (actual or contingent) accrued as of the date of this Agreement with respect to all current and former participants under such Non-U.S. Benefit Plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to such Non-U.S. Benefit Plan, and neither the Merger nor any transaction contemplated by this Agreement shall cause such assets or insurance obligations to be less than such benefit obligations; and (iii) each Non-U.S. Benefit Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. Each Non-U.S. Benefit Plan is now and always has been operated and administered in all material respects in compliance with all applicable non-United States Laws and in accordance with the terms of such Non-U.S. Benefit Plan. SECTION 4.11. Labor and Employment Matters. (a) Except as set forth in Section 4.11(a) of the Company Disclosure Schedule, (i) there are no material disputes pending or, to the knowledge of the Company, threatened between the Company or the Subsidiary and any of their respective employees; (ii) neither the Company nor the Subsidiary is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or the Subsidiary, nor, to the knowledge of the Company, are there any activities or 24 proceedings of any labor union to organize any such employees; (iii) neither the Company nor the Subsidiary has breached or otherwise failed to comply with any provision of any such agreement or contract, and there are no grievances outstanding against the Company or the Subsidiary under any such agreement or contract; (iv) to the knowledge of the Company, there are no unfair labor practice complaints pending against the Company or the Subsidiary before the National Labor Relations Board or other Governmental Authority or any current union representation questions involving employees of the Company or the Subsidiary; and (v) there is no strike, work stoppage or lockout, or, to the knowledge of the Company, threat thereof, by or with respect to any employees of the Company or the Subsidiary. (b) Except as set forth in Section 4.11(b) of the Company Disclosure Schedule, the Company and the Subsidiary are in material compliance with all applicable laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Authority and have withheld and paid to the appropriate Governmental Authority or are holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Company or the Subsidiary and are not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing. Except as set forth in Section 4.11(b) of the Company Disclosure Schedule, the Company and the Subsidiary have paid in full to all employees or adequately accrued in accordance with GAAP consistently applied all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees and there is no claim with respect to payment of wages, salary or overtime pay that is now pending or, to the knowledge of the Company, has been asserted or is threatened before any Governmental Authority with respect to any persons currently or formerly employed by the Company or any Subsidiary. Neither the Company nor the Subsidiary is a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices. There is no charge or proceeding with respect to a violation of any occupational safety or health standards that is now pending or, to the knowledge of the Company, has been asserted or is threatened with respect to the Company or the Subsidiary. There is no charge of discrimination in employment or employment practices, for any reason, including age, gender, race, religion or other legally protected category, which is now pending or, to the knowledge of the Company, has been asserted or is threatened before the United States Equal Employment Opportunity Commission or any other Governmental Authority in any jurisdiction in which the Company or the Subsidiary has employed or employ any person. SECTION 4.12. Property and Leases. (a) Section 4.12(a) of the Company Disclosure Schedule lists each parcel of real property formerly owned by the Company or any Subsidiary. Neither the Company nor the Subsidiary currently owns any real property. (b) Section 4.12(b) of the Company Disclosure Schedule lists each parcel of real property currently leased or subleased by the Company and the Subsidiary, with the name of the lessor and the date of the lease, sublease, assignment of the lease, any guaranty given or leasing commissions payable by the Company or the Subsidiary in connection therewith and each amendment to any of the foregoing (collectively, the "Lease Documents"). True, correct and complete copies of all Lease Documents have been delivered to Parent. All such current leases and subleases are in full force and effect, are valid and effective, and there is not, under 25 any of such leases, any existing material default or event of default (or event which, with notice or lapse of time, or both, would constitute an event of default) by the Company or the Subsidiary or, to the knowledge of the Company, by the other party to such lease or sublease, or person in the chain of title to such leased premises. (c) To the knowledge of the Company, there are no contractual or legal restrictions that preclude or restrict the ability to use any real property leased by the Company or the Subsidiary for the purposes for which it is currently being used. To the knowledge of the Company, there are no material latent defects or material adverse physical conditions affecting the real property, and improvements thereon, leased by the Company or the Subsidiary other than those that would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect. (d) Each of the Company and the Subsidiary has good and valid title to, or, in the case of leased properties and assets, valid leasehold or subleasehold interests in, all of its properties and assets, tangible and intangible, real, personal and mixed, used or held for use in its business, free and clear of any Encumbrances, except as set forth on Section 4.12(d) of the Company Disclosure Schedule and such imperfections of title, if any, that do not materially interfere with the present value of the subject property. SECTION 4.13. Intellectual Property. (a) Section 4.13(a) of the Company Disclosure Schedule sets forth a true and complete list of all Company Owned Intellectual Property (other than trade secrets and unregistered copyrights) and Company IP Agreements. (b) Except as set forth in Section 4.13(b) of the Company Disclosure Schedule, (i) to the knowledge of the Company, the conduct of the business of the Company and the Subsidiary does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any third party; (ii) no claim is pending, has been asserted in writing to the Company or any Subsidiary or, to the knowledge of the Company, has been threatened that alleges that the conduct of the business of the Company or the Subsidiary infringes, misappropriates or otherwise violates or conflicts with the Intellectual Property rights of any third party; (iii) subject to any licenses granted by the Company or the Subsidiary in the ordinary course of business, the Company or a Subsidiary is the exclusive owner of the entire and unencumbered right, title and interest in and to each item of the Company Owned Intellectual Property and is entitled to use such material Company Owned Intellectual Property, and each item of Company Licensed Intellectual Property in the continued operation of its business; (iv) the Company Owned Intellectual Property and the Company Licensed Intellectual Property include all Intellectual Property used in the ordinary conduct of the business as currently conducted by the Company and the Subsidiary, and there are no other items of Intellectual Property that are material to such ordinary conduct of such business; (v) to the knowledge of the Company, the Company Owned Intellectual Property and the Company Licensed Intellectual Property is subsisting valid and enforceable; (vi) the Company Owned Intellectual Property and, to the knowledge of the Company, the Company Licensed Intellectual Property has not been adjudged invalid or unenforceable in whole or in part; (vii) to the knowledge of the Company, no person is engaging in any activity that infringes, misappropriates or otherwise violates the Company Owned 26 Intellectual Property or the Company Licensed Intellectual Property; (viii) no legal or administrative proceedings are pending or, to the knowledge of the Company, have been asserted or are threatened, against the Company or the Subsidiary that seek to deny or restrict the use of the Company Owned Intellectual Property or the Company Licensed Intellectual Property by the Company or the Subsidiary; (ix) no Company Owned Intellectual Property, and to the knowledge of the Company, no Company Licensed Intellectual Property, is subject to any outstanding consent, settlement, decree, order, injunction, judgment or ruling restricting the use of such Intellectual Property; (x) to the knowledge of the Company, each Company IP Agreement is valid and enforceable, is binding on all parties to such Company IP Agreement, and is in full force and effect; (xi) to the knowledge of the Company, no party to any Company IP Agreement is in material breach thereof or default thereunder; and (xii) neither the execution of this Agreement nor the consummation of the Merger or any of the other transactions contemplated by this Agreement shall constitute a default under, give rise to cancellation rights under, or otherwise adversely affect any of the material rights of the Company under any Company IP Agreement. SECTION 4.14. Taxes. Except as set forth in Section 4.14 of the Company Disclosure Schedule, (i) the Company and the Subsidiary have filed all United States federal, state, local and non-United States Tax returns and reports required to be filed by them and have paid and discharged all Taxes required to be paid or discharged, other than such payments as are being contested in good faith by appropriate proceedings, (ii) all such Tax returns are true, accurate and complete in all material respects, (iii) neither the IRS nor any other United States or non-United States taxing authority or agency is now asserting in writing to the Company or to the Subsidiary or, to the knowledge of the Company, threatening to assert against the Company or the Subsidiary any deficiency or claim for any unpaid Taxes or interest thereon or penalties in connection therewith, (iv) neither the Company nor the Subsidiary has granted any waiver of any statute of limitations with respect to, or any extension of a period for the assessment of, any Tax for any currently open year, (v) the accruals and reserves for Taxes reflected in the balance sheet contained in the Interim Financial Statements are adequate to cover all Taxes accruable through such date (including interest and penalties, if any, thereon) in accordance with GAAP, (vi) there are no Tax liens upon any property or assets of the Company or the Subsidiary except liens for current Taxes not yet due, (vii) neither the Company nor the Subsidiary has been required to include in income any adjustment pursuant to Section 481 of the Code by reason of a voluntary change in accounting method initiated by the Company or the Subsidiary, and the IRS has not, in writing to the Company or to the Subsidiary, initiated or proposed any such adjustment or change in accounting method, in either case which adjustment or change would, individually or in the aggregate, have a Company Material Adverse Effect, (viii) the Company and the Subsidiary are in compliance with any applicable transfer pricing requirements with respect to any transactions with their affiliates, (ix) neither the Company nor the Subsidiary has been a "distributing corporation" or a "controlled corporation" in a distribution intended to qualify under Section 355(e) of the Code within the past five years, (x) neither the Company nor the Subsidiary is a member of any affiliated group (within the meaning of Section 1504(a)(1) of the Code) nor has the Company or the Subsidiary been includible in any consolidated return for any taxable period for which the statute of limitations has not expired, (xi) neither the Company nor the Subsidiary has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, (xii) neither the Company nor the Subsidiary has any income reportable for a period 27 ending after the date of the Closing but attributable to a transaction (e.g., an installment sale) occurring in or a change in accounting method made for a period ending on or prior to the date of the Closing that resulted in a deferred reporting of income from such transaction or from such change in accounting method, and (xiii) neither the Company nor the Subsidiary is a party to any agreement or arrangement that would result, separately or in the aggregate, in the actual or deemed payment by the Company or the Subsidiary of any "excess parachute payments" within the meaning of Section 280G of the Code, without regard to Section 280G(b)(4) of the Code. SECTION 4.15. Environmental Matters. Except as described in Section 4.15 of the Company Disclosure Schedule, (a) neither the Company nor the Subsidiary is in violation of, or has any liability under, any Environmental Law in any material respect; (b) none of the properties currently or formerly owned, leased or operated by the Company or the Subsidiary (including soils and surface and ground waters) is contaminated with any Hazardous Substance in a manner that is in violation of Environmental Laws or could reasonably be expected to result in material liability for the Company or the Subsidiary; (c) neither the Company nor the Subsidiary has received a notice, demand or claim that the Company or the Subsidiary is, and to the knowledge of the Company, neither the Company nor the Subsidiary is, actually, potentially or allegedly liable for any site contamination, including any off-site contamination, by Hazardous Substances in a manner that is in violation of Environmental Laws or could reasonably be expected to result in material liability for the Company or the Subsidiary; (d) neither the Company nor the Subsidiary has received a notice, demand or claim that the Company or the Subsidiary is, and to the knowledge of the Company, neither the Company nor the Subsidiary is, actually, potentially or allegedly liable under any Environmental Law (including pending or threatened liens), and neither the Company nor the Subsidiary is currently liable to any identified person for costs recoverable under any Environmental Law; (e) there is no underground storage tank currently or formerly used by the Company or the Subsidiary at any property leased by the Company or the Subsidiary, and there is no underground storage tank at the Vista, California property leased by the Company or the Subsidiary; (f) each of the Company and the Subsidiary has all material permits, licenses and other authorizations required under any Environmental Law; and (g) to the knowledge of the Company, all information provided by the Company to Parent in connection with Parent's application for the Environmental Insurance Policy is true and correct in all material respects. SECTION 4.16. Material Contracts. (a) Subsections (i) through (x) of Section 4.16(a) of the Company Disclosure Schedule contain a list of the following types of contracts and agreements (whether written or oral) to which the Company or the Subsidiary is a party (such contracts, agreements and arrangements as are required to be set forth in Section 4.16(a) of the Company Disclosure Schedule being the "Material Contracts"): (i) each contract and agreement which is likely to involve consideration of more than $100,000, in the aggregate, over the remaining term of such contract or agreement; (ii) all broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing consulting and advertising contracts and agreements to which the Company or the Subsidiary is a party; 28 (iii) all contracts with consultants and all contracts involving the payment of royalties or other amounts calculated based upon the revenues or income of the Company or the Subsidiary or income or revenues related to any product of the Company or the Subsidiary to which the Company or the Subsidiary is a party; (iv) all contracts and agreements evidencing indebtedness of the Company or the Subsidiary for borrowed money of more than $20,000 (excluding credit card agreements entered into in the ordinary course of business); (v) all contracts and agreements between the Company and any employee, officer or director evidencing indebtedness for borrowed money; (vi) all contracts and agreements with any Governmental Authority to which the Company or the Subsidiary is a party; (vii) all contracts and agreements that limit, or purport to limit, the ability of the Company or the Subsidiary to compete in any line of business or with any person or entity or in any geographic area or during any period of time; (viii) all material contracts or arrangements that result in any person or entity holding a power of attorney from the Company or the Subsidiary that relates to the Company, the Subsidiary or their respective businesses; (ix) all contracts for employment required to be listed in Section 4.10 of the Company Disclosure Schedule; and (x) all other contracts and agreements, whether or not made in the ordinary course of business, which are material to the Company or the Subsidiary or the conduct of their respective businesses, or the absence of which would, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement or would, individually or in the aggregate, have a Company Material Adverse Effect; provided however, that purchase orders and purchase contracts or agreements that either (A) have an outstanding balance owed by the Company, or involve consideration over the remaining term of the agreement, of less than $100,000, or (B) were entered into or made in the ordinary course of business that are terminable at will by the Company or the Subsidiary without penalty or other obligation or liability are specifically excluded from each (i) through (x) above. (b) Except as would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or any of the other transactions contemplated by this Agreement or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Company Material Adverse Effect, (i) each Material Contract is a legal, valid and binding obligation of the Company or the Subsidiary, and to the knowledge of the Company, on the counterparties thereto, and, to the knowledge of the Company, none of the Material Contracts is in default by its terms or has been canceled by the other party, (ii) neither the Company nor 29 the Subsidiary, nor, to the knowledge of the Company, any other party is in breach or violation of, or default under, any Material Contract, (iii) neither the Company nor the Subsidiary has received any claim of default under any Material Contract, and (iv) except as set forth on Section 4.16(b) of the Company Disclosure Schedule, neither the execution of this Agreement nor the consummation of the Merger or any of the other transactions contemplated by this Agreement shall constitute a default under, give rise to cancellation rights under, or otherwise adversely affect any of the material rights of the Company or the Subsidiary under any Material Contract. The Company has furnished or made available to Parent true and complete copies of all Material Contracts, including any amendments thereto. SECTION 4.17. Regulatory Matters. (a) Except as set forth in Section 4.17(a) of the Company Disclosure Schedule, the Company and the Subsidiary have obtained, in all countries where the Company or the Subsidiary is marketing or has marketed its products, all material licenses, registrations, approvals, clearances and authorizations required by Governmental Authorities in such countries regulating the safety, effectiveness and market clearance of the devices marketed by the Company and the Subsidiary. Except as set forth in Section 4.17(a) of the Company Disclosure Schedule, both the Company and the Subsidiary are in compliance in all material respects with all terms and conditions of each license in each country in which their products are marketed, and with all requirements pertaining to the manufacturing (including current good manufacturing practices under the Code of Federal Regulations, Title 21, Part 820), marketing, export, import or human research (including good laboratory practices and clinical and non-clinical trials) of any product which is not required to be the subject of a license. Section 4.17(a) of the Company Disclosure Schedule lists information relating to regulation of the Company's products in the United States, including licenses, registrations, device listings, inspections, the Company's recalls and product actions, and the Company's ongoing clinical studies. (b) The Company and the Subsidiary have all such licenses, certificates, authorizations and permits required by the United States Food and Drug Administration (the "FDA") or any other Governmental Authority engaged in the regulation of medical devices and orthopedic products. The Company has not received notification of any proceeding relating to revocation or modification of any such license, certificate, authorization or permit and is not aware of any reason why any such license, certificate, authorization or permit would not be renewed. All statements made by the Company in said filings and declarations are true and accurate. Except as set forth in Section 4.17(b) of the Company Disclosure Schedule, to the knowledge of the Company, the Company is not currently subject to any outstanding audit, investigation, inquiry or corrective action by the FDA. (c) Except as set forth in Section 4.17(c) of the Company Disclosure Schedule, since January 1, 2000 through the date of this Agreement, neither the Company nor the Subsidiary has received or has knowledge of any written notices, citations or decisions by any Governmental Authority that any product produced, manufactured, marketed or distributed at any time by the Company is defective or fails to meet any applicable standards promulgated by any such Governmental Authority to which the Company is subject. There have been no recalls, field notifications or seizures ordered or, to the knowledge of the Company, threatened by the FDA or any other comparable Governmental Authority with respect to the Company's products or any products distributed by the Company. Further, the Company has not received any 30 warning letter, Section 305 notices from the FDA or Section 483 notices of adverse observations (or comparable notices from such other Governmental Authority), except as set forth in Section 4.17(c) of the Company Disclosure Schedule. The Company has timely complied fully with its commitment to address and correct all observations on Form 483 following the July 25, 2003-August 6, 2003 FDA inspection. The Company is not aware of any reason why the deficiencies would not have been addressed to the FDA's satisfaction. (d) Section 4.17(d) of the Company Disclosure Schedule lists all claims and statements (including, but not limited to, all correspondence or communications with Governmental Authorities, any Durable Medical Regional Carrier ("DMERC") or other carriers) received by the Company or the Subsidiary concerning or relating to (i) any legal proceedings before any Governmental Authority and/or their contractors; and (ii) any pending or threatened or concluded investigation, or civil, administrative or criminal proceeding relating to the Company's or the Subsidiary's policies, procedures, or practices (including, but not limited to, the marketing, distribution, and sale of the Company's products). Except as set forth in Section 4.17(d) of the Company Disclosure Schedule, there is no pending or concluded, or, to the knowledge of the Company, threatened investigation, or civil, administrative or criminal proceeding relating to the Company's, the Subsidiary's, or, to the knowledge of the Company, any Shareholder's, participation in any Payment Program. Except as set forth in Section 4.17(d) of the Company Disclosure Schedule, neither the Company nor the Subsidiary is subject to, nor has been subjected to, any payment suspension, payment off-set, pre-payment review or other utilization review by any Payment Program. Except as set forth in Section 4.17(d) of the Company Disclosure Schedule, no Payment Program has requested, or, to the knowledge of the Company, threatened any recoupment, refund, or off-set from the Company or the Subsidiary. No Payment Program has imposed a fine, penalty or other sanction on the Company, the Subsidiary, or, to the knowledge of the Company, any Shareholder. Neither the Company, the Subsidiary, nor, to the knowledge of the Company, any Shareholder has been excluded from participation in any Payment Program. The Company and the Subsidiary have properly and legally billed all individuals, and Payment Programs as appropriate pursuant to applicable rules, regulations and conditions of participation, for services rendered and products provided, and have maintained all necessary documentation to support and reflect such billing practices. No funds are now being withheld from the Company or the Subsidiary by any Payment Program, and neither the Company nor the Subsidiary has any reimbursement dispute with any Payment Program. (e) Section 4.17(e) of the Company Disclosure Schedule lists all contracts between the Company and manufacturers, wholesalers, distributors and sales representatives related to the purchase, sale and/or distribution of products and supplies, including, but not limited to, any agreements with health providers or suppliers, health plans, insurers, group purchasing organizations, hospitals, clinics, and/or managed care organizations. None of the Company nor the Subsidiary nor any of their respective directors, officers, employees or agents nor, to the knowledge of the Company, any Shareholder, has, directly or indirectly: (i) made or agreed to make any contribution, payment or gift of funds or property to, or for the private use of, any governmental official, employee or agent where either the contribution, payment or gift or the purpose of such contribution, payment or gift is or was illegal under the Laws of the United States or under the Laws of any state thereof or any other jurisdiction in which such payment, contribution or gift was made; (ii) established or maintained any unrecorded fund or 31 asset for any purpose or made any false or artificial entries on any of its books or records for any reason; or (iii) made or received or agreed to make or receive any payment to any person with the intention or understanding that any part of such payment would be used for any purpose other than that described in the documents supporting such payment. (f) Section 4.17(f) of the Company Disclosure Schedule lists all claims and statements (including, but not limited to, all correspondence or communications with governmental agencies, any DMERC, Statistical Analysis Durable Medical Regional Carrier, or other carriers) received by the Company or the Subsidiary or, to the knowledge of the Company, existing, concerning or relating to any federal or state government funded health care program that involves, relates to or alleges: (i) coverage, benefit category, medical policy, coding, and reimbursement relating to devices manufactured by the Company; (ii) any violation of any applicable rule, regulation, policy or requirement of any such program or any irregularity with respect to any activity, practice or policy of the Company or any Subsidiary; or (iii) any violation of any applicable rule, regulation, policy or requirement of any such program or any irregularity with respect to any claim for payment or reimbursement made by the Company or the Subsidiary, or any payment or reimbursement paid to the Company or the Subsidiary. Except as set forth in Section 4.17(f) of the Company Disclosure Schedule, neither the Company nor the Subsidiary has received notice of any violation from, or has knowledge of any claims or demands by, any Governmental Authority, DMERC or carrier with respect to any of the activities, practices, policies or claims of the Company or the Subsidiary or with respect to any payments or reimbursements claimed by the Company or the Subsidiary. Neither the Company nor the Subsidiary is currently subject to any outstanding audit by any Governmental Authority engaged in the regulation of medical devices or orthopedic products, DMERC or carrier. (g) Except as set forth in Section 4.17(g) of the Company Disclosure Schedule, the Company has not entered into any joint ventures or other contractual relationships with physicians, hospitals, surgical centers, or nursing facilities relating to the sale or promotion of the Company's products. (h) There are no marketing materials, brochures and promotional literature (including coupons) furnished by manufacturers, wholesalers and distributors and used by the Company in connection with the sale of products and supplies manufactured and/or distributed by the Company. The Company has not promoted or advertised its products for a use other than the use for which the FDA approved the product for sale and distribution. To the knowledge of the Company, no sales representative, agent or independent contractor of the Company has promoted any product manufactured by or distributed by the Company for a use other than that use for which the FDA approved the product for sale and distribution. The Company's marketing materials, brochures and promotional literature do not unlawfully promote a product for a use other than the use for which the FDA approved the product for sale and distribution. SECTION 4.18. Customers and Suppliers. Section 4.18 of the Company Disclosure Schedule sets forth a true and complete list of the top 20 customers of the Company and the Subsidiary (based on the revenue from such customers during the nine-month period ended September 30, 2003). None of the customers listed in Section 4.18 of the Company Disclosure Schedule and no other customer that accounted for more than two percent of the Company's consolidated revenues during the nine-month period ended September 30, 2003 and 32 no material supplier of the Company and the Subsidiary has, during the nine-month period ended September 30, 2003, (i) cancelled or otherwise terminated any contract with the Company or any Subsidiary prior to the expiration of the contract term, (ii) returned, or communicated to the Company a threat to return, a substantial amount of any of the products, equipment, goods and services purchased from the Company or the Subsidiary, or (iii) to the knowledge of the Company, threatened, or indicated its intention, to cancel or otherwise terminate its relationship with the Company or the Subsidiary or to reduce substantially (other than as a result of ordinary course fluctuations in demand) its purchase from or sale to the Company or the Subsidiary of any products, equipment, goods or services. Neither the Company nor the Subsidiary has (i) breached, in any material respect, any agreement with or (ii) engaged in any fraudulent conduct with respect to any such customer or supplier of the Company or the Subsidiary. SECTION 4.19. Product Liability; Product Warranties. Except as set forth on Section 4.19 of the Company Disclosure Schedule, all products and services sold, rented, leased, provided or delivered by the Company or the Subsidiary to customers on or prior to the Closing conform or will conform in all material respects to applicable contractual commitments, express and implied warranties, product and service specifications and quality standards, and, to the knowledge of the Company, the Company has no liability for replacement or repair thereof or other damages in connection therewith. Except as set forth on Section 4.19 of the Company Disclosure Schedule, no product or service sold, leased, rented, provided or delivered by the Company or the Subsidiary to customers on or prior to the Closing is subject to any guaranty, warranty (other than warranties imposed by law) or other indemnity beyond the applicable standard terms and conditions of sale, rent or lease (which standard terms and conditions have been disclosed to Parent in Section 4.19 of the Company Disclosure Schedule). Except as set forth on Section 4.19 of the Company Disclosure Schedule, the Company has no material liability arising out of any injury to a person or property as a result of the ownership, possession, provision or use of any equipment, product or service sold, rented, leased, provided or delivered by the Company or the Subsidiary on or prior to the Closing. All product liability claims that have been asserted against the Company or the Subsidiary since January, 2001, and that individually seek damages in excess of $50,000, whether covered by insurance or not and whether litigation has resulted or not, are listed and summarized on Section 4.19 of the Company Disclosure Schedule. SECTION 4.20. Certain Business Practices. None of the Company, the Subsidiary or, to the knowledge of the Company, any directors or officers, agents or employees of the Company or the Subsidiary, has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iii) made any payment in the nature of criminal bribery. SECTION 4.21. Interested Party Transactions. Except as set forth on Section 4.21 of the Company Disclosure Schedule, no director, officer or other affiliate of the Company or the Subsidiary has or has had, directly or indirectly, (i) to the knowledge of the Company, an economic interest in any person that has furnished or sold, or furnishes or sells, services or products that the Company or the Subsidiary furnishes or sells, or intends to furnish or sell; (ii) to the knowledge of the Company, an economic interest in any person that purchases from or sells 33 or furnishes to, the Company or the Subsidiary, any goods or services; (iii) to the knowledge of the Company, a beneficial interest in any contract or agreement disclosed in Section 4.13 or 4.16 of the Company Disclosure Schedule; or (iv) any contractual or other arrangement with the Company or the Subsidiary; provided, however, that ownership of no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an "economic interest in any person" for purposes of this Section 4.21. Except as set forth in Section 4.21 of the Company Disclosure Schedule, the Company and the Subsidiary have not extended or maintained credit, arranged for the extension of credit or renewed an extension of credit in the form of a personal loan to or for any director or executive officer (or equivalent thereof) of the Company or the Subsidiary. SECTION 4.22. Insurance. Section 4.22 of the Company Disclosure Schedule lists each insurance policy maintained by either the Company or the Subsidiary and sets forth a brief description of each such policy. With respect to each such insurance policy: (a) to the knowledge of the Company, the policy is legal, valid, binding and enforceable in accordance with its terms and, except for any policy that has expired under its terms in the ordinary course, is in full force and effect; (b) neither the Company nor the Subsidiary is in material breach or default (including any such breach or default with respect to the payment of premiums or the giving of notice), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination or modification, under the policy; and (c) to the knowledge of the Company, no insurer on the policy has been declared insolvent or placed in receivership, conservatorship or liquidation. At no time subsequent to December 31, 2002 has the Company or the Subsidiary been denied any insurance or indemnity bond coverage which it has requested. SECTION 4.23. Inventories. Subject to amounts reserved therefore on the Interim Financial Statements, the values at which inventories of the Company and the Subsidiary are carried on the Interim Financial Statements reflect the historical inventory valuation policy of the Company and the Subsidiary of stating such inventories at the lower of cost (determined on the first-in, first-out method) or market value. Except as set forth on Section 4.23 of the Company Disclosure Schedule, the inventories of the Company and the Subsidiary are in good and merchantable condition in all material respects, are suitable and usable for the purposes for which they are intended and are in a condition such that they can be sold or used in the ordinary course of the business of the Company and the Subsidiary consistent with past practice. Except as set forth in Section 4.23 of the Company Disclosure Schedule, the Company or the Subsidiary, as the case may be, has good and marketable title to its inventories free and clear of all Encumbrances. Except as reserved against by the Company (which reserve is set forth in Section 4.23 of the Company Disclosure Schedule), the inventories of the Company and the Subsidiary do not consist, in any material amount, of items that are obsolete, damaged or slow-moving. SECTION 4.24. Foreign Trade Matters. (a) The Company and the Subsidiary are in material compliance with the U.S. Export Administration Regulations ("EAR") (Title 15 of the U.S. Code of Federal Regulations Part 730 et seq.) and the U.S. trade embargo regulations (Title 31 of the U.S. Code of Federal Regulations Part 500 et seq.). Neither the Company nor the Subsidiary has exported, re-exported, sold or otherwise transferred any goods or technology subject to the EAR in violation with the EAR or any U.S. trade embargo. There is no charge, proceeding or, to the knowledge of the Company, governmental investigation with respect to a 34 violation of the EAR or the U.S. trade embargo regulations that is now pending or, to the knowledge of the Company, has been asserted or threatened with respect to the Company or the Subsidiary. Neither the Company nor the Subsidiary has been a party to or a beneficiary under any contract under which goods have been sold or services provided to customers in Bahrain, Iraq, Kuwait, Jordan, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria, United Arab Emirates, or the Republic of Yemen. (b) Except as set forth in Section 4.24(b) of the Company Disclosure Schedule, the Company and the Subsidiary are in material compliance with all applicable U.S. and non-U.S. customs laws and regulations, including any export or import declaration filing, payment of customs duties, compliance with import quotas, import registration or any other similar requirements related to the exportation or importation of goods or services by the Company or the Subsidiary. Section 4.24 of the Company Disclosure Schedule lists each special import or export program in which the Company or the Subsidiary participates, including any temporary importation, bonded warehouse, expedited customs clearance or processing, drawback or similar program entitling the Company or the Subsidiary to customs or tax benefits related to the importation or exportation of its goods or services. The Company and the Subsidiary are in material compliance with all requirements imposed under any such programs. Except as set forth on Section 4.24(b) of the Company Disclosure Schedule, there is no charge, proceeding or, to the knowledge of the Company, governmental investigation with respect to a violation of any applicable U.S. or non-U.S. customs laws and regulations that is now pending or, to the knowledge of the Company, threatened with respect to the Company or the Subsidiary. SECTION 4.25. Board Approval; Vote Required. (a) The Company Board, by resolutions duly adopted by unanimous vote of those voting at a meeting duly called and held and not subsequently rescinded or modified in any way, has duly (i) determined that this Agreement and the Merger are fair to and in the best interests of the Company and its shareholders, (ii) approved this Agreement and the Merger and (iii) recommended that the shareholders of the Company approve and adopt this Agreement and approve the Merger and directed that this Agreement and the transactions contemplated hereby be submitted for consideration by the Company's shareholders at a shareholders' meeting or pursuant to action to be taken by written consent. (b) The only vote of the holders of any class or series of capital stock of the Company necessary to approve this Agreement, the Merger and the other transactions contemplated by this Agreement is the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock entitled to vote in favor of the approval and adoption of this Agreement. SECTION 4.26. Opinion of Financial Advisor. The Company has received the written opinion of Antares International Partners, Inc., dated the date of this Agreement, to the effect that, as of the date of this Agreement, the Merger Consideration is fair, from a financial point of view, to the Company's shareholders, a copy of which opinion will be delivered to Parent promptly after the date of this Agreement. SECTION 4.27. Brokers. No broker, finder or investment banker (other than Antares International Partners, Inc.) is entitled to any brokerage, finder's or other fee or 35 commission in connection with the Merger and other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. Prior to Closing, the Company will furnish to Parent a complete and correct copy of all agreements between the Company and Antares International Partners, Inc. pursuant to which such firm would be entitled to any payment relating to the Merger and other transactions contemplated by this Agreement. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB As an inducement to the Company to enter into this Agreement, Parent and Merger Sub hereby, jointly and severally, represent and warrant to the Company that: SECTION 5.01. Corporate Organization. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. SECTION 5.02. Deed of Incorporation and Bylaws. Parent has heretofore furnished to the Company a complete and correct copy of the Deed of Incorporation and Bylaws of Parent and the Certificate of Incorporation and Bylaws of Merger Sub, each as amended to date. Neither Parent nor Merger Sub is in violation of any provision of its Deed of Incorporation or Certificate of Incorporation, as the case may be, or Bylaws and all such documents are in full force and effect. SECTION 5.03. Authority Relative to This Agreement. Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Merger and other transactions contemplated by this Agreement. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub of the Merger and other transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate the Merger and other transactions contemplated by this Agreement (other than, with respect to the Merger, the filing and recordation of appropriate merger documents as required by the CGCL and the DGCL). This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms. SECTION 5.04. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub will not, (i) conflict with or violate the Deed of Incorporation, Certificate of Incorporation, Bylaws or other organizational documents of either Parent or Merger Sub, (ii) assuming that all consents, approvals, authorizations and other actions described in Section 5.04(b) have been obtained and all filings and obligations described in 36 Section 5.04(b) have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or Merger Sub or by which any property or asset of either of them is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of Parent or Merger Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any property or asset of either of them is bound or affected, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or other transactions contemplated by this Agreement or otherwise prevent or materially delay Parent and Merger Sub from performing their obligations under this Agreement and would not, individually or in the aggregate, have a Parent Material Adverse Effect. (b) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and state takeover laws, the HSR Act, and filing and recordation of appropriate merger documents as required by the CGCL and the DGCL, and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually or in the aggregate, prevent or materially delay consummation of the Merger or other transactions contemplated by this Agreement or otherwise prevent Parent or Merger Sub from performing their material obligations under this Agreement. SECTION 5.05. No Vote Required. No vote of the shareholders of Parent is required by Law, Parent's Deed of Incorporation or Bylaws or otherwise in order for Parent and Merger Sub to consummate the Merger or other transactions contemplated by this Agreement. SECTION 5.06. Operations of Merger Sub. Merger Sub is an indirect, wholly owned subsidiary of Parent, was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement. SECTION 5.07. Financing Arrangements. Parent or a subsidiary of Parent has received and executed a commitment letter (the "Financing Letter") dated as of November 10, 2003 from Wachovia Capital Markets, LLC (together with its affiliates, the "Arranger"), pursuant to which the Arranger, among other things, commits to provide up to $125,000,000 to Parent or a subsidiary of Parent for use in financing, in part, the cash consideration necessary to consummate the Merger, to pay related fees and expenses, and for general corporate purposes of Parent and its subsidiaries, in each case, subject to the terms and conditions specified therein. A true, complete and fully executed copy of the Financing Letter has been furnished to the Company Board. The Financing Letter is in full force and effect and has not been amended or modified in any respect and all commitment fees required to be paid thereunder have been paid in full or will be duly paid in full when due. Assuming the accuracy of the representations and 37 warranties of the Company contained in Article IV of this Agreement and compliance by the Company with the covenants set forth in Section 6.01 and compliance by the Significant Shareholders with the Voting and Subscription Agreement, the aggregate proceeds of the financings contemplated by the Financing Letter, when taken together with the available cash of Parent and the Company and the Subsidiary, are sufficient to pay the aggregate cash consideration for the Shares pursuant to Article III, to retire any indebtedness of the Company and the Subsidiary that may become due as a result of the transactions contemplated by this Agreement, to pay all related fees and expenses and to provide additional financing for future working capital and general corporate needs of Parent, the Surviving Corporation and their respective subsidiaries (such financing, the "Financing"). SECTION 5.08. PFIC. Parent is not a "passive foreign investment company" within the meaning of Section 1297(a) of the Code. SECTION 5.09. Brokers. No broker, finder or investment banker (other than Wachovia Securities) is entitled to any brokerage, finder's or other fee or commission in connection with the Merger and other transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Sub. ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER SECTION 6.01. Conduct of Business by the Company Pending the Merger. (a) The Company agrees that, between the date of this Agreement and the Effective Time, except as set forth in Section 6.01 of the Company Disclosure Schedule, unless Parent shall otherwise consent in writing: (i) the businesses of the Company and the Subsidiary shall be conducted only in, and the Company and the Subsidiary shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; and (ii) the Company shall use its reasonable best efforts to preserve substantially intact the business organization of the Company and the Subsidiary, to keep available the services of the current officers, employees and consultants of the Company and the Subsidiary and to preserve the current relationships of the Company and the Subsidiary with customers, suppliers and other persons with which the Company or the Subsidiary has significant business relations. (b) By way of amplification and not limitation, except as expressly contemplated by any other provision of this Agreement or as set forth in Section 6.01 of the Company Disclosure Schedule, neither the Company nor the Subsidiary shall, between the date of this Agreement and the Effective Time, directly or indirectly, do, or propose to do, any of the following without the prior written consent of Parent: (i) amend or otherwise change its Articles of Incorporation or Bylaws or equivalent organizational documents; 38 (ii) issue, sell, pledge, dispose of, grant or encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (A) any shares of any class of capital stock of the Company or the Subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including any phantom interest), of the Company or the Subsidiary (except for the issuance of up to a maximum of 233,766 Shares issuable pursuant to employee stock options outstanding on the date hereof) or (B) except in the ordinary course of business and in a manner consistent with past practice, any assets of the Company or the Subsidiary; (iii) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock; (iv) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its capital stock; (v) (A) acquire (including by merger, consolidation, or acquisition of stock or assets or any other business combination) any corporation, partnership, other business organization or any division thereof or any significant amount of assets; (B) except for borrowings and repayments under the Credit Agreement, incur or repay any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person, or make any loans or advances, or grant any security interest in any of its assets; (C) enter into any contract or agreement other than in the ordinary course of business and consistent with past practice; (D) authorize, or make any commitment with respect to, any single capital expenditure which is in excess of $50,000 or capital expenditures which are, in the aggregate, in excess of $500,000 for the Company and the Subsidiary taken as a whole; or (E) enter into or amend any contract, agreement, commitment or arrangement with respect to any matter set forth in this Section 6.01(b)(v); (vi) (A) hire any additional executive level employees or increase the compensation payable or to become payable or the benefits provided to its directors, officers or employees, except for increases in the ordinary course of business and consistent with past practice in salaries or wages of employees of the Company or the Subsidiary who are not directors or officers of the Company, (B) grant any rights to severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Company or of the Subsidiary, or (C) establish, adopt, enter into or amend any collective bargaining, bonus, profit-sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (vii) take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures; 39 (viii) make any tax election or settle or compromise any United States federal, state, local or non-United States income tax liability; (ix) (A) alter its collection or payment practices or (B) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the 2002 Balance Sheet or subsequently incurred in the ordinary course of business and consistent with past practice; (x) amend, modify or consent to the termination of any Material Contract, or amend, waive, modify or consent to the termination of the Company's or the Subsidiary's rights thereunder; (xi) commence or settle any Action; or (xii) announce an intention, enter into any formal or informal agreement or otherwise make a commitment to do any of the foregoing. SECTION 6.02. Inventory. The Company agrees that, between the date of this Agreement and the Effective Time, the Company will conduct, to the level and of the items agreed upon between Parent and the Company prior to the date of this Agreement, a physical count of inventory as of the close of business of a date not later than the third business day prior to the Effective Time. ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.01. Shareholder Approval. (a) If not completed prior to the execution of this Agreement, as promptly as practicable after, and in any event within five business days after, the date of this Agreement, the Company shall submit this Agreement and the transactions contemplated hereby for approval and adoption by written consent of the holders of a majority of the outstanding shares of Company Common Stock, in accordance with the CGCL and the Company's Articles of Incorporation and Bylaws. (b) Within five business days after the date of such approval and adoption by written consent of holders of a majority of the outstanding shares of Company Common Stock, pursuant to Section 7.01(a), the Company shall distribute to its shareholders, after prior approval by Parent, an information statement (together with any amendments thereof or supplements thereto, the "Information Statement") to provide notice to such shareholders of the action taken by written consent in lieu of a meeting to adopt this Agreement and approve the Merger, as required by Section 603(b) of the CGCL. The Company represents and warrants to Parent that the Information Statement will not, at the time it is first mailed to the Company's shareholders or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representation or warranty with respect to any information contained in 40 the Information Statement furnished to the Company by Parent or any of its affiliates. No amendment or supplement to the Information Statement will be made by the Company without the approval of Parent, which shall not be unreasonably withheld. The Company covenants that none of the Company Board or any committee thereof shall withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Merger Sub, the approval or recommendation by the Company Board or any committee thereof of this Agreement, the Merger or any other transaction contemplated by this Agreement and the Information Statement shall include the recommendation of the Company Board to the stockholders of the Company in favor of approval and adoption of this Agreement and approval of the Merger. SECTION 7.02. Access to Information; Confidentiality. (a) Except as required pursuant to any confidentiality agreement or similar agreement or arrangement to which the Company is a party or pursuant to applicable Law, from the date of this Agreement to the Effective Time, the Company shall: (i) provide to Parent (and its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives, collectively, "Representatives") access at reasonable times upon prior notice to the officers, employees, agents, properties, offices and other facilities of the Company and to the books and records thereof (including personnel records relating to employees); and (ii) furnish promptly such information concerning the business, properties, contracts, assets, liabilities, personnel and other aspects of the Company as Parent or its Representatives may reasonably request. (b) The parties shall comply with, and shall cause their respective Representatives to comply with, all of their respective obligations under the Nondisclosure Agreement dated March 18, 2003 (the "Confidentiality Agreement") between the Company and Parent. (c) No investigation pursuant to this Section 7.02 shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto. (d) Notwithstanding anything in this agreement to the contrary, each party (and its representatives, agents and employees) may consult any tax advisor regarding the tax treatment and tax structure of the transactions contemplated hereby and may disclose to any person, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated hereby and all materials (including opinions or other tax analyses) that are provided relating to such treatment or structure. SECTION 7.03. No Solicitation of Transactions. (a) The Company agrees that neither it nor the Subsidiary nor any of the directors, officers or employees of it or the Subsidiary will, and that it will cause its and the Subsidiary's agents, advisors and other representatives (including, without limitation, any investment banker, attorney or accountant retained by it or the Subsidiary) not to, directly or indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing nonpublic information), or take any other action knowingly to facilitate, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to its stockholders) that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined below), or (ii) enter into or maintain or continue discussions or negotiations with any person or entity in furtherance of such inquiries or to obtain a proposal 41 or offer for a Competing Transaction, or (iii) agree to, approve, endorse or recommend any Competing Transaction or enter into any letter of intent or other contract, agreement or commitment contemplating or otherwise relating to any Competing Transaction, or (iv) authorize or permit any of the officers, directors or employees of the Company or the Subsidiary, or any investment banker, financial advisor, attorney, accountant or other representative retained by the Company or the Subsidiary, to take any such action. The Company shall notify Parent as promptly as practicable (and in any event within one (1) day after the Company attains knowledge thereof), orally and in writing, if any proposal or offer, or any inquiry or contact with any person with respect thereto, regarding a Competing Transaction is made, specifying the material terms and conditions thereof and the identity of the party making such proposal or offer or inquiry or contact (including material amendments or proposed material amendments). The Company shall provide Parent with 24 hours prior notice (or such lesser prior notice as is provided to the members of the Company Board) of any meeting of the Company Board at which the Company Board is reasonably expected to consider any Competing Transaction. The Company immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to a Competing Transaction. The Company shall not release any third party from, or waive any provision of, any confidentiality or standstill agreement to which it is a party and the Company also agrees to promptly request each person that has heretofore executed a confidentiality agreement in connection with its consideration of acquiring (whether by merger, acquisition of stock or assets or otherwise) the Company or any Subsidiary, if any, to return (or if permitted by the applicable confidentiality agreement, destroy) all confidential information heretofore furnished to such person by or on behalf of the Company or the Subsidiary and, if requested by Parent, to enforce such person's obligation to do so. (b) A "Competing Transaction" means any of the following (other than the Transactions): (i) any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or other similar transaction involving the Company or the Subsidiary; (ii) any sale, lease, exchange, transfer or other disposition of all or a substantial part of the assets of the Company or of the Subsidiary; (iii) any sale, exchange, transfer or other disposition of 15% or more of any class of equity securities of the Company or of the Subsidiary; (iv) any tender offer or exchange offer that, if consummated, would result in any person beneficially owning 15% or more of any class of equity securities of the Company or of the Subsidiary; (v) any solicitation in opposition to approval and adoption of this Agreement by the Company's stockholders; or (vi) any other transaction the consummation of which would reasonably be expected to impede, interfere with, prevent or materially delay any of the Transactions. SECTION 7.04. Employee Benefits Matters. From and after the Effective Time, Parent shall cause the Surviving Corporation and its subsidiaries to honor in accordance with their terms, all contracts, agreements, arrangements, policies, plans and commitments of the Company and the Subsidiary as in effect immediately prior to the Effective Time that are applicable to any current or former employees or directors of the Company or the Subsidiary. Employees of the Company or the Subsidiary shall receive credit for purposes of eligibility to participate and vesting (but not for benefit accruals) under any employee benefit plan, program or arrangement established or maintained by the Surviving Corporation or any of its subsidiaries for service accrued or deemed accrued prior to the Effective Time with the Company or the 42 Subsidiary; provided, however, that such crediting of service shall not operate to duplicate any benefit or the funding of any such benefit. In addition, Parent shall waive, or cause to be waived, any limitations on benefits relating to any pre-existing conditions to the same extent such limitations are waived under any comparable plan of Parent or its subsidiaries and recognize, for purposes of annual deductible and out-of-pocket limits under its medical and dental plans, deductible and out-of-pocket expenses paid by employees of the Company and the Subsidiary in the calendar year in which the Effective Time occurs. SECTION 7.05. Directors' and Officers' Insurance; Indemnification. (a) Parent agrees to cause the Surviving Corporation (i) not to change, unless required to do so by Law, for six years after the Effective Time, the provisions of its Articles of Incorporation and Bylaws or the indemnification agreements listed on Section 7.05(a) of the Company Disclosure Schedule in effect on the date of the Closing (the "Indemnification Agreements") in each case relating to indemnification of such present or former director or officer of the Company and the Subsidiary (together with any successor by operation of law, individually, an "Indemnified Person" and, collectively, the "Indemnified Persons") in a manner that adversely affects the rights of such Indemnified Person to indemnification thereunder, and (ii) to perform its obligations under the Indemnification Agreements, or exercise any discretionary authority thereunder, to the fullest extent permissible by Law to provide such Indemnified Person with all rights to indemnification available thereunder. Notwithstanding the foregoing, nothing in this Agreement shall constitute a waiver of, or otherwise operate to adversely affect, the existing rights of the Indemnified Persons under the Articles of Incorporation and Bylaws of the Company in effect on the date of the Closing and the Indemnification Agreements relating to the indemnification of any Indemnified Person. (b) Parent agrees that, for six years after the Closing, the Surviving Corporation shall maintain officers' and directors' liability insurance policies indemnifying and holding harmless the Indemnified Persons that were covered by such insurance prior to Closing with respect to any actions or omissions occurring prior to the Closing, providing at least $5,000,000 insurance coverage on terms no less advantageous to such persons than the Company's existing policy covering such persons; provided that in the event any claim is asserted or made within such six-year period, coverage under such insurance shall be continued in respect thereof until final disposition of such claim. (c) This Section 7.05 shall survive the Closing, is intended to benefit the Company and the Indemnified Persons (each of whom shall be entitled to enforce this Section 7.05 against Parent, Merger Sub or the Surviving Corporation, as the case may be), and shall be binding on all successors and assigns of Parent and the Surviving Corporation. SECTION 7.06. Notification of Certain Matters. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which could reasonably be expected to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect and (b) any failure of the Company, Parent or Merger Sub, as the case may be, to comply with or satisfy any covenant or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice 43 pursuant to this Section 7.06 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. SECTION 7.07. Further Action; Reasonable Best Efforts. Upon the terms and subject to the conditions of this Agreement, each of the parties hereto shall (i) make promptly its respective filings, and thereafter make any other required submissions, under the HSR Act with respect to the Merger and other transactions contemplated by this Agreement and (ii) use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws or otherwise to consummate and make effective the Merger and other transactions contemplated by this Agreement, including using its reasonable best efforts to obtain all Permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with the Company and the Subsidiary as are necessary for the consummation of the Merger and other transactions contemplated by this Agreement and to fulfill the conditions to the Merger; provided that neither Merger Sub nor Parent will be required by this Section 7.07 to take any action, including entering into any consent decree, hold separate orders or other arrangements, that (A) requires the divestiture of any assets of any of Merger Sub, Parent, the Company or any of their respective subsidiaries, or (B) limits Parent's freedom of action with respect to, or its ability to retain, the Company and the Subsidiary or any portion thereof or any of Parent's or its affiliates' other assets or businesses. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such action. SECTION 7.08. Obligations of Merger Sub. Parent shall take all action necessary to cause Merger Sub to perform its obligations under this Agreement. SECTION 7.09. Public Announcements. The initial press release relating to this Agreement shall be a joint press release the text of which has been agreed to by each of Parent and the Company. Thereafter, unless otherwise required by applicable Law or the requirements of the Nasdaq National Market, each of Parent and the Company shall use its reasonable best efforts to consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement, the Merger or any of the other transactions contemplated by this Agreement. SECTION 7.10. Expenses. All costs and expenses incurred in connection with this Agreement, the Merger and other transactions contemplated by this Agreement (including the fees and expenses of financial advisors, accountants and legal counsel) (a) if incurred by Parent or Merger Sub, shall be borne by Parent and (b) if incurred by the Company or the Subsidiary shall, to the extent not paid prior to the Effective Time (the "Company Expense Amount"), be deducted from the aggregate merger consideration in accordance with Section 3.01(a). Parent shall be solely responsible for the filing fees associated with the pre-merger notification requirements of the HSR Act and one-half of the premium cost of the Environmental Insurance Policy. No later than two business days prior to the Effective Time, the Company shall deliver to Parent a good faith estimate of the Company Expense Amount along with such supporting documentation as Parent may reasonably request. 44 SECTION 7.11. Financing. (a) In the event that at any time funds are not or have not been made available pursuant to the Financing Letter so as to enable Parent to proceed with the Effective Time in a timely manner, each of Parent and Merger Sub shall use its reasonable best efforts to obtain alternative funding in an amount at least equal to the amount necessary to consummate the Merger on terms and conditions substantially comparable to those provided in the Financing Letter, or otherwise on terms reasonably acceptable to Parent and Merger Sub. (b) The Company agrees to provide, and will cause the Subsidiary and each of their respective officers, employees and advisors to provide, reasonable cooperation as requested by Parent in connection with the Financing provided for in the Financing Letter, and any other financing in respect of the transactions contemplated by this Agreement, including, without limitation, participation in meetings, due diligence sessions and road shows, the preparation of offering memoranda, private placement memoranda, prospectuses and similar documents, assistance in syndication efforts (including, without limitation, (i) using commercially reasonable best efforts to ensure that the syndication efforts benefit materially from the Company's existing lending relationships and (ii) arranging for reasonable direct contact between senior management, representatives and advisors of the Company with prospective lenders), the execution and delivery of any commitment letters, underwriting or placement agreements, pledge and security documents, other definitive financing documents as are specified in the Financing Letter (including, without limitation, (i) audited consolidated balance sheets and related statements of income, stockholders equity and cash flows of the Company for the 2000, 2001 and 2002 fiscal years and (ii) unaudited consolidated balance sheets and related statements of income, stockholders equity and cash flows of the Company for (A) each subsequent fiscal quarter ended 20 days prior to the Effective Time and (B) each fiscal month after the most recent 2003 fiscal quarter for which financial statements were delivered pursuant to clause (A) above and ended 20 days prior to the Effective Time) and other requested certificates or documents, including comfort letters of accountants, legal opinions and real estate title documentation as may reasonably be requested by Parent or Merger Sub. SECTION 7.12. Payment of Promissory Notes and Other Amounts Due. (a) Parent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares (i) such amounts as may be outstanding (including accrued interest) under the promissory notes listed on Section 4.07(b) of the Company Disclosure Schedule that are owed by such holder to the Company, which notes shall be deemed repaid to the extent of such withholding , (ii) such amounts as may be outstanding (including accrued interest) under the promissory notes provided to the Company in connection with the exercise of Company Stock Options after the date of this Agreement and prior to the Effective Time that are owed by such holder to the Company, which notes shall be deemed repaid to the extent of such withholding, and (iii) such amounts as may be owed by such holder to Parent pursuant to Section 2.01 of the Voting and Subscription Agreement. For the avoidance of doubt, the payment of any promissory note pursuant to this Section 7.12(a) shall not be taken into account and reduce the Net Aggregate Value. (b) At the Effective Time, Parent or the Surviving Corporation shall pay all amounts owed by the Company to a holder of Shares pursuant to the promissory notes listed on Section 4.07(b), which notes shall be deemed repaid to the extent of such payment. 45 (c) At or promptly following the Effective Time, Parent or the Surviving Corporation shall repay all amounts outstanding under the Credit Agreement and each shall use its reasonable best efforts to cause such agreement to be terminated and to cause all guaranties granted thereunder by any Shareholders to be released. SECTION 7.13. Environmental Insurance Policy. The parties shall cooperate to procure, on or prior to the Effective Time, an environmental liability insurance policy (the "Environmental Insurance Policy"), from an underwriter or underwriters reasonably acceptable to Parent, for the benefit of Parent and the Surviving Corporation providing, with respect to the Company's facility at 2611 Commerce Way, Vista, CA 92083, (i) an aggregate coverage limit of at least $10 million and a per incident coverage limit of at least $9 million; (ii) a minimum coverage period of at least 7 years; (iii) a maximum deductible of not more than $100,000; (iv) a premium cost less than $175,000; and (v) such other terms and conditions as are reasonably acceptable to Parent. SECTION 7.14. No Implied Representation and Warranties. Parent and Merger Sub hereby acknowledge and agree that none of the Company or the Subsidiary or any of their respective officers, directors, partners, employees, Affiliates or representatives is making any representation or warranty whatsoever, express or implied (including any warranty of merchantability, suitability or fitness for a particular purpose or quality, with respect to any tangible assets or as to the condition or workmanship thereof or as to the absence of any defects therein, whether latent or patent), except those representations and warranties contained in this Agreement (as qualified by the Company Disclosure Schedule) or in any certificate contemplated hereby and delivered by the Company or the Subsidiary in connection with the Merger or other transactions contemplated by this Agreement. In particular, Parent and Merger Sub hereby acknowledge and agree that none of the Company, the Subsidiary or any Shareholder has made or is making any representation or warranty to Parent or Merger Sub with respect to any financial projection or forecast provided to any person in connection with the Transactions. With respect to any such financial projection or forecast delivered by or on behalf of the Company or the Subsidiary to Parent, Parent acknowledges that there are uncertainties inherent in attempting to make such financial projections and forecasts and that it is making its own evaluation of such projections and forecasts. SECTION 7.15. Restrictions on Actions on Date of Effective Time. Neither the Company nor the Subsidiary will take, and the Parent will not permit either the Company or the Subsidiary to take, any action after the Effective Time on the date of the Effective Time that is not in the ordinary course of business consistent with past practices of the Company or the Subsidiary, as the case may be, that would have an adverse financial effect on amounts to be received by Shareholders pursuant to this Agreement. ARTICLE VIII TAX MATTERS SECTION 8.01. Indemnity. (a) The Shareholders agree to indemnify and hold harmless Parent, the Company and the Subsidiary on a dollar for dollar basis from the Cash Escrow Fund against the following Taxes and, except as otherwise provided in Section 8.04 46 hereof, against any loss, damage liability or expense, including reasonable fees for attorneys and other outside consultants, incurred in contesting or otherwise in connection with any such Taxes: (i) Taxes imposed on the Company or the Subsidiary with respect to Tax periods ending on or before the date of the Effective Time; (ii) with respect to Tax periods beginning before the date of the Effective Time and ending after the date of the Effective Time, Taxes imposed on the Company or the Subsidiary which are allocable, pursuant to Section 8.01(b), to the portion of such period ending on the date of the Effective Time; (iii) Taxes imposed on any member of any affiliated group with which either of the Company and the Subsidiary files or has filed a Tax return on a consolidated or combined basis for a Tax period ending on or before the date of the Effective Time; and (iv) Taxes imposed on Parent or the Company or the Subsidiary as a result of any breach of warranty or misrepresentation under Section 4.14. (b) In the case of Taxes that are payable with respect to a taxable period that begins before the date of the Effective Time and ends after the date of the Effective Time, the portion of any such Tax that is allocable to the portion of the period ending on the date of the Effective Time shall be: (i) in the case of Taxes that are either (x) based upon or related to income or receipts, or (y) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible) (other than conveyances pursuant to this Agreement), deemed equal to the amount which would be payable if the taxable year ended with the date of the Effective Time (except that, solely for purposes of determining the marginal tax rate applicable to income or receipts during such period in a jurisdiction in which such tax rate depends upon the level of income or receipts, annualized income or receipts may be taken into account if appropriate for an equitable sharing of such Taxes); and (ii) in the case of Taxes not described in subparagraph (i) that are imposed on a periodic basis and measured by the level of any item, deemed to be the amount of such Taxes for the entire period (or, in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the date of the Effective Time and the denominator of which is the number of calendar days in the entire period (not taking into account any adjustment in the amount of Tax as a result of the Merger). SECTION 8.02. Returns and Payments. The Company shall prepare and file in a timely manner all Tax returns, reports and forms ("Returns") relating to the Company and the Subsidiary that are due on or before or relate to any Tax period ending on or before the date of the Effective Time and any other Returns of the Company and the Subsidiary, including any Returns for any Tax periods beginning before but ending after the date of the Effective Time. Returns of the Company and the Subsidiary not yet filed for any Tax period that begins on or before the date of the Effective Time ("Pre-Effective Time Return") shall be prepared, and each item thereon treated, in a manner consistent with past practices employed with respect to the Company and the Subsidiary (except to the extent counsel for the Company determines there is no reasonable basis in law therefore or determines that a Return cannot be so prepared and filed or an item so reported without being subject to penalties). With respect to any Pre-Effective 47 Time Return, the Shareholders' Representative (as hereinafter defined) shall have the right to review such Return and statement prior to the filing of such Return and the Company agrees to discuss in good faith the items reflected on such Return and any adjustments reasonably requested by the Shareholders' Representative. In the event there is a dispute regarding any adjustment requested by the Shareholders' Representative that cannot be resolved by the parties within 30 days after receipt by the Company of such requested adjustments, the Shareholders' Representative and the Company shall submit the items remaining in dispute for resolution to an Independent Accounting Firm, which shall, within 30 days after such submission, deliver a report to the Company and the Shareholders' Representative setting forth the resolution of such disputed items and the adjustment, if any, to be made to the Return, and such report shall be final, binding and conclusive on the Shareholders' Representative and the Company. The fees and disbursements of the Independent Accounting Firm shall be allocated between the Shareholders' Representative and the Company in the same proportion that the aggregate amount of such disputed items submitted to the Independent Accounting Firm that are unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of such disputed items so submitted. The Shareholders and Parent agree that any Tax deduction arising from the exercise of Company Stock Options on or before the Effective Time shall be allocable to the appropriate Tax period (or portion thereof) ending on or before the date of the Effective Time. For the avoidance of doubt, the Shareholders and Parent agree that the federal income tax period of the Company shall end as of the end of the day of the date of the Effective Time. The Shareholders and the Parent agree that the Company shall claim the deductions arising from the exercise of the Company Stock Options in the taxable year that includes the Effective Time and any unused deductions or loss that are not used in the taxable year that includes the Effective Time shall be carried back to prior taxable years, to the extent permissible under law. The Shareholders shall be entitled to any Tax refunds in accordance with Section 8.03. If for any state or local income or franchise tax purposes the taxable year that includes the Effective Time does not end as of the end of the day of the Effective Time, then in addition to the Tax refund in accordance with Section 8.03, Parent shall pay to the Shareholders the amount of any actual state or local tax savings realized by the Company or members of its consolidated or combined group for such taxable year that includes the Effective Time to the extent such deductions offset income allocable to the portion of such taxable year after the Effective Time pursuant to Section 8.01(b) and such deductions could have otherwise been claimed as a refund if the taxable year had ended on the day of the Effective Time. If (i) the Effective Time is on or after January 1, 2004 and (ii) the Company is not entitled under such state or local income or franchise tax law to carry back the deductions or losses to prior taxable years, then Parent shall pay to the Shareholders the amount of any actual tax savings realized by the Company or members of its consolidated or combined group for taxable years beginning after the Effective Time to the extent the Company would have been entitled to a refund of such state or local taxes had the exercise of Company Stock Options and the date of the Effective Time both occurred on December 31, 2003. SECTION 8.03. Refunds. Any Tax refund (including any interest with respect thereto) relating to the Company or the Subsidiary for any taxable period ending on or before the date of the Effective Time or otherwise allocable to a portion of the taxable period ending on the date of the Effective Time using the appropriate allocation method set forth in Section 8.01(b) shall be the property of the Shareholders, and if received by Parent or the Company or the Subsidiary shall be payable promptly to the Shareholders' Representative on behalf of the 48 Shareholders to be distributed to the Shareholders by the Shareholders' Representative in proportion to the number of shares of Company Common Stock held by each such Shareholder immediately prior to the Effective Time. Notwithstanding the foregoing sentence: (i) any Tax refund (or equivalent benefit to the Shareholders through a reduction in Tax liability) for a period before the date of the Effective Time arising out of the carryback of a loss or credit incurred by the Company or the Subsidiary in a taxable year ending after the date of the Effective Time that is attributable to a period after the Effective Date using the appropriate allocation method set forth in Section 8.01(b), as applicable, shall be the property of Parent and, if received by the Shareholders, shall be payable promptly to Parent; and (ii) if, as of such time, if any, as Parent shall receive a refund that would be the property of the Shareholders and payable to the Shareholders under the foregoing sentence, Taxes have been asserted in writing that would be required to be indemnified by the Shareholders hereunder, all or part of such refund up to an amount equal to 120% of such asserted Taxes shall, at the option of Parent, be deposited in escrow for satisfaction of any amounts indemnifiable under this Article VIII that have been asserted or subsequently are asserted, until the time set forth in Section 8.05 hereof or until the matter has been resolved, whichever is earlier. SECTION 8.04. Contests. (a) After the date of the Effective Time, Parent shall promptly notify the Shareholders' Representative in writing of any written notice of a proposed adjustment or claim in an audit or administrative or judicial proceeding involving Parent or the Company or the Subsidiary which, if determined adversely to the taxpayer, would be grounds for indemnification under this Article VIII; provided, however, that a failure to give such notice will not affect Parent's right to indemnification hereunder except to the extent, if any, that, but for such failure, the Shareholders could have avoided the Tax liability in question. (b) In the case of an audit or administrative or judicial proceeding that relates to taxable periods ending on or before the date of the Effective Time, provided that the Shareholders' Representative on behalf of all Shareholders acknowledges in writing the Shareholders' liability under this Agreement to hold Parent and the Company and the Subsidiary harmless against the full amount of any adjustment that may be made as a result of such audit or proceeding that relates to taxable periods ending on or before the date of the Effective Time, the Shareholders' Representative shall have the right at the Shareholders' expense to participate in and control the conduct of such audit or proceeding but only to the extent that such audit or proceeding relates solely to a potential adjustment for which the Shareholders' Representative has acknowledged the Shareholders' liability and the issue underlying the proposed adjustment if resolved would not materially prejudice the Company or the Subsidiary from taking a contrary position for any period ending after the date of the Effective Time with respect to such recurring issue. The Shareholders' Representative shall keep Parent informed of the progress of any such audit or proceeding and if it appears in the reasonable discretion of Parent that such audit or proceeding may adversely affect Parent, Parent also may participate in any such audit or proceeding at its expense. If the Shareholders' Representative does not assume the defense of any such audit or proceeding, Parent may defend the same in such manner as it may deem appropriate at its expense, including, but not limited to, settling such audit or proceeding after giving five days prior written notice to the Shareholders' Representative setting forth the terms and conditions of settlement. In the event that a potential adjustment as to which the Shareholders' Representative has acknowledged the Shareholders' liability is present in the same 49 proceeding as a potential adjustment for which Parent would be liable, Parent shall have the right at its expense, to control the audit or proceeding with respect to the latter potential adjustment. (c) With respect to an audit or proceeding that relates to a potential adjustment for which both the Shareholders (as evidenced by their acknowledgement under this Section 8.04) and Parent or the Company or the Subsidiary could be liable, or which involves a taxable period ending after the Effective Time but includes the Effective Time (and the Shareholders' Representative has acknowledged in writing the Shareholders' portion of the tax liability under Section 8.01(b)) or an issue that recurs for any period ending after the date of the Effective Time (whether or not the subject of audit at such time) that the Shareholders' Representative does not control pursuant to Section 8.04(b) above, (i) each of the Shareholders' Representative and Parent may participate in the audit or proceeding at their respective expense, and (ii) the audit or proceeding shall be controlled by that party which would bear the burden of the greater portion of the sum of the adjustment and any corresponding adjustments that may reasonably be anticipated for future Tax periods. The principle set forth in the preceding sentence shall govern also for purposes of deciding any issue that must be decided jointly (in particular, choice of judicial forum) in situation in which separate issues are otherwise controlled hereunder by Parent and the Shareholders' Representative. (d) Except as otherwise provided in Section 8.04(b) above, neither Parent nor the Shareholders' Representative shall enter into any compromise or agree to settle any claim pursuant to any Tax audit or proceeding which would adversely affect the other party for such year or a subsequent year without the written consent of the other party, which consent may not be unreasonably withheld. Parent and the Shareholders agree to cooperate, and Parent agrees to cause the Company and the Subsidiary to cooperate, in the defense against or compromise of any claim in any audit or proceeding. SECTION 8.05. Time of Payment. Payment by the Shareholders of any amounts due under this Article VIII in respect of Taxes shall be made (i) at least three business days before the due date of the applicable estimated or final tax return required to be filed by Parent on which is required to be reported income for a period ending after the date of the Effective Time for which the Shareholders are responsible under Sections 8.01(a) and 8.01(b) without regard to whether the return shows overall net income or loss for such period, and (ii) within three business days following an agreement between the Shareholders and Parent that an indemnity amount is payable, an assessment of a Tax by a taxing authority, or a "determination" as defined in Section 1313(a) of the Code. If liability under this Article VIII is in respect of costs or expenses other than Taxes, payment by the Shareholders of any amounts due under this Article VIII shall be made within five business days after the date when the Shareholders have been notified by Parent that the Shareholders have a liability for a determinable amount under this Article VIII and is provided with calculations or other materials supporting such liability. SECTION 8.06. Cooperation and Exchange of Information. The Shareholders and Parent will (and Parent after the Effective Time will cause the Company and the Subsidiary to) provide the others with such cooperation and information as any of them reasonably may request of the others in filing any Return, amended Return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes, participating in or conducting any audit or other proceeding in respect of Taxes or making representations to or furnishing information to 50 parties subsequently desiring to purchase either of the Company or the Subsidiary or a part of the business from Parent. Such cooperation and information shall include providing copies of relevant Returns or portions thereof, together with accompanying schedules, related work papers and documents relating to rulings or other determinations by Tax authorities. The Shareholders and Parent shall (and Parent after the Effective Time will cause the Company and the Subsidiary to) retain all Returns, schedules and work papers, records and other documents in their possession relating to Tax matters of the Company and the Subsidiary for each taxable period first ending after the date of the Effective Time and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Returns and other documents relate, without regard to extensions except to the extent notified by the other party in writing of such extensions for the respective Tax periods, or (ii) six years following the due date (without extension) for such Returns. Any information obtained under this Section 8.06 shall be kept confidential except as may be otherwise necessary in connection with the filing of Returns or claims for refund or in conducting an audit or other proceeding. SECTION 8.07. Characterization of Payments. Parent and the Shareholders agree to treat all payments made by any of them to or for the benefit of the others (including any payments to the Company or any Subsidiary) under this Article VIII or under Article XI or other indemnity provisions of this agreement and for any misrepresentations or breach of warranties or covenants as adjustments to the purchase price or as capital contributions for Tax purposes and that such treatment shall govern for purposes hereof except to the extent that the laws of a particular jurisdiction provide otherwise, in which case such payments shall be made in an amount sufficient to indemnify the relevant party on an after-Tax basis (it being understood that in the unlikely event that a payment is made on an after-tax basis, any additional payment due pursuant to this Section 8.07 shall be reduced by any tax benefits allowable to the Company, any Subsidiary or Parent because of the adjustment giving rise to the indemnification). ARTICLE IX CONDITIONS TO THE MERGER SECTION 9.01. Conditions to the Obligations of Each Party. The obligations of the Company, Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permissible) of the following conditions. (a) Company Shareholder Approval. This Agreement shall have been approved and adopted by the requisite affirmative vote of the Company's shareholders in accordance with the CGCL and the Company's Articles of Incorporation. (b) No Order. No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, judgment, decree, executive order or award (an "Order") which is then in effect and has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger. (c) U.S. Antitrust Approvals and Waiting Periods. Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated. 51 SECTION 9.02. Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger are subject to the satisfaction or waiver (where permissible) of the following additional conditions: (a) Representations and Warranties. (i) The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects as of the Effective Time, as though made on and as of the Effective Time, except to the extent expressly made as of an earlier date, in which case as of such earlier date and (ii) the representation and warranties of the Significant Shareholders contained in the Voting and Subscription Agreement shall be true and correct in all material respects as of the Effective Time, as though made on and as of the Effective Time, except to the extent expressly made as of an earlier date, in which case as of such earlier date; provided that in any case any representation or warranty that is qualified by materiality or Company Material Adverse Effect shall be true and correct in all respects as of the Effective Time, or as of such particular earlier date, as the case may be. (b) Agreements and Covenants. (i) The Company shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time, and (ii) the Significant Shareholders shall have performed or complied in all material respects with all agreements and covenants required by the Voting and Subscription Agreement to be performed or complied with on or prior to the Effective Time. (c) Officer Certificate. The Company shall have delivered to Parent a certificate, dated the date of the Closing, signed by the Chief Executive Officer of the Company, certifying as to the satisfaction of the conditions specified in Section 9.02(a)(i) and Section 9.02(b)(i). (d) Financing. The Financing shall have been obtained pursuant to and substantially in accordance with the terms and conditions specified in the Financing Letter, or alternative financing as provided in Section 7.11(a) of this Agreement shall have been obtained by Parent or Merger Sub. (e) Consents. All material consents, approvals and authorizations legally required to be obtained to consummate the Merger shall have been obtained from and made with all Governmental Entities, and all material consents from third parties set forth in Sections 4.05 and all of the consents set forth in 9.02(e) of the Company Disclosure Schedule shall have been obtained. (f) Credit Agreement. U.S. Bank, N.A. shall have provided a "pay-off" letter to the Company in form and substance reasonably satisfactory to Parent agreeing, among other things, to release all security interests in assets of the Company and the Subsidiary and all shareholder guarantees upon repayment of all amounts outstanding under the Credit Agreement. 52 (g) Material Adverse Effect. No Company Material Adverse Effect, nor any events, circumstances, changes or effects that in the aggregate would constitute a Company Material Adverse Effect, shall have occurred since the date of this Agreement. (h) Shareholder Approval. Holders of at least 93% of all shares of Company Common Stock entitled to vote on the Merger shall have approved this Agreement and the transactions contemplated hereby. (i) Employees. Each of the Employment Agreements shall be in full force and effect and none of the employees thereto have terminated their employment thereunder or given notice of their intention to terminate such employment, and all of the individuals set forth in Section 9.02(i)(i) of the Company Disclosure Schedule and 90% of the individuals set forth in Section 9.02(i)(ii) of the Company Disclosure Schedule shall be employed by the Company and the Subsidiary as of the Closing and shall not have given notice of their intention to terminate such employment. (j) Resignation. All members of the Board of Directors of the Company and the Subsidiary shall have executed written resignations effective as of the Effective Time. (k) Indemnity Escrow Agreement. The Company shall have entered into the Escrow Agreement, and the Escrow Agreement shall be in full force and effect at the Effective Time. (l) Share Escrow Agreements. Each of Bradley R. Mason and William R. Hopson shall have entered into the share escrow agreements with Parent, in the agreed forms, with respect to the shares of Parent Common Stock to be purchased by them pursuant to the Voting and Subscription Agreement, and such share escrow agreements shall be in full force and effect at the Effective Time. (m) Intellectual Property Lien. The Company shall have delivered to Parent evidence satisfactory to Parent of the release of the security interest in the Company Intellectual Property recorded on May 5, 2000 with the United States Patent and Trademark Office in favor of Sanwa Bank of California. (n) Environmental Insurance Policy. Parent shall have procured the Environmental Insurance Policy and such policy shall be in full force and effect. (o) Voting and Subscription Agreement. The Voting and Subscription Agreement shall be in full force and effect, no Significant Shareholder shall be in default thereunder and all conditions to the issuance of shares of Parent Common Stock thereunder shall have been satisfied. (p) Taxes. The Company shall have filed amended or original Tax returns and paid all Taxes required to be filed and paid by the Company prior to the date hereof with respect to exercises of options to acquire Shares made prior to the date hereof, or, with respect to the withholding of Taxes for 2002, Parent shall have received appropriate certifications from the individuals that exercised options in 2002 that such individuals have paid all Taxes imposed on such individual with respect to such exercises. 53 (q) Vista Lease. North County Industrial Park, L.P., as landlord under the Standard Industrial/Commercial Multi-Tenant Lease between the Company and North County Industrial Park, L.P., dated May 15, 1995 (the "Vista Lease"), shall have consented to the deemed assignment of the Vista Lease resulting from the Merger and shall have agreed to release the related personal guarantees of Bradley R. Mason, Gregory Nelson, William R. Hopson, Jeffrey Mason and William Bue at the Effective Time. (r) Promissory Notes. Parent shall be reasonably satisfied that all promissory notes held by the Company as of the Effective Time can be repaid to the Company as contemplated pursuant to Section 7.12 out of the cash consideration to be paid to the note holders as a result of the Merger (net of any cash to be reinvested in Parent Common Stock in accordance with the Voting and Subscription Agreement). (s) Capstone. The Company shall have paid all amounts owed to Capstone Turbine Corporation and shall have no further liability to such entity. SECTION 9.03. Conditions to the Obligations of the Company. The obligations of the Company to consummate the Merger are subject to the satisfaction or waiver (where permissible) of the following additional conditions: (a) Representations and Warranties. The representations and warranties of Parent and Merger Sub contained in this Agreement and the Voting and Subscription Agreement shall be true and correct in all material respects as of the Effective Time, as though made on and as of the Effective Time, except to the extent expressly made as of an earlier date, in which case as of such earlier date; provided that any representation or warranty that is qualified by materiality or Parent Material Adverse Effect shall be true and correct in all respects as of the Effective Time, or as of such particular earlier date, as the case may be. (b) Agreements and Covenants. Parent and Merger Sub shall have performed or complied in all material respects with all agreements and covenants required by this Agreement or the Voting and Subscription Agreement to be performed or complied with by it on or prior to the Effective Time. (c) Officer Certificate. Parent shall have delivered to the Company a certificate, dated the date of the Closing, signed by the Chief Executive Officer of Parent, certifying as to the satisfaction of the conditions specified in Section 9.03(a) and Section 9.03(b). (d) Credit Agreement. U.S. Bank, N.A. shall have provided a "pay-off" letter to the Company in form and substance reasonably satisfactory to the Company agreeing, among other things, to release all security interests in assets of the Company and the Subsidiary and all shareholder guarantees upon repayment of all amounts outstanding under the Credit Agreement. 54 (e) Material Adverse Effect. No Parent Material Adverse Effect, nor any events, circumstances, changes or effects that in the aggregate would constitute a Parent Material Adverse Effect, shall have occurred since the date of this Agreement. (f) Promissory Notes. Parent shall have provided evidence reasonably satisfactory to the Shareholders' Representative that the payment of the promissory notes owed to the holders of Shares listed on Section 4.07(b) of the Company Disclosure Schedule shall be made by Parent or the Surviving Corporation at the Effective Time, subject to setoff of any amounts owed by such holders to Parent under the Voting and Subscription Agreement. (g) Vista Lease. North County Industrial Park, L.P., as landlord under the Vista Lease, shall have consented to the deemed assignment of the Vista Lease resulting from the Merger and shall have agreed to release the related personal guarantees of Bradley R. Mason, Gregory Nelson, William R. Hopson, Jeffrey Mason and William Bue at the Effective Time. ARTICLE X TERMINATION, AMENDMENT AND WAIVER SECTION 10.01. Termination. This Agreement may be terminated and the Merger and the other transactions contemplated by this Agreement may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval and adoption of this Agreement and the Merger and the other transactions contemplated by this Agreement by the Shareholders, as follows: (a) by mutual written consent of Parent and the Company duly authorized by the Parent Board and the Company Board; or (b) by either Parent or the Company if the Effective Time shall not have occurred on or before January 31, 2004; provided, however, that the right to terminate this Agreement under this Section 10.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date; or (c) by either Parent or the Company if any Order which is final and nonappealable has the effect of making consummation of the Merger illegal or otherwise preventing or prohibiting consummation of the Merger; or (d) by either Parent or the Company if this Agreement shall fail to receive the approval of holders of a majority of the issued and outstanding shares of the Company's Common Stock on or prior to five business days after the date of this Agreement; or (e) by Parent (i) upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement or on the part of any Significant Shareholder set forth in the Voting and Subscription Agreement, or (ii) if any representation or warranty of the Company or any Significant Shareholder shall have 55 become untrue, if, in the case of either (i) or (ii) above, the conditions set forth in Section 9.02(a) and Section 9.02(b) would not be satisfied ("Terminating Company Breach"); provided, however, that, if such Terminating Company Breach is curable by the Company or the Significant Shareholders, Parent may not terminate this Agreement under this Section 10.01(e) for so long as the Company continues to exercise its best efforts to cure such breach, unless such breach is not cured within 20 days after notice of such breach is provided by Parent to the Company; or (f) by the Company (i) upon a breach of any representation, warranty, covenant or agreement on the part of Parent and Merger Sub set forth in this Agreement or the Voting and Subscription Agreement, or (ii) if any representation or warranty of Parent and Merger Sub shall have become untrue, if, in the case of either (i) or (ii) above, the conditions set forth in Section 9.03(a) and Section 9.03(b) would not be satisfied ("Terminating Parent Breach"); provided, however, that, if such Terminating Parent Breach is curable by Parent and Merger Sub, the Company may not terminate this Agreement under this Section 10.01(f) for so long as Parent and Merger Sub continue to exercise their best efforts to cure such breach, unless such breach is not cured within 20 days after notice of such breach is provided by the Company to Parent. SECTION 10.02. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 10.01, this Agreement shall forthwith become void, and there shall be no liability under this Agreement on the part of any party hereto, except nothing herein shall relieve any party from liability for any willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement; provided, however, that the Confidentiality Agreement shall survive any termination of this Agreement. SECTION 10.03. Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after the approval and adoption of this Agreement and the Merger and the other transactions contemplated by this Agreement by the Shareholders, no amendment may be made that would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by each of the parties hereto. SECTION 10.04. Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any obligation or other act of any other party hereto, (b) waive any inaccuracy in the representations and warranties of any other party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any agreement of any other party or any condition to its own obligations contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. 56 ARTICLE XI INDEMNIFICATION SECTION 11.01. Survival of Representations and Warranties. The representations and warranties contained in this Agreement, the Voting and Subscription Agreement and the Subscription Agreements (collectively, the "Acquisition Documents") shall survive the Effective Time for a period of two years. Neither the period of survival nor the liability of a party hereto with respect to such party's representations and warranties shall be reduced by any investigation made at any time by or on behalf of another party hereto. If written notice of a claim has been given prior to the expiration of the applicable representations and warranties by a party hereto to another party hereto, then the relevant representations and warranties shall survive as to such claim until such claim has been finally resolved. SECTION 11.02. Indemnification by the Shareholders. (a) After the Effective Time, Parent and its affiliates (including, after the Effective Time, the Surviving Corporation), officers, directors, employees, agents, successors and assigns (collectively, the "Parent Indemnified Parties") shall be indemnified and held harmless by each holder of shares of Company Common Stock as of immediately prior to the Effective Time (each, a "Shareholder") for any and all liabilities, losses, damages, claims, costs and expenses, interest, awards, judgments and penalties (including reasonable attorneys' and consultants' fees and expenses and other costs of defending, investigating or settling claims) actually suffered or incurred by them (including in connection with any action brought or otherwise initiated by any of them) (hereinafter, a "Loss"), arising out of or resulting from: (i) the breach of any representation or warranty (without giving effect to any qualification as to materiality or Company Material Adverse Effect (or similar qualifications) contained therein in determining the amount of any Loss) made by the Company or such Shareholder in the Acquisition Documents as of the date of this Agreement or as if such representation and warranty was made on and as of the date of the Effective Time; provided, however, that no Shareholder shall be liable for any breach of any representation or warranty made by any other Shareholder in the Voting and Subscription Agreement or the Subscription Agreements; (ii) the breach of any covenant or agreement made by the Company or such Shareholder in the Acquisition Documents; provided, however, that no Shareholder shall be liable for any breach of any covenant or agreement made by any other Shareholder in the Voting and Subscription Agreement or the Subscription Agreements; (iii) Losses from breach of contract or other claims made by any party alleging to have had a contractual or other right to acquire the Company's capital stock or assets or the right to approve this Agreement; (iv) the matters listed in Sections 4.09, 4.13(b) and 4.17(d) of the Company Disclosure Schedule; 57 (v) the amount, if any, by which the Final Closing Working Capital is less than the Estimated Closing Working Capital; (vi) the amount of any costs or expenses incurred by the Company or the Subsidiary in connection with this Agreement, the Merger and the other transactions contemplated by this Agreement that were not paid prior to the Effective Time and not reflected on the estimate of such unpaid costs and expenses provided to Parent prior to the Effective Time in accordance with Section 7.10; and (vii) the amount, if any, by which the Closing Cash, as determined by Parent after the Effective Time, is less than the good faith estimate of the Closing Cash provided to Parent by the Company immediately prior to the Effective Time in accordance with Section 3.01(a). To the extent that any of the undertakings of the Shareholders set forth in this Section 11.02(a) may be unenforceable, the Shareholders shall contribute from the Cash Escrow Fund the maximum amount that they are permitted to contribute under applicable Law to the payment and satisfaction of all Losses incurred by the Parent Indemnified Parties, subject to the limitations imposed by this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, except with respect to claims based on fraud: (i) no indemnification payment by the Shareholders with respect to any indemnifiable Loss otherwise payable under Section 11.02(a) and arising out of or resulting from the causes enumerated in Section 11.02(a) (other than Section 11.02(a)(v)-(vii) shall be payable until such time as all such indemnifiable Losses shall aggregate to more than $1,500,000, after which time the Shareholders shall only be liable for such indemnifiable Losses in excess of the first $1,500,000; (ii) the maximum aggregate amount of indemnifiable Losses arising out of or resulting from the causes enumerated in Section 11.02(a) (other than, with respect to the Voting and Subscription Agreement and the Subscription Agreements, breaches of covenants therein and other obligations to be performed thereunder at or after the Effective Time) that may be recovered by the Parent Indemnified Parties shall be limited to the amount of the Cash Escrow Fund; and (iii) no Loss shall be deemed to have been sustained by any Parent Indemnified Party to the extent of any proceeds received by such party from any insurance policies with respect thereto or any monies received by such Parent Indemnified Party pursuant to indemnification obligations of third parties. SECTION 11.03. Indemnification by Parent. (a) After the Effective Time, the Shareholders and their respective affiliates, officers, directors, employees, agents, successors and assigns (collectively, the "Shareholder Indemnified Parties") shall be indemnified and held harmless by Parent for any and all Losses, arising out of or resulting from: 58 (i) the breach of any representation or warranty (without giving effect to any qualification as to materiality contained therein in determining the amount of any Loss) made by Parent in the Acquisition Documents as of the date of this Agreement or as if such representation and warranty was made on and as of the date of the Effective Time; (ii) the breach of any covenant or agreement made by Parent in the Acquisition Documents; or (iii) the amount, if any, by which the Closing Cash, as determined by Parent after the Effective Time, is greater than the good faith estimate of the Closing Cash provided to Parent by the Company immediately prior to the Effective Time in accordance with Section 3.01(a). To the extent that any of Parent's undertakings set forth in this Section 11.03(a) may be unenforceable, Parent shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all Losses incurred by the Shareholder Indemnified Parties, subject to the limitations imposed by this Agreement. (b) Notwithstanding anything to the contrary contained in this Agreement, except with respect to claims based on fraud: (i) no indemnification payment by Parent with respect to any indemnifiable Loss otherwise payable under Section 11.03(a)(i) and (ii) and arising out of or resulting from the causes enumerated in Section 11.03(a) (except for Parent's obligation under Section 3.02(a) to deposit cash sufficient to pay the aggregate cash consideration pursuant to Section 3.02) shall be payable until such time as all such indemnifiable Losses shall aggregate to more than $1,500,000, after which time Parent shall only be liable for such indemnifiable Losses in excess of the first $1,500,000; (ii) the maximum aggregate amount of indemnifiable Losses arising out of or resulting from the causes enumerated in Section 11.03(a)(i) or (ii) (except for Parent's obligation under Section 3.02(a) to deposit cash sufficient to pay the aggregate cash consideration pursuant to Section 3.02) that may be recovered from Parent shall be limited to $12,000,000; and (iii) no Loss shall be deemed to have been sustained by any Shareholder Indemnified Party to the extent of any proceeds received by such party from any insurance policies with respect thereto. SECTION 11.04. Indemnification Procedures. (a) For purposes of this Section 11.04, a party against which indemnification may be sought is referred to as the "Indemnifying Party" and the party which may be entitled to indemnification is referred to as the "Indemnified Party". (b) The obligations and liabilities of Indemnifying Parties under this Article XI with respect to Losses arising from claims of any third party which are subject to the indemnification provided for in this Article XI ("Third Party Claims") shall be governed by and 59 contingent upon the following additional terms and conditions: if an Indemnified Party shall receive notice of any Third Party Claim, the Indemnified Party shall give all Indemnifying Parties notice of such Third Party Claim as promptly as practicable after the receipt by the Indemnified Party of such notice; provided, however, that the failure to provide such notice shall not release an Indemnifying Party from any of its obligations under this Article XI except to the extent that such Indemnifying Party is materially prejudiced by such failure. The notice of claim shall describe in reasonable detail the facts known to the Indemnified Party giving rise to such indemnification claim, and the amount or good faith estimate of the amount arising therefrom. (c) The Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it gives notice of its intention to do so to the Indemnified Party within 10 days of the receipt of such notice from the Indemnified Party; provided, however, that, if there exists or is reasonably likely to exist a conflict of interest that would make it inappropriate in the judgment of the Indemnified Party, in its reasonable discretion, for the same counsel to represent both the Indemnified Party and the Indemnifying Party, then the Indemnified Party shall be entitled to retain its own counsel, in each jurisdiction for which the Indemnified Party determines counsel is required, at the expense of the Indemnifying Party. In the event that the Indemnifying Party exercises the right to undertake any such defense against any such Third Party Claim as provided above, the Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party's expense, all witnesses, pertinent records, materials and information in the Indemnified Party's possession or under the Indemnified Party's control relating thereto as is reasonably required by the Indemnifying Party. Similarly, in the event the Indemnified Party is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party in such defense and make available to the Indemnified Party, at the Indemnifying Party's expense, all such witnesses, records, materials and information in the Indemnifying Party's possession or under the Indemnifying Party's control relating thereto as is reasonably required by the Indemnified Party. No such Third Party Claim may be settled by any party conducting the defense against such claim without the prior written consent of the other party unless the other party and its affiliates is released in full in connection with such settlement. SECTION 11.05. Shareholders' Representative. Bradley R. Mason (such person and any successor or successors being the "Shareholders' Representative") shall act as the representative of the Shareholders, and shall be authorized to act on behalf of the Shareholders and to take any and all actions required or permitted to be taken by the Shareholders' Representative under this Agreement or the Escrow Agreement, with respect to any claims (including the settlement thereof) made by Parent or the Shareholders for indemnification pursuant to Article VIII or this Article XI of this Agreement and with respect to any actions to be taken by the Shareholders' Representative pursuant to the terms of the Escrow Agreement. The Shareholders shall be bound by all actions taken by the Shareholders' Representative in its capacity thereof that are within the authority granted herein. The Shareholders' Representative shall at all times act in his or her capacity as Shareholders' Representative in a manner that the Shareholders' Representative believes in good faith to be in the best interest of the Shareholders. Neither the Shareholders' Representative nor any of its directors, officers, agents or employees shall be liable to any person for any error of judgment, or any action taken, suffered or omitted to be taken, under this Agreement or the Escrow Agreement, except in the case of its gross 60 negligence, bad faith or willful misconduct. The Shareholders' Representative may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts. The Shareholders' Representative shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the Escrow Agreement. As to any matters not expressly provided for in this Agreement or the Escrow Agreement, the Shareholders' Representative shall not be required to exercise any discretion or take any action. Each Shareholder severally shall indemnify and hold harmless and reimburse the Shareholders' Representative from and against such Shareholder's ratable share of any and all liabilities, losses, damages, claims, costs or expenses suffered or incurred by the Shareholders' Representative arising out of or resulting from any action taken or omitted to be taken by the Shareholders' Representative under this Agreement or the Escrow Agreement, other than such liabilities, losses, damages, claims, costs or expenses arising out of or resulting from the Shareholders' Representative's gross negligence, bad faith or willful misconduct. Notwithstanding anything to the contrary herein or in the Escrow Agreement, (a) the Shareholders' Representative is not authorized to, and shall not, accept on behalf of any Shareholder any Merger Consideration to which such Shareholder is entitled under this Agreement and (b) the Shareholders' Representative shall not in any manner exercise, or seek to exercise, any voting power whatsoever with respect to shares of capital stock of the Company or Parent now or hereafter owned of record or beneficially by any Shareholder unless the Shareholders' Representative is expressly authorized to do so in a writing signed by such Shareholder. In all matters relating to this Article XI, the Shareholders' Representative shall be the only party entitled to assert the rights of the Shareholders, and the Shareholders' Representative shall perform all of the obligations of the Shareholders hereunder. Parent shall be entitled to rely on all statements, representations and decisions of the Shareholders' Representative. SECTION 11.06. Exclusive Remedy. Except with respect to claims based on fraud or for non-cash equitable remedies, from and after the Effective Time the sole and exclusive remedy for any breach of any representation or warranty contained in the Acquisition Documents and for any other claim arising out of the Transactions contemplated thereunder shall be pursuant to the indemnification provisions of Article VIII and this Article XI and indemnification claims pursuant to Article VIII and Section 11.02(a) (other than, with respect to the Voting and Subscription Agreement and the Subscription Agreements, breaches of covenants therein and other obligations to be performed thereunder at or after the Effective Time) may be satisfied only in accordance with the Escrow Agreement only out of cash held in the Cash Escrow Fund. ARTICLE XII GENERAL PROVISIONS SECTION 12.01. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following 61 addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 12.01): if to Parent or Merger Sub: Orthofix International N.V. 10115 Kincey Avenue, Suite 250 Huntersville, NC 28078 Facsimile No.: (704) 948-2690 Attention: Thomas Hein Email: Tomhein@orthofix.com with a copy to: Shearman & Sterling LLP 599 Lexington Avenue New York, New York 10022 Facsimile No.: (212) 848-7179 Attention: John Marzulli Email: jmarzulli@shearman.com if to the Company: Breg, Inc. 2611 Commerce Way Vista, CA 92081 Attention: Bradley R. Mason with a copy to: Alan S. Rich, A Professional Law Corporation 5857 Owens Avenue, Suite 200 Carlsbad, CA 92008 Attention: Alan S. Rich with an additional copy to: Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, CA 94111 Facsimile No.: (415) 773-5759 Attention: John F. Seegal Email: jseegal@orrick.com if to the Shareholders' Representative: Bradley R. Mason 6284 Strada Fragante 62 Rancho Santa Fe, CA 92091 with a copy to: Alan S. Rich, A Professional Law Corporation 5857 Owens Avenue, Suite 200 Carlsbad, CA 92008 Attention: Alan Rich with an additional copy to: Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, CA 94111 Facsimile No.: (415) 773-5759 Attention: John F. Seegal Email: jseegal@orrick.com SECTION 12.02. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent possible. SECTION 12.03. Entire Agreement. This Agreement (including the Exhibits, the Company Disclosure Schedule and the Parent Disclosure Schedule), the Escrow Agreement, the Voting and Subscription Agreement, the Subscription Agreements and the Confidentiality Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede, except as set forth in Section 7.02(b), all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. SECTION 12.04. Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether pursuant to a merger, by operation of law or otherwise), except that Parent and Merger Sub may assign all or any of their rights and obligations hereunder to any affiliate of Parent, provided that no such assignment shall relieve Parent or Merger Sub of its respective obligations hereunder. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. SECTION 12.05. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 63 SECTION 12.06. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 12.07. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts executed in and to be performed in that State (other than those provisions set forth herein that are required to be governed by the CGCL or the DGCL). All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in any state or federal court sitting in the State of California. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the State of California for the purpose of any Action arising out of or relating to this Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the Transactions may not be enforced in or by any of the above-named courts. SECTION 12.08. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS. EACH OF THE PARTIES HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THAT FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.08. SECTION 12.09. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 12.10. Incorporation of Exhibits. The Company Disclosure Schedule, the Parent Disclosure Schedule, the Schedules and all Exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. SECTION 12.11. No Waiver. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 64 SECTION 12.12. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 65 IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Shareholders' Representative have caused this Agreement to be executed as of the date first written above. ORTHOFIX INTERNATIONAL N.V. By /s/ CHARLES FEDERICO ------------------------------------ Name: Charles Federico Title: Chief Executive Officer TREVOR ACQUISITION, INC. By /s/ CHARLES FEDERICO ------------------------------------ Name: Charles Federico Title: Chief Executive Officer BREG, INC. By /s/ BRADLEY R. MASON ------------------------------------ Name: Bradley R. Mason Title: Chief Executive Officer BRADLEY R. MASON, as SHAREHOLDERS' REPRESENTATIVE /s/ BRADLEY R. MASON --------------------------------------- EX-10.2 4 ex10-2.txt VOTING AND SUBSCRIPTION AGREEMENT EXECUTION COPY ================================================================================ AMENDED AND RESTATED VOTING AND SUBSCRIPTION AGREEMENT among ORTHOFIX INTERNATIONAL N.V., and the SIGNIFICANT SHAREHOLDERS OF BREG, INC. identified on the signature pages hereto Dated as of December 22, 2003 ================================================================================ AMENDED AND RESTATED VOTING AND SUBSCRIPTION AGREEMENT AMENDED AND RESTATED VOTING AND SUBSCRIPTION AGREEMENT, dated as of December 22, 2003 (this "Agreement"), among ORTHOFIX INTERNATIONAL N.V., a company organized under the laws of the Netherlands Antilles ("Parent"), and the shareholders (each a "Significant Shareholder") of BREG, INC., a California corporation (the "Company") identified on the signature pages hereto. WHEREAS, Parent and certain Significant Shareholders identified on the signature pages thereto entered into a Voting and Subscription Agreement, dated as of November 20, 2003 (the "Original Agreement"); WHEREAS, Parent and such Significant Shareholders wish to amend and restate the Original Agreement by, among other things, adding certain additional Significant Shareholders as parties thereto and restating Exhibits A, B and C attached thereto; WHEREAS, Parent and Trevor Acquisition, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Merger Sub"), have entered into an Acquisition Agreement dated as of November 20, 2003 (as amended from time to time, the "Acquisition Agreement"; capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Acquisition Agreement), with the Company and Bradley R. Mason, as Shareholders' Representative, pursuant to which Merger Sub will merge with and into the Company (the "Merger"); WHEREAS, as of the date hereof, the Significant Shareholders are the record and beneficial owners of the number of Shares set forth in column 2 opposite each Significant Shareholder's name in Exhibit A hereto (the "Existing Shares" and, together with any shares of Company Common Stock acquired by Significant Shareholders after the date hereof, whether upon the exercise of warrants, options, conversion of convertible securities, or by means of purchase, dividend, distribution, split-up, recapitalization, combination, exchange of shares, gift, bequest, inheritance or as a successor in interest in any capacity or otherwise and any shares into which or for which any or all of the Existing Shares and additional shares may be changed or exchanged, the "Shares"); WHEREAS, the Significant Shareholders wish to purchase from Parent, and Parent wishes to issue and sell to the Significant Shareholders, immediately following the Effective Time of the Merger, shares of common stock, par value $0.10 per share, of Parent (the "Parent Common Stock") as set forth herein; and WHEREAS, as an inducement and a condition to entering into the Acquisition Agreement and incurring the obligations set forth therein, Parent has required that the Significant Shareholders agree to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I VOTING AGREEMENT SECTION 1.01. Voting Agreement. (a) Each Significant Shareholder hereby agrees that, from and after the date hereof and until the earlier to occur of the Effective Time and the termination of this Agreement in accordance with its terms, at every meeting of the shareholders of the Company, however called, and at every adjournment thereof, and in every action by consent of the shareholders of the Company, such Significant Shareholder shall, provided that such Significant Shareholder has not received notice from Parent (which notice may be delivered at any such meeting) stating Parent's intention to exercise the Proxy (as defined below) at such meeting, appear at any such meeting or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum, and shall vote or consent (or cause to be voted or consented) such Significant Shareholder's Shares: (i) in favor of the approval and adoption of the Acquisition Agreement, the Merger and all the transactions contemplated by the Acquisition Agreement and this Agreement and otherwise in such manner as may be necessary to consummate the Merger; (ii) except as otherwise agreed to in writing in advance by Parent, against any action, proposal, agreement or transaction that is intended or could reasonably be expected to result in a breach of any covenant, obligation, agreement, representation or warranty of the Company contained in the Acquisition Agreement or of such Significant Shareholder contained in this Agreement; and (iii) against any action, proposal, agreement or transaction, including, but not limited to, any Competing Transaction (other than the Acquisition Agreement or the Transactions), that could be reasonably expected to result in any of the conditions to the Company's obligations under the Acquisition Agreement (whether or not theretofore terminated) not being fulfilled or that could reasonably be expected to impede, interfere with or prevent, delay, postpone, discourage or adversely affect the Acquisition Agreement, the Merger or this Agreement. (b) If a Significant Shareholder fails for any reason to vote his, her or its Shares as required by Section 1.01(a), the holder of the Proxy shall have the right to vote such Significant Shareholder's Shares at any meeting of the Company's shareholders and in any action by written consent of the Company's shareholders in accordance with Section 1.01(a) and the Proxy. The vote of a holder of the Proxy shall control in any conflict between a vote of such Significant Shareholder's Shares by a holder of the Proxy and a vote of such Significant Shareholder's Shares by such Significant Shareholder with respect to the matters set forth in Section 1.01(a). (c) Each Significant Shareholder hereby agrees that such Significant Shareholder shall not enter into any agreement or understanding with any person the effect of 2 which would be inconsistent with or violative of any provision contained in Section 1.01(a) or (b). (d) No provision of this Agreement shall limit or otherwise restrict any Significant Shareholder with respect to any act or omission that such Significant Shareholder may undertake or authorize in such Significant Shareholder's capacity as a director or officer of the Company. SECTION 1.02. Irrevocable Proxy. Concurrently with the execution of this Agreement, each Significant Shareholder has delivered to Parent a proxy in the form attached as Exhibit D hereto (the "Proxy"), which such Significant Shareholder agrees shall be irrevocable to the fullest extent permissible by law, with respect to the Shares. ARTICLE II PURCHASE AND SALE OF PARENT COMMON STOCK SECTION 2.01. Purchase and Sale of Parent Common Stock. (a) Upon the terms and subject to the conditions of this Agreement and completion of the Merger, each Significant Shareholder shall purchase from Parent, and Parent shall issue and sell to such Significant Shareholder, immediately following the Effective Time and upon such Significant Shareholder's surrender of Certificates evidencing its Shares in accordance with Section 3.02 of the Acquisition Agreement, at a per share purchase price equal to the Average Parent Stock Price (as defined below), the number of shares of Parent Common Stock equal to the quotient determined by dividing (i) the value of the Parent Common Stock to be purchased by such Significant Shareholder (as set forth in Column 5 opposite the name of such Significant Shareholder on Exhibit A attached hereto) by (ii) the Average Parent Stock Price, and rounding the result down to the nearest whole share. Each Significant Shareholder shall pay the aggregate purchase price for the shares of Purchaser Common Stock to be purchased by such Significant Shareholder in cash out of the proceeds to be received by such Significant Shareholder upon completion of the Merger and Parent shall be entitled to offset such aggregate purchase price from the cash proceeds otherwise payable to such Significant Shareholder in connection with the completion of the Merger. With respect to the Bradley R. Mason Revocable Trust dated December 15, 1997 and the Hopson Revocable Trust dated September 23, 1994, each hereby agrees that, immediately after the Effective Time, Parent shall deposit into escrow all of the shares of Parent Common Stock to be issued to such Significant Shareholder under this Section 2.01(a), to be held and disbursed by the escrow agent in accordance with the terms of the share escrow agreement to be entered into by such Significant Shareholder, Parent and the escrow agent prior to the Effective Time (substantially in the form attached hereto as Exhibit G). For purposes of this Section 2.01, "Average Parent Stock Price" means $38.00. (b) Between the date of this Agreement and the Effective Time, each of the Significant Shareholders listed on Exhibit C attached hereto will use its reasonable efforts to cause each of the shareholders of the Company listed on Exhibit B attached hereto (the 3 "Additional Shareholders") to enter into a Subscription Agreement in the form attached hereto as Exhibit F (a "Subscription Agreement") pursuant to which each Additional Shareholder will agree to purchase from Parent, at a per share purchase price equal to the Average Parent Stock Price, the number of shares of Parent Common Stock equal to the quotient determined by dividing (i) the value of the Parent Common Stock to be purchased by such Additional Shareholder (as set forth in Column 5 opposite the name of such Additional Shareholder on Exhibit B attached hereto) by (ii) the Average Parent Stock Price, and rounding the result down to the nearest whole share. In the event that one or more Additional Shareholders fails to enter into a Subscription Agreement prior to the Effective Time or fails to complete the transactions contemplated thereby (each such Additional Shareholder being a "Defaulting Shareholder"), then each Significant Shareholder agrees, severally and not jointly, to purchase from Parent (in addition to the shares purchased under Section 2.01(a)), and Parent shall issue and sell to such Significant Shareholder, at a per share purchase price equal to the Average Parent Stock Price, the number of shares of Parent Common Stock equal to the number determined by multiplying (i) the quotient determined by dividing (A) the aggregate value of the Parent Common Stock to be purchased by all of the Defaulting Shareholders (as set forth in Column 5 opposite the names of the Defaulting Shareholders on Exhibit B attached hereto) by (B) the Average Parent Stock Price, by (ii) the percentage set forth in Column 6 opposite the name of such Significant Shareholder on Exhibit A attached hereto, and rounding the result down to the nearest whole share. SECTION 2.02. Restricted Securities. The shares of Parent Common Stock to be issued pursuant to this Agreement have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), and will be issued in a transaction that is exempt from the registration requirements of the Securities Act. Such shares of Parent Common Stock will be "restricted securities" under the federal securities laws and cannot be offered or resold except pursuant to registration under the Securities Act or an available exemption from registration. All certificates representing such shares of Parent Common Stock shall bear, in addition to any other legends required under applicable securities laws, the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred except pursuant to registration under the Securities Act or pursuant to an available exemption from registration." ARTICLE III REPRESENTATIONS AND WARRANTIES OF SIGNIFICANT SHAREHOLDERS Each Significant Shareholder hereby severally represents and warrants to Parent as follows: SECTION 3.01. Organization, Qualification. (a) Such Significant Shareholder, if it is an individual, has all legal capacity to enter into this Agreement and to deliver the Proxy, to carry out his or her obligations hereunder and to consummate the transactions contemplated 4 hereby. If such Significant Shareholder is married, the spouse of such Significant Shareholder has signed a consent to this Agreement substantially in the form of Exhibit E attached hereto. (b) Such Significant Shareholder, if it is a corporation or other legal entity, is duly organized, validly existing and, if applicable, in good standing under the Laws of the jurisdiction of its incorporation or formation and has the requisite power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing or, if applicable, in good standing or to have such power, authority and governmental approvals would not, individually or in the aggregate, prevent or materially delay consummation of the transactions contemplated by this Agreement or otherwise prevent or materially delay such Significant Shareholder from performing its obligations under this Agreement. (c) Such Significant Shareholder, if it is a corporation or other legal entity, is not in violation of any of the provisions of its certificate of incorporation, bylaws or equivalent organizational documents. SECTION 3.02. Authority Relative to this Agreement. Such Significant Shareholder has all necessary power and authority to execute and deliver this Agreement and the Proxy, to perform such Significant Shareholder's obligations hereunder and to consummate the transactions contemplated hereby. This Agreement and the Proxy have been duly and validly executed and delivered by such Significant Shareholder and constitute legal, valid and binding obligations of such Significant Shareholder, enforceable against such Significant Shareholder in accordance with their terms. SECTION 3.03. No Conflict. (a) The execution and delivery of this Agreement and the Proxy by such Significant Shareholder do not, and the performance of this Agreement and the Proxy by such Significant Shareholder shall not, (i) conflict with or violate the certificate of incorporation or bylaws or equivalent organizational documents of such Significant Shareholder (if such Significant Shareholder is a corporation or other legal entity), (ii) assuming satisfaction of the requirements set forth in Section 3.03(b) below, conflict with or violate the terms of any trust agreements or equivalent organizational documents of such Significant Shareholder (if such Significant Shareholder is a trust), (iii) conflict with or violate any Law applicable to such Significant Shareholder or by which the Shares owned by such Significant Shareholder are bound or affected or (iv) result in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the Shares owned by such Significant Shareholder pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which such Significant Shareholder is a party or by which such Significant Shareholder or the Shares owned by such Significant Shareholder are bound or affected, except for any such conflicts, violations, breaches, defaults or other occurrences that would not, individually or in the aggregate, prevent or materially delay consummation of the transactions contemplated by this Agreement and the Proxy or otherwise prevent or materially 5 delay such Significant Shareholder from performing its obligations under this Agreement and the Proxy. (b) The execution and delivery of this Agreement and the Proxy by such Significant Shareholder does not, and the performance of this Agreement and the Proxy by such Significant Shareholder shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority on the part of such Significant Shareholder, except (i) for applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Blue Sky Laws, state takeover Laws and the pre-merger notification requirements of the HSR Act and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually or in the aggregate, prevent or materially delay consummation of the transactions contemplated by this Agreement and the Proxy or otherwise prevent such Significant Shareholder from performing its material obligations under this Agreement and the Proxy. SECTION 3.04. Title to the Shares. As of the date hereof, such Significant Shareholder is the record and beneficial owner of the number of Existing Shares set forth in column 2 opposite such Significant Shareholder's name in Exhibit A hereto and of options to purchase the number of Shares set forth in column 3 opposite such Significant Shareholder's name in Exhibit A hereto. Such Existing Shares and options to purchase Shares are all the securities of the Company owned, either of record or beneficially, by such Significant Shareholder. The Shares and options to purchase Shares owned by such Significant Shareholder are now, and at all times during the term hereof will be, owned free and clear of all Encumbrances, other than any Encumbrances created by this Agreement and the Original Agreement. Except as provided in this Agreement and the Original Agreement, such Significant Shareholder has not appointed or granted any proxy, which appointment or grant is still effective, with respect to the Shares owned by such Significant Shareholder. SECTION 3.05. Private Placement Representations. (a) Issuance Not Registered. Such Significant Shareholder understands and acknowledges that the issuance of the shares of Parent Common Stock to be issued to it pursuant to this Agreement will not be registered under the Securities Act, and that such shares of Parent Common Stock will be "restricted securities" under the federal securities law. Such Significant Shareholder understands and acknowledges that such shares of Parent Common Stock cannot be offered or resold except pursuant to registration under the Securities Act or an available exemption from registration. (b) Investment Intent. Such Significant Shareholder will acquire the shares of Parent Common Stock issued to such Significant Shareholder hereunder for such Significant Shareholder's own account for investment and not with a view to the distribution thereof. Such Significant Shareholder has no present intention of distributing any portion thereof (or any interest therein). (c) Investment Experience and Status. Such Significant Shareholder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in shares of Parent Common Stock pursuant to this Agreement 6 and protecting such Significant Shareholder's own interests in connection with such transaction. Such Significant Shareholder has the financial ability to bear the economic risk of such Significant Shareholder's investment in shares of Parent Common Stock pursuant to this Agreement and such Significant Shareholder has no need for liquidity with respect to such Significant Shareholder's investment therein at this time. (d) Accredited Investor. Such Significant Shareholder is an "accredited investor" (as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act) for one or more of the following reasons: (i) such Significant Shareholder is an individual whose individual net worth, or joint net worth with his or her spouse, presently exceeds $1,000,000; (ii) such Significant Shareholder is an individual who had an income in excess of $200,000 in each of the two most recent years, or joint income with their spouses in excess of $300,000 in each of those years (in each case including foreign income, tax exempt income and the net amount of capital gains and losses but excluding any income of other family members and any unrealized capital appreciation) and has a reasonable expectation of reaching the same income level in the current year; (iii) such Significant Shareholder is a corporation, partnership, Massachusetts business trust or nonprofit organization within the meaning of Section 501(c)(3) of the Internal Revenue Code, in each case not formed for the specific purpose of acquiring the Shares and with total assets in excess of $5,000,000; or (iv) such Significant Shareholder is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Shares, where the purchase is directed by a "sophisticated person" as defined in Regulation 506(b)(2)(ii). (e) No General Solicitation. Such Significant Shareholder acknowledges that such Significant Shareholder is not acquiring the shares of Parent Common Stock as a result of any general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act). (f) Acknowledgement of Receipt of Information. Such Significant Shareholder has been furnished with materials relating to Parent and has been given the opportunity to ask questions of and receive answers from Parent, or from a person or persons acting on Parent's behalf, concerning the terms and conditions of this investment. (g) Professional Advice. With respect to the tax and other economic considerations involved in acquiring the shares of Parent Common Stock, such Significant Shareholder is not relying on Parent or the Company, and such Significant Shareholder has carefully considered and has, to the extent such Significant Shareholder believes such discussion necessary, discussed with such Significant Shareholder's professional legal, tax, accounting and 7 financial advisors the implications of acquiring the shares of Parent Common Stock for such Significant Shareholder's particular tax and financial situation. SECTION 3.06. No Implied Representation and Warranties. Each Significant Shareholder hereby acknowledges and agrees that none of Parent or any of its respective officers, directors, partners, employees, Affiliates or representatives is making any representation or warranty whatsoever, express or implied (including any warranty of merchantability, suitability or fitness for a particular purpose or quality with respect to any tangible assets or as to the condition or workmanship thereof, or as to the absence of any defects therein, whether latent or patent), except those representations and warranties contained in this Voting and Subscription Agreement or the Parent Disclosure Schedule or in any certificate contemplated hereby and delivered by Parent in connection with the Transactions. In particular, each Significant Shareholder hereby acknowledges and agrees that none of Parent or Merger Sub has made or is making any representation or warranty to such Significant Shareholder with respect to any financial projection or forecast provided to any person in connection with the Transactions. With respect to any such financial projection or forecast delivered by or on behalf of Parent to the Company or any Significant Shareholder, each Significant Shareholder acknowledges that there are uncertainties inherent in attempting to make such financial projections and forecasts and that it is making its own evaluation of such projections and forecasts. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Except as described in the Parent SEC Reports (as defined in Section 4.06), Parent hereby represents and warrants to the Significant Shareholders that: SECTION 4.01. Capitalization. (a) The authorized capital stock of Parent consists of 30,000,000 shares of Parent Common Stock. As of November 4, 2003, (i) 14,221,497 shares of Parent Common Stock were issued and outstanding, all of which are validly issued, fully paid and non-assessable, (ii) no shares of Parent Common Stock were held in the treasury of Parent, (iii) no shares of Parent Common Stock were held by subsidiaries of Parent and (iv) 2,030,064 shares of Parent Common Stock were reserved for future issuance pursuant to stock options. Except for as a result of the issuance of shares of Parent Common Stock pursuant to stock options granted under the stock option plans of Parent (the "Parent Stock Option Plans"), there has been no change in the number of shares of Parent Common Stock issued and outstanding since November 4, 2003. Except as set forth in this Section 4.01 or Section 4.09 and except for warrants to purchase 25,809 shares of Parent Common Stock and except for the stock options granted pursuant to the Parent Stock Option Plans, there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of Parent or obligating Parent to issue or sell any shares of capital stock of, or other equity interests in, Parent. All shares of Parent Common Stock subject to issuance as previously stated in this Section 4.01, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and non-assessable. There are no outstanding contractual obligations of Parent to repurchase, 8 redeem or otherwise acquire any shares of Parent Common Stock. There are no outstanding contractual obligations of Parent to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other person. (b) The shares of Parent Common Stock to be issued pursuant to Section 2.01 of this Agreement will be duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the Parent's Deed of Incorporation or Bylaws or any agreement to which the Parent is a party or is bound. SECTION 4.02. Authority Relative to This Agreement. Parent has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement by Parent and the consummation by Parent of the transactions contemplated by this Agreement have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Parent are necessary to authorize this Agreement or to consummate the transactions contemplated by this Agreement. This Agreement has been duly and validly executed and delivered by Parent and, assuming due authorization, execution and delivery by the Significant Shareholders, constitutes a legal, valid and binding obligation of Parent, enforceable against Parent in accordance with its terms. SECTION 4.03. No Conflict; Required Filings and Consents. (a) Except as set forth in Section 4.03 of the Parent Disclosure Schedule, the execution and delivery of this Agreement by Parent do not, and the performance of this Agreement by Parent will not, (i) conflict with or violate the Deed of Incorporation, Certificate of Incorporation, Bylaws or other organizational documents of Parent, (ii) assuming that all consents, approvals, authorizations and other actions described in Section 4.03(b) have been obtained and all filings and obligations described in Section 4.03(b) have been made, conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or by which any property or asset of Parent is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of Parent pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent is a party or by which Parent or any property or asset of Parent is bound or affected, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not, individually or in the aggregate, prevent or materially delay consummation of the transactions contemplated by this Agreement or otherwise prevent or materially delay Parent from performing its obligations under this Agreement and would not, individually or in the aggregate, have a Parent Material Adverse Effect. (b) The execution and delivery of this Agreement by Parent do not, and the performance of this Agreement by Parent will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and state takeover laws, the HSR Act, 9 and filing and recordation of appropriate merger documents as required by the CGCL and the DGCL, and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually or in the aggregate, prevent or materially delay consummation of the transactions contemplated by this Agreement or otherwise prevent Parent from performing its material obligations under this Agreement. SECTION 4.04. No Vote Required. No vote of the shareholders of Parent is required by Law, Parent's Deed of Incorporation or Bylaws or otherwise in order for Parent to consummate the transactions contemplated by this Agreement. SECTION 4.05. Permits; Compliance. Each of Parent and Merger Sub is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for Parent or Merger Sub to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Parent Permits"), except where the failure to have, or the suspension or cancellation of, any of the Parent Permits would not, individually or in the aggregate, prevent or materially delay consummation of any of the Transactions or otherwise prevent or materially delay Parent from performing its obligations under this Agreement or the Acquisition Agreement and would not, individually or in the aggregate, have a Parent Material Adverse Effect. No suspension or cancellation of any of the Parent Permits is pending or, to the knowledge of Parent, threatened, except where the failure to have, or the suspension or cancellation of, any of the Parent Permits would not, individually or in the aggregate, prevent or materially delay consummation of any of the Transactions or otherwise prevent or materially delay Parent from performing its obligations under this Agreement or the Acquisition Agreement and would not, individually or in the aggregate, have a Parent Material Adverse Effect. Neither Parent nor Merger Sub is in conflict with, or in default, breach or violation of, (a) any Law applicable to Parent or Merger Sub or by which any property or asset of Parent or Merger Sub is bound or affected, or (b) any note, bond, mortgage, indenture, contract, agreement, lease, license, Parent Permit, franchise or other instrument or obligation to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any property or asset of Parent or Merger Sub is bound, except for any such conflicts, defaults, breaches or violations that would not, individually or in the aggregate, prevent or materially delay consummation of any of the Transactions or otherwise prevent or materially delay Parent from performing its obligations under this Agreement or the Acquisition Agreement and would not, individually or in the aggregate, have a Parent Material Adverse Effect. SECTION 4.06. SEC Filings; Financial Statements. (a) Parent has filed all forms, reports and documents required to be filed by it with the SEC since January 1, 2001 (collectively, the "Parent SEC Reports"). The Parent SEC Reports (i) were prepared in all material respects in accordance with either the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder, and (ii) did not, at the time they were filed, or, if amended, as of the date of such amendment, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. 10 (b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Parent SEC Reports was prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and each fairly presents, in all material respects, the consolidated financial position, results of operations and cash flows of Parent and its consolidated subsidiaries as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein (subject, in the case of unaudited statements, to normal and recurring year-end adjustments which have not had, and would not have a Parent Material Adverse Effect). SECTION 4.07. Absence of Certain Changes or Events. Since December 31, 2002, except as expressly contemplated by this Agreement or as set forth in Section 4.07 of the Parent Disclosure Schedule, or as specifically disclosed in any Parent SEC Report filed since December 31, 2002 and prior to the date of this Agreement, (a) Parent has conducted its business only in the ordinary course and in a manner consistent with past practice, and (b) there has not been any Parent Material Adverse Effect. SECTION 4.08. Absence of Litigation. Except as specifically disclosed in any Parent SEC Report filed prior to the date of this Agreement or as set forth in Section 4.08 of the Parent Disclosure Schedule, there is no Action pending or, to the knowledge of Parent, threatened against Parent, or any property or asset of Parent, by or before any Governmental Authority that (a) individually or in the aggregate, has had or would have a Parent Material Adverse Effect or (b) seeks to or would, individually or in the aggregate, materially delay or prevent the consummation of any of the Transactions or otherwise prevent or materially delay Parent from performing its obligations under this Agreement or the Acquisition Agreement. Neither Parent nor any material property or asset of Parent is subject to any continuing order of, consent decree, settlement agreement or other similar written agreement with, or, to the knowledge of Parent, continuing investigation by, any Governmental Authority, that would, individually or in the aggregate, prevent or materially delay consummation of any of the Transactions or otherwise prevent or materially delay Parent from performing its obligations under this Agreement or the Acquisition Agreement or would, individually or in the aggregate, have a Parent Material Adverse Effect. SECTION 4.09. Existing Agreements. Parent has heretofore furnished to the Shareholders' Representative complete and correct copies of each of the Existing Agreements, as that term is defined in Section 5.16(b) of this Agreement. Other than the Existing Agreements and the Original Agreement, there are no other agreements or contracts pursuant to which Parent is or could be obligated to register under the Securities Act any shares of Parent Common Stock for itself or any Existing Holders, as that term is defined in Section 5.16(a) of this Agreement. 11 ARTICLE V COVENANTS OF SIGNIFICANT SHAREHOLDERS AND PARENT SECTION 5.01. No Disposition or Encumbrance of Shares. Each Significant Shareholder hereby agrees that, except as contemplated by this Agreement and the Acquisition Agreement in accordance with its terms, such Significant Shareholder shall not (a) sell, transfer, tender, assign, pledge, encumber, contribute to the capital of any entity, hypothecate, give or otherwise dispose of, grant a proxy or power of attorney with respect to, deposit into any voting trust or enter into a voting arrangement or agreement, or create or permit to exist any Encumbrances of any nature whatsoever with respect to, any of such Significant Shareholder's Shares (or agree or consent to, or offer to do, any of the foregoing), (b) take any action that would make any representation or warranty of such Significant Shareholder herein untrue or incorrect in any material respect or have the effect of preventing or adversely affecting such Significant Shareholder from performing such Significant Shareholder's obligations hereunder or (c) directly or indirectly, initiate, solicit or encourage any person to take actions that could reasonably be expected to lead to the occurrence of any of the foregoing. SECTION 5.02. No Solicitation of Transactions. Each Significant Shareholder agrees that between the date of this Agreement and the date of termination of the Acquisition Agreement in accordance with its terms, such Significant Shareholder will not, directly or indirectly, through any officer, director, employee, agent or advisor or other representative, solicit, initiate or encourage, or take any other action to facilitate, any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Competing Transaction, or enter into or maintain or continue discussions or negotiate with any person or entity in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of the officers, directors or employees of such Significant Shareholder, or any investment banker, financial advisor, attorney, accountant or other representative retained by such Significant Shareholder, to take any such action. Each Significant Shareholder shall notify Parent as promptly as practicable (and in any event within one (1) day after the Significant Shareholder attains knowledge thereof), orally and in writing, if any proposal or offer, or any inquiry or contact with any person with respect thereto, regarding a Competing Transaction is made, specifying the material terms and conditions thereof and the identity of the party making such proposal or offer or inquiry or contact (including material amendments or proposed material amendments). Each Significant Shareholder immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to a Competing Transaction. SECTION 5.03. Further Action; Reasonable Best Efforts. Upon the terms and subject to the conditions hereof, each Significant Shareholder listed on Exhibit C attached hereto shall use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective this Agreement, including, without limitation, using its reasonable best efforts to obtain all Permits, consents, approvals, authorizations, 12 qualifications and orders of Governmental Authorities and parties to contracts with the Company and the Subsidiaries as are necessary for the consummation of this Agreement. SECTION 5.04. Additional Shares. Each Significant Shareholder agrees, while this Agreement is in effect, to give a prompt written notice to Parent of the number of any new Shares acquired by such Significant Shareholder after the date hereof (other than pursuant to the exercise of options reflected on Exhibit A). SECTION 5.05. Release. (a) Each Significant Shareholder listed on Exhibit C attached hereto, on behalf of itself and its past or present directors, officers, managers, employees, principals, agents, representatives, attorneys, partners, predecessors, successors, assigns, beneficiaries, parents, subsidiaries, affiliates, divisions, owners, co-owners, heirs, administrators and executors, hereby completely and fully releases and forever discharges, effective upon the Effective Time, the Company and its Subsidiaries, including their respective past or present directors, officers, managers, employees, principals, agents, representatives, attorneys, partners, predecessors, successors, assigns, beneficiaries, parents, subsidiaries, affiliates, divisions, owners, co-owners, heirs, administrators and executors, from any and all suits, claims, causes of action, rights, actions, demands, damages, losses, costs, expenses (including, without limitation, legal fees), penalties, liabilities or proceedings of any nature whatsoever which have been, could have been or could be brought in any forum, whether foreign or domestic, in law or in equity or otherwise, whether known or unknown, fixed or contingent, including, without limitation, all claims for compensatory, incidental, consequential, statutory, punitive or exemplary damages, equitable relief or penalties, except for any claims arising in connection with or pursuant to (i) any employment arrangement or Indemnification Agreement between such Significant Shareholder and the Company, (ii) Section 7.05 of the Acquisition Agreement, as applicable, and (iii) the Acquisition Agreement and this Agreement. (b) Each Significant Shareholder listed on Exhibit C attached hereto, on behalf of itself and its past or present directors, officers, managers, employees, principals, agents, representatives, attorneys, partners, predecessors, successors, assigns, beneficiaries, parents, subsidiaries, affiliates, divisions, owners, co-owners, heirs, administrators or executors, effective upon the date hereof, hereby further agrees to opt-out of any certified class of plaintiffs established for the purpose for seeking compensatory, incidental, consequential, statutory, punitive or exemplary damages, equitable relief or penalties, against the Company arising directly or indirectly from, or relating in any way to any class-action shareholder litigation relating to claims of fraud, insider trading, breaches of fiduciary duty, violations of the CGCL or the DGCL, the Securities Act and/or the Exchange Act and any rules promulgated thereunder arising from or relating to the Acquisition Agreement and the Merger. (c) Each Significant Shareholder listed on Exhibit C attached hereto expressly waives the benefits of section 1542 of the Civil Code of the State of California, which reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR 13 AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. SECTION 5.06. Disclosure. Each Significant Shareholder hereby agrees to permit Parent to publish and disclose in any document filed with the SEC and in any press release or other disclosure document in which Parent reasonably determines in its good faith judgment that such disclosure is required by law, including the rules and regulations of the Securities and Exchange Commission, or appropriate, in connection with the Merger and any transactions related thereto, such Significant Shareholder's identity and ownership of the Company Common Stock and the nature of such Significant Shareholder's commitments, arrangements and understandings under this Agreement. SECTION 5.07. Public Announcement. Each Significant Shareholder agrees to not make any public announcement in opposition to, or in competition with, the Acquisition Agreement or the consummation of the Merger. SECTION 5.08. Confidentiality. Each Significant Shareholder agrees to, and (if applicable) shall use such Significant Shareholder's reasonable efforts to cause its agents, representatives, affiliates (other than in the case of a limited partnership, the limited partners thereof), employees, officers and directors to: (a) treat and hold as confidential (and not disclose or provide access to any person other than Parent and its agents, representatives, affiliates, employees, officers and directors) all information relating to trade secrets, patent and trademark applications, product development, price, customer and supplier lists, pricing and marketing plans, policies and strategies, details of client and consultant contracts, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans and all other confidential information with respect to the Company, Parent, any affiliates of Parent or their businesses; (b) in the event that such Significant Shareholder or any agent, representative, affiliate, employee, officer or director of such Significant Shareholder becomes legally compelled to disclose any such information, provide Parent with prompt written notice of such requirement so that Parent may seek a protective order or other remedy or waive compliance with this Section 5.08; and (c) in the event that such protective order or other remedy is not obtained, or Parent waives compliance with this Section 5.08, furnish only that portion of such confidential information which is legally required to be provided and exercise its best efforts to obtain assurances that confidential treatment will be accorded such information; provided, however, that this sentence shall not apply to any information that, (i) at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by such Significant Shareholder or such Significant Shareholder's agents, representatives, affiliates, employees, officers or directors, (ii) must be disclosed under applicable laws or regulations or 14 judicial or administrative proceedings (subject to clauses (b) and (c) above), or (iii) shall be disclosed to such Significant Shareholder's legal advisors who need to know such information in connection with advising the Significant Shareholder as to his legal rights and obligations. Each Significant Shareholder agrees and acknowledges that remedies at law for any breach of such Significant Shareholder's obligations under this Section 5.08 are inadequate and that in addition thereto Parent shall be entitled to seek equitable relief, including injunction and specific performance, in the event of any such breach. SECTION 5.09. Use of Intellectual Property. Each Significant Shareholder acknowledges that, from and after the Closing, the name "Breg, Inc." and all similar or related names, marks and logos (all of such names, marks and logos being the "Company Names") shall be owned by the Company, neither such Significant Shareholder nor any of its affiliates shall have any rights in the Company Names, and neither such Significant Shareholder nor any of its affiliates will contest the ownership or validity of any rights of Parent or the Company in or to the Company Names. From and after the Closing, neither such Significant Shareholder nor any of the affiliates of such Significant Shareholder shall use any of the Owned Intellectual Property or any of the Licensed Intellectual Property, except pursuant to valid licenses thereto. SECTION 5.10. Acknowledgement and Approval of the Acquisition Agreement. Each Significant Shareholder hereby acknowledges and agrees that such Significant Shareholder has received a copy of the Acquisition Agreement, including all schedules and exhibits thereto, and that such Significant Shareholder has reviewed and understands the terms thereof. EACH SIGNIFICANT SHAREHOLDER AGREES TO BE BOUND BY THE TERMS OF THE ACQUISITION AGREEMENT AND ALL AGREEMENTS CONTEMPLATED THEREBY AND ACCEPTS AND ASSUMES AND AGREES TO PERFORM THE OBLIGATIONS OF A SHAREHOLDER AND A SIGNIFICANT SHAREHOLDER UNDER THE ACQUISITION AGREEMENT AND ALL AGREEMENTS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, THE ESCROW AGREEMENT AND ARTICLES VIII AND XI OF THE ACQUISITION AGREEMENT. SECTION 5.11. No Solicitation of Employees. Each Significant Shareholder listed on Exhibit C attached hereto hereby agrees that, without the prior written consent of Parent, such Significant Shareholder shall not for a period of three years from the Effective Time, directly or indirectly, for the purpose of conducting or engaging in any business that manufactures, produces or supplies products or services of the kind manufactured, produced or supplied by the Company as of the Effective Time, (i) call upon, solicit, advise or otherwise do, or attempt to do, business that pertains to the manufacture, production or supply of products or services of the kind manufactured, produced or supplied by the Company as of the Effective Time with any customer of the Company with whom the Company had any dealings prior to the Effective Time, (ii) take away or interfere or attempt to interfere with any custom, trade, business or patronage of the Company, or (iii) solicit for employment any person who is employed by the Company prior to the Effective Time. SECTION 5.12. Non-Competition. During the period commencing at the Effective Time and concluding on the third anniversary of the Effective Time, each Significant 15 Shareholder listed on Exhibit C attached hereto shall not, whether for such Significant Shareholder's own account or for the account of any other individual, partnership, firm, corporation or other business organization or entity, without the prior written consent of Parent, directly or indirectly, own an interest in, manage, operate, join, control, lend money or render financial or other assistance to or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any individual, partnership, firm, corporation or other business organization or entity (other than Parent or any affiliate of Parent) that is engaged in any business in which the Company or the Subsidiary is actively engaged as of the Effective Time; provided, however, that an investment in securities which are registered under Section 12(g) of the Exchange Act, not exceeding 1% of any class of capital stock of the issuer, shall not be a violation of this Section 5.12. SECTION 5.13. Shareholders' Representative. Each Significant Shareholder hereby acknowledges and affirms (a) the appointment of Bradley R. Mason as the Shareholders' Representative pursuant to Section 11.05 of the Acquisition Agreement and (b) the authority of the Shareholders' Representative to perform the actions specified in the Acquisition Agreement or the Escrow Agreement, as applicable, to be performed by the Shareholders' Representative. SECTION 5.14. Employment Agreements. Each Significant Shareholder who has entered into an employment agreement with the Company agrees that none of the transactions contemplated by the Acquisition Agreement, this Agreement or that otherwise may be necessary to consummate the Merger, shall trigger any prong of the definition of "good reason" (as defined in such Significant Shareholder's employment agreement). SECTION 5.15. Nasdaq Quotation. Parent shall promptly prepare and submit to the Nasdaq National Market a listing application covering the shares of Parent Common Stock to be issued herewith, and shall use its reasonable efforts to obtain, prior to the Effective Time, approval for the quotation of such Parent Common Stock, subject to official notice of issuance to the Nasdaq National Market. SECTION 5.16. Piggyback Registration Rights. (a) If, after the Effective Time, Parent proposes to register any shares of Parent Common Stock for itself or any of its shareholders (the shareholders at such time being the "Existing Holders") under the Securities Act on a Registration Statement on Form S-1, Form S-2 or Form S-3 (or an equivalent general registration form then in effect), Parent shall give written notice of such proposal to the Significant Shareholders at least 10 days before the anticipated filing date. Such notice shall specify the number of shares of Parent Common Stock proposed to be registered, the proposed filing date of such Registration Statement, any proposed means of distribution of such shares and the proposed managing underwriter, if any. Subject to Section 5.16(b), upon the written request of any Significant Shareholder, given within 10 days after the receipt of any such written notice by facsimile confirmed by mail (which request shall specify the shares of Parent Common Stock intended to be disposed of by the Significant Shareholder), Parent shall use commercially reasonable efforts to include in the Registration Statement the shares of Parent Common Stock referred to in the Significant Shareholder's request; provided, however, that if such Registration Statement relates to a Public Offering, then any participation in such Public Offering by the 16 Significant Shareholder shall be on substantially the same terms as the Parent's (or its other shareholders') participation therein; and provided further that the number of shares of Parent Common Stock to be included in any such Public Offering shall not exceed the maximum number that the managing underwriter of such Public Offering considers in its reasonable commercial judgment to be appropriate based on market conditions and other relevant factors (the "Maximum Number"). A Significant Shareholder shall have the right to withdraw a request to include shares of Parent Common Stock in any Public Offering pursuant to this Section 5.16 by giving written notice to Parent of its election to withdraw such request at least five business days prior to the proposed effective date of such Registration Statement. (b) If the lead managing underwriter for any Public Offering to be effected pursuant to Section 5.16(a) of this Agreement shall advise Parent and the Significant Shareholders (each, a "Seller" and, collectively, the "Sellers") in writing that the number of shares of Parent Common Stock sought to be included in such Public Offering (including those sought to be offered by Parent, those sought to be offered by the Sellers and those sought to be offered by Existing Holders) is more than the Maximum Number, the shares of Parent Common Stock to be included in such Public Offering shall be allocated pursuant to the following procedures: First, Parent shall be entitled to include all of the shares of Parent Common Stock that it has proposed to include, and second, to the extent that any other securities may be included without exceeding the Maximum Number, and subject to rights of any holders of Parent Common Stock under any other agreements (the "Existing Agreements"), the Significant Shareholders shall be entitled to participate in that registration on a basis no less favorable than that of any other holder of Parent Common Stock. (c) Notwithstanding anything to the contrary in Section 5.16(a) or Section 5.16(b), the Significant Shareholders shall be entitled to participate in a Public Offering effected by Parent pursuant to a request under an Existing Agreement only to the extent that the terms of such Existing Agreement permit the Significant Shareholders to so participate. (d) Notwithstanding the foregoing, if Parent shall furnish to the Significant Shareholders a certificate signed by its Chairman, Chief Executive Officer or Chief Financial Officer stating that filing a Registration Statement or maintaining effectiveness of a current Registration Statement would have a material adverse effect on Parent or its shareholders in relation to any material financing, acquisition or other corporate transaction, and Parent has determined in good faith that such disclosure is not in the best interests of Parent and its shareholders, Parent shall be entitled to postpone filing or suspend the use by the Significant Shareholders of the Registration Statement for a reasonable period of time, but not in excess of 120 consecutive days (a "Blackout Period"). For the purposes of this Section 5.16: "Public Offering" shall mean an offering of shares of Parent Common Stock or securities convertible into or exchangeable for Parent Common Stock on a broadly-distributed basis, not limited to sophisticated investors (except for qualified institutional 17 buyers pursuant to Rule 144A under the Securities Act), pursuant to a firm-commitment or best-efforts underwriting or purchase arrangement; "Registration Statement" shall mean any registration statement of Parent under the Securities Act that covers any of the shares of Parent Common Stock, including the prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statement. ARTICLE VI TERMINATION SECTION 6.01. Termination. This Agreement, and all rights and obligations of the parties hereunder shall terminate upon the earliest of (a) any termination of the Acquisition Agreement in accordance with its terms and (b) as between Parent and a Significant Shareholder, agreement of Parent and such Significant Shareholder to terminate this Agreement. Nothing in this Section 6.01 shall relieve any party of liability for any breach of this Agreement. ARTICLE VII MISCELLANEOUS SECTION 7.01. Amendment. This Agreement may not be amended except by an instrument in writing signed by all the parties hereto. SECTION 7.02. Waiver. Any party to this Agreement may (i) extend the time for the performance of any obligation or other act of any other party hereto, (ii) waive any inaccuracy in the representations and warranties of another party contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any agreement of another party contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. SECTION 7.03. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile or email or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 7.03): (a) if to a Significant Shareholder, to the address set forth after such Significant Shareholder's name on the signature pages, with a copy to: 18 Bradley R. Mason as Shareholders' Representative 6284 Strada Fragante Rancho Santa Fe, CA 92091 with a copy to: Alan S. Rich, A Professional Law Corporation 5857 Owens Avenue, Suite 200 Carlsbad, CA 92008 Attention: Alan Rich with an additional copy to: Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, California 94111 Facsimile No.: (415) 773-5759 Attention: John F. Seegal Email: jseegal@orrick.com (b) if to Parent: Orthofix International N.V. 10115 Kincey Avenue, Suite 250 Huntersville, NC 28078 Facsimile No.: (704) 948-2690 Attention: Thomas Hein Email: tomhein@orthofix.com with a copy to: Shearman & Sterling LLP 599 Lexington Avenue New York, NY 10022 Facsimile No.: (212) 848-7179 Attention: John Marzulli Email: jmarzulli@shearman.com SECTION 7.04. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties 19 as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible. SECTION 7.05. Further Assurances. The Significant Shareholders and Parent will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. SECTION 7.06. Assignment. This Agreement shall not be assigned by operation of Law or otherwise, except that Parent may assign all or any of its rights and obligations hereunder to any affiliate of Parent; provided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations. SECTION 7.07. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. The Company is an intended third party beneficiary with respect to the obligations of the Significant Shareholders under Sections 5.05, 5.09, 5.11 and 5.12 of this Agreement. SECTION 7.08. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. SECTION 7.09. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts executed in and to be performed in that State (other than those provisions set forth herein that are required to be governed by the CGCL). All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in any state or federal court sitting in the State of California. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the State of California for the purpose of any Action arising out of or relating to this Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the Transactions may not be enforced in or by any of the above-named courts. SECTION 7.10. Expenses. All costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 20 SECTION 7.11. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 7.12. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 7.13. Beneficial Owner. In this Agreement, "beneficial owner" has the meaning ascribed to that term in Rule 13d-3(a) of the Exchange Act, and "beneficially owned" has a consequent meaning. SECTION 7.14. Original Agreement. This Agreement supersedes the Original Agreement. SECTION 7.15. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTIONS OR PROCEEDINGS DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH OF THE PARTIES HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THAT FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.15. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ORTHOFIX INTERNATIONAL N.V. /s/ CHARLES FEDERICO --------------------------- Name: Title: SIGNIFICANT SHAREHOLDERS: BRADLEY R. MASON /s/ BRADLEY R. MASON --------------------------- Address: BRADLEY R. MASON, TRUSTEE OR SUCCESSOR TRUSTEE OF THE BRADLEY R. MASON REVOCABLE TRUST DATED DECEMBER 15, 1997 By /s/ BRADLEY R. MASON, TRUSTEE ------------------------------- Name: Title: Address: GREGORY R. NELSON /s/ GREGORY R. NELSON --------------------------- Address: GREGORY NELSON TRUSTEE UNDER DECLARATION OF TRUST, DATED JANUARY 19, 1987 By /s/ GREGORY R. NELSON, TRUSTEE -------------------------------- Name: Title: Address: BARBARA NELSON, TRUSTEE UNDER DECLARATION OF TRUST, DATED JANUARY 19, 1987 By /s/ BARBARA NELSON, TRUSTEE ------------------------------ FIRST REGIONAL BANK CUSTODIAN FBO GREGORY R. NELSON IRA By /s/ DEBRA D. LEWIS --------------------------- Name: Title: Address: FIRST REGIONAL BANK CUSTODIAN FBO GREGORY R. NELSON IRA By /s/ GREGORY R. NELSON ----------------------------- WILLIAM D. BUE, JR. /s/ WILLIAM D. BUE, JR. --------------------------- Address: WILLIAM DUANE BUE, JR., TRUSTEE OR SUCCESSOR TRUSTEE OF THE WILLIAM DUANE BUE, JR., REVOCABLE TRUST DATED THE 1ST DAY OF DECEMBER 1998 By /s/ WILLIAM D. BUE, JR., TRUSTEE --------------------------------- Name: Title: Address: WILLIAM R. HOPSON /s/ WILLIAM R. HOPSON --------------------------- Address: WILLIAM RAYMOND HOPSON, TRUSTEE OR SUCCESSOR TRUSTEE OF THE HOPSON REVOCABLE TRUST DATED SEPTEMBER 23, 1994 By /s/ WILLIAM R. HOPSON, TRUSTEE -------------------------------- Name: Title: Address: MAUREEN MCKINNON HOPSON, TRUSTEE OR SUCCESSOR TRUSTEE OF THE HOPSON REVOCABLE TRUST DATED SEPTEMBER 23, 1994 By /s/ MAUREEN M. HOPSON, TRUSTEE ------------------------------- FIRST REGIONAL BANK CUSTODIAN, FBO WILLIAM R. HOPSON IRA By /s/ DEBRA D. LEWIS --------------------------- Name: Title: Address: FIRST REGIONAL BANK CUSTODIAN, FBO WILLIAM R. HOPSON IRA By /s/ WILLIAM R. HOPSON ---------------------------- JEFFREY T. MASON /s/ JEFFREY T. MASON --------------------------- Address: MARK E. HOWARD /s/ MARK E. HOWARD --------------------------- Address: KATHLEEN A. BARBER /s/ KATHLEEN A. BARBER --------------------------- Address: FIRST REGIONAL BANK CUSTODIAN FBO KATHLEEN A. BARBER IRA By /s/ DEBRA D. LEWIS -------------------------- FIRST REGIONAL BANK CUSTODIAN FBO KATHLEEN A. BARBER IRA By /s/ KATHLEEN A. BARBER --------------------------- Name: Title: Address: PATRICK W. CAWLEY /s/ PATRICK W. CAWLEY --------------------------- Address: STEPHEN J. OORDT /s/ STEPHEN J. OORDT --------------------------- Address: RAYMOND FUJIKAWA /s/ RAYMOND FUJIKAWA --------------------------- Address: NANCY L. ROGALA /s/ NANCY L. ROGALA --------------------------- Address: EX-10.3 5 ex10-3_010604.txt CREDIT AGREEMENT - -------------------------------------------------------------------------------- $125,000,000 CREDIT AGREEMENT among COLGATE MEDICAL LTD, as Borrower, and ORTHOFIX INTERNATIONAL N.V. AND CERTAIN SUBSIDIARIES OF THE BORROWER, as Guarantors, THE LENDERS PARTIES HERETO, WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent, and WACHOVIA CAPITAL MARKETS, LLC, as Sole Lead Arranger and Book Manager Dated as of December 30, 2003 - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ---- ARTICLE I DEFINITIONS.........................................................1 Section 1.1 Defined Terms..............................................1 Section 1.2 Other Definitional Provisions.............................32 Section 1.3 Accounting Terms..........................................32 ARTICLE II THE LOANS; AMOUNT AND TERMS.......................................33 Section 2.1 Revolving Loans...........................................33 Section 2.2 Term Loan Facility........................................35 Section 2.3 Letter of Credit Subfacility..............................36 Section 2.4 Swingline Loan Subfacility................................40 Section 2.5 Fees......................................................41 Section 2.6 Commitment Reductions.....................................42 Section 2.7 Prepayments...............................................43 Section 2.8 Minimum Principal Amount of Tranches; Lending Offices.....45 Section 2.9 Default Rate and Payment Dates............................45 Section 2.10 Conversion Options........................................45 Section 2.11 Computation of Interest and Fees..........................46 Section 2.12 Pro Rata Treatment and Payments...........................47 Section 2.13 Non-Receipt of Funds by the Administrative Agent..........49 Section 2.14 Inability to Determine Interest Rate......................50 Section 2.15 Illegality................................................50 Section 2.16 Requirements of Law.......................................51 Section 2.17 Indemnity.................................................52 Section 2.18 Taxes.....................................................53 Section 2.19 Indemnification; Nature of Issuing Lender's Duties........56 ARTICLE III REPRESENTATIONS AND WARRANTIES...................................57 Section 3.1 Financial Condition.......................................57 Section 3.2 No Change.................................................58 Section 3.3 Corporate Existence; Compliance with Law..................58 Section 3.4 Corporate Power; Authorization; Enforceable Obligations...59 Section 3.5 Status Under Certain Statutes.............................59 Section 3.6 Margin Regulations........................................60 Section 3.7 No Legal Bar; No Default..................................60 Section 3.8 No Material Litigation....................................60 Section 3.9 ERISA.....................................................60 Section 3.10 Environmental Matters.....................................61 Section 3.11 Use of Proceeds...........................................62 Section 3.12 Subsidiaries..............................................63 Section 3.13 Ownership.................................................63 Section 3.14 Indebtedness..............................................63 Section 3.15 Taxes.....................................................63 Section 3.16 Intellectual Property.....................................63 Section 3.17 Solvency..................................................64 Section 3.18 Investments...............................................64 i Section 3.19 Location of Collateral....................................64 Section 3.20 No Burdensome Restrictions................................64 Section 3.21 Labor Matters.............................................64 Section 3.22 Security Documents........................................65 Section 3.23 Accuracy and Completeness of Information..................65 Section 3.24 Fraud and Abuse...........................................65 Section 3.25 Licensing and Accreditation...............................66 Section 3.26 Other Regulatory Protection...............................66 Section 3.27 Reimbursement from Third Party Payors.....................66 Section 3.28 Other Agreements..........................................67 Section 3.29 Material Contracts........................................67 Section 3.30 Insurance.................................................67 Section 3.31 Classification as Senior Indebtedness.....................67 Section 3.32 Tax Shelter Regulations...................................67 ARTICLE IV CONDITIONS PRECEDENT..............................................68 Section 4.1 Conditions to Closing Date and Initial Extensions of Credit....................................................68 Section 4.2 Conditions to All Extensions of Credit....................74 ARTICLE V AFFIRMATIVE COVENANTS..............................................75 Section 5.1 Financial Statements......................................75 Section 5.2 Certificates; Other Information...........................76 Section 5.3 Payment of Obligations....................................77 Section 5.4 Conduct of Business and Maintenance of Existence..........78 Section 5.5 Maintenance of Property; Insurance........................78 Section 5.6 Inspection of Property; Books and Records; Discussions....79 Section 5.7 Notices...................................................79 Section 5.8 Environmental Laws........................................80 Section 5.9 Financial Covenants.......................................81 Section 5.10 Additional Subsidiary Guarantors..........................82 Section 5.11 Compliance with Law.......................................82 Section 5.12 Pledged Assets............................................83 Section 5.13 Further Assurances........................................84 ARTICLE VI NEGATIVE COVENANTS................................................85 Section 6.1 Indebtedness..............................................85 Section 6.2 Liens.....................................................86 Section 6.3 Nature of Business........................................86 Section 6.4 Consolidation, Merger, Sale or Purchase of Assets, etc....86 Section 6.5 Advances, Investments and Loans...........................88 Section 6.6 Transactions with Affiliates..............................88 Section 6.7 Ownership of Subsidiaries; Restrictions...................88 Section 6.8 Fiscal Year; Organizational Documents; Material Contracts; Subordinated Indebtedness Documents.......................88 Section 6.9 Limitation on Restricted Actions..........................89 Section 6.10 Restricted Payments.......................................89 Section 6.11 Sale Leasebacks...........................................90 Section 6.12 No Further Negative Pledges...............................90 ii Section 6.13 Secured Indebtedness of Parent............................90 Section 6.14 Orthofix II B.V...........................................90 Section 6.15 Levtech Inc...............................................90 ARTICLE VII EVENTS OF DEFAULT................................................91 Section 7.1 Events of Default.........................................91 Section 7.2 Acceleration; Remedies....................................94 ARTICLE VIII THE AGENT.......................................................94 Section 8.1 Appointment...............................................94 Section 8.2 Delegation of Duties......................................95 Section 8.3 Exculpatory Provisions....................................95 Section 8.4 Reliance by Administrative Agent..........................95 Section 8.5 Notice of Default.........................................96 Section 8.6 Non-Reliance on Administrative Agent and Other Lenders....96 Section 8.7 Indemnification...........................................97 Section 8.8 Administrative Agent in Its Individual Capacity...........97 Section 8.9 Successor Administrative Agent............................97 Section 8.10 Other Agents..............................................98 ARTICLE IX MISCELLANEOUS.....................................................98 Section 9.1 Amendments, Waivers and Release of Collateral.............98 Section 9.2 Notices..................................................100 Section 9.3 No Waiver; Cumulative Remedies...........................101 Section 9.4 Survival of Representations and Warranties...............101 Section 9.5 Payment of Expenses and Taxes............................102 Section 9.6 Successors and Assigns; Participations; Purchasing Lenders.......................................102 Section 9.7 Adjustments; Set-off.....................................106 Section 9.8 Table of Contents and Section Headings...................107 Section 9.9 Counterparts.............................................107 Section 9.10 Effectiveness............................................107 Section 9.11 Severability.............................................108 Section 9.12 Integration..............................................108 Section 9.13 Governing Law............................................108 Section 9.14 Consent to Jurisdiction and Service of Process...........108 Section 9.15 Confidentiality..........................................109 Section 9.16 Acknowledgments..........................................109 Section 9.17 Waivers of Jury Trial....................................110 Section 9.18 Patriot Act Notice.......................................110 ARTICLE X GUARANTY..........................................................110 Section 10.1 The Guaranty.............................................110 Section 10.2 Bankruptcy...............................................111 Section 10.3 Nature of Liability......................................111 Section 10.4 Independent Obligation...................................112 Section 10.5 Authorization............................................112 Section 10.6 Reliance.................................................112 Section 10.7 Waiver...................................................112 Section 10.8 Limitation on Enforcement................................114 iii Section 10.9 Confirmation of Payment..................................114 iv Schedules Schedule 1.1-1 Account Designation Letter Schedule 1.1-2 EBITDA Adjustments Schedule 1.1-3 Permitted Liens Schedule 2.1(a) Schedule of Lenders and Commitments Schedule 2.1(b)(i) Form of Notice of Borrowing Schedule 2.1(e) Form of Revolving Note Schedule 2.2(d) Form of Term Note Schedule 2.4(d) Form of Swingline Note Schedule 2.10 Form of Notice of Conversion/Extension Schedule 3.8 Litigation Schedule 3.12 Subsidiaries Schedule 3.16 Intellectual Property Schedule 3.19(a) Location of Real Property Schedule 3.19(b) Location of Collateral Schedule 3.19(c) Chief Executive Offices Schedule 3.21 Labor Matters Schedule 3.29 Material Contracts Schedule 3.30 Insurance Schedule 4.1-1 Form of Secretary's Certificate Schedule 4.1-2 Form of Solvency Certificate Schedule 5.10 Form of Joinder Agreement Schedule 6.1(b) Indebtedness Schedule 9.2 Schedule of Lenders' Lending Offices Schedule 9.6(c) Form of Commitment Transfer Supplement v CREDIT AGREEMENT, dated as of December 30, 2003, among COLGATE MEDICAL LTD, a company formed under the laws of England and Wales and registered with number 01311455 (the "Borrower"), Orthofix International N.V., a Netherlands Antilles corporation (the "Parent"), those Subsidiaries of the Borrower identified as a "Guarantor" on the signature pages hereto and such other Subsidiaries of the Borrower as may from time to time become a party hereto (each, a "Subsidiary Guarantor" and, together with the Parent, the "Guarantors"), the several banks and other financial institutions as may from time to time become parties to this Agreement (collectively, the "Lenders"; and individually, a "Lender"), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lenders make loans and other financial accommodations to the Borrower in the amount of up to $125,000,000, as more particularly described herein; and WHEREAS, the Lenders have agreed to make such loans and other financial accommodations to the Borrower on the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 Defined Terms. As used in this Agreement, terms defined in the first paragraph of this Agreement have the meanings therein indicated, and the following terms have the following meanings: "Account Designation Letter" shall mean the Account Designation Letter dated the Closing Date from the Borrower to the Administrative Agent substantially in the form attached hereto as Schedule 1.1-1. "Acquired Company" shall mean Breg, Inc., a California corporation. "Acquisition" shall mean the merger of Trevor Acquisition, Inc., a wholly owned subsidiary of Orthofix Holdings organized under the laws of Delaware, with and into the Acquired Company, with the Acquired Company being the surviving company, pursuant to the Acquisition Documents. "Acquisition Documents" shall mean the Purchase Agreement, Voting Agreement, Merger Documents and all other agreements and documents executed in connection with the Acquisition. "Additional Credit Party" shall mean each Person that becomes a Guarantor by execution of a Joinder Agreement in accordance with Section 5.10. "Administrative Agent" shall have the meaning set forth in the first paragraph of this Agreement and any successors in such capacity. "Affiliate" shall mean as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, a Person shall be deemed to be "controlled by" a Person if such Person possesses, directly or indirectly, power either (a) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agreement" or "Credit Agreement" shall mean this Credit Agreement, as amended, restated, modified or supplemented from time to time in accordance with its terms. "Alternate Base Rate" shall mean, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean, at any time, the rate of interest per annum publicly announced from time to time by Wachovia at its principal office in Charlotte, North Carolina as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by Wachovia as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive in the absence of manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change. "Alternate Base Rate Loans" shall mean Loans that bear interest at an interest rate based on the Alternate Base Rate. 2 "Applicable Percentage" shall mean, for any day, the rate per annum set forth below opposite the applicable level then in effect, it being understood that the Applicable Percentage for (a) Revolving Loans that are Alternate Base Rate Loans shall be the percentage set forth under the column "Alternate Base Rate Margin for Revolving Loans", (b) Revolving Loans that are LIBOR Rate Loans shall be the percentage set forth under the column "LIBOR Rate Margin for Revolving Loans and Letter of Credit Fee", (c) the Letter of Credit Fee shall be the percentage set forth under the column "LIBOR Rate Margin for Revolving Loans and Letter of Credit Fee", (d) Term Loans that are Alternate Base Rate Loans shall be the percentage set forth under the column "Alternate Base Rate Margin for Term Loans", (e) Term Loans that are LIBOR Rate Loans shall be the percentage set forth under the column "LIBOR Rate Margin for Term Loans", and (f) the Commitment Fee shall be the percentage set forth under the column "Commitment Fee":
- ------------------------------------------------------------------------------------------------------------------- LIBOR Rate Alternate Margin for Alternate Base Rate Revolving Base Rate Borrower Margin for Loans and Margin for LIBOR Rate Leverage Revolving Letter of Term Margin for Commitment Level Ratio Loans Credit Fee Loans Term Loans Fee - ------------------------------------------------------------------------------------------------------------------- I > = 2.50 to 1.0 1.25% 2.25% 1.75% 2.75% 0.50% - ------------------------------------------------------------------------------------------------------------------- II > = 2.00 to 1.0 but 1.00% 2.00% 1.75% 2.75% 0.50% < 2.50 to 1.0 - ------------------------------------------------------------------------------------------------------------------- III > = 1.50 to 1.0 but 0.75% 1.75% 1.50% 2.50% 0.50% < 2.00 to 1.0 - ------------------------------------------------------------------------------------------------------------------- IV < 1.50 to 1.0 0.50% 1.50% 1.50% 2.50% 0.375% - -------------------------------------------------------------------------------------------------------------------
The Applicable Percentage shall, in each case, be determined and adjusted quarterly on the date five (5) Business Days after the date on which the Administrative Agent has received from the Borrower the financial information and certifications required to be delivered to the Administrative Agent and the Lenders in accordance with the provisions of Sections 5.1(a) and (b) and Section 5.2(b) (each, an "Interest Determination Date"). Such Applicable Percentage shall be effective from such Interest Determination Date until the next such Interest Determination Date. The initial Applicable Percentages shall be based on Level II until the first Interest Determination Date occurring after the delivery of the officer's compliance certificate pursuant to Section 5.2(b) for the quarter ended March 31, 2004. If the Borrower shall fail to provide the annual and quarterly financial information and certifications in accordance with the provisions of Sections 5.1(a) and (b) and Section 5.2(b), the Applicable Percentage from such Interest Determination Date shall, on the date five (5) Business Days after the date by which the Borrower was so required to provide such financial information and certifications to the Administrative Agent and the Lenders, be based on Level I until such time as such information and certifications are provided, whereupon the level shall be determined by the then current Leverage Ratio. "Arranger" shall mean Wachovia Capital Markets, LLC, as sole lead arranger and book manager, together with its successors and/or assigns. 3 "Asset Disposition" shall mean the disposition of any or all of the assets (including, without limitation, the Capital Stock of a Subsidiary or any ownership interest in a joint venture) of the Borrower or any Subsidiary whether by sale, lease, transfer or otherwise. The term "Asset Disposition" shall not include (i) the sale, lease, transfer or other disposition of assets permitted by Section 6.4(a)(i), (ii), (iii), (iv) or (v) hereof or (ii) any Equity Issuance, including any equity issued upon exercise of employee stock options. "Bankruptcy Code" shall mean the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time. "Borrower" shall have the meaning set forth in the first paragraph of this Agreement. "Borrower Leverage Ratio" shall mean, with respect to the Borrower and its subsidiaries on a consolidated basis for the twelve-month period ending on the last day of any fiscal quarter of the Borrower, the ratio of (a) Funded Debt of the Borrower and its subsidiaries on a consolidated basis on the last day of such period to (b) Consolidated Borrower EBITDA for such period. "Borrowing Date" shall mean, in respect of any Loan, the date such Loan is made. "Business" shall have the meaning set forth in Section 3.10. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York, New York are authorized or required by law to close; provided, however, that when used in connection with a rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the term "Business Day" shall also exclude any day on which banks in London, England are not open for dealings in Dollar deposits in the London interbank market. "BV II" shall mean Orthofix II B.V., a company formed under the laws of the Netherlands. "BV II Limited Guaranty and Pledge Agreement" shall mean the Limited Guaranty and Pledge Agreement dated as of the Closing Date executed by BV II, in favor of the Administrative Agent, as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Capital Lease" shall mean any lease of property, real or personal, the obligations with respect to which are required to be capitalized on a balance sheet of the lessee in accordance with GAAP. "Capital Lease Obligations" shall mean the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP. "Capital Stock" shall mean (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership 4 interests (whether general or limited), (d) in the case of a limited liability company, membership interests and (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" shall mean (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition ("Government Obligations"), (b) U.S. dollar denominated (or foreign currency fully hedged) time deposits, certificates of deposit, Eurodollar time deposits and Eurodollar certificates of deposit of (i) any United States commercial bank of recognized standing having capital and surplus in excess of $250,000,000 or (ii) bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Bank"), in each case with maturities of not more than 364 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within six months of the date of acquisition, (d) repurchase agreements with a bank or trust company (including a Lender) or a recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States of America, (e) obligations of any state of the United States or any political subdivision thereof for the payment of the principal and redemption price of and interest on which there shall have been irrevocably deposited Government Obligations maturing as to principal and interest at times and in amounts sufficient to provide such payment and (f) Investments, classified in accordance with GAAP as current assets of the Borrower or its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, as amended, that are administered by financial institutions that have the highest rating obtainable from either Moody's or S&P, and the portfolios of which are limited solely to Investments (i) in corporate obligations having a remaining maturity of less than two years, issued by corporations having outstanding comparable obligations that are rated in the two highest categories of Moody's and S&P or no lower than the two highest long term debt ratings categories of either Moody's or S&P or (ii) of the character, quality and maturity described in clauses (a)-(e) of this definition. "CHAMPUS" shall mean the United States Department of Defense Civilian Health and Medical Program of the United States. "Change of Control" shall mean the occurrence of any of the following: (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in Rule l3d-3 under the Securities Exchange Act of 1934) of more than 30% of then outstanding Voting Stock of the Parent, measured by voting power rather than the number of shares; (b) Continuing Directors shall cease for any reason to constitute a majority of the members of the board of directors of the Parent then in office, (c) the Parent shall cease to own, directly or indirectly through wholly-owned Subsidiaries, all of the outstanding Capital Stock of the Borrower, or (d) the occurrence of a 5 "Change of Control" (or any comparable term) under, and as defined in, the documents evidencing or governing any Subordinated Indebtedness. "Closing Date" shall mean the date of this Agreement. "CMS" shall mean the Centers for Medicare and Medicaid Services and any successor thereto. "Code" shall mean the Internal Revenue Code of 1986, as amended, modified, succeeded or replaced from time to time. "Collateral" shall mean a collective reference to the collateral that is identified in, and at any time will be covered by, the Security Documents. "Commitment" shall mean the Revolving Commitment, the LOC Commitment, the Swingline Commitment and the Term Loan Commitment, individually or collectively, as appropriate. "Commitment Fee" shall have the meaning set forth in Section 2.5(a). "Commitment Percentage" shall mean the Revolving Commitment Percentage and/or the Term Loan Commitment Percentage, as appropriate. "Commitment Period" shall mean the period from and including the Closing Date to but not including the Maturity Date. "Commitment Transfer Supplement" shall mean a Commitment Transfer Supplement, substantially in the form of Schedule 9.6(c). "Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001(b)(1) of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414(b) or 414(c) of the Code or, solely for purposes of Section 412 of the Code to the extent required by such section, Section 414(m) or 414(o) of the Code. "Consolidated Borrower EBITDA" shall mean, for any applicable period of computation, the sum of (a) Consolidated Borrower Net Income for such period, but excluding therefrom all extraordinary items of income or loss, plus (b) to the extent deducted in determining Consolidated Borrower Net Income for such period, the sum of (i) the aggregate amount of depreciation and amortization charges for such period, plus (ii) Consolidated Borrower Interest Expense for such period, plus (iii) the aggregate amount of all income taxes reflected on the consolidated statements of income of the Borrower and its Subsidiaries for such period, plus (iv) adjustments set forth on Schedule 1.1-2 related to (A) the fees and expenses associated with the Acquisition and the closing of this Credit Agreement and (B) OIG Settlement Costs in an aggregate amount not to exceed $1,700,000. 6 "Consolidated Borrower Interest Expense" shall mean, for any applicable period of computation, all interest expense of the Borrower and its Subsidiaries on a consolidated basis for such period (including, without limitation, the interest component under Capital Leases and any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product, but excluding interest income), as determined in accordance with GAAP. "Consolidated Borrower Net Income" shall mean, for any applicable period of computation, net income after taxes for such period of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "Consolidated Capital Expenditures" shall mean, for any applicable period of computation, all capital expenditures of the Borrower and its Subsidiaries on a consolidated basis for such period, as determined in accordance with GAAP. "Consolidated Parent EBITDA" shall mean, for any applicable period of computation, the sum of (a) Consolidated Parent Net Income for such period, but excluding therefrom all extraordinary items of income or loss, plus (b) to the extent deducted in determining Consolidated Parent Net Income for such period, the sum of (i) the aggregate amount of depreciation and amortization charges for such period, plus (ii) Consolidated Parent Interest Expense for such period, plus (iii) the aggregate amount of all income taxes reflected on the consolidated statements of income of the Parent and its Subsidiaries for such period plus (iv) adjustments set forth on Schedule 1.1-2 related to (A) the fees and expenses associated with the Acquisition and the closing of this Credit Agreement, (B) OIG Settlement Costs in an aggregate amount not to exceed $1,700,000 and (C) KCI Litigation Expenses in an aggregate amount not to exceed $3,900,000. "Consolidated Parent Interest Expense" shall mean, for any applicable period of computation, all interest expense of the Parent and its Subsidiaries on a consolidated basis for such period (including, without limitation, the interest component under Capital Leases and any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product, but excluding interest income), as determined in accordance with GAAP. "Consolidated Parent Net Income" shall mean, for any applicable period of computation, net income after taxes for such period of the Parent and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "Consolidated Working Capital" shall mean, for any applicable period of computation, (a) all current assets of the Borrower and its Subsidiaries on a consolidated basis minus (b) all current liabilities of the Borrower and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP. "Continuing Directors" shall mean, during any period of up to 24 consecutive months commencing after the Closing Date, individuals who at the beginning of such 24 month period were directors of the Parent (together with any new director whose election by the Parent's board of directors or whose nomination for election by the Parent's shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the 7 beginning of such period or whose election or nomination for election was previously so approved). "Contractual Obligation" shall mean, as to any Person, any provision of any security issued by such Person or of any contract, agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Copyright Licenses" shall mean any agreement, written or oral, naming the Borrower or any of its Subsidiaries as licensor and granting any right under any Copyright including, without limitation, any thereof referred to in Schedule 3.16. "Copyrights" shall mean (a) all registered United States copyrights in all Works, now existing or hereafter created or acquired, all registrations and recordings thereof, and all applications in connection therewith (including, without limitation, registrations, recordings and applications in the United States Copyright Office), including, without limitation, any thereof referred to in Schedule 3.16, and (b) all renewals thereof including, without limitation, any renewals referred to in Schedule 3.16. "Credit Documents" shall mean this Agreement, each of the Notes, any Joinder Agreement, the LOC Documents, the Security Documents and all other agreements, documents, certificates and instruments delivered to the Administrative Agent or any Lender by any Credit Party in connection therewith (excluding, however, any Hedging Agreement). "Credit Party" shall mean any of the Borrower or the Guarantors. "Credit Party Obligations" shall mean, without duplication, (a) all of the obligations of the Credit Parties to the Lenders (including the Issuing Lender) and the Administrative Agent, whenever arising, under this Agreement, the Notes or any of the other Credit Documents (including, but not limited to, any interest accruing after the occurrence of a filing of a petition of bankruptcy under the Bankruptcy Code with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code) and (b) all liabilities and obligations, whenever arising, owing from any Credit Party or any of its Subsidiaries to any Hedging Agreement Provider arising under any Secured Hedging Agreement permitted pursuant to Section 6.1(e). "Debentures" shall mean the Debentures, each dated as of the Closing Date, executed by the Borrower and Orthofix UK Ltd in favor of the Administrative Agent, in each case as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Debt Issuance" shall mean the issuance of any Indebtedness for borrowed money by the Borrower or any of its Subsidiaries (excluding, for purposes hereof, any Equity Issuance or any Indebtedness of the Borrower and its Subsidiaries permitted to be incurred pursuant to Section 6.1 hereof). 8 "Default" shall mean any event which would constitute an Event of Default, whether or not any requirement for the giving of notice or the lapse of time, or both, or any other condition with respect to such Event of Default, has been satisfied. "Defaulting Lender" shall mean, at any time, any Lender that, at such time (a) has failed to make a Loan required pursuant to the term of this Credit Agreement, including the funding of a Participation Interest in accordance with the terms hereof, (b) has failed to pay to the Administrative Agent or any Lender an amount owed by such Lender pursuant to the terms of this Credit Agreement, or (c) has been deemed insolvent or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or similar official. "Deferred Purchase Agreement" shall mean the deferred purchase agreement between the Borrower and Orthofix UK Ltd., dated as of the Closing Date. "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Domestic Lending Office" shall mean, initially, the office of each Lender designated as such Lender's Domestic Lending Office shown on Schedule 9.2; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which Alternate Base Rate Loans of such Lender are to be made. "Drop Down Date" shall mean the date upon which BV II shall have transferred ownership of all of the Capital Stock of Orthofix Holdings owned by BV II to the Borrower on terms reasonably satisfactory to the Administrative Agent. "Eligible UK Lender" means a Lender that is (a) (i) a "bank" (as defined for purposes of Section 349 of the UK Income and Corporation Taxes Act 1988) making an advance under this Credit Agreement or (ii) a Lender in respect of an advance made under this Credit Agreement by a Person that was a "bank" (as defined for purposes of Section 349 of the UK Income and Corporation Taxes Act 1988) at the time that such advance was made, and (b) beneficially entitled to interest payable to such Lender in respect of such advance and within the charge to United Kingdom corporation tax as regards any payments of interest made in respect of such advance. "Environmental Laws" shall mean any and all applicable foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirement of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health as such relates to exposure to Materials of Environmental Concern or the environment, as now or may at any time be in effect during the term of this Agreement. "Equity Issuance" shall mean any issuance by the Parent, the Borrower or any of the Borrower's Subsidiaries to any Person that is not the Parent or one of its Subsidiaries of (a) shares of its Capital Stock, (b) any shares of its Capital Stock pursuant to the exercise of options or warrants (excluding employee stock options), (c) any shares of its Capital Stock 9 pursuant to the conversion of any debt securities to equity or (d) warrants or options which are exercisable for shares of its Capital Stock. The term "Equity Issuance" shall not include any Asset Disposition or Debt Issuance. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, modified, succeeded or replaced from time to time. "Eurodollar Reserve Percentage" shall mean for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) that is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities, as defined in Regulation D of such Board as in effect from time to time, or any similar category of liabilities for a member bank of the Federal Reserve System in New York City. "Event of Default" shall mean any of the events specified in Section 7.1; provided, however, with respect to any such event, that any requirement for the giving of notice or the lapse of time, or both, or any other condition with respect thereto, has been satisfied. "Excess Cash Flow" shall mean, with respect to any fiscal year of the Borrower commencing with the Borrower's fiscal year ending December 31, 2004, for the Borrower and its Subsidiaries on a consolidated basis, an amount equal to (a) Consolidated Borrower EBITDA for such period minus (b) Consolidated Capital Expenditures for such period minus (c) Scheduled Funded Debt Payments made during such period minus (d) Consolidated Borrower Interest Expense (excluding any Consolidated Borrower Interest Expense associated with intercompany Indebtedness) for such period minus (e) amounts paid in respect of federal, state, local and foreign income taxes of the Borrower and its Subsidiaries with respect to such period minus (f) increases in Consolidated Working Capital plus (g) decreases in Consolidated Working Capital minus (h) optional prepayments of Revolving Loans (to the extent accompanied by a corresponding reduction of the Revolving Committed Amount) and the Term Loan made pursuant to Section 2.7(a). "Extension of Credit" shall mean, as to any Lender, the making of a Loan by such Lender or the issuance of, or participation in, a Letter of Credit by such Lender. "Federal Funds Effective Rate" shall have the meaning set forth in the definition of "Alternate Base Rate". "Fee Letter" shall mean the letter agreement dated November 10, 2003 addressed to the Borrower from Wachovia and WCM, as amended, modified, restated or supplemented from time to time in accordance with its terms. "Fixed Charge Coverage Ratio" shall mean, with respect to the Borrower and its Subsidiaries on a consolidated basis for the twelve-month period ending on the last day of any fiscal quarter of the Borrower, the ratio of (a) Consolidated Borrower EBITDA for such period to (b) the sum of Consolidated Borrower Interest Expense for such period plus Scheduled Funded 10 Debt Payments for such period plus cash taxes paid or payable during such period plus Consolidated Capital Expenditures for such period plus Restricted Payments made during such period. Notwithstanding the foregoing, for purposes of calculating the Fixed Charge Coverage Ratio for the fiscal quarters ending March 31, 2004, June 30, 2004 and September 30, 2004, the Fixed Charge Coverage Ratio shall be determined by annualizing the Consolidated Borrower Interest Expense during such fiscal quarters such that (i) for the calculation of the Fixed Charge Coverage Ratio as of March 31, 2004, the Consolidated Borrower Interest Expense for the fiscal quarter ending March 31, 2004 would be multiplied by four (4), (ii) for the calculation of the Fixed Charge Coverage Ratio as of June 30, 2004, the Consolidated Borrower Interest Expense for the two fiscal quarter period then ending would be multiplied by two (2) and (iii) for the calculation of the Fixed Charge Coverage Ratio as of September 30, 2004, the Consolidated Borrower Interest Expense for the three fiscal quarter period then ending would be multiplied by one and one-third (1 1/3). "Flood Hazard Property" shall have the meaning set forth in Section 4.1(f)(iv). "Funded Debt" shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person incurred, issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) that would appear as liabilities on a balance sheet of such Person, (e) the principal portion of all obligations of such Person under Capital Leases, (f) all obligations of such Person under Hedging Agreements to the extent required to be accounted for as a liability under GAAP, excluding any portion thereof which would be accounted for as interest expense under GAAP, (g) the maximum amount of all letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (h) all preferred Capital Stock or other equity interests issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration, (i) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product, (j) all Indebtedness of others of the type described in clauses (a) through (i) hereof secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (k) all Guaranty Obligations of such Person with respect to Indebtedness of another Person of the type described in clauses (a) through (i) hereof, and (l) all Indebtedness of the type described in clauses (a) through (i) hereof of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer; provided, however, that (i) with respect to Funded Debt of the Parent and its Subsidiaries, Funded Debt shall not include Subordinated Indebtedness (including, without limitation, the Parent Intercompany Loan) among the Borrower and the Guarantors to the extent such Indebtedness would be eliminated on a consolidated basis and (ii) with respect to Funded Debt 11 of the Borrower and its Subsidiaries, Funded Debt shall not include Subordinated Indebtedness (including, without limitation, the Parent Intercompany Loan or the Deferred Purchase Agreement) among the Borrower and the Subsidiary Guarantors to the extent such Indebtedness would be eliminated on a consolidated basis. "GAAP" shall mean generally accepted accounting principles in effect in the United States of America applied on a consistent basis, subject, however, in the case of determination of compliance with the financial covenants set out in Section 5.9, to the provisions of Section 1.3. "Government Acts" shall have the meaning set forth in Section 2.19(a). "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranty Obligations" shall mean, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including without limitation any obligation, whether or not contingent, (a) to purchase any such Indebtedness or any property constituting security therefore, (b) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including without limitation keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (d) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness in respect of which such Guaranty Obligation is made. "Guarantor" shall have the meaning set forth in the first paragraph of this Agreement. "Guaranty" shall mean the guaranty of the Guarantors set forth in Article X. "Hedging Agreement Provider" shall mean any Person that enters into a Secured Hedging Agreement with a Credit Party or any of its Subsidiaries that is permitted by Section 6.1(e) to the extent such Person is a Lender, an Affiliate of a Lender or any other Person that was a Lender (or an Affiliate of a Lender) at the time it entered into the Secured Hedging Agreement but has ceased to be a Lender (or whose Affiliate has ceased to be a Lender) under the Credit Agreement. "Hedging Agreements" shall mean, with respect to any Person, any agreements entered into to protect such Person against fluctuations in interest rates, or currency or raw materials values, including, without limitation, any interest rate swap, cap or collar agreements or similar arrangements between such Person and one or more counterparties, any foreign currency 12 exchange agreements, currency protection agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements. "Indebtedness" shall mean, with respect to any Person, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, or upon which interest payments are customarily made, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (d) all obligations of such Person issued or assumed as the deferred purchase price of property or services purchased by such Person (other than trade debt incurred in the ordinary course of business and due within six months of the incurrence thereof) that would appear as liabilities on a balance sheet of such Person, (e) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on, or payable out of the proceeds of production from, property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, (g) all Guaranty Obligations of such Person with respect to Indebtedness of another Person, (h) the principal portion of all obligations of such Person under Capital Leases plus any accrued interest thereon, (i) all obligations of such Person under Hedging Agreements to the extent required to be accounted for as a liability under GAAP, excluding any portion thereof which would be accounted for as interest expense under GAAP, (j) the maximum amount of all letters of credit issued or bankers' acceptances facilities created for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed), (k) all preferred Capital Stock or other equity interest issued by such Person and which by the terms thereof could be (at the request of the holders thereof or otherwise) subject to mandatory sinking fund payments, redemption or other acceleration, (l) the principal balance outstanding under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing product plus any accrued interest thereon, and (m) the Indebtedness of any partnership or unincorporated joint venture in which such Person is a general partner or a joint venturer. "Initial Lender" shall mean a Lender (a) that is a party to this Credit Agreement on the Closing Date or (b) whose Commitment is held by Wachovia on the Closing Date and assigned from Wachovia to such Lender thereafter; provided that a Lender shall not be treated as an Initial Lender for the purposes of Section 9.6 immediately following an assignment or participation by such Lender of all of its rights and obligations under this Credit Agreement. "Initial Mortgaged Properties" shall have the meaning set forth in Section 4.1(f)(i). "Insolvency" shall mean, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA. "Insolvent" shall mean being in a condition of Insolvency. "Intellectual Property" shall mean, collectively, all Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark Licenses. 13 "Interest Coverage Ratio" shall mean, with respect to the Borrower and its subsidiaries on a consolidated basis for the twelve-month period ending on the last day of any fiscal quarter of the Borrower, the ratio of (a) Consolidated Borrower EBITDA for such period to (b) Consolidated Borrower Interest Expense for such period. Notwithstanding the foregoing, for purposes of calculating the Interest Coverage Ratio for the fiscal quarters ending March 31, 2004, June 30, 2004 and September 30, 2004, the Interest Coverage Ratio shall be determined by annualizing the Consolidated Borrower Interest Expense during such fiscal quarters such that (i) for the calculation of the Interest Coverage Ratio as of March 31, 2004, the Consolidated Borrower Interest Expense for the fiscal quarter ending March 31, 2004 would be multiplied by four (4), (ii) for the calculation of the Interest Coverage Ratio as of June 30, 2004, the Consolidated Borrower Interest Expense for the two fiscal quarter period then ending would be multiplied by two (2) and (iii) for the calculation of the Interest Coverage Ratio as of September 30, 2004, the Consolidated Borrower Interest Expense for the three fiscal quarter period then ending would be multiplied by one and one-third (1 1/3). "Interest Determination Date" shall have the meaning assigned thereto in the definition of "Applicable Percentage". "Interest Payment Date" shall mean (a) as to any Alternate Base Rate Loan or Swingline Loan, the last Business Day of each March, June, September and December during the term of this Agreement and on the Maturity Date, (b) as to any LIBOR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any LIBOR Rate Loan having an Interest Period longer than three months, (i) each three month anniversary of the first day of such Interest Period and (ii) the last day of such Interest Period, and (d) as to any Loan which is the subject of a mandatory prepayment required pursuant to Section 2.7(b) hereof, the date of such prepayment. "Interest Period" shall mean, with respect to any LIBOR Rate Loan, (a) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such LIBOR Rate Loan and ending one, two, three or six months thereafter, subject to availability, as selected by the Borrower in the Notice of Borrowing or Notice of Conversion/Extension given with respect thereto; and (b) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan and ending one, two, three or six months thereafter, subject to availability, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three (3) Business Days prior to the last day of the then current Interest Period with respect thereto; provided that the foregoing provisions are subject to the following: (i) if any Interest Period pertaining to a LIBOR Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension 14 would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period pertaining to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month for such Interest Period; (iii) if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace the affected LIBOR Rate Loan; (iv) any Interest Period in respect of any Loan that would otherwise extend beyond the Maturity Date shall end on the Maturity Date; (v) with regard to the Term Loan, no Interest Period shall extend beyond any principal amortization payment date unless the portion of the Term Loan consisting of Alternate Base Rate Loans together with the portion of the Term Loan consisting of LIBOR Rate Loans with Interest Periods expiring prior to or concurrently with the date such principal amortization payment date is due, is at least equal to the amount of such principal amortization payment due on such date; and (vi) no more than six (6) LIBOR Rate Loans may be in effect at any time; provided that, for purposes hereof, LIBOR Rate Loans with different Interest Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date and have the same duration, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Rate Loan with a single Interest Period. "Investment" shall mean all investments made directly or indirectly in, to or from any Person, whether in cash or by acquisition of shares of Capital Stock, property, assets, indebtedness or other obligations or securities or by loan advance, capital contribution or otherwise. "IOL" shall mean Intavent Orthofix Limited, a company formed under the laws of England and Wales and registered with number 02853159. "IOL Limited Guaranty and Pledge Agreement" shall mean the pledge agreement dated as of the Closing Date executed by IOL, in favor of the Administrative Agent, as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Issuing Lender" shall mean Wachovia. 15 "Issuing Lender Fees" shall have the meaning set forth in Section 2.5(c). "Joinder Agreement" shall mean a Joinder Agreement substantially in the form of Schedule 5.10, executed and delivered by an Additional Credit Party in accordance with the provisions of Section 5.10. "KCI Litigation Expenses" shall mean those expenses incurred by the Parent or its Subsidiaries in connection with the litigation between Novamedix, a subsidiary of the Parent, and Kinetic Concepts Inc., regarding alleged infringement of patents relating to Novamedix's A-V Impulse System product. "Kinesis Earnout" shall mean the earnout obligations of Orthofix Inc. upon (i) the receipt of a unique healthcare reimbursement code and (ii) the attainment of certain sales thresholds, in each case owed to Kinesis Medical Inc. in connection with Orthofix Inc.'s acquisition of Kinesis Medical Inc.'s pneumatic vest business on August 31, 2000. "Lender" shall have the meaning set forth in the first paragraph of this Agreement and shall include the Issuing Lender and the Swingline Lender. "Letters of Credit" shall mean any letter of credit issued by the Issuing Lender pursuant to the terms hereof, as such Letters of Credit may be amended, modified, extended, renewed or replaced from time to time. "Letter of Credit Fee" shall have the meaning set forth in Section 2.5(b). "LIBOR" shall mean, for any LIBOR Rate Loan for any Interest Period therefore, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "LIBOR" shall mean, for any LIBOR Rate Loan for any Interest Period therefore, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). If, for any reason, neither of such rates is available, then "LIBOR" shall mean the rate per annum at which, as determined by the Administrative Agent, Dollars in an amount comparable to the Loans then requested are being offered to leading banks at approximately 11:00 A.M. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected. 16 "LIBOR Lending Office" shall mean, initially, the office of each Lender designated as such Lender's LIBOR Lending Office shown on Schedule 9.2; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which the LIBOR Rate Loans of such Lender are to be made. "LIBOR Rate" shall mean a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula: LIBOR Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage "LIBOR Rate Loan" shall mean Loans the rate of interest applicable to which is based on the LIBOR Rate. "Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing). "Limited Guarantors" shall mean IOL and BV II. "Loan" shall mean a Revolving Loan, a Swingline Loan and/or a Term Loan, as appropriate. "LOC Commitment" shall mean the commitment of the Issuing Lender to issue Letters of Credit and, with respect to each Revolving Lender, the commitment of such Revolving Lender to purchase participation interests in the Letters of Credit up to the amount identified as such Revolving Lender's "LOC Commitment" on Schedule 2.1(a) or in the Register, as such amount may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c) or reduced from time to time in accordance with the provisions hereof. "LOC Committed Amount" shall have the meaning set forth in Section 2.3(a). "LOC Documents" shall mean, with respect to any Letter of Credit, such Letter of Credit, any amendments thereto, any documents delivered in connection therewith, any application therefore, and any agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or (b) any collateral security for such obligations. "LOC Obligations" shall mean, at any time, the sum of (a) the maximum amount which is, or at any time thereafter may become, available to be drawn under Letters of Credit then outstanding, assuming compliance with all requirements for drawings referred to in such Letters 17 of Credit plus (b) the aggregate amount of all drawings under Letters of Credit honored by the Issuing Lender but not theretofore reimbursed. "Mandatory Borrowing" shall have the meaning set forth in Section 2.3(e) and Section 2.4(b)(ii), as the context may require. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Parent and its Subsidiaries taken as a whole or the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Parent, the Borrower or the Borrower and the Subsidiary Guarantors taken as a whole to perform its or their obligations, as applicable, when such obligations are required to be performed, under this Agreement, any of the Notes or any other Credit Document or (c) the validity or enforceability of this Agreement, any of the Notes or any of the other Credit Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Material Contract" shall mean any contract or other arrangement, whether written or oral, to which the Parent, the Borrower or any of the Borrower's Subsidiaries is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect. "Material Property" shall mean real and/or personal property of the Borrower and the Subsidiary Guarantors with an aggregate fair market value greater than or equal to $1,000,000. "Materials of Environmental Concern" shall mean any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Maturity Date" shall mean December 30, 2008. "Medicaid" shall mean that entitlement program under Title XIX of the Social Security Act that provides federal grants to states for medical assistance based on specific eligibility criteria. "Medicaid Certification" shall mean recognition by a state agency or other such entity administering a particular state's Medicaid program that a health care provider or supplier is in compliance with all the conditions of participation set forth in the appropriate state and federal Medicaid Regulations. "Medicaid Provider Agreement" shall mean an agreement entered into between a state agency or other such entity administering the Medicaid program and a health care provider or supplier under which the health care provider or supplier agrees to provide services for Medicaid patients in accordance with the terms of the agreement and Medicaid Regulations. "Medicaid Regulations" shall mean, collectively, (a) all federal statutes (whether set forth 18 in Title XIX of the Social Security Act or elsewhere) affecting the medical assistance program established by Title XIX of the Social Security Act and any statutes succeeding thereto; (b) all applicable provisions of all federal rules, regulations, manuals and orders of all Governmental Authorities promulgated pursuant to or in connection with the statutes described in clause (a) above and all federal administrative, reimbursement and other guidelines of all Governmental Authorities having the force of law promulgated pursuant to or in connection with the statutes described in clause (a) above; (c) all state statutes and plans for medical assistance enacted in connection with the statutes and provisions described in clauses (a) and (b) above; and (d) all applicable provisions of all rules, regulations, manuals and orders of all Governmental Authorities promulgated pursuant to or in connection with the statutes described in clause (c) above and all state administrative, reimbursement and other guidelines of all Governmental Authorities having the force of law promulgated pursuant to or in connection with the statutes described in clause (b) above, in each case as may be amended, supplemented or otherwise modified from time to time. "Medical Reimbursement Programs" shall mean Medicare, Medicaid and TRICARE programs and any other healthcare program operated by or financed in whole or in part by any foreign, federal, state or local government and any other non-government funded third party payor programs. "Medicare Certification" shall mean recognition by CMS or an entity under contract with CMS that the health care provider or supplier is in compliance with all of the conditions of participation set forth in the Medicare Regulations. "Medicare Provider Agreement" means an agreement entered into between CMS or other such entity administering the Medicare program on behalf of CMS, and a health care provider or supplier under which the health care provider or supplier agrees to provide services for Medicare patients in accordance with the terms of the agreement and Medicare Regulations. "Medicare" shall mean that government-sponsored entitlement program under Title XVIII of the Social Security Act that provides for a health insurance system for eligible elderly and disabled individuals. "Medicare Regulations" shall mean, collectively, all Federal statutes (whether set forth in Title XVIII of the Social Security Act or elsewhere) affecting the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act and any statutes succeeding thereto; together with all applicable provisions of all rules, regulations, manuals and orders and administrative, reimbursement and other guidelines having the force of law of all Governmental Authorities (including, without limitation, the United States Department of Health and Human Services ("HHS"), CMS, the OIG, or any person succeeding to the functions of any of the foregoing) promulgated pursuant to or in connection with any of the foregoing having the force of law, as each may be amended, supplemented or otherwise modified from time to time. "Merger Documents" shall mean the Certificate of Merger to be filed with the Secretary of State of the State of Delaware and the Agreement of Merger to be filed with the Secretary of State of the State of California, in each case in connection with the Acquisition. 19 "Mexican Security Documents" shall mean the Pledge Agreement executed by the Mexican Subsidiary in favor of the Administrative Agent and any other agreement or instrument executed by the Mexican Subsidiary in connection therewith, in each case as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Mexican Subsidiary" shall mean Breg Mexico S. de R.L. de C.V., a company organized under the laws of Mexico. "Moody's" shall mean Moody's Investors Service, Inc or any successor rating agency. "Mortgage Instruments" shall mean any mortgage, deed of trust or deed to secure debt executed by a Credit Party in favor of the Administrative Agent pursuant to the terms of Section 4.1(f)(i), 5.10 or 5.12, as the same may be amended, modified, restated or supplemented from time to time. "Mortgage Policy" shall mean an ALTA mortgagee title insurance policy issued by the Title Insurance Company in an amount (limited to 125% of the appraised value (if an appraisal is available) or, if no appraisal is available, then 125% of the assessed value) satisfactory to the Administrative Agent, in form and substance satisfactory to the Administrative Agent. "Mortgaged Property" shall mean any owned or leased real property of a Credit Party with respect to which such Credit Party executes a Mortgage Instrument in favor of the Administrative Agent. "Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" shall mean the aggregate cash proceeds received by (a) the Borrower or any of its Subsidiaries in respect of any Asset Disposition, Debt Issuance or Recovery Event and (b) the Parent, the Borrower or any of the Borrower's Subsidiaries in respect of any Equity Issuance, in each case net of (i) direct costs paid or payable as a result thereof (including, without limitation, reasonable legal, accounting and investment banking fees, and sales commissions) and (ii) taxes paid or payable as a result thereof; it being understood that "Net Cash Proceeds" shall include, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received by (y) the Borrower or any of its Subsidiaries in respect of such Asset Disposition, Equity Issuance, Debt Issuance or Recovery Event and (z) the Parent in respect of any Equity Issuance. "Non-U.S. Subsidiary" shall mean any Subsidiary that is not a U.S. Subsidiary. "Note" or "Notes" shall mean the Revolving Notes, the Swingline Note and/or the Term Notes, collectively, separately or individually, as appropriate. "Notice of Borrowing" shall have the meaning set forth in Section 2.1(b)(i). 20 "Notice of Conversion/Extension" shall have the meaning set forth in Section 2.10. "Obligations" shall mean, collectively, Loans and LOC Obligations. "OIG" shall mean the Office of the Inspector General for the United States Department of Health and Human Services. "OIG Settlement Costs" shall mean those costs incurred by the Parent or its Subsidiaries under the settlement agreement with CHAMPUS/Tricare in connection with the OIG's investigation of the Parent's billings to federal and state healthcare programs for the off-label use of the Parent's FDA approved pulsed electronic magnetic field device. "Orthofix Holdings" shall mean Orthofix Holdings, Inc., a subsidiary of the Borrower organized under the laws of Delaware. "Orthofix Holdings Contribution Agreement" shall mean the contribution agreement between Orthofix Holdings and the Borrower, dated as of the Closing Date. "Orthofix Holdings Pledge Agreement" shall mean the Pledge Agreement dated as of the Closing Date executed by Orthofix Holdings in favor of the Administrative Agent, as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Orthofix Inc." shall mean Orthofix Inc., a Minnesota corporation. "Parent" shall have the meaning set forth in the first paragraph of this Agreement. "Parent Intercompany Loan" shall mean that certain unsecured, subordinated intercompany loan from the Parent to Orthofix Holdings in connection with the consummation of the Acquisition in an aggregate principal amount not to exceed $35,561,835. "Parent Leverage Ratio" shall mean, with respect to the Parent and its Subsidiaries on a consolidated basis for the twelve-month period ending on the last day of any fiscal quarter of the Parent, the ratio of (a) Funded Debt of the Parent and its Subsidiaries on a consolidated basis on the last day of such period to (b) Consolidated Parent EBITDA for such period. "Participant" shall have the meaning set forth in Section 9.6(b). "Participation Interest" shall mean the purchase by a Revolving Lender of a participation interest in Letters of Credit as provided in Section 2.3 and in Swingline Loans as provided in Section 2.4. "Patent License" shall mean any agreement, whether written or oral, providing for the grant by or to the Borrower or any of its Subsidiaries of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any thereof referred to in Schedule 3.16. 21 "Patents" shall mean (a) all patents of the United States or any other country and all reissues and extensions thereof, including, without limitation, any thereof referred to in Schedule 3.16, and (b) all applications for patents of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any thereof referred to in Schedule 3.16. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permitted Acquisition" shall mean any acquisition or any series of related acquisitions by the Borrower or a Subsidiary Guarantor of the assets or a majority of the Voting Stock or equity interests of a Person that is incorporated, formed or organized in the United States, including any of its territories or commonwealths, or any division, line of business or other business unit of a Person that is incorporated, formed or organized in the United States, including any of its territories or commonwealths (such Person or such division, line of business or other business unit of such Person referred to herein as the "Target"), in each case that is a type of business (or assets used in a type of business) permitted to be engaged in by the Borrower and the Subsidiary Guarantors pursuant to this Credit Agreement, so long as (a) no Default or Event of Default shall then exist or would exist after giving effect thereto, (b) the Administrative Agent, on behalf of the Lenders, shall have received (or shall receive in connection with the closing of such acquisition), a first priority perfected security interest in all property with such exceptions as approved by the Administrative Agent (including, without limitation, Capital Stock or equity interests) acquired with respect to the Target and the Target, if a Person, shall have executed a Joinder Agreement, (c) such acquisition is not a "hostile" acquisition and has been approved by the board of directors and/or shareholders (or comparable persons or groups) of the Borrower or the applicable Subsidiary Guarantor and the Target, (d) after giving effect to such acquisition, there shall be at least $5,000,000 of borrowing availability under the Revolving Committed Amount, (e) the Administrative Agent shall have received a certificate from a Responsible Officer of the Borrower certifying that, in the reasonable judgment of the Borrower, the Borrower and the Subsidiary Guarantors have conducted such financial, legal, environmental and consulting due diligence with respect to the Target as a substantially similarly situated prudent purchaser acquiring substantially similar property and/or assets would customarily conduct, (f) the total consideration (including, without limitation, cash, Capital Stock, assumed Indebtedness, earnout payments and any other deferred payment) paid for the Target acquired in such acquisition or series of related acquisitions shall not exceed $15,000,000 for any individual acquisition (or series of related acquisitions), $25,000,000 in the aggregate for all acquisitions during any four fiscal quarter period, or $50,000,000 in the aggregate during the Commitment Period and (g) to the extent the total consideration of any Permitted Acquisition is in excess of $5,000,000 or the Borrower requests a Revolving Loan to fund such Permitted Acquisition, the Borrower and the Subsidiary Guarantors shall provide not less than twenty (20) Business Days prior to the consummation of such Permitted Acquisition (i) a reasonably detailed description of the material terms of such Permitted Acquisition (including, without limitation, the purchase price and method and structure of payment) and of each Target, (ii) to the extent available, financial statements of the Target for the previous two years and year-to-date financial statements of the Target, and (iii) a certificate, in form and substance reasonably satisfactory to 22 the Administrative Agent, executed by a Responsible Officer of the Borrower (A) setting forth the best good faith estimate of the total consideration (including, without limitation, cash, Capital Stock, assumed Indebtedness, earnout payments and any other deferred payment) to be paid for each Target, and (B) certifying that such Permitted Acquisition complies with the requirements of this Credit Agreement and (z) certifying and demonstrating that after giving effect to such Permitted Acquisition and any borrowings in connection therewith on a Pro Forma Basis, the Borrower and its Subsidiaries will be in compliance with the financial covenants set forth in Section 5.9. "Permitted Investments" shall mean: (a) cash and Cash Equivalents; (b) receivables owing to the Borrower or any of its Subsidiaries or any receivables and advances to suppliers, in each case if created, acquired or made in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (c) Investments (including, without limitation, the purchase or ownership of Capital Stock) by any Credit Party in any other Credit Party (other than the Parent) and Subordinated Indebtedness owing by any Credit Party to any other Credit Party (other than the Parent); (d) the Parent Intercompany Loan; (e) loans and advances to officers, directors, employees and Affiliates in the ordinary course of business in an aggregate amount not to exceed $500,000 at any time outstanding; (f) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (g) Investments, acquisitions or transactions permitted under Section 6.4(b); (h) Permitted Acquisitions; (i) Hedging Agreements to the extent permitted pursuant to Section 6.1(e); and (j) additional loan advances and/or Investments of a nature not contemplated by the foregoing clauses hereof; provided that such loans, advances and/or Investments made pursuant to this clause (j) shall not exceed an aggregate amount of $500,000. 23 "Permitted Liens" shall mean: (a) Liens created by or otherwise existing, under or in connection with this Agreement or the other Credit Documents in favor of the Administrative Agent and each other Secured Party; (b) Liens securing purchase money Indebtedness and Capital Lease Obligations to the extent permitted under Section 6.1(c), including Liens existing on any asset at the time of acquisition pursuant to a Permitted Acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price); provided that (i) any such Lien attaches to such property concurrently with or within thirty (30) days after the acquisition thereof and (ii) such Lien attaches solely to the property so acquired in such transaction; (c) Liens for taxes, assessments, charges or other governmental levies not yet due or as to which the period of grace (not to exceed 60 days), if any, related thereto has not expired or which are being contested in good faith by appropriate proceedings; provided that adequate reserves with respect thereto are maintained on the books of the Borrower or any of its Subsidiaries, as the case may be, in conformity with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than sixty (60) days or which are being contested in good faith by appropriate proceedings; (e) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements incurred in the ordinary course of business; (f) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in the foregoing clauses; provided that such extension, renewal or replacement Lien shall be limited to all or a part of the property which secured the Lien so extended, renewed or replaced; (h) Liens in favor of a Hedging Agreement Provider in connection with any Secured Hedging Agreement, but only (i) to the extent such Liens are on the Collateral and are shared ratably with the Administrative Agent and (ii) if such Hedging Agreement Provider, the Administrative Agent and the Lenders shall share the proceeds of the Collateral subject to such Liens in accordance with the terms of Section 2.12(b); 24 (i) Liens existing on the Closing Date and set forth on Schedule 1.1-3; provided that (i) no such Lien shall at any time be extended to cover property or assets other than the property or assets subject thereto on the Closing Date and (ii) the principal amount of the Indebtedness secured by such Liens shall not be extended, renewed, refunded or refinanced; (j) easements, rights-of-way, restrictions (including zoning restrictions), minor defects or irregularities in title and other similar charges or encumbrances shown on any Mortgage Policy or not, in any material respect, impairing the use of the encumbered Property for its intended purposes; and (iii) Liens on equipment arising from precautionary UCC financing statements relating to the lease of such equipment to the extent permitted by this Agreement. "Person" shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan" shall mean, at any particular time, any employee benefit plan which is covered by Title IV of ERISA and in respect of which any Credit Party or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the pledge agreement dated as of the Closing Date executed by the Borrower and its Subsidiaries in favor of the Administrative Agent, as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Prime Rate" shall have the meaning set forth in the definition of "Alternate Base Rate". "Pro Forma Basis" shall mean, with respect to any transaction, that such transaction shall be deemed to have occurred as of the first day of the twelve-month period ending as of the most recent month end ending at least twenty (20) days preceding the date of such transaction. "Properties" shall have the meaning set forth in Section 3.10(a). "Purchase Agreement" shall mean the Acquisition Agreement dated as of November 20, 2003, among the Parent, Trevor Acquisition, Inc., a Delaware company, the Acquired Company and Bradley R. Mason, as the representative shareholders of the Acquired Company. "Purchasing Lenders" shall have the meaning set forth in Section 9.6(c). "Qualified Lender" shall mean a Treaty Lender or an Eligible UK Lender. 25 "Recovery Event" shall mean the receipt by the Borrower or any Subsidiary Guarantor of any cash insurance proceeds or condemnation award payable by reason of theft, loss, physical destruction or damage, taking or similar event with respect to any Material Property. "Register" shall have the meaning set forth in Section 9.6(d). "Reorganization" shall mean, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA. "Related Fund" shall mean, with respect to any Lender, any fund or trust or entity that invests in commercial bank loans in the ordinary course of business and is advised or managed by (a) such Lender, (b) an Affiliate of such Lender, (c) any other Lender or any Affiliate thereof or (d) the same investment advisor as any Person described in clauses (a) - (c). "Reportable Event" shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty-day notice period is waived under PBGC Reg. ss.4043. "Required Lenders" shall mean, at any time, Lenders holding in the aggregate a majority of (i) the Commitments (and Participation Interests therein) or (ii) if the Commitments have been terminated, the outstanding Loans and Participation Interests (including the Participation Interests of the Issuing Lender in any Letters of Credit and of the Swingline Lender in Swingline Loans); provided, however, that if any Lender shall be a Defaulting Lender at such time, then there shall be excluded from the determination of Required Lenders, Obligations (including Participation Interests) owing to such Defaulting Lender and such Defaulting Lender's Commitments, or after termination of the Commitments, the principal balance of the Obligations owing to such Defaulting Lender. "Requirement of Law" shall mean, as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and each law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Material Property or to which such Person or any of its Material Property is subject. "Responsible Officer" shall mean, as to (a) the Borrower, any of the President, the Chief Executive Officer or the Chief Financial Officer or the Treasurer or (b) any other Credit Party, any duly authorized officer thereof. "Restricted Payments" shall mean (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries, now or hereafter outstanding, (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of the Borrower or any of its Subsidiaries, now or 26 hereafter outstanding, (d) any payment with respect to any earnout obligation, (e) any payment or prepayment of principal of, premium, if any, or interest on, redemption, purchase, retirement, defeasance, sinking fund or similar payment with respect to, any Subordinated Indebtedness or (f) the payment by the Borrower or any of its Subsidiaries of any management or consulting fee to any Person or of any salary, bonus or other form of compensation to any Person who is directly or indirectly a significant partner, shareholder, owner or executive officer of any such Person, to the extent such salary, bonus or other form of compensation is either not included in the corporate overhead of the Borrower or such Subsidiary or, to the extent such salary, bonus or other form of compensation, is reimbursed by the Parent. "Revolving Committed Amount" shall have the meaning set forth in Section 2.1. "Revolving Commitment" shall mean, with respect to each Revolving Lender, the commitment of such Revolving Lender to make Revolving Loans in an aggregate principal amount at any time outstanding up to the amount identified as such Revolving Lender's "Revolving Commitment" on Schedule 2.1(a) or in the Register, as such amount may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c) or reduced from time to time in accordance with the provisions hereof. "Revolving Commitment Percentage" shall mean, for each Revolving Lender, the percentage identified as its "Revolving Commitment Percentage" on Schedule 2.1(a) or in the Register, as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c). "Revolving Lender" shall mean, as of any date of determination, each Lender with a Revolving Commitment greater than $0. "Revolving Loans" shall have the meaning set forth in Section 2.1. "Revolving Note" or "Revolving Notes" shall mean the promissory notes of the Borrower in favor of each of the Revolving Lenders evidencing the Revolving Loans provided pursuant to Section 2.1(e), individually or collectively, as appropriate, as such promissory notes may be amended, modified, supplemented, extended, renewed or replaced from time to time. "S&P" shall mean Standard & Poor's Ratings Service, a division of The McGraw Hill Companies, Inc. or any successor or rating agency. "Scheduled Funded Debt Payments" shall mean, as of any date of determination for the Borrower and its Subsidiaries, the sum of all scheduled payments of principal on Funded Debt for the applicable period ending on the date of determination (including the principal component of payments due on Capital Leases during the applicable period ending on the date of determination). "Secured Hedging Agreement" shall mean any Hedging Agreement between a Credit Party and a Hedging Agreement Provider, as amended, modified, restated or supplemented from time to time in accordance with its terms. 27 "Secured Party" shall mean each of the Administrative Agent, the Lenders and the Hedging Agreement Providers, together with their respective successors and assigns. "Security Agreement" shall mean the security agreement dated as of the Closing Date executed by the Borrower and the Subsidiary Guarantors in favor of the Administrative Agent, as amended, modified, restated or supplemented from time to time in accordance with its terms and the terms hereof. "Security Documents" shall mean the Security Agreement, the Pledge Agreement, the BV II Limited Guaranty and Pledge Agreement, the Mortgage Instruments, the Mexican Security Documents, the UK Collateral Documents and such other documents executed and delivered in connection with the grant, attachment and perfection of the Administrative Agent's security interests and liens arising thereunder, including, without limitation, UCC financing statements. "Single Employer Plan" shall mean any Plan which is not a Multiemployer Plan. "Social Security Act" shall mean the Social Security Act as set forth in Title 42 of the United States Code, as amended, and any successor statute thereto, as interpreted by the rules and regulations issued thereunder, in each case as in effect from time to time. References to sections of the Social Security Act shall be construed also to refer to any successor sections. "Solvent" shall mean, with respect to any Person on any date (a) the fair saleable value of such Person's assets, measured on a going concern basis, exceeds all probable liabilities of such Person, including contingent liabilities and those liabilities to be incurred pursuant to this Credit Agreement, or (b) such Person (i) does not have unreasonably small capital in relation to the business in which it is or proposes to be engaged, (ii) has not incurred, or believes that it will incur after giving effect to the transactions contemplated by this Credit Agreement, debts beyond its ability to pay such debts as they become due, (iii) has not suspended making payments on any of its debts unless subject to a good faith dispute or (iv) by reason of actual or anticipated financial difficulties, has not commenced negotiations with one or more of its creditors in order to reschedule the payment of such indebtedness. "Subordinated Indebtedness" shall mean any Indebtedness (including, without limitation, the Parent Intercompany Loan and the Deferred Purchase Agreement) incurred by any Credit Party that is (a) specifically subordinated in right of payment to the prior payment of the Credit Party Obligations on terms acceptable to the Administrative Agent and the Lenders and (b) evidenced by promissory notes, to the extent such Indebtedness (other than Indebtedness owing in respect of the Deferred Purchase Agreement) is owed to another Credit Party, which promissory notes shall be pledged to the Administrative Agent as Collateral for the Credit Party Obligations. "Subsidiary" shall mean (a) as to any Person other than the Borrower, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of 28 directors or other managers of such corporation, partnership, limited liability company or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person, and (b) as to the Borrower, a corporation, partnership, limited liability company or other entity of which shares or stock or other ownership interest of at least a 49% interest are at the time owned directly or indirectly through one or more intermediaries, or both, by the Borrower; provided, however, Levtech Inc. shall not be considered a "Subsidiary" hereunder. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Subsidiary Guarantor" shall have the meaning set forth in the first paragraph of this Agreement. "Survey" shall mean any maps or plats of an as-built survey of the site of a Mortgaged Property, which maps or plats and the surveys on which they are based shall be sufficient to delete any standard printed survey exception contained in the applicable title policy and be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (a) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (b) the lines of streets abutting the sites and width thereof; (c) all access and other easements appurtenant to the sites necessary to use the sites; (d) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, whether recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (e) any encroachments on any adjoining property by the building structures and improvements on the sites; and (f) if the site is described as being on a filed map, a legend relating the survey to said map. "Swingline Commitment" shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding up to the Swingline Committed Amount, and the commitment of the Revolving Lenders to purchase participation interests in the Swingline Loans as provided in Section 2.4(b)(ii), as such amounts may be reduced from time to time in accordance with the provisions hereof. "Swingline Committed Amount" shall have the meaning set forth in Section 2.4(a). "Swingline Lender" shall mean Wachovia. "Swingline Loan" or "Swingline Loans" shall have the meaning set forth in Section 2.4(a). "Swingline Note" shall mean the promissory note of the Borrower in favor of the Swingline Lender evidencing the Swingline Loans provided pursuant to Section 2.4(d), as such promissory note may be amended, modified, supplemented, extended, renewed or replaced from time to time. 29 "Syndication Agent" shall have the meaning set forth in the first paragraph of this Agreement and any successors in such capacity. "Target" shall have the meaning set forth in the definition of "Permitted Acquisition". "Taxes" shall have the meaning set forth in Section 2.18. "Term Loan" shall have the meaning set forth in Section 2.2(a). "Term Loan Commitment" shall mean, with respect to each Term Loan Lender, the commitment of such Term Loan Lender to make its portion of the Term Loan in a principal amount equal to such Term Loan Lender's Term Loan Commitment Percentage of the Term Loan Committed Amount (and for purposes of making determinations of Required Lenders hereunder after the Closing Date, the principal amount outstanding on the Term Loan). "Term Loan Commitment Percentage" shall mean, for any Term Loan Lender, the percentage identified as its Term Loan Commitment Percentage on Schedule 2.1(a), as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(c). "Term Loan Committed Amount" shall have the meaning set forth in Section 2.2(a). "Term Loan Lender" shall mean, as of any date of determination, each Lender that holds a portion of the outstanding Term Loan. "Term Note" or "Term Notes" shall mean the promissory notes of the Borrower in favor of each of the Term Loan Lenders evidencing the portion of the Term Loan provided pursuant to Section 2.2(d), individually or collectively, as appropriate, as such promissory notes may be amended, modified, restated, supplemented, extended, renewed or replaced from time to time. "Title Insurance Company" shall mean Chicago Title Insurance Company or any other title insurance company approved by the Administrative Agent. "Trademark License" shall means any agreement, written or oral, providing for the grant by or to the Borrower or any of its Subsidiaries of any right to use any Trademark, including, without limitation, any thereof referred to in Schedule 3.16. "Trademarks" shall mean (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress and service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, including, without limitation, any thereof referred to in Schedule 3.16, and (b) all renewals thereof, including, without limitation, any thereof referred to in Schedule 3.16. 30 "Tranche" shall mean the collective reference to LIBOR Rate Loans whose Interest Periods begin and end on the same day. A Tranche may sometimes be referred to as a "LIBOR Tranche". "Transfer Effective Date" shall have the meaning set forth in each Commitment Transfer Supplement. "Treaty Lender" means a Lender that is treated as a resident (as such term is defined in the appropriate double taxation agreement) in a country with which the United Kingdom has an appropriate double taxation agreement for purposes of such agreement, which agreement gives residents of that country full exemption from United Kingdom taxation on interest and such Lender is (subject to completion of any necessary formalities) entitled to such exemption. "TRICARE" means the United States Department of Defense healthcare program for service families (including TRICARE Prime, TRICARE Extra and TRICARE Standard), and any successor or predecessor thereof, including without limitation, CHAMPUS. "Type" shall mean, as to any Loan, its nature as an Alternate Base Rate Loan or LIBOR Rate Loan, as the case may be. "UK Collateral Documents" shall mean the IOL Limited Guaranty and Pledge Agreement, the Orthofix Holdings Pledge Agreement and the Debentures. "U.S." or "United States" shall mean the United States of America. "U.S. Subsidiary" shall mean any Subsidiary that is organized and existing under the laws of the United States or any state or commonwealth thereof or under the laws of the District of Columbia. "Voting Agreement" shall mean the Voting and Subscription Agreement dated as of November 20, 2003 among the Parent and the "Significant Shareholders" of the Acquired Company as identified on the signature pages thereto. "Voting Stock" shall mean, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote may be or have been suspended by the happening of such a contingency. "Wachovia" shall mean Wachovia Bank, National Association, a national banking association, together with its successors and/or assigns. "WCM" shall mean Wachovia Capital Markets, LLC. "Works" shall mean all works which are subject to copyright protection pursuant to Title 17 of the United States Code. 31 Section 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have such defined meanings when used in the Notes or other Credit Documents or any certificate or other document made or delivered pursuant hereto. (b) 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, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Section 1.3 Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP applied on a basis consistent with the most recent audited consolidated financial statements of the Parent delivered to the Lenders; provided that, if the Borrower notifies the Administrative Agent that it wishes to amend any covenant in Section 5.9 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Section 5.9 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. The Borrower shall deliver to the Administrative Agent and each Lender at the same time as the delivery of any annual or quarterly financial statements given in accordance with the provisions of Section 5.1, (a) a description in reasonable detail of any material change in the application of accounting principles employed in the preparation of such financial statements from those applied in the most recently preceding quarterly or annual financial statements as to which no objection shall have been made in accordance with the provisions above and (b) a reasonable estimate of the effect on the financial statements on account of such changes in application. Notwithstanding the above, the parties hereto acknowledge and agree that, for purposes of all calculations made in determining compliance for any applicable period with the financial covenants set forth in Section 5.9 (including without limitation for purposes of the definition of "Pro Forma Basis" set forth in Section 1.1), after consummation of any Permitted Acquisition, (i) income statement items and other balance sheet items (whether positive or negative) attributable to the Target acquired in such transaction shall be included in such calculations to the extent relating to such applicable period, and (ii) Indebtedness of a Target that is retired in connection with a Permitted Acquisition shall be excluded from such calculations and deemed to have been retired as of the first day of such applicable period, in each case in accordance with 32 Regulation S-X under the Securities Act of 1933, as amended, applicable to a Registration Statement under such Act on Form S-1. ARTICLE II THE LOANS; AMOUNT AND TERMS Section 2.1 Revolving Loans. (a) Revolving Commitment. During the Commitment Period, subject to the terms and conditions hereof, each Revolving Lender severally, but not jointly, agrees to make revolving credit loans ("Revolving Loans") to the Borrower from time to time in an aggregate principal amount of up to FIFTEEN Million DOLLARS ($15,000,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 2.6, the "Revolving Committed Amount") for the purposes hereinafter set forth; provided, however, that (i) with regard to each Revolving Lender individually, the sum of such Revolving Lender's Revolving Commitment Percentage of outstanding Revolving Loans plus such Revolving Lender's Revolving Commitment Percentage of outstanding Swingline Loans plus such Revolving Lender's Revolving Commitment Percentage of LOC Obligations shall not exceed such Revolving Lender's Revolving Commitment and (ii) with regard to the Revolving Lenders collectively, the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not exceed the Revolving Committed Amount. Revolving Loans may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof; provided, however, Revolving Loans made on the Closing Date or on any of the three (3) Business Days following the Closing Date may only consist of Alternate Base Rate Loans. LIBOR Rate Loans shall be made by each Revolving Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office. (b) Revolving Loan Borrowings. (i) Notice of Borrowing. The Borrower shall request a Revolving Loan borrowing by written notice (a "Notice of Borrowing") substantially in the form of the notice attached as Schedule 2.1(b)(i) (or telephone notice promptly confirmed by delivery to the Administrative Agent of a Notice of Borrowing by fax or other electronic notice with confirmed receipt from the recipient) to the Administrative Agent not later than 12:00 Noon. (Charlotte, North Carolina time) on the Business Day of the requested borrowing in the case of Alternate Base Rate Loans, and on the third Business Day prior to the date of the requested borrowing in the case of LIBOR Rate Loans. Each such request for borrowing shall be irrevocable and shall specify (A) that a Revolving Loan is requested, (B) the date of the requested borrowing (which shall be a Business Day), (C) the aggregate principal amount to be borrowed, (D) whether the borrowing shall be comprised of Alternate Base Rate Loans, LIBOR Rate Loans or a combination 33 thereof, and if LIBOR Rate Loans are requested, the Interest Period(s) therefore. If the Borrower shall fail to specify in any such Notice of Borrowing (I) an applicable Interest Period in the case of a LIBOR Rate Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or (II) the type of Revolving Loan requested, then such notice shall be deemed to be a request for an Alternate Base Rate Loan hereunder. The Administrative Agent shall give notice to each Revolving Lender promptly upon receipt of each Notice of Borrowing, of the contents thereof and each such Revolving Lender's share thereof. (ii) Minimum Amounts. Each Revolving Loan shall be in a minimum aggregate amount of $1,000,000 and in integral multiples of $500,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). (iii) Advances. Each Revolving Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2, or at such other office as the Administrative Agent may designate in writing, by 2:00 P.M. (Charlotte, North Carolina time) on the date specified in the applicable Notice of Borrowing in Dollars and in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower designated in the Account Designation Letter (or as otherwise agreed by the Borrower and the Administrative Agent) with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent. (c) Repayment. The principal amount of all Revolving Loans shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 7.2. (d) Interest. Subject to the provisions of Section 2.9, Revolving Loans shall bear interest as follows: (i) Alternate Base Rate Loans. During such periods as Revolving Loans shall be comprised of Alternate Base Rate Loans, each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Percentage; and (ii) LIBOR Rate Loans. During such periods as Revolving Loans shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Percentage. Interest on Revolving Loans shall be payable in arrears on each Interest Payment Date. 34 (e) Revolving Notes. Each Revolving Lender's Revolving Commitment shall be evidenced by a duly executed promissory note of the Borrower to such Revolving Lender in substantially the form of Schedule 2.1(e). Section 2.2 Term Loan Facility. (a) Term Loan. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Term Loan Lender severally agrees to make available to the Borrower on the Closing Date, by transfer of funds as directed by the Administrative Agent to the Borrower's account set forth in the Account Designation Letter, such Term Loan Lender's Term Loan Commitment Percentage of a term loan in Dollars (the "Term Loan") in the aggregate principal amount of ONE HUNDRED TEN MILLION DOLLARS ($110,000,000) (the "Term Loan Committed Amount") for the purposes hereinafter set forth. The Term Loan may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request; provided that on the Closing Date the Term Loan shall only consist of Alternate Base Rate Loans. Amounts repaid or prepaid on the Term Loan may not be reborrowed. (b) Repayment of Term Loan. The principal amount of the Term Loan shall be repaid in twenty (20) consecutive quarterly installments as follows, unless accelerated sooner pursuant to Section 7.2: =============================================================================== Principal Amortization Term Loan Payment Date Principal Amortization Payment - ------------------------------------------------------------------------------- March 31, 2004 $2,750,000 - ------------------------------------------------------------------------------- June 30, 2004 $2,750,000 - ------------------------------------------------------------------------------- September 30, 2004 $2,750,000 - ------------------------------------------------------------------------------- December 31, 2004 $2,750,000 - ------------------------------------------------------------------------------- March 31, 2005 $2,750,000 - ------------------------------------------------------------------------------- June 30, 2005 $2,750,000 - ------------------------------------------------------------------------------- September 30, 2005 $2,750,000 - ------------------------------------------------------------------------------- December 31, 2005 $2,750,000 - ------------------------------------------------------------------------------- March 31, 2006 $2,750,000 - ------------------------------------------------------------------------------- June 30, 2006 $2,750,000 - ------------------------------------------------------------------------------- September 30, 2006 $2,750,000 - ------------------------------------------------------------------------------- December 31, 2006 $2,750,000 - ------------------------------------------------------------------------------- March 31, 2007 $2,750,000 - ------------------------------------------------------------------------------- 35 =============================================================================== Principal Amortization Term Loan Payment Date Principal Amortization Payment - ------------------------------------------------------------------------------- June 30, 2007 $2,750,000 - ------------------------------------------------------------------------------- September 30, 2007 $2,750,000 - ------------------------------------------------------------------------------- December 31, 2007 $2,750,000 - ------------------------------------------------------------------------------- March 31, 2008 $16,500,000 - ------------------------------------------------------------------------------- June 30, 2008 $16,500,000 - ------------------------------------------------------------------------------- September 30, 2008 $16,500,000 - ------------------------------------------------------------------------------- Maturity Date $16,500,000 - ----------------------------------- ------------------------------------------- (c) Interest on the Term Loan. Subject to the provisions of Section 2.9, the Term Loan shall bear interest as follows: (i) Alternate Base Rate Loans. During such periods as the Term Loan shall be comprised of Alternate Base Rate Loans, each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Percentage; and (ii) LIBOR Rate Loans. During such periods as the Term Loan shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Percentage. Interest on the Term Loan shall be payable in arrears on each Interest Payment Date. (d) Term Notes. Each Term Loan Lender's Term Loan Commitment Percentage of the Term Loan Committed Amount shall be evidenced by a duly executed promissory note of the Borrower to such Term Loan Lender in substantially the form of Schedule 2.2(d). Section 2.3 Letter of Credit Subfacility. (a) Issuance. Subject to the terms and conditions hereof and of the LOC Documents, if any, and any other terms and conditions which the Issuing Lender may reasonably require, during the Commitment Period the Issuing Lender shall issue, and the Revolving Lenders shall participate in, Letters of Credit for the account of the Borrower from time to time upon request in a form acceptable to the Issuing Lender; provided, however, that (i) the aggregate amount of LOC Obligations shall not at any time exceed FIVE MILLION DOLLARS ($5,000,000) (the "LOC Committed Amount"), (ii) the sum of outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not at any time exceed the Revolving Committed Amount, (iii) all 36 Letters of Credit shall be denominated in U.S. Dollars and (iv) Letters of Credit shall be issued for lawful corporate purposes and may be issued as standby letters of credit, including in connection with workers' compensation and other insurance programs. Except as otherwise expressly agreed upon by all the Revolving Lenders, no Letter of Credit shall have an original expiry date more than twelve (12) months from the date of issuance; provided, however, so long as no Default or Event of Default has occurred and is continuing and subject to the other terms and conditions to the issuance of Letters of Credit hereunder, the expiry dates of Letters of Credit may be extended annually or periodically from time to time at the request of the Borrower or by operation of the terms of the applicable Letter of Credit to a date not more than twelve (12) months from the date of extension; provided, further, that no Letter of Credit, as originally issued or as extended, shall have an expiry date extending beyond the Maturity Date. Each Letter of Credit shall comply with the related LOC Documents. The issuance and expiry date of each Letter of Credit shall be a Business Day. Any Letters of Credit issued hereunder shall be in a minimum original face amount of $100,000. Wachovia shall be the Issuing Lender on all Letters of Credit issued on or after the Closing Date. In the event and to the extent that the provisions of any LOC Document shall conflict with this Agreement, the provisions of this Agreement shall govern. The Issuing Lender shall make any Letter of Credit issued hereunder available to the Borrower at its office referred to in Section 9.2 or as otherwise agreed with the Borrower in connection with such issuance. (b) Notice and Reports. The request for the issuance of a Letter of Credit shall be submitted to the Issuing Lender at least five (5) Business Days prior to the requested date of issuance. The Issuing Lender will promptly upon request provide to the Administrative Agent for dissemination to the Revolving Lenders a detailed report specifying the Letters of Credit which are then issued and outstanding and any activity with respect thereto which may have occurred since the date of any prior report, and including therein, among other things, the account party, the beneficiary, the face amount, expiry date as well as any payments or expirations which may have occurred. (c) Participations. Each Revolving Lender upon issuance of a Letter of Credit shall be deemed to have purchased without recourse a risk participation from the Issuing Lender in such Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in each case in an amount equal to its Revolving Commitment Percentage of the obligations under such Letter of Credit and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and be obligated to pay to the Issuing Lender therefore and discharge when due, its Revolving Commitment Percentage of the obligations arising under such Letter of Credit. Without limiting the scope and nature of each Revolving Lender's participation in any Letter of Credit, to the extent that the Issuing Lender has not been reimbursed as required hereunder or under any LOC Document, each such Revolving Lender shall pay to the Issuing Lender its Revolving Commitment Percentage of such unreimbursed drawing in same day funds on the day of notification by the Issuing Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) hereof. The obligation of each Revolving Lender to so reimburse the Issuing Lender shall be absolute and unconditional and shall not be affected by the occurrence of a Default, an Event of Default or any other 37 occurrence or event. Any such reimbursement shall not relieve or otherwise impair the obligation of the Borrower to reimburse the Issuing Lender under any Letter of Credit, together with interest as hereinafter provided. (d) Reimbursement. In the event of any drawing under any Letter of Credit, the Issuing Lender will promptly notify the Borrower and the Administrative Agent. The Borrower shall reimburse the Issuing Lender on the day of drawing under any Letter of Credit (with the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day funds as provided herein or in the LOC Documents. If the Borrower shall fail to reimburse the Issuing Lender as provided herein, the unreimbursed amount of such drawing shall bear interest at a per annum rate equal to the Alternate Base Rate plus the Applicable Percentage for Revolving Loans that are Alternate Base Rate Loans plus two percent (2%). Unless the Borrower shall promptly notify the Issuing Lender and the Administrative Agent of its intent to otherwise reimburse the Issuing Lender, the Borrower shall be deemed to have requested a Revolving Loan in the amount of the drawing as provided in subsection (e) hereof, the proceeds of which will be used to satisfy the reimbursement obligations. The Borrower's reimbursement obligations hereunder shall be absolute and unconditional under all circumstances irrespective of any rights of set-off, counterclaim or defense to payment the Borrower may claim or have against the Issuing Lender, the Administrative Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any other Person, including without limitation any defense based on any failure of the Borrower to receive consideration or the legality, validity, regularity or unenforceability of the Letter of Credit. The Issuing Lender will promptly notify the other Revolving Lenders of the amount of any unreimbursed drawing and each Revolving Lender shall promptly pay to the Administrative Agent for the account of the Issuing Lender in Dollars and in immediately available funds, the amount of such Revolving Lender's Revolving Commitment Percentage of such unreimbursed drawing. Such payment shall be made on the day such notice is received by such Revolving Lender from the Issuing Lender if such notice is received at or before 2:00 P.M. (Charlotte, North Carolina time), otherwise such payment shall be made at or before 12:00 Noon (Charlotte, North Carolina time) on the next succeeding Business Day. If such Revolving Lender does not pay such amount to the Issuing Lender in full upon such request, such Revolving Lender shall, on demand, pay to the Administrative Agent for the account of the Issuing Lender interest on the unpaid amount during the period from the date of such drawing until such Revolving Lender pays such amount to the Issuing Lender in full at a rate per annum equal to, if paid within two (2) Business Days of the date of drawing, the Federal Funds Effective Rate and thereafter at a rate equal to the Alternate Base Rate. Each Revolving Lender's obligation to make such payment to the Issuing Lender, and the right of the Issuing Lender to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and without regard to the termination of this Agreement or the Commitments hereunder, the existence of a Default or Event of Default or the acceleration of the Credit Party Obligations hereunder and shall be made without any offset, abatement, withholding or reduction whatsoever. 38 (e) Repayment with Revolving Loans. On any day on which the Borrower shall have requested, or been deemed to have requested, a Revolving Loan to reimburse a drawing under a Letter of Credit, the Administrative Agent shall give notice to the Revolving Lenders that a Revolving Loan has been requested or deemed requested in connection with a drawing under a Letter of Credit, in which case a Revolving Loan borrowing comprised entirely of Alternate Base Rate Loans (each such borrowing, a "Mandatory Borrowing") shall be immediately made (without giving effect to any termination of the Commitments pursuant to Section 7.2) pro rata based on each Revolving Lender's respective Revolving Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 7.2) and the proceeds thereof shall be paid directly to the Issuing Lender for application to the respective LOC Obligations. Each Revolving Lender hereby irrevocably agrees to make such Revolving Loans immediately upon any such request or deemed request on account of each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date notwithstanding (i) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (ii) whether any conditions specified in Section 4.2 are then satisfied, (iii) whether a Default or an Event of Default then exists, (iv) failure for any such request or deemed request for Revolving Loan to be made by the time otherwise required in Section 2.1(b), (v) the date of such Mandatory Borrowing, or (vi) any reduction in the Revolving Committed Amount after any such Letter of Credit may have been drawn upon; provided, however, that in the event any such Mandatory Borrowing should be less than the minimum amount for borrowings of Revolving Loans otherwise provided in Section 2.1(b)(ii), the Borrower shall pay to the Administrative Agent for its own account an administrative fee of $500. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code), then each such Revolving Lender hereby agrees that it shall forthwith fund (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) its Participation Interests in the LOC Obligations; provided, further, that in the event any Revolving Lender shall fail to fund its Participation Interest on the day the Mandatory Borrowing would otherwise have occurred, then the amount of such Revolving Lender's unfunded Participation Interest therein shall bear interest payable by such Revolving Lender to the Issuing Lender upon demand, at the rate equal to, if paid within two (2) Business Days of such date, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate. (f) Modification, Extension. The issuance of any supplement, modification, amendment, renewal, or extension to any Letter of Credit shall, for purposes hereof, be treated in all respects the same as the issuance of a new Letter of Credit hereunder. (g) Uniform Customs and Practices. The Issuing Lender shall have the Letters of Credit be subject to The Uniform Customs and Practice for Documentary Credits, as published by the International Chamber of Commerce (the "UCP") as of the 39 date of issue, in which case the UCP may be incorporated therein and deemed in all respects to be a part thereof. Section 2.4 Swingline Loan Subfacility. (a) Swingline Commitment. During the Commitment Period, subject to the terms and conditions hereof, the Swingline Lender, in its individual capacity, agrees to make certain revolving credit loans to the Borrower (each a "Swingline Loan" and, collectively, the "Swingline Loans") for the purposes hereinafter set forth; provided, however, (i) the aggregate amount of Swingline Loans outstanding at any time shall not exceed FIVE MILLION DOLLARS ($5,000,000) (the "Swingline Committed Amount"), and (ii) the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not exceed the Revolving Committed Amount. Swingline Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof. (b) Swingline Loan Borrowings. (i) Notice of Borrowing and Disbursement. The Swingline Lender will make Swingline Loans available to the Borrower by crediting the account of the Borrower designated in the Account Designation Letter (or as otherwise agreed between the Borrower and the Administrative Agent) on any Business Day upon request made by the Borrower through the delivery of a Notice of Borrowing (with appropriate modifications) to the Administrative Agent and the Swingline Lender not later than 2:00 P.M. (Charlotte, North Carolina time) on such Business Day. Swingline Loan borrowings hereunder shall be made in minimum amounts of $100,000 and in integral amounts of $100,000 in excess thereof. (ii) Repayment of Swingline Loans. Each Swingline Loan borrowing shall be due and payable on the Maturity Date. The Swingline Lender may, at any time, in its sole discretion, by written notice to the Borrower and the Administrative Agent, demand repayment of its Swingline Loans by way of a Revolving Loan borrowing, in which case the Borrower shall be deemed to have requested a Revolving Loan borrowing comprised entirely of Alternate Base Rate Loans in the amount of such Swingline Loans; provided, however, that, in the following circumstances, any such demand shall also be deemed to have been given one Business Day prior to each of (A) the Maturity Date, (B) the occurrence of any Event of Default described in Section 7.1(e), (C) upon acceleration of the Credit Party Obligations hereunder, whether on account of an Event of Default described in Section 7.1(e) or any other Event of Default, and (D) the exercise of remedies in accordance with the provisions of Section 7.2 hereof (each such Revolving Loan borrowing made on account of any such deemed request therefore as provided herein being hereinafter referred to as "Mandatory Borrowing"). Each Revolving Lender hereby irrevocably agrees to make such Revolving Loans promptly upon any such request or deemed request on account 40 of each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the same such date notwithstanding (I) the amount of Mandatory Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (II) whether any conditions specified in Section 4.2 are then satisfied, (III) whether a Default or an Event of Default then exists, (IV) failure of any such request or deemed request for Revolving Loans to be made by the time otherwise required in Section 2.1(b)(i), (V) the date of such Mandatory Borrowing, or (VI) any reduction in the Revolving Committed Amount or termination of the Revolving Commitments immediately prior to such Mandatory Borrowing or contemporaneously therewith. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code), then each Revolving Lender hereby agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such participations in the outstanding Swingline Loans as shall be necessary to cause each such Revolving Lender to share in such Swingline Loans ratably based upon its respective Revolving Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 7.2); provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective participation is purchased, and (y) at the time any purchase of participations pursuant to this sentence is actually made, the purchasing Revolving Lender shall be required to pay to the Swingline Lender interest on the principal amount of such participation purchased for each day from and including the day upon which the Mandatory Borrowing would otherwise have occurred to but excluding the date of payment for such participation, at the rate equal to, if paid within two (2) Business Days of the date of the Mandatory Borrowing, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate. (c) Interest on Swingline Loans. Subject to the provisions of Section 2.9, Swingline Loans shall bear interest at a per annum rate equal to the Alternate Base Rate plus the Applicable Percentage for Revolving Loans that are Alternate Base Rate Loans. Interest on Swingline Loans shall be payable in arrears on each Interest Payment Date. (d) Swingline Note. The Swingline Loans shall be evidenced by a duly executed promissory note of the Borrower to the Swingline Lender in the original amount of the Swingline Committed Amount and substantially in the form of Schedule 2.4(d). Section 2.5 Fees. (a) Commitment Fee. In consideration of the Revolving Commitments, the Borrower agrees to pay to the Administrative Agent for the ratable benefit of the Revolving Lenders a commitment fee (the "Commitment Fee") in an amount equal to the 41 Applicable Percentage per annum on the average daily unused amount of the Revolving Committed Amount. For purposes of computation of the Commitment Fee, LOC Obligations shall be considered usage of the Revolving Committed Amount but Swingline Loans shall not be considered usage of the Revolving Committed Amount. The Commitment Fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter for the prior calendar quarter then ending. (b) Letter of Credit Fees. In consideration of the LOC Commitments, the Borrower agrees to pay to the Issuing Lender a fee (the "Letter of Credit Fee") equal to the Applicable Percentage per annum on the average daily maximum amount available to be drawn under each Letter of Credit from the date of issuance to the date of expiration. In addition to such Letter of Credit Fee, the Issuing Lender may charge, and retain for its own account without sharing by the other Lenders, an additional facing fee of one-eighth of one percent (0.125%) per annum on the average daily maximum amount available to be drawn under each such Letter of Credit issued by it. The Issuing Lender shall promptly pay over to the Administrative Agent for the ratable benefit of the Revolving Lenders (including the Issuing Lender) the Letter of Credit Fee. The Letter of Credit Fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter for the prior calendar quarter then ending. (c) Issuing Lender Fees. In addition to the Letter of Credit Fees payable pursuant to subsection (b) hereof, the Borrower shall pay to the Issuing Lender for its own account without sharing by the other Lenders the reasonable and customary charges from time to time of the Issuing Lender with respect to the amendment, transfer, administration, cancellation and conversion of, and drawings under, such Letters of Credit (collectively, the "Issuing Lender Fees"); provided such fees shall not be duplicative of any fees charged under any LOC Document. (d) Administrative Fee. The Borrower agrees to pay to the Administrative Agent the annual administrative fee as described in the Fee Letter. Section 2.6 Commitment Reductions. (a) Voluntary Reductions. The Borrower shall have the right to terminate or permanently reduce the unused portion of the Revolving Committed Amount at any time or from time to time upon not less than five (5) Business Days' prior notice to the Administrative Agent (which shall notify the Revolving Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction which shall be in a minimum amount of $1,000,000 or a whole multiple of $500,000 in excess thereof and shall be irrevocable and effective upon receipt by the Administrative Agent; provided that no such reduction or termination shall be permitted if after giving effect thereto, and to any prepayments of the Loans made on the effective date thereof, the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations would exceed the Revolving Committed Amount. 42 (b) Mandatory Reductions. On any date that the Revolving Loans are required to be prepaid pursuant to the terms of Section 2.7(b) (ii), (iii) and (iv), the Revolving Committed Amount shall be automatically permanently reduced by the amount of such required prepayment and/or reduction. (c) Maturity Date. The Revolving Commitment, the Swingline Commitment and the LOC Commitment shall automatically terminate on the Maturity Date. Section 2.7 Prepayments. (a) Optional Prepayments. The Borrower shall have the right to prepay Loans in whole or in part from time to time; provided, however, that each partial prepayment of a Revolving Loan and the Term Loan shall be in a minimum principal amount of $1,000,000 and integral multiples of $500,000 in excess thereof, and each partial prepayment of a Swingline Loan shall be in a minimum principal amount of $100,000 and integral multiples of $100,000 in excess thereof. The Borrower shall give three (3) Business Days' irrevocable notice in the case of LIBOR Rate Loans and one Business Day's irrevocable notice in the case of Alternate Base Rate Loans, to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable). Amounts prepaid under this Section 2.7(a) shall be applied to the outstanding Loans as the Borrower may elect; provided that each Lender shall receive its pro rata share (except with respect to prepayments of Swingline Loans) of any such prepayment based on its Revolving Commitment Percentage or Term Loan Commitment Percentage, as applicable. All prepayments under this Section 2.7(a) shall be subject to Section 2.17, but otherwise without premium or penalty. Interest on the principal amount prepaid shall be payable on the next occurring Interest Payment Date that would have occurred had such Loans not been prepaid or, at the request of the Administrative Agent, interest on the principal amount prepaid shall be payable on any date that a prepayment is made hereunder through the date of prepayment. Amounts prepaid on the Revolving Loans and the Swingline Loans may be reborrowed in accordance with the terms hereof. Amounts prepaid on the Term Loan may not be reborrowed. (b) Mandatory Prepayments. (i) Revolving Committed Amount. If at any time after the Closing Date, the sum of the outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall exceed the Revolving Committed Amount, the Borrower immediately shall prepay the Loans and cash collateralize the LOC Obligations in an amount sufficient to eliminate such excess (such prepayment to be applied as set forth in clause (vi) below). (ii) Asset Dispositions. Promptly following any Asset Disposition in excess of $100,000 in the aggregate for all such Asset Dispositions during any fiscal year, the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to 100% of the Net Cash Proceeds derived from such Asset Disposition (such prepayment to be applied as set forth 43 in clause (vi) below); provided, however, that such Net Cash Proceeds shall not be required to be so applied to the extent the Borrower delivers to the Administrative Agent promptly following such Asset Disposition a certificate stating that it intends to use such Net Cash Proceeds to acquire like assets used in the business of the Borrower and its Subsidiaries within 180 days of the receipt of such Net Cash Proceeds, it being expressly agreed that any Net Cash Proceeds not so reinvested shall be applied to prepay the Loans and cash collateralize the LOC Obligations immediately thereafter (such prepayment to be applied as set forth in clause (vi) below). (iii) Issuances. Immediately upon receipt by any Credit Party of proceeds from (A) any Debt Issuance, the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to 100% of the Net Cash Proceeds of such Debt Issuance to the Lenders (such prepayment to be applied as set forth in clause (vi) below) or (B) any Equity Issuance, the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to 100% of the Net Cash Proceeds of such Equity Issuance (such prepayment to be applied as set forth in clause (vi) below). (iv) Recovery Event. To the extent of Net Cash Proceeds received in connection with a Recovery Event that are not applied in accordance with Section 6.4(a)(iii), immediately following the expiration of the period allowed for reinvesting of such Net Cash Proceeds pursuant to Section 6.4(a)(iii), the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an aggregate amount equal to 100% of such Net Cash Proceeds (such prepayment to be applied as set forth in clause (vi) below). (v) Excess Cash Flow. Within ninety (90) days after the end of each fiscal year (commencing with the fiscal year ending December 31, 2004), the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an amount equal to 75% of the Excess Cash Flow earned during such prior fiscal year (such prepayments to be applied as set forth in clause (vi) below); provided, however, if the Borrower Leverage Ratio is less than or equal to 1.50 to 1.00 as of the end of the preceding fiscal year of the Borrower, then the Borrower shall prepay the Loans and cash collateralize the LOC Obligations in an amount equal to 50% of the Excess Cash Flow earned during such prior fiscal period. (vi) Application of Mandatory Prepayments. All amounts required to be paid pursuant to this Section 2.7(b) shall be applied as follows: (A) with respect to all amounts prepaid pursuant to Section 2.7(b)(i), (1) first, to the Swingline Loans, (2) second, to the Revolving Loans and (3) third (after all Revolving Loans have been repaid), to a cash collateral account in respect of LOC Obligations, and (B) with respect to all amounts prepaid pursuant to Sections 2.7(b)(ii) through (v), (1) first, to the remaining Term Loan amortization payments set forth in Section 2.2(b) on a pro rata basis, (2) second to the Swingline Loans (with a corresponding reduction in the Revolving Committed 44 Amount), (3) third, to the Revolving Loans (with a corresponding reduction in the Revolving Committed Amount) and (4) fourth (after all Revolving Loans have been repaid), to a cash collateral account in respect of LOC Obligations. Within the parameters of the applications set forth above, prepayments shall be applied first to Alternate Base Rate Loans and then to LIBOR Rate Loans in direct order of Interest Period maturities. Each Lender shall receive its pro rata share (except with respect to prepayments of Swingline Loans) of any such prepayment based on its Revolving Commitment Percentage or Term Loan Commitment Percentage, as applicable. All prepayments under this Section 2.7(b) shall be subject to Section 2.17 and include interest on the principal amount prepaid through the date of prepayment. (c) Hedging Obligations Unaffected. Any repayment or prepayment made pursuant to this Section 2.7 shall not affect the Borrower's obligation to continue to make payments under any Secured Hedging Agreement, which shall remain in full force and effect notwithstanding such repayment or prepayment, subject to the terms of such Secured Hedging Agreement. Section 2.8 Minimum Principal Amount of Tranches; Lending Offices. (a) All borrowings, payments and prepayments in respect of Revolving Loans and the Term Loan shall be in such amounts and be made pursuant to such elections so that after giving effect thereto the aggregate principal amount of the Revolving Loans and the Term Loan comprising any Tranche shall be (i) with respect to LIBOR Rate Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof and (ii) with respect to Alternate Base Rate Loans, $500,000 or a whole multiple of $100,000 in excess thereof. (b) LIBOR Rate Loans shall be made by each Lender at its LIBOR Lending Office and Alternate Base Rate Loans at its Domestic Lending Office. Section 2.9 Default Rate and Payment Dates. Upon the occurrence, and during the continuance, of an Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall, at the discretion of the Required Lenders, bear interest, payable on demand, at a per annum rate 2% greater than the rate which would otherwise be applicable (or if no rate is applicable, whether in respect of interest, fees or other amounts, then the Alternate Base Rate plus the Applicable Percentage with respect to Alternate Base Rate Loans plus 2%). Section 2.10 Conversion Options. (a) The Borrower may, in the case of Revolving Loans and Term Loan, elect from time to time to convert Alternate Base Rate Loans to LIBOR Rate Loans, by giving the Administrative Agent at least three (3) Business Days' prior irrevocable written notice of such election substantially in the form of the notice attached as Schedule 2.10 45 (the "Notice of Conversion/Extension"). If the date upon which an Alternate Base Rate Loan is to be converted to a LIBOR Rate Loan is not a Business Day, then such conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or any part of outstanding Alternate Base Rate Loans may be converted as provided herein; provided that (i) no Loan may be converted into a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) partial conversions shall be in an aggregate principal amount of (A) in the case of Revolving Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof and (B) in the case of the Term Loan, $2,000,000 or a whole multiple of $1,000,000 in excess thereof. (b) Any LIBOR Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in Section 2.10(a); provided, that no LIBOR Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan at the end of the applicable Interest Period with respect thereto. If the Borrower shall fail to give timely notice of an election to continue a LIBOR Rate Loan, or the continuation of LIBOR Rate Loans is not permitted hereunder, such LIBOR Rate Loans shall be automatically converted to Alternate Base Rate Loans at the end of the applicable Interest Period with respect thereto. Section 2.11 Computation of Interest and Fees. (a) Interest payable hereunder with respect to Alternate Base Rate Loans based on the Prime Rate shall be calculated on the basis of a year of 365 days (or 366 days, as applicable) for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a LIBOR Rate on the Business Day of the determination thereof. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the computations used by the Administrative Agent in determining any interest rate. 46 Section 2.12 Pro Rata Treatment and Payments. (a) Each borrowing of Revolving Loans and any reduction of the Revolving Commitments shall be made pro rata according to the respective Revolving Commitment Percentages of the Revolving Lenders. Each payment under this Agreement or any Note shall be applied, first, to any fees then due and owing by the Borrower pursuant to Section 2.5, second, to interest then due and owing in respect of the Notes of the Borrower and, third, to principal then due and owing hereunder and under the Notes of the Borrower. Each payment on account of any fees pursuant to Section 2.5 shall be made pro rata in accordance with the respective amounts due and owing (except as to the portion of the Letter of Credit retained by the Issuing Lender and the Issuing Lender Fees). Each payment (other than prepayments) by the Borrower on account of principal of and interest on the Revolving Loans and the Term Loan shall be made pro rata according to the respective amounts due and owing in accordance with Section 2.7 hereof. Prepayments made pursuant to Section 2.15 shall be applied in accordance with such section. Each optional prepayment on account of principal of the Loans shall be applied in accordance with Section 2.7(a) and each mandatory prepayment on account of principal of the Loans shall be applied in accordance with Section 2.7(b). All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without defense, set-off or counterclaim (except as provided in Section 2.18(b)) and shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agent's office specified on Schedule 9.2 in Dollars and in immediately available funds not later than 1:00 P.M. (Charlotte, North Carolina time) on the date when due. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Rate Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Rate Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (b) Allocation of Payments After Exercise of Remedies. Notwithstanding any other provision of this Credit Agreement to the contrary, upon the exercise of remedies by the Administrative Agent or the Lenders pursuant to Section 7.2 (or after the Commitments shall automatically terminate and the Loans and all other amounts under the Credit Documents shall automatically become due and payable in accordance with the terms of such Section), all amounts collected or received by the Administrative Agent or any Lender on account of the Credit Party Obligations or any other amounts outstanding under any of the Credit Documents or in respect of the Collateral shall be paid over or delivered as follows: FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation reasonable attorneys' fees) of the Administrative 47 Agent in connection with enforcing the rights of the Lenders under the Credit Documents and any protective advances made by the Administrative Agent with respect to the Collateral under or pursuant to the terms of the Collateral Documents; SECOND, to payment of any fees owed to the Administrative Agent; THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including without limitation, reasonable attorneys' fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Credit Party Obligations owing to such Lender; FOURTH, to the payment of all of the Credit Party Obligations consisting of accrued fees and interest, including with respect to any Secured Hedging Agreement, any fees, premiums and scheduled periodic payments due under such Secured Hedging Agreement and any interest accrued thereon; FIFTH, to the payment of the outstanding principal amount of the Credit Party Obligations and the payment or cash collateralization of the outstanding LOC Obligations, and including with respect to any Secured Hedging Agreement, any breakage, termination or other payments due under such Secured Hedging Agreement and any interest accrued thereon; SIXTH, to all other Credit Party Obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses "FIRST" through "FIFTH" above; and SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus. In carrying out the foregoing, (i) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (ii) each of the Lenders and Hedging Agreement Providers shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans and LOC Obligations held by such Lender or the outstanding obligations payable to such Hedging Agreement Provider bears to the aggregate then outstanding Loans, LOC Obligations and obligations payable under all Secured Hedging Agreements) of amounts available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above; and (iii) to the extent that any amounts available for distribution pursuant to clause "FIFTH" above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Administrative Agent in a cash collateral account and applied (A) first, to reimburse the Issuing Lender from time to time for any drawings under such Letters of Credit and (B) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses "FIFTH" and "SIXTH" above in the manner provided in this 48 Section 2.12(b). Notwithstanding the foregoing terms of this Section 2.12(b), only Collateral proceeds and payments under the Guaranty with respect to Secured Hedging Agreements shall be applied to obligations under any Secured Hedging Agreement. Section 2.13 Non-Receipt of Funds by the Administrative Agent. (a) Unless the Administrative Agent shall have been notified in writing by a Lender prior to the date a Loan is to be made by such Lender (which notice shall be effective upon receipt) that such Lender does not intend to make the proceeds of such Loan available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such proceeds available to the Administrative Agent on such date, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent, the Administrative Agent shall be able to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefore, the Administrative Agent will promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from the Lender or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent at a per annum rate equal to (i) from the Borrower at the applicable rate for the applicable borrowing pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal Funds Effective Rate. (b) Unless the Administrative Agent shall have been notified in writing by the Borrower, prior to the date on which any payment is due from it hereunder (which notice shall be effective upon receipt) that the Borrower does not intend to make such payment, the Administrative Agent may assume that such Borrower has made such payment when due, and the Administrative Agent may in reliance upon such assumption (but shall not be required to) make available to each Lender on such payment date an amount equal to the portion of such assumed payment to which such Lender is entitled hereunder, and if the Borrower has not in fact made such payment to the Administrative Agent, such Lender shall, on demand, repay to the Administrative Agent the amount made available to such Lender. If such amount is repaid to the Administrative Agent on a date after the date such amount was made available to such Lender, such Lender shall pay to the Administrative Agent on demand interest on such amount in respect of each day from the date such amount was made available by the Administrative Agent to such Lender to the date such amount is recovered by the Administrative Agent at a per annum rate equal to the Federal Funds Effective Rate. (c) A certificate of the Administrative Agent submitted to the Borrower or any Lender with respect to any amount owing under this Section 2.13 shall be conclusive in the absence of manifest error. 49 Section 2.14 Inability to Determine Interest Rate. Notwithstanding any other provision of this Agreement, if (i) the Administrative Agent shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that, by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for ascertaining LIBOR Rate for any Interest Period, or (ii) the Administrative Agent or the Required Lenders shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that LIBOR Rate does not adequately and fairly reflect the cost to such Lenders of funding LIBOR Rate Loans that the Borrower has requested be outstanding as a LIBOR Tranche during such Interest Period, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower, and the Lenders at least two (2) Business Days prior to the first day of such Interest Period. Unless the Borrower shall have notified the Administrative Agent upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such LIBOR Rate Loans, any Loans that were requested to be made as LIBOR Rate Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as LIBOR Rate Loans shall remain as or be converted into Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted into, LIBOR Rate Loans for the Interest Periods so affected. Section 2.15 Illegality. Notwithstanding any other provision of this Agreement, if the adoption of or any change in any Requirement of Law or in the interpretation, administration or application thereof by the relevant Governmental Authority to any Lender shall make it unlawful for such Lender or its LIBOR Lending Office to make or maintain LIBOR Rate Loans as contemplated by this Agreement or to obtain in the interbank eurodollar market through its LIBOR Lending Office the funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Borrower thereof, (b) the commitment of such Lender hereunder to make LIBOR Rate Loans or continue LIBOR Rate Loans as such shall forthwith be suspended until the Administrative Agent shall give notice that the condition or situation which gave rise to the suspension shall no longer exist, and (c) such Lender's Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law to Alternate Base Rate Loans. The Borrower hereby agrees promptly to pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for actual and direct costs (but not including anticipated profits) reasonably incurred by such Lender including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its LIBOR Lending Office) to avoid or to minimize any amounts which may otherwise be payable pursuant to this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its reasonable discretion to be material. 50 Section 2.16 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Reserve Percentage) or in the interpretation, administration or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject such Lender to any tax of any kind whatsoever with respect to any Letter of Credit or any application relating thereto, any LIBOR Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the LIBOR Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender of making or maintaining LIBOR Rate Loans or the Letters of Credit or to reduce any amount receivable hereunder or under any Note, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable which such Lender reasonably deems to be material as determined by such Lender with respect to its LIBOR Rate Loans or Letters of Credit. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or LIBOR Lending Office, as the case may be) to avoid or to minimize any amounts that might otherwise be payable pursuant to this paragraph of this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its reasonable discretion to be material. (b) If any Lender shall have reasonably determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such 51 Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount reasonably deemed by such Lender in its reasonable discretion to be material, then from time to time, within fifteen (15) days after demand by such Lender, the Borrower shall pay to such Lender such additional amount as shall be certified by such Lender as being required to compensate it for such reduction. Such a certificate as to any additional amounts payable under this Section submitted by a Lender (which certificate shall include a description of the basis for the computation), through the Administrative Agent, to the Borrower shall be conclusive absent manifest error. (c) In the event that any Lender demands payment of costs or additional amounts pursuant to Section 2.16 or Section 2.18 or asserts, pursuant to Section 2.15, that it is unlawful for such Lender to make LIBOR Rate Loans, then (subject to such lender's right to rescind such demand or assertion within 10 days after the notice from the Borrower referred to below) the Borrower may, upon 20 days' prior written notice to such Lender and the Administrative Agent, elect to cause such Lender to assign at par its Loans and Commitments in full to one or more Persons selected by the Borrower so long as (i) each such Person is either another Lender or any Affiliate or Related Fund thereof or is otherwise satisfactory to the Administrative Agent, (ii) such Lender receives payment in full in cash of the outstanding principal amount of all Loans made by it and all accrued and unpaid interest thereon and all other amounts due and payable to such Lender as of the date of such assignment (including, without limitation, amounts owing pursuant to Sections 2.16, 2.17 and 2.18) and (iii) each such Lender assignee agrees to accept such assignment and to assume all obligations of such assigning party hereunder in accordance with Section 9.6. (d) The agreements in this Section 2.16 shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder. Section 2.17 Indemnity. The Borrower hereby agrees to indemnify each Lender and to hold such Lender harmless from any funding loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment of the principal amount of or interest on any Loan by such Lender in accordance with the terms hereof, (b) default by the Borrower in accepting a borrowing after the Borrower has given a notice in accordance with the terms hereof, (c) default by the Borrower in making any prepayment after the Borrower has given a notice in accordance with the terms hereof, and/or (d) the making by the Borrower of a prepayment of a Loan, or the conversion thereof, on a day which is not the last day of the Interest Period with respect thereto, in each case including, but not limited to, any such loss or expense arising from interest or fees payable by such Lender to lenders of funds obtained by it in order to maintain its Loans hereunder. A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender, through the Administrative Agent, to the Borrower (which certificate must be delivered to the Administrative Agent within thirty (30) days following such default, prepayment 52 or conversion) shall be conclusive in the absence of manifest error. The agreements in this Section shall survive termination of this Agreement and payment of the Notes and all other amounts payable hereunder. Section 2.18 Taxes. (a) All payments made by the Borrower hereunder or under any Note will be, except to the extent required by law, made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any Governmental Authority or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding any tax imposed on or measured by the net income or profits of a Lender or the Administrative Agent pursuant to the laws of the jurisdiction in which it is organized or resident for tax purposes or the jurisdiction in which the principal office or applicable lending office of such Lender or the Administrative Agent is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. The Borrower will furnish to the Administrative Agent, as soon as practicable after the date the payment of any Taxes is due pursuant to applicable law, certified copies (to the extent reasonably available and required by law) of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. (b) Each Lender that is created or organized under the laws of the United States or any state thereof or the District of Columbia agrees to deliver to the Borrower and the Administrative Agent on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 9.6(c) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, two accurate and complete original signed copies of Internal Revenue Service Form W-9 (or any subsequent versions thereof or successors thereto). Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower and the Administrative Agent on or prior to the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 9.6(c) (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN or W-8ECI (or successor forms) or such other evidence satisfactory to the Borrower and the Administrative Agent that such Lender is entitled to a complete exemption from United States withholding tax with 53 respect to payments to be made under this Agreement and under any Note. In addition, each Lender agrees that it will deliver upon the Borrower's request updated versions of the foregoing, as applicable, whenever the previous certification has become obsolete or inaccurate in any material respect, together with such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note. To the extent necessary, the Administrative Agent shall provide to the Borrower two accurate and complete original, signed copies of Form W-8IMY (or any subsequent version thereof or successor thereto), together with all documentation required to be supplied therewith. Notwithstanding anything to the contrary contained in Section 2.18(a), but subject to the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold Taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Lender for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms or other evidence satisfactory to the Borrower and the Administrative Agent that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 2.18(a) hereof to gross-up payments to be made to a Lender in respect of Taxes imposed by the United States if such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 2.18(b). Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 2.18, the Borrower agrees to pay additional amounts and to indemnify each Lender in the manner set forth in Section 2.18(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Closing Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of Taxes. (c) Each Initial Lender (other than an Eligible UK Lender) shall, as soon as is reasonably practicable after the Closing Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 9.6(c) (other than an Eligible UK Lender or an Initial Lender that is assigned its initial Commitment in connection with the closing of this Agreement), on or before the date of such assignment or transfer to such Lender, complete the appropriate application forms and lodge them with the relevant tax authority in the relevant jurisdiction in relation to payments made or to be made by the Borrower under this Agreement. If the relevant tax authority determines that such form filed by such Initial Lender does not establish that the Initial Lender is entitled to receive payments made by the Borrower under this Agreement as at the date of delivery thereof without deduction or withholding of United Kingdom withholding taxes or, if the relevant tax authority requires proof of such entitlement, such Initial Lender shall offer such reasonable assistance as the Borrower may reasonably request in order to establish such Initial Lender's entitlement (if any) to receive payments made by the Borrower under this Agreement without deduction or withholding of United Kingdom withholding taxes. The Borrower shall not be required 54 to pay any amounts to a Lender (other than an Eligible UK Lender) in respect of any deduction or withholding of United Kingdom withholding taxes imposed on a payment of interest which would otherwise be payable under this Section 2.18 (and the Borrower, if required by law to do so, shall be entitled to withhold such amounts and pay such amounts to the government of the United Kingdom) if (i) the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to complete and lodge the requisite forms with the relevant tax authority in a timely manner or provide the Borrower with such other reasonable assistance in accordance with this Section 2.18(c), or (ii) such Lender is neither (A) an Initial Lender nor (B) a Qualified Lender on the date on which the payment falls due; provided that if such Lender would have been (if it had been a Lender at such time) a Qualified Lender on the Closing Date, or if such Lender was a Qualified Lender on the effective date of the Commitment Transfer Supplement pursuant to which it became a Lender hereunder, but such Lender has ceased to be a Qualified Lender as a result of the introduction of, change in, or any change in the interpretation, administration or application of, any law or regulation, any double taxation treaty or any practice or concession of the United Kingdom Inland Revenue occurring after the Closing Date or after the effective date of such Commitment Transfer Supplement, as applicable, the Borrower shall be required to pay any amounts to such Lender in respect of any deduction or withholding of United Kingdom withholding taxes imposed on a payment of interest in accordance with the terms of this Section 2.18. (d) Within thirty (30) days after the date of any payment of Taxes, the applicable Credit Party shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing such payment. (e) Each Lender agrees to use reasonable efforts (including reasonable efforts to change its Domestic Lending Office or LIBOR Lending Office, as the case may be) to avoid or to minimize any amounts which might otherwise be payable pursuant to this Section; provided, however, that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its reasonable discretion to be material. (f) If the Borrower pays any additional amount pursuant to this Section 2.18 with respect to a Lender, such Lender or such Lender's owners or members shall use reasonable efforts to obtain a refund of tax or credit against its tax liabilities on account of such payment; provided that such Lender or such Lender's owners or members shall have no obligation to use such reasonable efforts if such Lender or such Lender's owners or members reasonably believes in good faith that it is not able to obtain the benefit of any such refund or credit. In the event that such Lender or such Lender's owners or members receives such a refund or credit, such Lender or such Lender's owners or members shall pay to the Borrower an amount that such Lender or such Lender's owners or members reasonably determines is equal to the net tax benefit obtained by such Lender or such Lender's owners or members as a result of such payment by the Borrower. In the event that no refund or credit is obtained with respect to the Borrower's payments to such Lender pursuant to this Section 2.18, then such Lender or such Lender's owners or members shall upon request provide a certification that such Lender or such Lender's 55 owners or members has not received a refund or credit for such payments. Nothing contained in this Section 2.18 shall require such Lender or such Lender's owners or members to disclose or detail the basis of its calculation of the amount of any tax benefit or any other amount or the basis of its determination referred to in the proviso to the first sentence of this Section 2.18 to the Borrower or any other party. (g) If a Lender is not entitled to receive payments from the Borrower in respect of any deduction or withholding of withholding taxes imposed on a payment of interest in accordance with the terms of this Section 2.18, the Borrower shall offer such reasonable assistance as such Lender may reasonably request in order to reduce the amount or the rate of such withholding taxes. (h) The agreements in this Section 2.18 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. Section 2.19 Indemnification; Nature of Issuing Lender's Duties. (a) In addition to its other obligations under Section 2.3, the Borrower hereby agrees to protect, indemnify, pay and save each Issuing Lender harmless from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable attorneys' fees) that the Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit or (ii) the failure of the Issuing Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions, herein called "Government Acts"). (b) As between the Borrower and the Issuing Lender, the Borrower shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. The Issuing Lender shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of a Letter of Credit to comply fully with conditions required in order to draw upon a Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under a Letter of Credit or of the proceeds thereof; and (vii) any consequences arising from causes beyond the control of the Issuing Lender, including, without limitation, any Government Acts. None of the above shall affect, impair, or prevent the vesting of the Issuing Lender's rights or powers hereunder. 56 (c) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Issuing Lender, under or in connection with any Letter of Credit or the related certificates, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to the Borrower. It is the intention of the parties that this Agreement shall be construed and applied to protect and indemnify the Issuing Lender against any and all risks involved in the issuance of the Letters of Credit, all of which risks are hereby assumed by the Borrower, including, without limitation, any and all risks of the acts or omissions, whether rightful or wrongful, of any Government Authority. The Issuing Lender shall not, in any way, be liable for any failure by the Issuing Lender or anyone else to pay any drawing under any Letter of Credit as a result of any Government Acts or any other cause beyond the control of the Issuing Lender. (d) Nothing in this Section 2.19 is intended to limit the reimbursement obligation of the Borrower contained in Section 2.3(d) hereof. The obligations of the Borrower under this Section 2.19 shall survive the termination of this Agreement. No act or omissions of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair the rights of the Issuing Lender to enforce any right, power or benefit under this Agreement. (e) Notwithstanding anything to the contrary contained in this Section 2.19, the Borrower shall have no obligation to indemnify any Issuing Lender in respect of any liability incurred by such Issuing Lender arising out of the gross negligence or willful misconduct of the Issuing Lender (including action not taken by an Issuing Lender), as determined by a court of competent jurisdiction. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Extensions of Credit herein provided for, the Borrower and its Subsidiaries hereby represent and warrant to the Administrative Agent and each Lender and, with respect to Sections 3.1 through 3.9 and Sections 3.17, 3.23, 3.28 and 3.29, the Parent hereby represents and warrants to the Administrative Agent and to each Lender that: Section 3.1 Financial Condition. The Borrower has delivered to the Administrative Agent and the Lenders (a) balance sheets and the related statements of income and of cash flows of (i) the Parent and its Subsidiaries for the fiscal years ended December 31, 2000 and 2001 audited by Price WaterhouseCoopers, and for the fiscal year ended December 31, 2002 audited by Ernst & Young and (ii) the Acquired Company and its Subsidiaries for the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002 audited by Deloitte & Touche, (b) a company- 57 prepared unaudited balance sheet and the related statement of income and of cash flow of Orthofix, Inc. for fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002, (c) company-prepared unaudited balance sheets and related statements of income and cash flows for the Parent and its Subsidiaries, the Borrower and its Subsidiaries and the Acquired Company and its Subsidiaries as of November 30, 2003 and for the eleven-month period then ending, (d) pro forma balance sheets of the Parent and its Subsidiaries, the Borrower and its Subsidiaries and the Acquired Company and its Subsidiaries as of November 30, 2003, in each case prepared giving effect to the Acquisition and the initial Extensions of Credit made hereunder on a Pro Forma Basis and in form and substance satisfactory to the Administrative Agent and the Lenders and (e) the five-year projections of the Parent and the Borrower, in form and substance reasonably satisfactory to the Administrative Agent. The financial statements referred to in subsections (a)-(d) above are complete and correct and present fairly the financial condition of the Parent, the Borrower, the Acquired Company and their respective Subsidiaries as of such dates, subject in the case of unaudited financials to the absence of footnotes and immaterial year end adjustments. All such financial statements and projections, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as disclosed therein). Section 3.2 No Change. Since December 31, 2002 there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. Section 3.3 Corporate Existence; Compliance with Law. Each of Credit Parties (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has the requisite power and authority and the legal right to own and operate all its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified to conduct business and is in good standing under the laws of (i) the state of its organization and (ii) each other jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to so qualify or be in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, each of the Credit Parties represents that: (i) (A) There is no Credit Party or, to the knowledge of the Credit Parties, individual employed by any Credit Party who may reasonably be expected to have criminal culpability or to be excluded or suspended from participation in any Medical Reimbursement Program for their corporate or individual actions or failures to act where such culpability, exclusion and/or suspension has or could be reasonably expected to result in a Material Adverse Effect; and (B) there is no member of management continuing to be employed by any Credit Party who may reasonably be expected to have individual culpability for matters under investigation by any Governmental Authority 58 unless such member of management has been, within a reasonable period of time after discovery of such actual or potential culpability, either suspended or removed from positions of responsibility related to those activities under challenge by the Governmental Authority; (ii) Current billing policies, arrangements, protocols and instructions comply with expressly stated requirements of Medical Reimbursement Programs and are administered by properly trained personnel except where any such failure to comply could not reasonably be expected to result in a Material Adverse Effect; and (iii) Current medical director compensation arrangements and other arrangements with referring physicians comply with state and federal self-referral and anti-kickback laws, including without limitation 42 U.S.C. Section 1320a-7b(b)(1) - (b)(2) and 42 U.S.C. Section 1395nn, except where any such failure to comply could not reasonably be expected to result in a Material Adverse Effect. Section 3.4 Corporate Power; Authorization; Enforceable Obligations. Each of the Credit Parties has full power and authority and the legal right to make, deliver and perform the Credit Documents to which it is party and has taken all necessary limited liability company or corporate or other action to authorize the execution, delivery and performance by it of the Credit Documents to which it is party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery or performance of any Credit Document by the Credit Parties (other than those which have been obtained) or with the validity or enforceability of any Credit Document against the Credit Parties (except such filings as are necessary in connection with the perfection of the Liens created by such Credit Documents). This Credit Agreement has been, and each other Credit Document when delivered hereunder will have been, duly executed and delivered on behalf of each of the Credit Parties party thereto. Each Credit Document to which it is a party constitutes a legal, valid and binding obligation of each of the Credit Parties, enforceable against such Credit Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). Section 3.5 Status Under Certain Statutes. No Credit Party is (i) required to be registered as an "investment company", or "controlled" by a Person that is required to be registered as an "investment company", under the Investment Company Act of 1940, as amended, or (ii) subject to regulation under any federal or state statute or regulation limiting its ability to incur the Credit Party Obligations. 59 Section 3.6 Margin Regulations. No part of the proceeds of any Loan hereunder will be used directly or indirectly for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. The Parent and the Borrower and its Subsidiaries taken as a group do not own "margin stock" except as identified in the financial statements referred to in Section 3.1 and the aggregate value of all "margin stock" owned by the Parent and the Borrower and its Subsidiaries taken as a group does not exceed 25% of the value of their assets. Section 3.7 No Legal Bar; No Default. The execution, delivery and performance of the Credit Documents, the borrowings thereunder and the use of the proceeds of the Loans will not violate any Requirement of Law or any Contractual Obligation of the Parent, the Borrower or any of the Borrower's Subsidiaries (except those as to which waivers or consents have been obtained), and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation other than the Liens arising under or contemplated in connection with the Credit Documents. Neither the Parent, nor the Borrower, nor any of the Borrower's Subsidiaries is in default under or with respect to any of its Contractual Obligations in any material respect. No Default or Event of Default has occurred and is continuing. Section 3.8 No Material Litigation. As of the Closing Date, set forth on Schedule 3.8 is a description of any material litigation, investigation, claim, criminal prosecution, civil investigative demand, criminal or civil fine and penalty, or other proceeding of or before any arbitrator or Governmental Authority (including but not limited to those regulatory agencies responsible for licensing, accrediting or issuing Medicare or Medicaid certifications) that is pending or, to the best knowledge of the Parent, the Borrower and the Borrower's Subsidiaries, threatened by or against the Parent, the Borrower or any of the Borrower's Subsidiaries or against any of its or their respective properties or revenues. No litigation, investigation, claim, criminal prosecution, civil investigative demand, imposition of criminal or civil fines and penalties, or any other proceeding of or before any arbitrator or Governmental Authority (including but not limited to those regulatory agencies responsible for licensing, accrediting or issuing Medicare or Medicaid certifications) is pending or, to the best knowledge of the Borrower and its Subsidiaries, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to the Credit Documents or any Loan or any of the transactions contemplated hereby, or (b) which, if adversely determined could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Section 3.9 ERISA. No Reportable Event that could reasonably be expected to result in a Material Adverse Effect, and no "accumulated funding deficiency" (within the meaning of Section 412 of the Code 60 or Section 302 of ERISA), has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Single Employer Plan. Each Single Employer Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded. No Lien in favor of a Single Employer Plan or in favor of the PBGC with respect to a Single Employer Plan has arisen, during the five-year period prior to the date on which this representation is made or deemed made with respect to any Single Employer Plan (other than a Lien with respect to a liability which has been satisfied in full). The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits, except to the extent that such underfunding could not reasonably be expected to result in a Material Adverse Effect. Neither any Credit Party nor any Commonly Controlled Entity has any outstanding liability for a complete or partial withdrawal from a Multiemployer Plan, except to the extent such liability could not reasonably be expected to result in a Material Adverse Effect. Section 3.10 Environmental Matters. Except as would not reasonably be expected to have a Material Adverse Effect: (a) The facilities and properties owned, leased or operated by the Borrower or any of its Subsidiaries (the "Properties") do not contain any Materials of Environmental Concern in amounts or concentrations that constitute a violation of or a liability under, any Environmental Law. (b) The Properties, all operations of the Borrower and/or its Subsidiaries at the Properties, and the business operated by the Borrower or any of its Subsidiaries (the "Business") are in compliance, and have in the last two years been in compliance, with all applicable Environmental Laws. (c) Neither the Borrower nor any of its Subsidiaries has received any written notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Borrower or any of its Subsidiaries have knowledge that any such notice will be received or is being threatened. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties by the Borrower or any of its Subsidiaries in violation of any Environmental Law, and neither the Borrower nor any of its Subsidiaries has received any written notice of any liability or potential liability for any Materials of Environmental Concern transported or disposed of from the Properties by the Borrower or any of its Subsidiaries. Materials of Environmental Concern have not been generated, treated, stored or disposed of by the Borrower or any of its Subsidiaries at, on or under any of the Properties in violation of any applicable Environmental Law, and neither the Borrower nor any of its Subsidiaries is liable for any Materials of Environmental Concern 61 that have been generated, treated, stored or disposed of at, on or under any of the Properties. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower and its Subsidiaries, threatened, under any Environmental Law to which the Borrower or any Subsidiary is or, with respect to any threatened proceeding or action, is reasonably expected to become a party with respect to the Properties or the Business, nor are there any governmental consent decrees, consent orders or administrative orders with respect to which the Borrower or any of its Subsidiaries is a party, or other administrative or judicial requirements applicable to the Borrower or any of its Subsidiaries outstanding under any Environmental Law with respect to the Properties or the Business. (f) There has been no release of Materials of Environmental Concern by the Borrower or any of its Subsidiaries or for which the Borrower or any of its Subsidiaries is liable at or from the Properties, or arising from or related to the operations of the Borrower or any of its Subsidiaries in connection with the Properties or otherwise in connection with the Business, in violation of, or in amounts or in a manner that give rise to liability, under Environmental Laws, except for any such release that has been remediated in accordance with applicable Environmental Laws. Section 3.11 Use of Proceeds. The proceeds of the Extensions of Credit shall be used solely by the Borrower to (i) finance a portion of the Acquisition, (ii) pay any fees and expenses in connection with the Acquisition, (iii) pay any fees and expenses owing to the Lenders and the Administrative Agent in connection with this Agreement and the other Credit Documents (including those under the Fee Letter) and (iv) provide for working capital and other general corporate purposes, including, without limitation, Permitted Acquisitions. Section 3.12 Subsidiaries. Set forth on Schedule 3.12 is a complete and accurate list of all direct and indirect Subsidiaries of the Borrower as of the Closing Date. Information on the attached Schedule includes jurisdiction of incorporation or organization; the number of shares of each class of Capital Stock or other equity interests outstanding; the number and percentage of outstanding shares of each class of Capital Stock held by each shareholder; and the number and effect, if exercised, of all outstanding options, warrants, rights of conversion or purchase and similar rights. The outstanding Capital Stock and other equity interests of all such Subsidiaries is validly issued, fully paid and non-assessable and is owned, free and clear of all Liens (other than those arising under or contemplated in connection with the Credit Documents). 62 Section 3.13 Ownership. Each of the Borrower and its Subsidiaries is the owner of, and has good and insurable title to or an indefeasible leasehold interest in, all of its respective assets and none of such assets is subject to any Lien on such party's interest other than Permitted Liens. Section 3.14 Indebtedness. Except as otherwise permitted under Section 6.1, the Borrower and its Subsidiaries have no Indebtedness. Section 3.15 Taxes. Each of the Borrower and its Subsidiaries has filed, or caused to be filed, all tax returns required to be filed and paid (a) all amounts of taxes shown thereon to be due (including interest and penalties) and (b) all other taxes, fees, assessments and other governmental charges (including mortgage recording taxes, documentary stamp taxes and intangibles taxes) owing by it, except for such taxes (i) that are not yet delinquent or (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP. Neither the Borrower nor any of its Subsidiaries are aware as of the Closing Date of any proposed tax assessments against it or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 3.16 Intellectual Property. Each of the Borrower and its Subsidiaries owns, or has the legal right to use, all Intellectual Property necessary for each of them to conduct its business as currently conducted. Set forth on Schedule 3.16 is a list of all material Intellectual Property (excluding unregistered trademarks to the extent not used or not reasonably identifiable by the Borrower or any of its Subsidiaries) owned by the Borrower and its Subsidiaries or that the Borrower or any of its Subsidiaries has the right to use (excluding standard "off the shelf" licensed software used in the ordinary course of business). Except pursuant to a license agreement disclosed in Schedule 3.16 hereto, or as otherwise disclosed in Schedule 3.16 hereto, (a) the Borrower and its Subsidiaries has the right to use the Intellectual Property disclosed in Schedule 3.16 hereto in perpetuity and without payment of royalties, (b) all registrations with and applications to Governmental Authorities in respect of such Intellectual Property are valid or subsisting and in full force and effect and are not subject to the payment of any taxes or maintenance fees or the taking of any interest therein, held by the Borrower or any of its Subsidiaries to maintain their validity or effectiveness in any material respects, and (c) there are no restrictions on the direct or indirect transfer of any Contractual Obligation, or any interest therein, held by the Borrower or any of its Subsidiaries in respect of such Intellectual Property. Neither the Borrower nor any of its Subsidiaries is in default (or with the giving of notice or lapse of time or both, would be in default) under any license to use any material Intellectual Property; no claim has been asserted in writing and is pending by any Person, in any material respects, seeking to restrict or deny the use of any material Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Borrower or any of their Subsidiaries know of any such claim; and, to the 63 knowledge of the Borrower and its Subsidiaries, the use of any material Intellectual Property by the Borrower or any of its Subsidiaries does not infringe on the rights of any Person. Schedule 3.16 may be updated from time to time by the Borrower to include new Intellectual Property by giving written notice thereof to the Administrative Agent. Section 3.17 Solvency. Each of the Parent, the Borrower and the Subsidiary Guarantors is Solvent. Section 3.18 Investments. All Investments of each of the Borrower and its Subsidiaries are Permitted Investments. Section 3.19 Location of Collateral. Set forth on Schedule 3.19(a) is a list of the real Properties (whether owned or leased) of the Borrower and its Subsidiaries as of the Closing Date with street address, county and state where located. Set forth on Schedule 3.19(b) is a list of all locations where any tangible personal property of the Borrower and its Subsidiaries is located as of the Closing Date (other than tangible personal property in transit, held by sales representatives or on consignment with third parties), including county and state where located. Set forth on Schedule 3.19(c) is the chief executive office and principal place of business of each of the Borrower and its Subsidiaries as of the Closing Date and the jurisdiction of incorporation or organization of each such Person as of the Closing Date. Section 3.20 No Burdensome Restrictions. Neither the Borrower nor any of its Subsidiaries is a party to any agreement or instrument or subject to any other obligation or any charter or corporate restriction or any provision of any applicable law, rule or regulation that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 3.21 Labor Matters. Except as otherwise set forth in Schedule 3.21 hereto, as of the Closing Date, (a) there are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries, (b) neither the Borrower nor any of its Subsidiaries has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years, (c) neither the Borrower nor any of its Subsidiaries has knowledge of any material potential or pending strike, walkout or work stoppage and (d) no material unfair labor practice compliant is pending or, to the best knowledge of the Borrower and its Subsidiaries, threatened against the Borrower or any of its Subsidiaries before any Governmental Authority. 64 Section 3.22 Security Documents. The Security Documents create (or will create upon the execution and delivery thereof) valid security interests in, and Liens on, the Collateral purported to be covered thereby, which security interests and Liens are currently (or will be upon the execution and delivery of the Security Documents and upon the filing of appropriate financing statements, the recordation of the applicable Mortgage Instruments, the filing of appropriate notices with the United States Patent and Trademark Office and the United States Copyright Office, the filing of the relevant UK Collateral Documents at Companies House in the United Kingdom and the filing of the relevant Mexican Collateral Documents in the applicable filing or recording offices in Mexico, in each case in favor of the Administrative Agent, on behalf of the Lenders) perfected security interests and Liens, prior to all other Liens other than Permitted Liens that would be prior to the Liens in favor of the Administrative Agent as a matter of law. Section 3.23 Accuracy and Completeness of Information. All factual written information (other than written financial projections) heretofore, contemporaneously or hereafter furnished by or on behalf of any Credit Party or any of its Subsidiaries to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any other Credit Document, or any transaction contemplated hereby or thereby, is or will be true and accurate in all material respects and not incomplete by omitting to state any material fact necessary to make such information not misleading. The written financial projections concerning the Borrower and its Subsidiaries heretofore, contemporaneously or hereafter furnished by or on behalf of any Credit Party or any of its Subsidiaries to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any other Credit Document, or any transaction contemplated hereby or thereby, have been and will be prepared in good faith based upon assumptions that the Borrower believes to be reasonable at the time of such preparation. There is no fact now known to the Borrower, any other Credit Party or any of their Subsidiaries which has, or could reasonably be expected to have, a Material Adverse Effect, which fact has not been set forth herein, in the financial statements of the Borrower and its Subsidiaries furnished to the Administrative Agent and/or the Lenders, or in any opinion or other written statement made or furnished by any Credit Party to the Administrative Agent and/or the Lenders. Section 3.24 Fraud and Abuse. Neither the Borrower and its Subsidiaries nor, to the knowledge of the Borrower and its Subsidiaries, any of their stockholders, officers or directors, have engaged in any activities which are prohibited under federal Medicare and Medicaid statutes, 42 U.S.C. ss.1320a-7b, or 42 U.S.C. ss.1395nn or the regulations promulgated pursuant to such statutes or related state or local statutes or regulations, or which are prohibited by binding rules of professional conduct, including but not limited to the following: (a) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any applications for any benefit or payment; (b) knowingly and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment; (c) failing to disclose knowledge by a claimant of the occurrence of any event affecting the initial or continued right to 65 any benefit or payment on its own behalf or on behalf of another with the intent to secure such benefit or payment fraudulently; (d) knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind or offering to pay such remuneration (i) in return for referring an individual to a Person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part by Medicare, Medicaid or other applicable third party payors, or (ii) in return for purchasing, leasing or ordering or arranging for or recommending the purchasing, leasing or ordering of any good, facility, service, or item for which payment may be made in whole or in part by Medicare, Medicaid or other applicable third party payors. Section 3.25 Licensing and Accreditation. Each of the Borrower and its Subsidiaries has, to the extent applicable: (a) obtained and maintains in good standing all required licenses; (b) to the extent prudent and customary in the industry in which it is engaged, obtained and maintains accreditation from all generally recognized accrediting agencies; (c) obtained and maintains Medicaid Certification and Medicare Certification; and (d) entered into and maintains in good standing its Medicare Provider Agreement and its Medicaid Provider Agreement. To the knowledge of the Borrower and its Subsidiaries, all such required licenses are in full force and effect on the date hereof and have not been revoked or suspended or otherwise limited. Section 3.26 Other Regulatory Protection. Each of the Borrower and its Subsidiaries represent that it does not manufacture pharmaceutical products and is in compliance with all applicable rules, regulations and other requirements of the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Occupational Safety and Health Administration ("OSHA"), the Consumer Product Safety Commission, the United States Customs Service and the United States Postal Service and other state or federal regulatory authorities or jurisdictions in which the Borrower or any of its Subsidiaries do business or distribute and market products, except to the extent that any such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Except as so disclosed, neither the FDA, the FTC, OSHA, the Consumer Product Safety Commission, nor any other such regulatory authority has requested (or, to the knowledge of the Borrower and its Subsidiaries, are considering requesting) any product recalls or other enforcement actions that (a) if not complied with, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and (b) with which the Borrower and its Subsidiaries have not complied within the time period allowed. Section 3.27 Reimbursement from Third Party Payors. The accounts receivable of the Borrower and its Subsidiaries have been and will continue to be adjusted to reflect the reimbursement policies (both those most recently published in writing as well as those not in writing which have been verbally communicated) of third party payors such as Medicare, Medicaid, Blue Cross/Blue Shield, private insurance companies, health maintenance organizations, preferred provider organizations, alternative delivery systems, managed care systems, government contacting agencies and other third party payors. In 66 particular, accounts receivable relating to third party payors do not and shall not exceed amounts any obligee is entered to receive under any capitation arrangement, fee schedule, discount formula, cost-based reimbursement or other adjustment or limitation to its usual charges. Section 3.28 Other Agreements. No Credit Party is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (a) any Medicaid Provider Agreement, Medicare Provider Agreement or other agreement or instrument to which such Person is a party, which default has resulted in, or if not remedied within any applicable grace period could result in, the revocation, termination, cancellation or material suspension of Medicaid Certification or Medicare Certification of any such Person or (b) any other agreement or instrument to which any such Person is a party, which default, individually or in the aggregate, has, or if not remedied within any applicable grace period could reasonably be expected to have, a Material Adverse Effect. Section 3.29 Material Contracts. Schedule 3.29 sets forth a true and correct and complete list of all Material Contracts currently in effect. All of the Material Contracts are in full force and effect and no material defaults exist thereunder. Section 3.30 Insurance. The insurance coverage of the Borrower and its Subsidiaries is outlined as to carrier, policy number, expiration date, type and amount on Schedule 3.30 and such insurance coverage complies the requirements set forth in Section 5.5(b). Section 3.31 Classification as Senior Indebtedness. The Credit Party Obligations constitute "Senior Indebtedness" under and as may be defined in any agreement governing any outstanding Subordinated Indebtedness and the subordination provisions set forth in each such agreement are legally valid and enforceable against the parties thereto. Section 3.32 Tax Shelter Regulations. The Borrower does not intend to treat the Loans or Letters of Credit and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event the Borrower determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. If the Borrower so notifies the Administrative Agent, the Borrower acknowledges that one or more of the Lenders may treat its Loans and/or Letters of Credit as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and such Lender or Lenders, as applicable, will maintain the lists and other records required by such treasury regulation. 67 ARTICLE IV CONDITIONS PRECEDENT Section 4.1 Conditions to Closing Date and Initial Extensions of Credit. This Agreement shall become effective upon, and the obligation of each Lender to make the initial Revolving Loans and the Term Loans on the Closing Date is subject to, the satisfaction of the following conditions precedent: (a) Execution of Agreements. The Administrative Agent shall have received (i) counterparts of this Agreement, (ii) for the account of each applicable Lender, a Revolving Note and a Term Note, (iii) for the account of each Swingline Lender, the Swingline Note, and (iv) counterparts of the Security Agreement, the Pledge Agreement, the UK Collateral Documents, the BV II Limited Guaranty and Pledge Agreement, and each Mortgage Instrument, in each case conforming to the requirements of this Agreement and executed by a duly authorized officer of each party thereto, and in each case in form and substance reasonably satisfactory to the Lenders. (b) Authority Documents. The Administrative Agent shall have received the following: (i) Articles of Incorporation/Organizational Documents. Copies of the articles of incorporation, certificate of incorporation or other organizational documents, as applicable, of each Credit Party certified to be true and complete as of a recent date by the appropriate Governmental Authority of the jurisdiction of its incorporation or organization, as the case may be. (ii) Resolutions. Copies of resolutions of the board of directors (or comparable group and, where applicable, the shareholders or members) of each Credit Party approving and adopting the Credit Documents, the transactions contemplated therein and authorizing execution and delivery thereof, certified by a secretary or assistant secretary of such Credit Party (pursuant to a secretary's certificate in substantially the form of Schedule 4.1-1 attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date. (iii) Bylaws/Operating Agreement. A copy of the bylaws, memorandum and articles of association, limited liability company agreement or comparable operating agreement of each Credit Party certified by a secretary or assistant secretary of such Credit Party (pursuant to a secretary's certificate in substantially the form of Schedule 4.1-1 attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date. (iv) Good Standing. Copies of certificates of good standing, existence or its equivalent (to the extent applicable) with respect to the each Credit Party 68 certified as of a recent date by the appropriate Governmental Authorities of the jurisdiction of incorporation or organization and each other jurisdiction in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect on the business or operations of the Borrower and its Subsidiaries in such state. (v) Incumbency. An incumbency certificate of each Credit Party certified by a secretary or assistant secretary (pursuant to a secretary's certificate in substantially the form of Schedule 4.1-1 attached hereto) to be true and correct as of the Closing Date. (c) Legal Opinions of Counsel. The Administrative Agent shall have received (i) opinions of legal counsel (including local counsel to the extent required by the Administrative Agent) for the Credit Parties, dated the Closing Date and addressed to the Administrative Agent and the Lenders, which opinions shall include, without limitation, a "no conflicts" opinion with respect to corporate instruments and Material Contracts of the Credit Parties on the Closing Date after giving effect to the transactions contemplated herein, and (ii) an opinion from Berwin Leighton Paisner as to, inter alia, the enforceability of the UK Collateral Documents, each such opinion to be in form and substance reasonably satisfactory to the Administrative Agent. (d) Reliance. The Administrative Agent shall have received a copy of each opinion, report, agreement, and other document required to be delivered pursuant to the Acquisition Documents and the transactions contemplated in connection therewith, together with evidence that the Administrative Agent and the Lenders have been authorized to rely on each such opinion, all in form and substance reasonably satisfactory to the Administrative Agent, it being agreed that no affirmative requirement for the delivery of opinions exists in the Acquisition Documents. (e) Personal Property Collateral. The Administrative Agent shall have received, in form and substance reasonably satisfactory to the Administrative Agent: (i) searches of Uniform Commercial Code filings in the jurisdiction of the chief executive office of the Borrower and its Subsidiaries (other than the Mexican Subsidiary), the state or jurisdiction of incorporation or organization of each of the Borrower and its U.S. Subsidiaries and each jurisdiction where any Collateral is located or where a filing would need to be made in order to perfect the Administrative Agent's security interest in the Collateral (unless otherwise agreed by the Administrative Agent), copies of the financing statements on file in such jurisdictions and evidence that no Liens exist other than Permitted Liens; (ii) duly executed UCC financing statements for each appropriate jurisdiction as is necessary, in the Administrative Agent's sole discretion, to perfect the Administrative Agent's security interest in the Collateral; and 69 (iii) duly executed consents as are necessary, in the Administrative Agent's sole discretion, to perfect the Lenders' security interest in the Collateral. (f) Real Property Collateral. The Administrative Agent shall have received, in form and substance reasonably satisfactory to the Administrative Agent: (i) subject to the receipt of the applicable landlord consents pursuant to the terms of clause (vii) of this subsection (f) (to the extent the applicable leases require such landlord consents), fully executed and notarized Mortgage Instruments encumbering the leasehold interest in the Mortgaged Properties leased by the Borrower, the Acquired Company or any of their respective Subsidiaries in McKinney, Texas and Vista, California (collectively, the "Initial Mortgaged Properties"); (ii) a title report in respect of each of the Initial Mortgaged Properties; (iii) with respect to each Initial Mortgaged Property, Mortgage Policies assuring the Administrative Agent that each of the Mortgage Instruments creates a valid and enforceable first priority mortgage lien on the applicable Initial Mortgaged Property, free and clear of all defects and encumbrances except Permitted Liens, which Mortgage Policies shall provide for affirmative insurance and such reinsurance as the Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to the Administrative Agent; (iv) evidence as to (A) whether any Initial Mortgaged Property is in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards (a "Flood Hazard Property") and (B) if any Initial Mortgaged Property is a Flood Hazard Property, (1) whether the community in which such Initial Mortgaged Property is located is participating in the National Flood Insurance Program, (2) the Borrower's or the applicable Subsidiary Guarantor's written acknowledgment of receipt of written notification from the Administrative Agent (y) as to the fact that such Initial Mortgaged Property is a Flood Hazard Property and (z) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program and (3) copies of insurance policies or certificates of insurance of the Borrower and its Subsidiaries evidencing flood insurance reasonably satisfactory to the Administrative Agent and naming the Administrative Agent as loss payee on behalf of the Lenders; (v) to the extent available, surveys of the sites of the Initial Mortgaged Properties; (vi) reasonably satisfactory Phase I environmental site assessment reports with respect to each of the Initial Mortgaged Properties, together with reliance letters with respect to such reports in favor of the Lenders; 70 (vii) opinions of counsel to the Borrower or the applicable Subsidiary Guarantors for each jurisdiction in which the Initial Mortgaged Properties are located; and (viii) in the case of the Properties located in Mexicali, Baja California and McKinney, Texas and Vista, California, such estoppel letters, consents and waivers from the landlords on such Properties as the Administrative Agent may reasonably require; provided, that the Credit Parties shall not be required (A) to obtain any such consent to the extent the applicable landlord refuses to execute such consent after the Credit Parties have used their best efforts to obtain such consent or (B) to expend any significant amount of money to obtain such consents. (g) Liability, Casualty and Business Interruption Insurance. The Administrative Agent shall have received copies of insurance policies or certificates of insurance evidencing liability and casualty insurance meeting the requirements set forth herein or in the Security Documents and business interruption insurance satisfactory to the Administrative Agent. The Administrative Agent shall be named as loss payee or mortgagee, as its interest may appear, and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Administrative Agent, that it will give the Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled. (h) Fees. The Administrative Agent and the Lenders shall have received (i) all fees, if any, owing pursuant to the Fee Letter and Section 2.5 and (ii) evidence that the aggregate amount of fees and expenses payable in connection with the consummation of the Acquisition by the Parent and its Subsidiaries (excluding those fees identified in the foregoing subsection (i)) did not exceed $6,000,000. (i) Litigation. Except as set forth on Schedule 3.8, there shall not exist any material litigation, investigation, claim, criminal prosecution, civil investigative demand, imposition of criminal or civil fines and penalties, or any other proceeding of or before any arbitrator or Governmental Authority (including but not limited to those regulatory agencies responsible for licensing, accrediting or issuing Medicare or Medicaid certifications) affecting or relating to any of the Parent, the Borrower or the Borrower's Subsidiaries, this Agreement and the other Credit Documents, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date. (j) Solvency Certificate. The Administrative Agent shall have received an officer's certificate prepared by the chief financial officer of the Parent as to the financial condition, solvency and related matters of each Credit Party, in each case after giving effect to the Acquisition and the initial borrowings under the Credit Documents, in substantially the form of Schedule 4.1-2 hereto. 71 (k) Account Designation Letter. The Administrative Agent shall have received the executed Account Designation Letter in the form of Schedule 1.1-1 hereto. (l) Corporate Structure. The corporate, capital and ownership structure of the Borrower and its Subsidiaries after giving effect to the Acquisition shall be as described in Schedule 3.12, and shall otherwise be reasonably satisfactory to the Administrative Agent and the Lenders. The Administrative Agent and the Lenders shall be satisfied with the management of the Borrower and its Subsidiaries after giving effect to the Acquisition. (m) Acquisition Documents. The Administrative Agent shall have reviewed and approved in its sole discretion all of the Acquisition Documents and there shall not have been any material modification, amendment, supplement or waiver to the Acquisition Documents without the prior written consent of the Administrative Agent, and the Acquisition shall have been consummated in accordance with the terms of the Acquisition Documents (without waiver of any conditions precedent to the obligations of any party thereto). The Administrative Agent shall have received a copy, certified by an officer of the Borrower as true and complete, of each Acquisition Document as originally executed and delivered, together with all exhibits and schedules thereto. (n) Consents. The Administrative Agent shall have received evidence that all governmental, shareholder, board of director and material third party consents and approvals necessary in connection with the financings, the Acquisition and other transactions contemplated hereby have been obtained and all applicable waiting periods have expired without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on such transactions or that could seek or threaten any of such transactions. (o) Compliance with Laws. The financings and other transactions contemplated hereby shall be in compliance with all applicable Requirements of Law (including all applicable securities and banking laws, rules and regulations). (p) Bankruptcy. There shall be no bankruptcy or insolvency proceedings with respect to any Credit Party or any of its Subsidiaries. (q) Material Adverse Effect. No material adverse change shall have occurred since December 31, 2002 in the business, properties, operations or condition (financial or otherwise) of the Parent, the Borrower, the Acquired Company or any of their respective Subsidiaries. (r) Minimum Consolidated Parent EBITDA. The Administrative Agent shall have received evidence satisfactory thereto provided by the Parent that the Consolidated Parent EBITDA as of the Closing Date calculated on a Pro Forma Basis, is no less than $65,000,000. 72 (s) Maximum Parent Leverage. The Administrative Agent shall have received evidence satisfactory thereto provided by the Parent that the Parent Leverage Ratio as of the Closing Date calculated on a Pro Forma Basis, is no greater than 1.85 to 1.0. (t) Minimum Consolidated Borrower EBITDA. The Administrative Agent shall have received evidence satisfactory thereto provided by the Borrower that the Consolidated Borrower EBITDA as of the Closing Date calculated on a Pro Forma Basis, is no less than $43,500,000. (u) Maximum Indebtedness. The Administrative Agent shall have received evidence satisfactory thereto provided by the Borrower that the Indebtedness of the Borrower and its Subsidiaries as of the Closing Date (excluding intercompany Subordinated Indebtedness of the Borrower and the Subsidiary Guarantors to the extent such Indebtedness would be eliminated on a consolidated basis, but including, without limitation, the Parent Intercompany Loan) calculated on a Pro Forma Basis, is no greater than $149,000,000. (v) Financial Statements. The Administrative Agent shall have received copies of the financial statements and projections referred to in Section 3.1 hereof, each in form and substance satisfactory to it. (w) Termination of Existing Indebtedness; Approval of Intercompany Indebtedness. All existing Indebtedness for borrowed money of the Borrower, the Parent, the Acquired Company and their respective Subsidiaries in excess of $8,000,000 in the aggregate, shall have been repaid in full and terminated and all Liens relating thereto shall have been terminated. The Administrative Agent shall have reviewed and approved in its sole discretion all loan documentation with respect to any intercompany Indebtedness of the Credit Parties and the Administrative Agent shall have received a copy, certified by an officer of the Borrower as true and complete, of each such document, as originally executed and delivered, together with all exhibits, schedules, amendments and modifications thereto. (x) Officer's Certificates. The Administrative Agent shall have received a certificate executed by a Responsible Officer of the Borrower as of the Closing Date stating that (i) immediately after giving effect to this Credit Agreement (including the initial Extensions of Credit hereunder), the other Credit Documents and the Acquisition Documents and all the transactions contemplated therein to occur on such date, (A) no Default or Event of Default exists, (B) all representations and warranties contained herein and in the other Credit Documents are true and correct in all material respects, and (C) the Credit Parties are in compliance with each of the financial covenants set forth in Section 5.9 in each case after giving effect to the Acquisition and the initial borrowings under the Credit Documents on a Pro Forma Basis, and demonstrating compliance with such financial covenants. 73 (y) Credit Rating. The Borrower shall have obtained a senior secured credit rating from Moody's and from S&P. (z) Patriot Act Certificate. The Administrative Agent shall have received a certificate satisfactory thereto, for benefit of itself and the Lenders, provided by the Borrower that sets forth information required by the Patriot Act (as defined in Section 9.18) including, without limitation, the identity of the Borrower, the name and address of the Borrower and other information that will allow the Administrative Agent or any Lender, as applicable, to identify the Borrower in accordance with the Patriot Act. (aa) Additional Matters. All other documents and legal matters in connection with the transactions contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel. Section 4.2 Conditions to All Extensions of Credit. The obligation of each Lender to make any Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit: (a) Representations and Warranties. The representations and warranties made by the Credit Parties herein, in the Security Documents or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct on and as of the date of such Extension of Credit as if made on and as of such date (other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Extension of Credit, in which case, as of such specific date). (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement. (c) Compliance with Commitments. Immediately after giving effect to the making of any such Extension of Credit (and the application of the proceeds thereof), (i) the sum of outstanding Revolving Loans plus outstanding Swingline Loans plus LOC Obligations shall not exceed the Revolving Committed Amount, (ii) the LOC Obligations shall not exceed the LOC Committed Amount and (iii) the Swingline Loans shall not exceed the Swingline Committed Amount. (d) Additional Conditions to Extensions of Credit. If such Extension of Credit is made pursuant to Sections 2.1, 2.2, 2.3 or 2.4 all conditions set forth in such Section shall have been satisfied. Each request for an Extension of Credit and each acceptance by the Borrower of any such Extension of Credit shall be deemed to constitute a representation and warranty by the Borrower 74 as of the date of such Extension of Credit that the applicable conditions in paragraphs (a) through (d) of this Section have been satisfied. ARTICLE V AFFIRMATIVE COVENANTS The Borrower and the Subsidiary Guarantors hereby covenant and agree that on the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Note shall remain outstanding and unpaid and the Credit Party Obligations, together with interest, Commitment Fees and all other amounts owing to the Administrative Agent or any Lender hereunder, shall have been paid in full, the Borrower and the Subsidiary Guarantors shall: Section 5.1 Financial Statements. Furnish to the Administrative Agent and each of the Lenders: (a) Annual Financial Statements. As soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Borrower commencing with the fiscal year ended December 31, 2003 (or, with respect to the comparative information required below, commencing with the fiscal year ended December 31, 2005), a copy of the consolidated and consolidating balance sheet of the Parent and its consolidated Subsidiaries (which consolidating balance sheet shall include the consolidated balance sheet of the Borrower and its Subsidiaries) as at the end of such fiscal year and the related consolidated and consolidating statements of income and retained earnings and of cash flows of the Parent and its consolidated Subsidiaries (which consolidating statements shall include the consolidated statements of income and retained earnings and cash flow of the Borrower and its Subsidiaries) for such year, together with an "other financial information" opinion with respect to the Borrower and its Subsidiaries, audited (with respect to the consolidated statements only) by a firm of independent certified public accountants of, as appropriate, nationally or internationally recognized standing reasonably acceptable to the Administrative Agent, setting forth in comparative form consolidated and consolidating figures for the preceding fiscal year, reported on without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification; (b) Quarterly Financial Statements. (i) As soon as available and in any event within (i) forty-five (45) days after the end of each of the first three fiscal quarters of the Borrower and (ii) ninety (90) days after the end of the fourth fiscal quarter of the Borrower, a company-prepared consolidated and consolidating balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such period and related company-prepared consolidated and consolidating statements of income and retained earnings and of cash flows for the Borrower and its consolidated Subsidiaries for such 75 quarterly period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form consolidated and consolidating figures for the corresponding period or periods of the preceding fiscal year (subject to normal recurring year-end audit adjustments) and including a summary of accounts receivable and accounts payable aging reports in form satisfactory to the Lenders and (ii) as soon as available and in any event within (i) forty-five (45) days after the end of each of the first three fiscal quarters of the Parent and (ii) ninety (90) days after the end of the fourth fiscal quarter of the Parent, a company-prepared consolidated and consolidating balance sheet of the Parent and its consolidated Subsidiaries as at the end of such period and related company-prepared consolidating and consolidating statements of income and retained earnings and of cash flows for the Parent and its consolidated Subsidiaries for such quarterly period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form consolidated and consolidating figures for the corresponding period or periods of the preceding fiscal year (subject to normal recurring year-end audit adjustments) and including management discussion and analysis of operating results inclusive of operating metrics in comparative form and a summary of accounts receivable and accounts payable aging reports in form satisfactory to the Lenders; and (c) Annual Budget Plan. As soon as available, but in any event within thirty (30) days after the end of each fiscal year, a copy of the detailed annual budget or plan of the Borrower for the next fiscal year on a quarterly basis, in form and detail reasonably acceptable to the Administrative Agent and the Required Lenders, together with a summary of the material assumptions made in the preparation of such annual budget or plan; all such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit adjustments) and to be prepared in reasonable detail and, in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation of the effect on the financial statements on account of a change, if any, in the application of accounting principles as provided in Section 1.3. Section 5.2 Certificates; Other Information. Furnish to the Administrative Agent and each of the Lenders: (a) concurrently with the delivery of the financial statements referred to in Section 5.1(a) above, certificates of the independent certified public accountants with respect to the Borrower and the Parent reporting on such financial statements stating that in making the examination necessary therefore no knowledge was obtained of any Default or Event of Default under Section 5.9, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and 5.1(b) above, a certificate of a Responsible Officer of the Borrower 76 stating that, to the best of such Responsible Officer's knowledge, during such period each of the Credit Parties observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and such certificate shall include the calculations in reasonable detail required to indicate compliance with Section 5.9 as of the last day of such period; (c) within ten (10) days after the same are sent, copies of all reports (other than those otherwise provided pursuant to Section 5.1 and those which are of a promotional nature) and other financial information which the Parent sends to its members and equity holders, and within ten (10) days after the same are filed, copies of all financial statements and non-confidential reports which the Parent may make to or file with the Securities and Exchange Commission or any successor or analogous Governmental Authority; (d) within ninety (90) days after the end of each fiscal year of the Borrower, a certificate containing information regarding the amount of all Asset Dispositions, Debt Issuances, and Equity Issuances that were made during the prior fiscal year and amounts received in connection with any Recovery Event during the prior fiscal year; (e) promptly upon receipt thereof, a copy of any other report or "management letter" submitted or presented by independent accountants to any Credit Party or any of the Borrower's Subsidiaries in connection with any annual, interim or special audit of the books of such Person; (f) promptly, copies of all notices from or material requests to the FDA, FTC, and OSHA (each, as defined in Section 3.26); and (g) promptly, such additional financial and other information as the Administrative Agent, on behalf of any Lender, may from time to time reasonably request. Section 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its taxes (Federal, state, local and any other taxes) and all its other obligations and liabilities of whatever nature and any additional costs that are imposed as a result of any failure to so pay, discharge or otherwise satisfy such obligations and liabilities, except (a) when the amount or validity of such obligations, liabilities and costs is currently being contested in good faith by appropriate proceedings and reserves, if applicable, in conformity with GAAP with respect thereto have been provided on the books of the Borrower or a Subsidiary Guarantor, as the case may be or (b) where any such failure to pay, discharge or satisfy could not reasonably be expected to have a Material Adverse Effect. 77 Section 5.4 Conduct of Business and Maintenance of Existence. Continue to (a) engage in business of the same general type as now conducted by it on the Closing Date and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; provided that, if in the discretion of the Borrower it is commercially feasible to do so and if in the discretion of the Administrative Agent no materially adverse consequences to the Lenders would result therefrom, (i) the Borrower may change its jurisdiction of organization from the United Kingdom to any state of the United States so long as the Administrative Agent has received such corporate documentation, collateral documentation and opinions of counsel as the Administrative Agent may reasonably request in connection therewith, and (ii) Orthofix Holdings may change its jurisdiction of incorporation from the State of Minnesota to the State of Delaware so long as the Borrower confirms that the Administrative Agent has filed all necessary UCC financing statement in connection therewith; and provided, further, that the Borrower may consummate the Acquisition and any other merger or consolidation permitted under Section 6.4 or liquidate or dissolve any Subsidiary that has no assets or that has sold, disposed of or otherwise transferred all of its assets to the Borrower or another of the Subsidiaries and (b) comply with all Contractual Obligations and Requirements of Law applicable to it except to the extent that failure to comply therewith, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Section 5.5 Maintenance of Property; Insurance. (a) Keep all material property useful and necessary in its business in good working order and condition (ordinary wear and tear, damage by casualty and obsolescence excepted); (b) Maintain with financially sound and reputable insurance companies insurance on all its Material Property (including without limitation its material tangible Collateral) in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. The Administrative Agent shall be named as loss payee or mortgagee, as its interest may appear, (or additional insured in the case of liability coverage) with respect to any such insurance providing coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to the Administrative Agent, that it will give the Administrative Agent thirty (30) days prior written notice before any such policy or policies shall be altered or canceled, and that no act or default of any Credit Party or any Subsidiary of the Borrower or any other Person shall affect the rights of the Administrative Agent or the Lenders under such policy or policies; and (c) In case of any material loss, damage to or destruction of the Collateral of any Credit Party or any part thereof, such Credit Party shall promptly give written notice thereof to the Administrative Agent generally describing the nature and extent of such damage or destruction. In case of any loss, damage to or destruction of the Collateral of any Credit 78 Party or any part thereof, such Credit Party, whether or not the insurance proceeds, if any, received on account of such damage or destruction shall be sufficient for that purpose, at such Credit Party's cost and expense, will promptly repair or replace the Collateral of such Credit Party so lost, damaged or destroyed. Section 5.6 Inspection of Property; Books and Records; Discussions. Keep proper books and records of account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities; and permit, during regular business hours and upon reasonable notice by the Administrative Agent or any Lender, the Administrative Agent or any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records (other than materials protected by the attorney-client privilege and materials which the Borrower may not disclose without violation of a confidentiality obligation binding upon it) once a fiscal quarter or upon the occurrence and during the continuance of a Default or an Event of Default, and to discuss the business, operations, properties and financial and other condition of the Credit Parties and their Subsidiaries with officers and employees of the Credit Parties and their Subsidiaries and with its independent certified public accountants. The forgoing, with respect to the Lenders, shall be at such Lender's expense and, with respect to the Administrative Agent, shall be at the Borrower's expense. Section 5.7 Notices. Give notice in writing to the Administrative Agent (which shall promptly transmit such notice to each Lender) of: (a) promptly, but in any event within two (2) Business Days after any Credit Party knows thereof, the occurrence of any Default or Event of Default; (b) promptly, any default or event of default under any Contractual Obligation of any Credit Party or any of its Subsidiaries which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or involve a monetary claim in excess of $1,000,000; (c) promptly, any litigation, or any investigation or proceeding known to any Credit Party (i) affecting any Credit Party or any of its Subsidiaries which, if adversely determined, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or involve a monetary claim in excess of $1,000,000 or (ii) affecting or with respect to this Agreement or any other Credit Document; (d) as soon as possible and in any event within thirty (30) days after any Credit Party knows or has reason to know thereof: (i) the occurrence of any material Reportable Event with respect to any Single Employer Plan, a failure to make any required contribution to a Single Employer Plan, the creation of any Lien in favor of a Single Employer Plan or in favor of the PBGC with respect to a Single Employer Plan (other than a Permitted Lien) or any withdrawal from, or the termination, Reorganization 79 or Insolvency of, any Multiemployer Plan, which could reasonably be expected to result in any material liability for any Credit Party, or (ii) the institution of proceedings or the taking of any other action by the PBGC or any Credit Party or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan, which could reasonably be expected to result in any material liability for any Credit Party; (e) promptly, of the institution of any investigation or proceeding against any Credit Party to suspend, revoke or terminate or which may result in the termination of any Medicaid Provider Agreement, Medicaid Certification, Medicare Provider Agreement, Medicare Certification or exclusion from any Medical Reimbursement Program; (f) promptly, after any Credit Party becomes involved in a pending civil or criminal investigation, criminal action or civil proposed debarment, exclusion or other sanctioning action related to any Federal or state healthcare program; (g) promptly, any other development or event which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (h) promptly, any intention by the Borrower to treat the Loans and/or Letters of Credit and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form; and (i) promptly, the Borrower or any of its Subsidiaries (i) entering into a collective bargaining agreement or Multiemployer Plan covering the employees of the Borrower or any of its Subsidiaries, (ii) suffering any strike, walkout, work stoppage or other material labor difficulty or (iii) becoming aware of any material unfair labor practice compliant against the Borrower or any of its Subsidiaries before any Governmental Authority. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. In the case of any notice of a Default or Event of Default, the Borrower shall specify that such notice is a Default or Event of Default notice on the face thereof. Section 5.8 Environmental Laws. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable 80 Environmental Laws except to the extent that failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not reasonably be expected to have a Material Adverse Effect; and (c) Defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors and affiliates, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Credit Party or any of the Borrower's Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the Person seeking indemnification or any of its employees, agents, officers and directors and affiliates. The agreements in this paragraph shall survive repayment of the Notes and all other amounts payable hereunder. Section 5.9 Financial Covenants. Commencing on the day immediately following the Closing Date and for so long as this Agreement shall remain in effect, each of the Credit Parties shall, and shall cause each of its Subsidiaries to, comply with the following financial covenants: (a) Parent Leverage Ratio. The Parent Leverage Ratio, as of the last day of each fiscal quarter of the Parent and its Subsidiaries, shall be less than or equal to 2.25 to 1.0. (b) Borrower Leverage Ratio. The Borrower Leverage Ratio, as of the last day of each fiscal quarter of the Borrower and its Subsidiaries during the periods indicated below, shall be less than or equal to the following: 81 ----------------------------------------------------------------------- Period Ratio ------ ----- ----------------------------------------------------------------------- Closing Date through June 30, 2004 2.875 to 1.00 ----------------------------------------------------------------------- July 1, 2004 through December 30, 2004 2.75 to 1.00 ----------------------------------------------------------------------- December 31, 2004 through March 30, 2005 2.50 to 1.00 ----------------------------------------------------------------------- March 31, 2005 through September 29, 2005 2.375 to 1.00 ----------------------------------------------------------------------- September 30, 2005 through March 30, 2006 2.25 to 1.00 ----------------------------------------------------------------------- March 31, 2006 through March 30, 2007 2.00 to 1.00 ----------------------------------------------------------------------- March 31, 2007 through December 30, 2007 1.75 to 1.00 ----------------------------------------------------------------------- December 31, 2007 and thereafter 1.50 to 1.00 ----------------------------------------------------------------------- (c) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio, as of the last day of each fiscal quarter of the Borrower occurring during the periods indicated below, shall be greater than or equal to the following: Period Ratio ------ ----- Closing Date through March 30, 2006 1.10 to 1.0 March 31, 2006 through March 30, 2007 1.20 to 1.0 March 31, 2007 and thereafter 1.25 to 1.0 (d) Interest Coverage Ratio. The Interest Coverage Ratio, as of the last day of each fiscal quarter of the Borrower occurring during the periods indicated below, shall be greater than or equal to the following: Period Ratio ------ ----- Closing Date through September 29, 2005 4.00 to 1.0 September 30, 2005 and thereafter 5.00 to 1.0 Section 5.10 Additional Subsidiary Guarantors. The Borrower and its Subsidiary Guarantors will cause each of their U.S. Subsidiaries, whether newly formed, after acquired or otherwise existing, to promptly become a Guarantor hereunder by way of execution of a Joinder Agreement. The guaranty obligations of any such Additional Credit Party shall be secured by, among other things, the property and assets of the Additional Credit Party and such U.S. Subsidiary shall execute and deliver to the Administrative Agent such Security Documents, legal opinions and related documents as the Administrative Agent may reasonably request with respect to such property and assets. Section 5.11 Compliance with Law. The Borrower, the Parent and the Subsidiary Guarantors will, and will cause each of its Subsidiaries to, (a) comply with all expressly stated laws, rules, regulations, orders, restrictions and valid requirements imposed by all Governmental Authorities and regulatory authorities applicable to it, its property and assets and the conduct of its business if noncompliance with any such law, rule, regulation, order, restriction or requirement, including without limitation Titles XVIII and XIX of the Social Security Act, Medicare Regulations and Medicaid Regulations, 82 individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and (b) obtain and maintain all licenses, permits, certifications and approvals of all applicable Governmental Authorities as are required for the conduct of its business as currently conducted and herein contemplated, including without limitation professional licenses, appropriate Medicaid Certifications and Medicare Certifications, if failure to do so could have, individually or in the aggregate, a Material Adverse Effect. Specifically, but without limiting the foregoing, and except where any such failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (x) billing policies, arrangements, protocols and instructions will comply with reimbursement requirements under Medicare, Medicaid and other Medical Reimbursement Programs and will be administered by properly trained personnel; and (y) medical director compensation arrangements and other arrangements with referring physicians will comply with applicable state and federal self-referral and anti-kickback laws, including without limitation 42 U.S.C. Section 1320a-7b(b)(1) - (b)(2) and 42 U.S.C. Section 1395nn. Section 5.12 Pledged Assets. (a) The Borrower will, and will cause each of its Subsidiaries to, cause 100% of the outstanding Capital Stock of each of its direct or indirect Subsidiaries to be subject at all times to a first priority, perfected Lien in favor of the Administrative Agent pursuant to the terms and conditions of the Security Documents or such other security documents as the Administrative Agent shall reasonably request. (b) If, subsequent to the Closing Date, the Borrower or any Subsidiary Guarantor shall acquire any securities, instruments (except checks), chattel paper or other personal property required for perfection to be delivered to the Administrative Agent as Collateral hereunder or under any of the Security Documents, the Borrower or such Subsidiary Guarantor shall promptly (and in any event within three (3) Business Days) after such acquisition notify the Administrative Agent of same; provided that property the value of which, individually, is less than $50,000 and, in the aggregate, is less than $250,000 in any twelve-month period, shall not be required to be delivered until such time that all such property shall exceed $100,000 in the aggregate. Each of the Borrower and the Subsidiary Guarantors shall take such action at its own expense as may be necessary or otherwise requested by the Administrative Agent (including, without limitation, any of the actions described in Sections 4.1(e) and (f) hereof) to ensure that the Administrative Agent has a first priority perfected Lien to secure the Credit Party Obligations in (i) all personal property Collateral of the Borrower and the Subsidiary Guarantors and (ii) to the extent required by the Administrative Agent or the Required Lenders in its or their sole reasonable discretion, all real property owned by the Borrower and the Subsidiary Guarantors, subject in each case only to Permitted Liens. (c) If, subsequent to the Closing Date, the Borrower or any Subsidiary Guarantor leases a warehouse, plant or other real property material to the such Person's business, the Borrower or such Subsidiary Guarantor shall (i) promptly notify the Administrative Agent of such lease, (ii) to the extent required by the Administrative Agent and to the extent consented to by the relevant landlord or not prohibited under the 83 lease, promptly deliver to the Administrative Agent such Mortgage Instruments, title reports, Mortgage Policies, Surveys, environmental site assessment reports, legal opinions and other documentation as the Administrative Agent may require and (iii) use its reasonable best efforts to deliver to the Administrative Agent such estoppel letters, consents and waivers from the landlord on such real property as may be required by the Administrative Agent; provided, that the Borrower and the Subsidiary Guarantors shall not be required to expend any significant amount of money to obtain such consents. Section 5.13 Further Assurances. (a) Drop Down Date. If the Drop Down Date shall not have occurred on or prior to January 29, 2004, the Parent promptly will cause BV II and IOL to execute a full guaranty of the Credit Party Obligations and cause each of BV II and IOL to provide first-priority security interests in all of such Person's property and assets in favor of the Administrative Agent on behalf of the Lenders. If the Drop Down Date occurs on or prior to January 29, 2004, the BV II Limited Guaranty and Pledge Agreement shall be automatically terminated and no consent of the Administrative Agent or any Lender or action by BV II, the Administrative Agent or any Lender shall be required in connection therewith. (b) Mexican Security Documents. Within 30 days after the Closing Date (or such extended period of time as agreed to by the Administrative Agent), the Administrative Agent shall have received (i) a Joinder Agreement and the Mexican Security Documents, in each case executed by the Mexican Subsidiary, and (ii) such corporate documents and certificates, opinion of counsel and other documents (including, without limitation, one or more certificates evidencing the outstanding Capital Stock of the Mexican Subsidiary to the extent available and obtainable) as the Administrative Agent may reasonably request in connection with the foregoing. (c) New Jersey Opinion. If at any time (i) the Consolidated Borrower EBITDA attributable to Neomedics, Inc. shall exceed 5% of the total Consolidated Borrower EBITDA at such time or (ii) the fair market value of the assets of Neomedics, Inc. shall exceed 5% of the fair market value of the total assets of the Borrower and its Subsidiaries, then, within 30 days thereafter (or such extended period of time as agreed to by the Administrative Agent), the Administrative Agent shall have received such opinion of counsel with respect to Neomedics, Inc. as the Administrative Agent may reasonably request. (d) IP Matters. Within sixty (60) days after the Closing Date (or such extended period of time as agreed to by the Administrative Agent), the Borrower and the Subsidiary Guarantors shall have used commercially reasonable efforts to correct with the United States Patent and Trademark Office any chain of title issues with respect to its Intellectual Property and to file with the United States Patent and Trademark Offices any security interest terminations, in each case as may be reasonably requested by the Administrative Agent. 84 (e) Landlord Waiver. Within thirty (30) days after the Closing Date (or such extended period of time as agreed to by the Administrative Agent), the Borrower and the Subsidiary Guarantors shall have used commercially reasonable efforts to obtain a landlord waiver with respect to that certain leased property located in Vista, California on terms and conditions reasonably satisfactory to the Administrative Agent; provided that if the Administrative Agent determines that the cost of obtaining such waiver exceeds the value thereof, then such waiver shall no longer be required pursuant to this Section 5.13(e). ARTICLE VI NEGATIVE COVENANTS The Borrower and the Subsidiary Guarantors hereby covenant and agree and, with respect to Section 6.13, the Parent hereby covenants and agrees that on the Closing Date, and thereafter for so long as this Agreement is in effect and until the Commitments have terminated, no Note remains outstanding and unpaid and the Credit Party Obligations, together with interest, Commitment Fee and all other amounts owing to the Administrative Agent or any Lender hereunder, are paid in full that: Section 6.1 Indebtedness. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, contract, create, incur, assume or permit to exist any Indebtedness, except without duplication: (a) Indebtedness arising or existing under this Agreement and the other Credit Documents; (b) Indebtedness of the Borrower and its Subsidiaries existing as of the Closing Date as referenced in the financial statements referenced in Section 3.1 (and set out more specifically in Schedule 6.1(b)) hereto and renewals, refinancings or extensions thereof in a principal amount not in excess of that outstanding as of the date of such renewal, refinancing or extension; provided that the Borrower and the Subsidiary Guarantors party to the intercompany notes set forth on Schedule 6.1(b) hereby agree that the intercompany Indebtedness evidenced by such intercompany notes shall be subordinated to the Credit Party Obligations and that the Credit Party Obligations shall be paid in full prior to any payments being made on such intercompany notes, except as permitted by Section 6.10; (c) Indebtedness of the Borrower and its Subsidiaries incurred after the Closing Date consisting of Capital Leases or Indebtedness incurred to provide all or a portion of the purchase price or cost of construction of an asset; provided that (i) such Indebtedness when incurred shall not exceed the purchase price or cost of construction of such asset; (ii) no such Indebtedness shall be refinanced for a principal amount in excess 85 of the principal balance outstanding thereon at the time of such refinancing; and (iii) the total amount of all such Indebtedness shall not exceed $2,500,000 at any time outstanding; (d) Unsecured intercompany Subordinated Indebtedness among the Borrower and the Subsidiary Guarantors; (e) Indebtedness and obligations owing under Secured Hedging Agreements and other Hedging Agreements entered into in order to manage existing or anticipated interest rate or exchange rate risks and not for speculative purposes; (f) Indebtedness and obligations of the Borrower and its Subsidiaries owing under documentary letters of credit for the purchase of goods or other merchandise (but not under standby, direct pay or other letters of credit except for the Letters of Credit hereunder) generally; (g) The Parent Intercompany Loan, the Deferred Purchase Agreement and other unsecured Subordinated Indebtedness of the Borrower and its Subsidiaries, which other Subordinated Indebtedness does not exceed $10,000,000 in the aggregate at any time outstanding; (h) Guaranty Obligations in respect of Indebtedness of the Borrower and its Subsidiaries to the extent such Indebtedness is permitted to exist or be incurred pursuant to this Section 6.1; and (i) other Indebtedness of the Borrower and its Subsidiaries which does not exceed $1,000,000 in the aggregate at any time outstanding. Section 6.2 Liens. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any of its Subsidiaries to, contract, create, incur, assume or permit to exist any Lien with respect to any of its property or assets of any kind (whether real or personal, tangible or intangible), whether now owned or hereafter acquired, except for Permitted Liens. Section 6.3 Nature of Business. Each of the Credit Parties will not, nor will the Borrower or any Subsidiary Guarantor permit any Subsidiary to, alter the character of its business or any business activities reasonably related thereto in any material respect from that conducted as of the Closing Date. Section 6.4 Consolidation, Merger, Sale or Purchase of Assets, etc. Each of the Credit Parties (other than the Parent with respect to subclauses (a) and (b)(i) below) will not, nor will the Borrower or any Subsidiary Guarantor permit any Subsidiary to, 86 (a) dissolve, liquidate or wind up its affairs, sell, transfer, lease or otherwise dispose of its property or assets or agree to do so at a future time except the following, without duplication, shall be expressly permitted: (i) the sale, transfer, lease or other disposition of inventory and materials in the ordinary course of business; (ii) the sale, transfer or other disposition of cash and Cash Equivalents; (iii) (A) the disposition of property or assets as a direct result of a Recovery Event or (B) the sale, lease, transfer or other disposition of machinery, parts and equipment no longer used or useful in the conduct of the business of the Borrower or any of its Subsidiaries, so long as the net proceeds therefrom are used to replace such machinery, parts and equipment or to purchase or otherwise acquire new assets or property within 180 days of receipt of the net proceeds; (iv) the sale, lease or transfer of property or assets between or among the Borrower and the Subsidiary Guarantors; (v) the termination of any Hedging Agreement permitted pursuant to Section 6.1(e); (vi) the sale, lease or transfer of property or assets not to exceed $1,000,000 in the aggregate in any fiscal year; and (vii) liquidate or dissolve any Subsidiary that has no assets or that has sold, disposed of or otherwise transferred all of its assets to the Borrower or a Subsidiary Guarantor; provided, that, in the case of clauses (i), (ii), (iii) and (vi) above, at least 75% of the consideration received therefore by the Borrower or any other Credit Party is in the form of cash or Cash Equivalents; provided, further, that with respect to sales of assets permitted hereunder only, the Administrative Agent shall without the consent of the Required Lenders, release its Liens relating to the particular assets sold; or (b) (i) purchase, lease or otherwise acquire (in a single transaction or a series of related transactions) the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials, property and equipment in the ordinary course of business, except as otherwise limited or prohibited herein) or (ii) enter into any transaction of merger or consolidation, except for (A) consummation of the Acquisition, (B) investments or acquisitions permitted pursuant to Section 6.5, and (C) the merger or consolidation of a Credit Party (other than the Parent) with and into another Credit Party (other than the Parent); provided that (1) if the Borrower is a party thereto, the Borrower will be the surviving corporation and (2) the Administrative Agent's Liens with respect to 87 the Collateral of each Credit Party involved in such merger or consolidation shall remain continuously perfected. Section 6.5 Advances, Investments and Loans. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, make any Investment except for Permitted Investments. Section 6.6 Transactions with Affiliates. Except as permitted in subsection (e) of the definition of Permitted Investments, neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, enter into any transaction or series of transactions, whether or not in the ordinary course of business, with any officer, director, shareholder or Affiliate other than on terms and conditions substantially as favorable as would be obtainable in a comparable arm's-length transaction with a Person other than an officer, director, shareholder or Affiliate. Section 6.7 Ownership of Subsidiaries; Restrictions. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, create, form or acquire any Subsidiaries, except for U.S. Subsidiaries which are Credit Parties or which are joined as Additional Credit Parties in accordance with the terms hereof. Neither the Borrower nor any Subsidiary Guarantor will sell, transfer, pledge or otherwise dispose of any Capital Stock or other equity interests in any of its Subsidiaries, nor will it permit any of its Subsidiaries to issue, sell, transfer, pledge or otherwise dispose of any of their Capital Stock or other equity interests, except in a transaction permitted by Section 6.4. Section 6.8 Fiscal Year; Organizational Documents; Material Contracts; Subordinated Indebtedness Documents. Each of the Credit Parties will not, nor will the Borrower or any Subsidiary Guarantor permit any Subsidiary to, change its fiscal year or its accounting policies except as required by GAAP. Except as permitted pursuant to Section 5.4, each of the Credit Parties will not, nor will the Borrower or any Subsidiary Guarantor permit any Subsidiary to, amend, modify or change its articles of incorporation (or corporate charter or other similar organizational document) or bylaws (or other similar document) without the prior written consent of the Required Lenders. Each of the Credit Parties will not, nor will the Borrower or any Subsidiary Guarantor permit any Subsidiary to, without the prior written consent of the Administrative Agent, amend, modify, cancel or terminate or fail to renew or extend or permit the amendment, modification, cancellation or termination of any of the Material Contracts to the extent any amendment, modification, cancellation, termination or failure to renew or extend could reasonably be expected to have a Material Adverse Effect. Each of the Borrower and its Subsidiaries will not, without the prior written consent of the Required Lenders, amend, modify, waive or extend or permit the amendment, modification, waiver or extension of any Subordinated Indebtedness or of any documentation governing or evidencing such Subordinated Indebtedness in a manner that is adverse to the interests of the Lenders or the issuer of such Subordinated Indebtedness. 88 Section 6.9 Limitation on Restricted Actions. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Person to (a) pay dividends or make any other distributions to any Credit Party on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other obligation owed to any Credit Party, (c) make loans or advances to any Credit Party, (d) sell, lease or transfer any of its properties or assets to any Credit Party, or (e) act as a guarantor and pledge its assets pursuant to the Credit Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except (in respect of any of the matters referred to in clauses (a)-(d) above) for such encumbrances or restrictions existing under or by reason of (i) this Agreement and the other Credit Documents, (ii) applicable law, (iii) any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c); provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith, or (iv) any Permitted Lien or any document or instrument governing any Permitted Lien; provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien. Section 6.10 Restricted Payments. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, directly or indirectly, declare, order, make or set apart any sum for or pay any Restricted Payment except (a) to make dividends payable solely in the same class of Capital Stock of such Person, (b) to make dividends or other distributions (directly or indirectly through Subsidiaries) payable to any Credit Party other than the Parent, (c) to make payments in respect of the Kinesis Earnout in an aggregate amount not to exceed $1,200,000 so long as such payment is not to an Affiliate of the Credit Parties, (d) if the Borrower achieves a Borrower Leverage Ratio of 1.50 to 1.0 as of the end of any fiscal year, so long as (i) no Default or Event of Default has occurred and is continuing at the time of any such payment or would result therefrom and (ii) the Parent, the Borrower and the Borrower's Subsidiaries are in compliance with the financial covenants set forth in Section 5.9 after giving effect to any such payment on a Pro Forma Basis, the Borrower may make distributions to the Parent for purposes of repaying the principal amount of the Parent Intercompany Loan in an aggregate amount not to exceed (x) 25% of the Excess Cash Flow from the fiscal year then ending and (y) $35,561,835 over the term of this Credit Agreement; provided further that to the extent any such portion of Excess Cash Flow is distributed in the form of a dividend, there shall be no bankruptcy or insolvency of Orthofix International B.V. or either of the Limited Guarantors at the time of such dividend or reasonable expectation of bankruptcy or insolvency of Orthofix International B.V. or the Limited Guarantors at the time of such dividend, (e) so long as no Event of Default has occurred and is continuing or would result therefrom, to make payments on intercompany Subordinated Indebtedness permitted under Sections 6.1(b) and (d), (f) so long as no Event of Default has occurred and is continuing or would result therefrom, to make interest payments on intercompany Subordinated Indebtedness permitted under Section 6.1(g), (g) so long as (i) no Default or Event of Default has occurred and is continuing at the time of any such payment or would result therefrom and (ii) the Parent, the Borrower and the Borrower's Subsidiaries are in compliance with the financial covenants set forth in Section 5.9 89 after giving effect to any such payment on a Pro Forma Basis, to make interest payments on the Parent Intercompany Loan in an aggregate amount not to exceed 5% per annum, and (h) payments by Orthofix UK Ltd to the Borrower pursuant to the terms of the Deferred Purchase Agreement. Section 6.11 Sale Leasebacks. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, directly or indirectly become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which the Borrower, or any Subsidiary Guarantor or any Subsidiary has sold or transferred or is to sell or transfer to a Person which is not another Credit Party or Subsidiary thereof. Section 6.12 No Further Negative Pledges. Neither the Borrower nor any Subsidiary Guarantor will, nor will it permit any Subsidiary to, enter into, assume or become subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (a) pursuant to this Agreement and the other Credit Documents, (b) pursuant to any document or instrument governing Indebtedness incurred pursuant to Section 6.1(c), provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith and (c) in connection with any Permitted Lien or any document or instrument governing any Permitted Lien; provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien. Section 6.13 Secured Indebtedness of Parent. The Parent will not, nor will it permit any of its Subsidiaries (other than the Borrower and its Subsidiaries) to contract, create, incur, assume or permit to exist any secured Indebtedness in excess of $10,000,000 in the aggregate at any one time outstanding. Section 6.14 Orthofix II B.V. Prior to the Drop Down Date, BV II shall not incur any Indebtedness nor grant any Liens upon any of its properties or assets nor engage in any commercial operations other than owning 100% of the Capital Stock of IOL and a majority of the Capital Stock of Orthofix Holdings, pledging its interests therein to the Administrative Agent on behalf of the Lenders and providing the limited guaranty provided for in the BV Limited Guaranty and Pledge Agreement. Section 6.15 Levtech Inc. The Borrower will not undertake any measures to reinstate Levtech Inc., a subsidiary of the Borrower organized under the laws of Florida that has been administratively dissolved by the Department of State of the State of Florida, nor will the Borrower or its Subsidiaries use Levtech 90 Inc. or its name to conduct any business operations, including, without limitation, owning, leasing, holding or maintaining any assets, entering into any agreements or incurring any Indebtedness or other liabilities, other than in connection with its corporate dissolution and as permitted under Section 6.4(a)(vii). ARTICLE VII EVENTS OF DEFAULT Section 7.1 Events of Default. An Event of Default shall exist upon the occurrence of any of the following specified events (each an "Event of Default"): (a) The Borrower shall fail to pay any principal on any Loan when due in accordance with the terms thereof or hereof; or the Borrower shall fail to reimburse the Issuing Lender for any LOC Obligations when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or any fee or other amount payable hereunder when due in accordance with the terms thereof or hereof and such failure shall continue unremedied for three (3) Business Days (or any Guarantor shall fail to pay on the Guaranty in respect of any of the foregoing or in respect of any other Guaranty Obligations thereunder within the aforesaid period of time); or (b) Any representation or warranty made or deemed made herein or in any of the other Credit Documents or which is contained in any certificate, document or financial or other written statement furnished at any time under or in connection with this Agreement shall prove to have been incorrect, false or misleading in any material respect on or as of the date made or deemed made; or (c) (i) Any of the Parent, the Borrower or the Borrower's Subsidiaries shall fail to perform, comply with or observe any term, covenant or agreement applicable to it contained in Section 5.1(a) and (b), Section 5.2, Section 5.4, Section 5.7(a), Section 5.9 or Article VI hereof; or (ii) any Credit Party shall fail to comply with any other covenant, contained in this Credit Agreement or the other Credit Documents or any other agreement, document or instrument among any Credit Party, the Administrative Agent and the Lenders or executed by any Credit Party in favor of the Administrative Agent or the Lenders (other than as described in Sections 7.1(a), 7.1(b) or 7.1(c)(i) above), and in the event such breach or failure to comply is capable of cure, is not cured within thirty (30) days of its occurrence; or (d) Any of the Parent, the Borrower or the Borrower's Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than the Notes) in a principal amount outstanding of at least $1,000,000 in the aggregate for the Credit Parties and their Subsidiaries beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness was 91 created; (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness in a principal amount outstanding of at least $1,000,000 in the aggregate for the Parent, the Borrower and the Borrower's Subsidiaries or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity; or (iii) breach or default any Secured Hedging Agreement; or (e) (i) The Parent, Borrower, or any of the Borrower's Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, suspension of payment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator, administrator, administrative receiver, compulsory manager or other similar official for it or for all or any substantial part of its assets, or the Parent, the Borrower or any Subsidiary of the Borrower shall make a general assignment or arrangement for the benefit of any of its creditors; or (ii) there shall be commenced against any of the Parent, the Borrower or any of the Borrower's Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for, with respect to such proceeding or other action in a jurisdiction outside the United States, a period of fifteen (15) days and, with respect to such proceeding or other action in a United States jurisdiction, a period of forty-five (45) days; or (iii) there shall be commenced against any of the Parent, the Borrower or the Borrower's Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within, with respect to such case, proceeding or other action in a jurisdiction outside the United States, fifteen (15) days from the entry thereof and, with respect such case, proceeding or other action in a United States jurisdiction, thirty (30) days from the entry thereof; or (iv) any of the Parent, the Borrower or the Borrower's Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above; or (v) any of the Parent, the Borrower or the Borrower and its Subsidiaries taken as a whole shall fail to be Solvent; or (f) One or more judgments or decrees shall be entered against any of the Parent, the Borrower or the Subsidiary Guarantors involving in the aggregate a liability (to the extent not paid when due or covered by insurance) of $3,000,000 or more and all such judgments or decrees shall not have been paid and satisfied, vacated, discharged, stayed or bonded pending appeal within ten (10) days from the entry thereof; or 92 (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Single Employer Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Single Employer Plan or any Lien in favor of a Single Employer Plan or in favor of the PBGC with respect to a Single Employer Plan (other than a Permitted Lien) shall arise on the assets of any Credit Party or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a Trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, or (v) any Credit Party or any Commonly Controlled Entity shall incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, any Multiemployer Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) There shall occur a Change of Control; or (i) The Guaranty or any provision thereof shall cease to be in full force and effect or any Guarantor or any Person acting by or on behalf of any Guarantor shall deny or disaffirm any Guarantor's obligations under the Guaranty; or (j) (i) The IOL Limited Guaranty and Pledge Agreement or any provision thereof shall cease to be in full force and effect or IOL or any Person acting by or on behalf of IOL shall deny or disaffirm IOL's obligations under the IOL Limited Guaranty and Pledge Agreement, or (ii) the BV II Limited Guaranty and Pledge Agreement or any provision thereof shall cease to be in full force and effect or BV II or any Person acting by or on behalf of BV II shall deny or disaffirm BV II's obligations under the BV II Limited Guaranty and Pledge Agreement; or (k) Any other Credit Document shall fail to be in full force and effect or to give the Administrative Agent and/or the Lenders the security interests, liens, rights, powers and privileges purported to be created thereby (except as such documents may be terminated or no longer in force and effect in accordance with the terms thereof, other than those indemnities and provisions which by their terms shall survive); or (l) Any default (which is not waived or cured within the applicable period of grace) or event of default shall occur under any of document governing or evidencing any Subordinated Indebtedness or the subordination provisions contained therein shall cease to be in full force and effect or to give the Administrative Agent and the Lenders the rights, powers and privileges purported to be created thereby; or 93 (m) any Credit Party shall be temporarily or permanently excluded from, or have payments suspended under, (i) any Medicaid Provider Agreement, Medicaid Certification, Medicare Provider Agreement or Medicare Certification or (ii) any Medical Reimbursement Program, where such exclusion or suspension arises from fraud or other claims or allegations which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 7.2 Acceleration; Remedies. Upon the occurrence of an Event of Default, then, and in any such event, (a) if such event is an Event of Default specified in Section 7.1(e) above with respect to the Parent, the Borrower or any material Subsidiary of the Borrower, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon), and all other amounts under the Credit Documents (including without limitation the maximum amount of all contingent liabilities under Letters of Credit) shall immediately become due and payable, and (b) if such event is any other Event of Default, any or all of the following actions may be taken: (i) with the written consent of the Required Lenders, the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, by notice of default to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith and direct the Borrower to pay to the Administrative Agent cash collateral as security for the LOC Obligations for subsequent drawings under then outstanding Letters of Credit in an amount equal to the maximum amount of which may be drawn under Letters of Credit then outstanding, whereupon the same shall immediately become due and payable; (iii) exercise any rights or remedies of the Administrative Agent or the Lenders under this Agreement or any other Credit Document, including, without limitation, any rights or remedies with respect to the Collateral; and (iv) exercise any rights or remedies available to the Administrative Agent or Lenders under applicable law. ARTICLE VIII THE AGENT Section 8.1 Appointment. Each Lender hereby irrevocably designates and appoints Wachovia Bank, National Association as the Administrative Agent of such Lender under this Agreement, and each such Lender irrevocably authorizes Wachovia Bank, National Association, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those 94 expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. Section 8.2 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Without limiting the foregoing, but subject to the provisions of Section 8.3, the Administrative Agent may appoint one of its affiliates as its agent to perform the functions of the Administrative Agent hereunder relating to the advancing of funds to the Borrower and distribution of funds to the Lenders and to perform such other related functions of the Administrative Agent hereunder as are reasonably incidental to such functions. Section 8.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any of the Credit Documents or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance by the Borrower of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower and its Subsidiaries. Section 8.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it in good faith to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to any Credit Party), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless (a) a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent and (b) the Administrative Agent shall have received the written agreement of such assignee to be bound hereby as fully and to the same extent as if such assignee were an original Lender party hereto, in each case in form satisfactory to the Administrative Agent. The Administrative Agent shall be fully justified in 95 failing or refusing to take any action under this Agreement unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under any of the Credit Documents in accordance with a request of the Required Lenders or all of the Lenders, as may be required under this Agreement, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. Section 8.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders except to the extent that this Credit Agreement expressly requires that such action be taken, or not taken, only with the consent or upon the authorization of the Required Lenders, or all of the Lenders, as the case may be. Section 8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness 96 of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. Section 8.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity hereunder (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of any Credit Document or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the Agent's gross negligence or willful misconduct, as determined by a court of competent jurisdiction. The agreements in this Section 8.7 shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder. Section 8.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. Section 8.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon thirty (30) days' prior notice to the Borrower and the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the Notes, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Borrower, whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Administrative Agent, the provisions of this Section 8.9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 97 Section 8.10 Other Agents. None of the Lenders or other Persons identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "co-agent," "book manager," "book runner," "lead manager," "arranger," "lead arranger" or "co-arranger" shall have any right (except as expressly set forth herein), power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Credit Agreement or in taking or not taking action hereunder. ARTICLE IX MISCELLANEOUS Section 9.1 Amendments, Waivers and Release of Collateral. Neither this Agreement, nor any of the other Credit Documents, nor any terms hereof or thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this Section. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into with the Credit Parties written amendments, supplements or modifications hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the rights of the Lenders or of the Credit Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders may specify in such instrument, any of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, waiver, supplement, modification or release shall: (i) (A) reduce the amount or extend the scheduled date of maturity of any Loan or Note or any installment thereon; (B) reduce the stated rate of any interest or fee payable hereunder (except in connection with a waiver of interest at the increased post-default rate set forth in Section 2.9 which shall be determined by a vote of the Required Lenders) or extend the scheduled date of any payment thereof; (C) modify the definition of Interest Period so as to permit Interest Periods greater than 6 months without regard to the availability of such longer Interest Periods to each Lender; or (D) increase the amount or extend the expiration date of any Lender's Commitment, in each case without the written consent of each Lender directly affected thereby; provided that, it is understood and agreed that no waiver, reduction or deferral of a mandatory prepayment required pursuant to Section 2.7(b), nor any amendment of Section 2.7(b) or the definitions of Asset Disposition, Debt Issuance, Equity Issuance, Excess Cash Flow, or Recovery 98 Event, shall constitute a reduction of the amount of, or an extension of the scheduled date of, any principal installment of any Loan or Note; or (ii) amend, modify or waive any provision of this Section 9.1 or reduce the percentage specified in the definition of Required Lenders, without the written consent of all the Lenders; or (iii) amend, modify or waive any provision of Article VIII without the written consent of the then Administrative Agent; or (iv) release the Borrower or all or substantially all of the Guarantors from its or their obligations hereunder or under the Guaranty, without the written consent of all of the Lenders and each Hedging Agreement Provider; or (v) release all or substantially all of the Collateral without the written consent of all of the Lenders and each Hedging Agreement Provider; or (vi) permit the Borrower to assign or transfer any of its rights or obligations under this Credit Agreement or other Credit Documents; or (vii) amend, modify or waive any provision of the Credit Documents requiring consent, approval or request of the Required Lenders or all Lenders without the written consent of the Required Lenders or of all Lenders as appropriate; or (viii) amend or modify the definition of Credit Party Obligations to delete or exclude any obligation or liability described therein without the written consent of each Lender and each Hedging Agreement Provider directly affected thereby; or (ix) amend, modify or waive the order in which Credit Party Obligations are paid in Section 2.12(b) without the written consent of each Lender and each Hedging Agreement Provider directly affected thereby; or (x) without the consent of Revolving Lenders holding in the aggregate more than 50% of the outstanding Revolving Commitments (or if the Revolving Commitments have been terminated, the outstanding Revolving Loans), amend, modify or waive Section 4.2 or waive any Default or Event of Default (or amend any Credit Document to effectively waive any Default or Event of Default) if the effect of such waiver is that the Revolving Lenders shall be required to continue to make Revolving Loans; provided, further, that no amendment, waiver or consent affecting the rights or duties of the Administrative Agent, the Issuing Lender or the Swingline Lender under any Credit Document shall in any event be effective, unless in writing and signed by the Administrative Agent, the 99 Issuing Lender and/or the Swingline Lender, as applicable, in addition to the Lenders required hereinabove to take such action. Any such waiver, any such amendment, supplement or modification and any such release shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Credit Parties, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the other Credit Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans and Notes and other Credit Documents, and any Default or Event of Default permanently waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Notwithstanding any of the foregoing to the contrary, the consent of the Borrower shall not be required for any amendment, modification or waiver of the provisions of Article VIII (other than the provisions of Section 8.9); provided, however, that the Administrative Agent will provide written notice to the Borrower of any such amendment, modification or waiver. In addition, the Borrower and the Lenders hereby authorize the Administrative Agent to modify this Credit Agreement by unilaterally amending or supplementing Schedule 2.1(a) from time to time in the manner requested by the Borrower, the Administrative Agent or any Lender in order to reflect any assignments or transfers of the Loans as provided for hereunder; provided further, however, that the Administrative Agent shall promptly deliver a copy of any such modification to the Borrower and each Lender. Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein and (y) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding. Section 9.2 Notices. Except as otherwise provided in Article II, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy or other electronic communication with confirmed receipt from the recipient), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) when delivered by hand, (b) when transmitted via telecopy (or other electronic communication device with confirmed receipt from the recipient) to the number set out herein, (c) the day following the day on which the same has been delivered prepaid (or pursuant to an invoice arrangement) to a reputable national overnight air courier service, or (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid, in each case addressed as follows in the case of the Borrower, the other Credit Parties and the Administrative Agent, and as set forth on Schedule 9.2 in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: 100 The Borrower Colgate Medical Ltd and the other The Storrs Building, Suite 250 Credit Parties: 10115 Kincey Avenue Huntersville Business Park Huntersville, NC 28078 Attention: Thomas Hein Telecopier: 704 948 2691 Telephone: 704 948 2635 The Administrative Wachovia Bank, National Association, as Administrative Agent Agent: Charlotte Plaza 201 South College Street NC0680/CP8 Charlotte, North Carolina 28288-0680 Attention: Syndication Agency Services Telecopier: (704) 383-0288 Telephone: (704) 715-1093 with a copy to: Wachovia Bank, National Association One Wachovia Center 301 South College Street NC0760/DC5 Charlotte, North Carolina 28288-0737 Attention: Scott Santa Cruz Telecopier: (704) 383-7611 Telephone: (704) 383-1988 Section 9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. Section 9.4 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans; provided that all such representations and warranties shall terminate on the date upon which the Commitments have been terminated, no Credit Document remains in effect and all Credit Party Obligations have been paid in full. 101 Section 9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the Administrative Agent and the Arranger for all their reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, negotiation, printing and execution of, and any amendment, supplement or modification to, this Agreement and the other Credit Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, together with the reasonable fees and disbursements of counsel to the Administrative Agent and the Arranger, (b) to pay or reimburse the Administrative Agent and, if an Event of Default shall have occurred and is continuing, each Lender for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and the other Credit Documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and to the Lenders (including reasonable allocated costs of in-house legal counsel), and (c) on demand, to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Credit Documents and any such other documents, except for such recording and filing fees and any and all stamp, excise and other similar taxes payable in connection with any transfer under Section 9.6 of this Agreement, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their Affiliates harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of the Credit Documents and any such other documents and the use, or proposed use, of proceeds of the Loans (all of the foregoing, collectively, the "indemnified liabilities"); provided, however, that the Borrower shall not have any obligation hereunder to the Administrative Agent or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent or any such Lender, as determined by a court of competent jurisdiction pursuant to a final non-appealable judgment. The agreements in this Section 9.5 shall survive repayment of the Loans, Notes and all other Credit Party Obligations. Section 9.6 Successors and Assigns; Participations; Purchasing Lenders. (a) This Agreement shall be binding upon and inure to the benefit of the Credit Parties, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement or the other Credit Documents without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities 102 ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Commitment of such Lender, or any other interest of such Lender hereunder. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Note for all purposes under this Agreement, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. No Lender shall transfer or grant any participation under which the Participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the scheduled maturity of any Loan or Note or any installment thereon in which such Participant is participating, or reduce the stated rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of interest at the increased post-default rate) or reduce the principal amount thereof, or increase the amount of the Participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without consent of any participant if the Participant's participation is not increased as a result thereof), (ii) release all or substantially all of the Guarantors from their obligations under the Guaranty, (iii) release all or substantially all of the Collateral, or (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. In the case of any such participation, the Participant shall not have any rights under this Agreement or any of the other Credit Documents (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the Participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation; provided that each Participant shall be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided further, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. If an Initial Lender that receives gross-up withholding tax payments from the Borrower pursuant to Section 2.18(c) sells participating interests to a Participant that is not a Qualified Lender in accordance with the terms of this Section, such Initial Lender shall promptly notify the Administrative Agent and the Borrower of such participation amount and such gross-up withholding tax payments shall thereafter be reduced an amount corresponding to the percentage of such Initial Lender's total outstanding Loans that are subject to such participation. (c) Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time, with the consent of the Administrative Agent and, so long as (i) no Default then exists that has not been cured within fifteen (15) days after the occurrence thereof and (ii) no Event of Default has occurred and is continuing, the Borrower (in each case, which consent shall not be unreasonably withheld or delayed), 103 sell or assign to one or more additional banks or financial institutions or entities (each, a "Purchasing Lender"), all or any part of its rights and obligations under this Agreement and the Notes in minimum amounts of (A) $2,000,000 with respect to its Revolving Commitment or its Revolving Loans and (B) $1,000,000 with respect to its Term Loan (or, if less, the entire amount of such Lender's obligations), pursuant to a Commitment Transfer Supplement, executed by such Purchasing Lender and such transferor Lender (and, to the extent required above, the Administrative Agent and the Borrower), and delivered to the Administrative Agent for its acceptance and recording in the Register; provided, however, that (1) any sale or assignment to an Initial Lender of its initial Commitment in connection with the closing of this Agreement shall not require the consent of the Administrative Agent or the Borrower, (2) any sale or assignment to an existing Lender or any Affiliate or Related Fund thereof shall not require the consent of the Administrative Agent or the Borrower to the extent such Person is a Qualified Lender, (3) any sale or assignment to an existing Lender or any Affiliate or Related Fund thereof that is not a Qualified Lender shall not require the consent of the Administrative Agent or the Borrower to the extent the assigning Lender is not a Qualified Lender and (4) any sale or assignment to an existing Lender or any Affiliate or Related Fund thereof shall not be subject to the minimum assignment amounts specified herein. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date specified in such Commitment Transfer Supplement, (x) the Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Lender's rights and obligations under this Agreement, such transferor Lender shall cease to be a party hereto; provided, however, that such Lender shall still be entitled to any indemnification rights that expressly survive hereunder). Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Notes. On or prior to the Transfer Effective Date specified in such Commitment Transfer Supplement, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the Notes delivered to the Administrative Agent pursuant to such Commitment Transfer Supplement new Notes to the order of such Purchasing Lender in an amount equal to the Commitment assumed by it pursuant to such Commitment Transfer Supplement and, unless the transferor Lender has not retained a Commitment hereunder, new Notes to the order of the transferor Lender in an amount equal to the Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. The Notes surrendered by the transferor Lender shall be returned by the Administrative Agent to the Borrower marked "canceled". 104 (d) The Administrative Agent shall maintain at its address referred to in Section 9.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly executed Commitment Transfer Supplement, together with payment to the Administrative Agent by the transferor Lender or the Purchasing Lender, as agreed between them, of a registration and processing fee of $3,500.00 for each Purchasing Lender listed in such Commitment Transfer Supplement (provided that in the case of simultaneous assignments on the same day by or to more than one fund or trust or entity that invests in commercial bank loans in the ordinary course of business that is managed or advised by the same investment adviser, only a single $3,500 registration and processing fee shall be payable for all such assignments) and the Notes subject to such Commitment Transfer Supplement, the Administrative Agent shall (i) accept such Commitment Transfer Supplement, (ii) record the information contained therein in the Register and (iii) give prompt notice of such acceptance and recordation to the Lenders and the Borrower. (f) The Borrower authorizes each Lender to disclose to any pledgee pursuant to subsection (i) below, any Participant or any Purchasing Lender (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Subsidiaries prior to becoming a party to this Agreement, in each case subject to Section 9.16. (g) At the time of each assignment pursuant to this Section 9.6 to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms described in Section 2.18. (h) At the time of each assignment pursuant to this Section 9.6 (other than assignments to Eligible UK Lenders), the respective assignee Lender shall (i) comply with the terms of Section 2.18(c), including the completion of appropriate forms and lodging them with the relevant tax authority and providing such assistance as the Borrower may reasonably request in order to establish an entitlement to treaty relief and (ii) unless such assignee Lender is an initial Lender and such assignment is the assignment to such Initial Lender of its initial Commitment in connection with the 105 closing of this Agreement, confirm in the Commitment Transfer Supplement whether, to the best of its knowledge, it is or is not a Qualified Lender. (i) Nothing herein shall prohibit any Lender from pledging or assigning any of its rights under this Credit Agreement (including, without limitation, any right to payment of principal and interest under any Note) to secure obligations of such Lender, including without limitation, (i) any pledge or assignment to secure obligations to a Federal Reserve Bank and (ii) in the case of any Lender that is a fund or trust or entity that invests in commercial bank loans in the ordinary course of business, any pledge or assignment to any holders of obligations owed, or securities issued, by such Lender including to any trustee for, or any other representative of, such holders; it being understood that the requirements for assignments set forth in this Section 9.6 shall not apply to any such pledge or assignment of a security interest, except with respect to any foreclosure or similar action taken by such pledgee or assignee with respect to such pledge or assignment; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto and no such pledgee or assignee shall have any voting rights under this Credit Agreement unless and until the requirements for assignments set forth in this Section 9.6 are complied with in connection with any foreclosure or similar action taken by such pledgee or assignee. Section 9.7 Adjustments; Set-off. (a) Each Lender agrees that if any Lender (a "benefited Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7.1(e), or otherwise) in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such benefited Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender's Loans may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law (including, without limitation, other rights of set-off), each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, in the event that all amount's under the Credit Agreement shall have become immediately due and payable pursuant to 106 Section 7.2, to setoff and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held by or owing to such Lender or any branch or agency thereof to or for the credit or the account of the Borrower or any other Credit Party, or any part thereof in such amounts as such Lender may elect, against and on account of the Loans and other Credit Party Obligations of the Borrower and the other Credit Parties to such Lender hereunder and claims of every nature and description of such Lender against the Borrower and the other Credit Parties, in any currency, whether arising hereunder, under any other Credit Document or any Secured Hedging Agreement provided by such Lender pursuant to the terms of this Agreement, as such Lender may elect, whether or not such Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The aforesaid right of set-off may be exercised by such Lender against the Borrower, any other Credit Party or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or attachment creditor of the Borrower or any other Credit Party, or against anyone else claiming through or against the Borrower, any other Credit Party or any such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the occurrence of any Event of Default. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. Section 9.8 Table of Contents and Section Headings. The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this Agreement. Section 9.9 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same agreement. Section 9.10 Effectiveness. This Credit Agreement shall become effective on the date on which all of the parties have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent pursuant to Section 9.2 or, in the case of the Lenders, shall have given to the Administrative Agent written, telecopied or other electronic notice with confirmed receipt from the recipient at such office that the same has been signed and mailed to it. 107 Section 9.11 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 9.12 Integration. This Agreement and the other Credit Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Borrower or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. Section 9.13 Governing Law. This Agreement and the other Credit Documents (other than the UK Collateral Documents) and the rights and obligations of the parties under this Agreement and the other Credit Documents (other than the UK Collateral Documents) shall be governed by, and construed and interpreted in accordance with, the law of the State of New York. Section 9.14 Consent to Jurisdiction and Service of Process. All judicial proceedings brought against any party hereto with respect to this Agreement, any Note or any of the other Credit Documents may be brought in any state or federal court of competent jurisdiction in the State of New York, and, by execution and delivery of this Agreement, each of such parties accepts, for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and irrevocably agrees to be bound by any final judgment rendered thereby in connection with this Agreement, any Note or any other Credit Document from which no appeal has been taken or is available. The parties hereto irrevocably agree that all service of process in any such proceedings in any such court may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address set forth in Section 9.2 or at such other address of which the Administrative Agent or the Borrower shall have been notified pursuant thereto, such service being hereby acknowledged by the parties hereto to be effective and binding service in every respect. Each of the parties hereto irrevocably waives any objection, including, without limitation, any objection to the laying of venue based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any such action or proceeding in any such jurisdiction. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of any party to bring proceedings against any other party in the court of any other jurisdiction. 108 Section 9.15 Confidentiality. The Administrative Agent and each of the Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, affiliates, auditors or counsel or to another Lender) any information with respect to the Credit Parties and their Subsidiaries which is furnished pursuant to this Agreement, any other Credit Document or any documents contemplated by or referred to herein or therein and which is designated by the Borrower to the Lenders in writing as confidential or as to which it is otherwise reasonably clear such information is not public, except that any Lender may disclose any such information (a) as has become generally available to the public other than by a breach of this Section 9.16, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or federal regulatory body having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or the OCC or the NAIC or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or any law, order, regulation or ruling applicable to such Lender, (d) to any prospective Participant or assignee in connection with any contemplated transfer pursuant to Section 9.6; provided that such prospective transferee shall have agreed to be bound by the confidentiality provisions set forth in this Section, (e) to any actual or prospective counterparty (or its advisors) to any Hedging Agreement relating to a Credit Party and its obligations; provided that such prospective transferee shall have agreed to be bound by the confidentiality provisions set forth in this Section, (f) to Gold Sheets and other similar bank trade publications, such information to consist of deal terms and other information regarding the credit facilities evidenced by this Credit Agreement customarily found in such publications or (g) in connection with any suit, action or proceeding for the purpose of defending itself, reducing its liability, or protecting or exercising any of its claims, rights, remedies or interests under or in connection with the Credit Documents or any Secured Hedging Agreement. Notwithstanding anything herein to the contrary, the Administrative Agent and each Lender may disclose to any and all Persons, without limitation of any kind, any information with respect to the "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Administrative Agent or such Lender relating to such tax treatment and tax structure; provided that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the Loans, Letters of Credit and transactions contemplated hereby. Section 9.16 Acknowledgments. The Borrower and the other Credit Parties each hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of each Credit Document; 109 (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower or any other Credit Party arising out of or in connection with this Agreement and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower and the other Credit Parties, on the other hand, in connection herewith is solely that of debtor and creditor; and (c) no joint venture exists among the Lenders or among the Borrower or the other Credit Parties and the Lenders. Section 9.17 Waivers of Jury Trial. THE BORROWER, THE OTHER CREDIT PARTIES, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. Section 9.18 Patriot Act Notice. Each Lender and the Administrative Agent (for itself and not on behalf of any other party) hereby notifies the Borrower that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56, signed into law October 26, 2001 (the "Patriot Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act. ARTICLE X GUARANTY Section 10.1 The Guaranty. In order to induce the Lenders to enter into this Credit Agreement and any Hedging Agreement Provider to enter into any Secured Hedging Agreement and to extend credit hereunder and thereunder and in recognition of the direct benefits to be received by the Guarantors from the Extensions of Credit hereunder and any Secured Hedging Agreement, each of the Guarantors hereby agrees with the Administrative Agent and the Lenders as follows: the Guarantor hereby unconditionally and irrevocably jointly and severally guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all indebtedness of the Borrower owed to the Administrative Agent, the Lenders and the Hedging Agreement Providers. If any or all of the indebtedness becomes due and payable hereunder or under any Secured Hedging Agreement, each Guarantor unconditionally promises to pay such indebtedness to the Administrative Agent, the Lenders, the Hedging Agreement Providers, or their respective order, or demand, together with any and all reasonable expenses which may be incurred by the Administrative Agent, the 110 Lenders or the Hedging Agreement Providers in collecting any of the Credit Party Obligations. The word "indebtedness" is used in this Article X in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of the Borrower and the Guarantors, including specifically all Credit Party Obligations, arising in connection with this Credit Agreement, the other Credit Documents or any Secured Hedging Agreement, in each case, heretofore, now, or hereafter made, incurred or created, whether voluntarily or involuntarily, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether or not such indebtedness is from time to time reduced, or extinguished and thereafter increased or incurred, whether the Borrower and the Guarantors may be liable individually or jointly with others, whether or not recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether or not such indebtedness may be or hereafter become otherwise unenforceable. Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable law relating to fraudulent conveyances or transfers) then the obligations of each such Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (including, without limitation, the Bankruptcy Code or its non-U.S. equivalent). Section 10.2 Bankruptcy. Additionally, each of the Guarantors unconditionally and irrevocably guarantees jointly and severally the payment of any and all Credit Party Obligations of the Borrower to the Lenders and any Hedging Agreement Provider whether or not due or payable by the Borrower upon the occurrence of any of the events specified in Section 7.1(e) as applicable to the Parent, the Borrower or any material Subsidiaries of the Borrower, and unconditionally promises to pay such Credit Party Obligations to the Administrative Agent for the account of the Lenders and to any such Hedging Agreement Provider, or order, on demand, in lawful money of the United States. Each of the Guarantors further agrees that to the extent that the Borrower or a Guarantor shall make a payment or a transfer of an interest in any property to the Administrative Agent, any Lender or any Hedging Agreement Provider, which payment or transfer or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise is avoided, and/or required to be repaid to the Borrower or a Guarantor, the estate of the Borrower or a Guarantor, a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or other applicable law or equitable cause, then to the extent of such avoidance or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made. Section 10.3 Nature of Liability. The liability of each Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Credit Party Obligations of the Borrower whether executed by any such Guarantor, any other guarantor or by any other party, and no Guarantor's liability hereunder shall be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum 111 liability of a guarantor or of any other party as to the Credit Party Obligations of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Administrative Agent, the Lenders or any Hedging Agreement Provider on the Credit Party Obligations that the Administrative Agent, such Lenders or such Hedging Agreement Provider repay the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each of the Guarantors waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding. Section 10.4 Independent Obligation. The obligations of each Guarantor hereunder are independent of the obligations of any other guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other guarantor or the Borrower and whether or not any other Guarantor or the Borrower is joined in any such action or actions. Section 10.5 Authorization. Each of the Guarantors authorizes the Administrative Agent, each Lender and each Hedging Agreement Provider without notice or demand (except as shall be required by applicable law and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Credit Party Obligations or any part thereof in accordance with this Agreement and any Secured Hedging Agreement, as applicable, including any increase or decrease of the rate of interest thereon, (b) take and hold security from any Guarantor or any other party for the payment of this Guaranty or the Credit Party Obligations and exchange, enforce waive and release any such security, (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent and the Lenders in their discretion may determine and (d) release or substitute any one or more endorsers, Guarantors, the Borrower or other obligors. Section 10.6 Reliance. It is not necessary for the Administrative Agent, the Lenders or any Hedging Agreement Providers to inquire into the capacity or powers of the Borrower or the officers, directors, members, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. Section 10.7 Waiver. (a) Each of the Guarantors waives any right (except as shall be required by applicable law and cannot be waived) to require the Administrative Agent, any Lender or any Hedging Agreement Provider to (i) proceed against the Borrower, any other guarantor or any other party, (ii) proceed against or exhaust any security held from the 112 Borrower, any other guarantor or any other party, or (iii) pursue any other remedy in the Administrative Agent's, any Lender's or any Hedging Agreement Provider's power whatsoever. Each of the Guarantors waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party other than payment in full of the Credit Party Obligations, including without limitation any defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the Credit Party Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of the Credit Party Obligations. The Administrative Agent or any of the Lenders may, at their election, foreclose on any security held by the Administrative Agent or a Lender by one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable (to the extent such sale is permitted by applicable law), or exercise any other right or remedy the Administrative Agent and any Lender may have against the Borrower or any other party, or any security, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Credit Party Obligations have been paid in full. Each of the Guarantors, to the extent permitted by law, waives any defense arising out of any such election by the Administrative Agent and each of the Lenders, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantors against the Borrower or any other party or any security. (b) Each of the Guarantors waives all presentments, demands for performance, protests and notices, including without limitation notices of nonperformance, notice of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Credit Party Obligations. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Credit Party Obligations and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that neither the Administrative Agent nor any Lender shall have any duty to advise such Guarantor of information known to it regarding such circumstances or risks. (c) Each of the Guarantors hereby agrees it will not exercise any rights of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the U.S. Bankruptcy Code, or otherwise) to the claims of the Lenders or the Hedging Agreement Provider against the Borrower or any other guarantor of the Credit Party Obligations of the Borrower owing to the Lenders or such Hedging Agreement Provider (collectively, the "Other Parties") and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party which it may at any time otherwise have as a result of this Guaranty until such time as the Credit Party Obligations shall have been paid in full, no Credit Document or Secured Hedging Agreement remains in effect and the Commitments have been terminated. Each of the Guarantors hereby further agrees not to exercise any right to enforce any other remedy which the Administrative Agent, the Lenders or any Hedging Agreement Provider now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Credit Party Obligations of 113 the Borrower and any benefit of, and any right to participate in, any security or collateral given to or for the benefit of the Lenders and/or the Hedging Agreement Providers to secure payment of the Credit Party Obligations of the Borrower until such time as the Credit Party Obligations shall have been paid in full, no Credit Document or Secured Hedging Agreement remains in effect and the Commitments have been terminated. Section 10.8 Limitation on Enforcement. The Lenders and the Hedging Agreement Providers agree that this Guaranty may be enforced only by the action of the Administrative Agent acting upon the instructions of the Required Lenders or any such Hedging Agreement Provider (only with respect to obligations under the applicable Secured Hedging Agreement) and that no Lender or Hedging Agreement Provider shall have any right individually to seek to enforce or to enforce this Guaranty, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent for the benefit of the Lenders under the terms of this Credit Agreement and for the benefit of any Hedging Agreement Provider under any Secured Hedging Agreement. The Lenders and the Hedging Agreement Providers further agree that this Guaranty may not be enforced against any director, officer, employee or stockholder of the Guarantors. Section 10.9 Confirmation of Payment. The Administrative Agent and the Lenders will, upon request after payment of the Credit Party Obligations under the Credit Documents which are the subject of this Guaranty and termination of the Commitments relating thereto, confirm to the Borrower, the Guarantors or any other Person that the Credit Party Obligations under the Credit Documents have been paid in full and the Commitments relating thereto terminated, subject to the provisions of Section 10.2. 114 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its proper and duly authorized officers as of the day and year first above written. BORROWER: COLGATE MEDICAL LTD, a company formed under the laws of England and Wales By: /s/ G.H. MOULD --------------------------------------------- Name: G.H. Mould Title: Director [Signature Pages Continue] GUARANTORS: ORTHOFIX INTERNATIONAL N.V., a Netherlands Antilles corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Chief Financial Officer [Signature Pages Continue] ORTHOFIX HOLDINGS, INC., a Delaware Corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Secretary [Signature Pages Continue] ORTHOFIX INC., a Minnesota corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Chief Financial Officer [Signature Pages Continue] BREG, INC., a California corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Asst. Secretary [Signature Pages Continue] ORTHOFIX UK LTD, a company formed under the laws of England and Wales By: /s/ G.H. MOULD --------------------------------------------- Name: G.H. Mould Title: Director [Signature Pages Continue] ORTHOFIX US LLC, a Delaware limited liability company By: ORTHOFIX UK LTD, Sole Member By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Secretary [Signature Pages Continue] AMEI TECHNOLOGIES INC., a Delaware corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Assistant Secretary [Signature Pages Continue] NEOMEDICS, INC., a New Jersey corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Assistant Secretary [Signature Pages Continue] OSTEOGENICS INC., a Delaware corporation By: /s/ THOMAS HEIN --------------------------------------------- Name: Thomas Hein Title: Assistant Secretary [Signature Pages Continue] ADMINISTRATIVE AGENT AND LENDERS: WACHOVIA BANK, NATIONAL ASSOCIATION, as Administrative Agent and as a Lender By: /s/ SCOTT SANTA CRUZ --------------------------------------------- Name: Scott Santa Cruz Title: Director [Signature Pages Continue] BANK OF AMERICA, N.A., as a Lender By: /s/ JOHN L. MERCURI --------------------------------------------- Name: John L. Mercuri Title: Senior Vice President [Signature Pages Continue] ALLIED IRISH BANKS, P.L.C., as a Lender By: /s/ RIMA TERRADISTA --------------------------------------------- Name: Rima Terradista Title: Senior Vice President By: /s/ JOSEPH S. AUGUSTINI --------------------------------------------- Name: Joseph S. Augustini Title: Vice President [Signature Pages Continue] GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By: /s/ EARL F. SMITH III --------------------------------------------- Name: Earl F. Smith III Title: Duly Authorized Signatory [Signature Pages End] EX-99.1 6 ex99-1_010604.txt PRESS RELEASE FOR IMMEDIATE RELEASE: For Further Information: Charles W. Federico, Group President & CEO Orthofix International N.V. 704-948-2600 Tom Hein, CFO Orthofix International N.V. 704-948-2600 Orthofix Completes Its Acquisition of BREG, Inc. "We have joined the ranks of the most influential and diversified orthopedic companies, competing in three key market sectors - spine, trauma and reconstruction. Our product lines surround the surgeon with preventive, preoperative, operating room, and postoperative products." Charles Federico, Group President and CEO Orthofix International, N.V. HUNTERSVILLE, N.C./VISTA, Calif., Dec. 31, 2003 - Orthofix (Nasdaq: OFIX) announced today it has completed its acquisition of privately held BREG, Inc., a market leader in the sale of orthopedic postoperative reconstruction and rehabilitative products to hospitals and orthopedic offices. The purchase price for the acquisition was approximately $159 million after closing adjustments and after valuing the Orthofix common stock issued in the transaction at current trading prices. The acquisition was financed with $110 million of debt, cash on hand, and the issuance of 731,715 shares of Orthofix common stock. The senior secured bank financing for the acquisition was arranged by Wachovia Securities, which also acted as Orthofix's financial advisor. "This acquisition represents a significant milestone in our strategy to strengthen and grow our franchises in the three key sectors in orthopedics: spine, reconstruction, and trauma," said Charles W. Federico, Group President and Chief Executive Officer of Orthofix. "This acquisition is a superb strategic fit and at the same time is expected to be accretive to Orthofix's revenues, cash flow and earnings growth in 2004 and beyond." The combined company is expected to generate approximately $292 million in total revenues in 2004, with earnings per share (EPS), subject to final purchase price allocation, of approximately $2.60 on a projected 15.6 million diluted shares (See Table 1, "Projected Post-Acquisition Combined Revenue by Sector"). For the 12-month period ended Sept. 30, 2003, BREG generated $58.3 million in revenues and $7.7 million in net income. "This acquisition presents Orthofix with numerous opportunities," Federico added. "First and perhaps foremost, it immediately diversifies our product lines, thereby diminishing our dependence on the success of any single product. Further, it rapidly creates new sales-channel opportunities for Orthofix; combined with BREG, we become a distribution leader in both the office-based and postoperative market, and will aggressively seek opportunities for cross-selling Orthofix products. In addition, any emerging-technology company seeking distribution into the office-care environment will view Orthofix as an outstanding strategic partner," said Federico. "With this acquisition, Orthofix now has a formidable sales force calling on the orthopedic office. "Orthofix is now uniquely positioned within our industry: a big and expanding company with projected 2004 revenues approaching $300 million - yet a company with the capability of being able to quickly capture new opportunities. We are a very profitable company with broad product lines within three established franchises, some of which rely on state-of-the-art technology as a superior advantage, competing in growing markets in which Orthofix has robust distribution already in place," said Federico. "In short, Orthofix now has much more in common with the industry's major orthopedic companies." Table 1 Projected Post-Acquisition Combined Revenue by Sector: (in millions) Projected 2004 -------------- Spinal $58.0 Reconstruction $117.0 Trauma $95.0 Other $22.0 Total Revenue $292.0 Orthofix International, N.V., a diversified orthopedic company, offers a broad line of minimally invasive surgical, as well as non-surgical, products for the spine, reconstruction, and trauma market sectors that address the lifelong-bone-and-joint-health needs of patients of all ages - making possible a more active and mobile lifestyle. Orthofix's products are widely distributed around the world to orthopedic surgeons and patients - via Orthofix's 380 sales representatives, and via partnerships with other leading orthopedic product companies, such as Medtronic Sofamor Danek, Stryker Howmedica, Kendall Healthcare and Royce Medical. In addition, Orthofix is collaborating in R&D partnerships with leading medical institutions such as the Wake Forest University School of Medicine, the Orthopedic Research and Education Foundation, the Cleveland Clinic Foundation, Innovative Spinal Technologies and the National Osteoporosis Institute. For more information about Orthofix, please visit www.orthofix.com. FORWARD-LOOKING STATEMENTS: This communication contains certain forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may include, but are not limited to, statements concerning the projections, financial condition, results of operations and businesses of Orthofix and BREG and the benefits expected to result from the contemplated transaction, are based on management's current expectations and estimates and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements. Factors that could cause or contribute to such differences may include, but are not limited to, risks relating to the integration of the businesses of Orthofix and BREG, unanticipated expenditures, the final purchase price allocation, changing relationships with customers, suppliers and strategic partners, risks relating to the protection of intellectual property, changes to the reimbursement policies of third parties, changes to governmental regulation of medical devices, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry and the economy and other factors described in the most recent reports on Form 10-Q, most recent reports on Form 10-K and other periodic reports filed by Orthofix with the Securities and Exchange Commission. For Further Information: Charles W. Federico Group President & CEO Orthofix International N.V. 704.948.2600 Tom Hein CFO Orthofix International N.V. 704.948.2600 -----END PRIVACY-ENHANCED MESSAGE-----