10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended       June 30, 2006      

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 

Commission file number       1-10670      

HANGER ORTHOPEDIC GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	84-0904275
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

Two Bethesda Metro Center, Suite 1200, Bethesda, MD	20814
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:       (301) 986-0701      

Former name, former address and former fiscal year, if changed since last report.

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes |X| No |_|

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one).

        Large accelerated filer |_|        Accelerated filer |X|        Non-accelerated filer |_|

        Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes |_| No |X|

        As of August 2, 2006, 22,031,927 shares of common stock, $.01 par value per share were outstanding.

HANGER ORTHOPEDIC GROUP, INC.

INDEX

		Page No.
Part I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets - June 30, 2006 and
December 31, 2005		1
Unaudited Condensed Consolidated Statements of Operations for the
Three and Six Months ended June 30, 2006 and 2005		3
Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2006 and 2005		4
Notes to Condensed Consolidated Financial Statements (Unaudited)		5
Item 2.	Management’s Discussion and Analysis of Financial
Condition and Results of Operations		28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 4.	Submission of Matters to a Vote of Security Holders	48
Item 6.	Exhibits	49
SIGNATURES		52
Exhibit Index		53
Certifications of Chief Executive Officer and Chief Financial Officer

HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)

	June 30, 2006		December 31, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	12,691	$	7,921
Accounts receivable, less allowance for doubtful accounts
of $3,956 and $4,582 in 2006 and 2005, respectively		97,570		103,200
Inventories		78,418		76,725
Prepaid expenses, other assets and income taxes receivable		17,518		6,554
Deferred income taxes		8,656		7,087
Total current assets		214,853		201,487
PROPERTY, PLANT AND EQUIPMENT
Land		1,081		1,094
Buildings		5,631		5,833
Furniture and fixtures		12,054		11,874
Machinery and equipment		25,053		23,867
Leasehold improvements		31,479		29,431
Computer and software		45,999		44,364
Total property, plant and equipment, gross		121,297		116,463
Less accumulated depreciation and amortization		79,719		72,966
Total property, plant and equipment, net		41,578		43,497
INTANGIBLE ASSETS
Excess cost over net assets acquired		445,999		445,979
Patents and other intangible assets, $9,999 in each of 2006 and 2005, less
accumulated amortization of $6,651 and $6,234 in 2006 and 2005, respectively		3,348		3,765
Total intangible assets, net		449,347		449,744
OTHER ASSETS
Debt issuance costs, net		11,657		8,142
Other assets		1,481		1,597
Total other assets		13,138		9,739
TOTAL ASSETS	$	718,916	$	704,467

The accompanying notes are an integral part of the consolidated financial statements.

1

HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)

	June 30, 2006			December 31, 2005
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	14,524		$	4,466
Accounts payable		18,408			20,520
Accrued expenses		10,739			10,955
Accrued interest payable		2,309			8,320
Accrued compensation related costs		18,501			21,675
Total current liabilities		64,481			65,936
LONG-TERM LIABILITIES
Long-term debt, less current portion		408,203			373,965
Deferred income taxes		32,162			30,851
Other liabilities		7,717			6,531
Total liabilities		512,563			477,283
COMMITMENTS AND CONTINGENCIES (Refer to Note I)
PREFERRED STOCK
7% Redeemable Preferred stock, liquidation preference of $1,000 per
share, 10,000,000 shares authorized, 37,881 shares issued and		--			61,942
outstanding in 2005
Series A Convertible Preferred stock, liquidation preference of $1,000
per share, 50,000 shares authorized, issued and outstanding in 2006		49,426			--
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value; 60,000,000 shares authorized,
22,301,869 shares and 22,227,607 shares issued and outstanding in
2006 and 2005, respectively		223			222
Additional paid-in capital		154,772			156,346
Unearned compensation		--			(2,615	)
Retained earnings		2,588			11,945
		157,583			165,898
Treasury stock at cost (141,154 shares)		(656	)		(656	)
Total shareholders’ equity		156,927			165,242
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS’ EQUITY	$	718,916		$	704,467

The accompanying notes are an integral part of the consolidated financial statements.

2

HANGER ORTHOPEDIC GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30,
(Dollars in thousands, except share and per share amounts)
(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2006			2005		2006			2005
Net sales	$	152,855		$	149,654	$	293,300		$	282,654
Cost of goods sold (exclusive of depreciation and amortization)		75,346			71,738		145,561			139,184
Selling, general and administrative		57,751			58,499		113,378			109,435
Depreciation and amortization		3,759			3,438		7,447			6,947
Income from operations		15,999			15,979		26,914			27,088
Interest expense		9,914			9,400		19,414			18,244
Extinguishment of debt		16,415			--		16,415			--
(Loss) income before taxes		(10,330	)		6,579		(8,915	)		8,844
(Benefit) provision for income taxes		(4,606	)		2,763		(4,020	)		3,693
Net (loss) income		(5,724	)		3,816		(4,895	)		5,151
Preferred stock dividend and accretion-7% Redeemable
Preferred Stock		1,186			1,455		2,751			2,874
Preferred stock dividend-Series A Convertible Preferred Stock		167			--		167			--
Accretion of beneficial conversion feature		2,224			--		2,224			--
Net (loss) income applicable to common stock	$	(9,301	)	$	2,361	$	(10,037	)	$	2,277
Basic Per Common Share Data
Net (loss) income applicable to common stock	$	(0.42	)	$	0.11	$	(0.46	)	$	0.11
Shares used to compute basic per common share amounts		21,946,319			21,661,157		21,891,694			21,644,918
Diluted Per Common Share Data
Net (loss) income applicable to common stock	$	(0.42	)	$	0.11	$	(0.46	)	$	0.10
Shares used to compute diluted per common share amounts		21,946,319			22,113,004		21,891,694			22,151,390

The accompanying notes are an integral part of the consolidated financial statements.

3

HANGER ORTHOPEDIC GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
Dollars in thousands)
(Unaudited)

	2006			2005
Cash flows from operating activities:
Net (loss) income	$	(4,895	)	$	5,151
Adjustments to reconcile net income to net cash provided by operating activities:
Extinguishment of debt		16,415			--
Premiums paid on early extinguishment of debt		(11,393	)		--
Gain on disposal of assets		10			--
Provision for bad debt		9,208			10,916
Provision for deferred income taxes		(234	)		1,623
Depreciation and amortization		7,447			6,947
Amortization of debt issuance costs		1,122			1,288
Compensation expense on stock options and restricted stock		765			542
Amortization of terminated interest rate swaps		(205	)		(253	)
Changes in assets and liabilities, net of effects of acquired companies:
Accounts receivable		(3,578	)		(6,310	)
Inventories		(1,604	)		(3,835	)
Prepaid expenses, other assets, and income taxes receivable		(10,982	)		(2,738	)
Other assets		68			46
Accounts payable		(1,002	)		(270	)
Accrued expenses, accrued interest payable, and income taxes payable		(6,228	)		(1,162	)
Accrued compensation related costs		(3,174	)		(9,071	)
Other liabilities		1,186			977
Net cash provided by (used in) operating activities		(7,074	)		3,851
Cash flows from investing activities:
Purchase of property, plant and equipment (net of acquisitions)		(5,177	)		(3,957	)
Acquisitions and earnouts (net of cash acquired)		(506	)		(2,215	)
Proceeds from sale of property, plant and equipment		57			--
Net cash used in investing activities		(5,626	)		(6,172	)
Cash flows from financing activities:
Borrowings under revolving credit agreement		21,000			29,000
Repayments under revolving credit agreement		(26,000	)		(31,000	)
Repayment of term loan		(146,625	)		--
Repayment of senior notes		(190,921	)		--
Repayment of senior subordinated debt		(15,485	)		--
Repurchase of 7% Redeemable Preferred Stock		(64,693	)		--
Proceeds from new term loan facility		230,000			--
Proceeds from senior note issuance		175,000			--
Proceeds from issuance of Series A Convertible Preferred Stock		50,000			--
Scheduled repayment of long-term debt		(1,129	)		(1,961	)
Increase in financing costs		(13,263	)		(3	)
Proceeds from issuance of Common Stock		253			189
Change in book overdraft		(667	)		6,684
Net cash provided by financing activities		17,470			2,909
Increase in cash and cash equivalents		4,770			588
Cash and cash equivalents, at beginning of period		7,921			8,351
Cash and cash equivalents, at end of period	$	12,691		$	8,939

The accompanying notes are an integral part of the consolidated financial statements.

4

HANGER ORTHOPEDIC GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2006 and 2005 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These condensed consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement for the periods presented. The year-end condensed consolidated data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Hanger Orthopedic Group, Inc. (the “Company”) and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2005, filed by the Company with the SEC.

NOTE B – SIGNIFICANT ACCOUNTING PRINCIPLES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Stock-Based Compensation

General

The Company issues options and restricted shares of common stock under two active share-based compensation plans, one for employees and the other for the Board of Directors. At June 30, 2006, 4.7 million shares of common stock are authorized for issuance under the Company’s share-based compensation plans. Shares of common stock issued under the share-based compensation plans are released from the Company’s authorized shares. Stock option and restricted share awards are granted at the fair market value of the Company’s common stock on the date immediately preceding the date of grant. Stock option awards vest over a period determined by the compensation plan, ranging from one to three years, and generally have a maximum term of ten

5

NOTE B – SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

Stock-Based Compensation (continued)

General (continued)

years. Restricted shares of common stock vest over a period of time determined by the compensation plan, ranging from one to four years.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) 123R, Share-Based Payment (“SFAS 123R”), which require companies to measure and recognize compensation expense for all share-based payments at fair value. SFAS 123R eliminates the ability to account for share-based compensation transactions using APB Opinion 25, Accounting for Stock Issued to Employees (“APB 25”) and generally requires that such transactions be accounted for using prescribed fair-value-based methods.

The Company adopted SFAS 123R using the modified prospective method allowed for in SFAS 123R. Under the modified prospective method, compensation expense related to awards granted prior to and unvested as of the adoption of SFAS 123R is calculated in accordance with SFAS 123, Accounting for Stock-Based Compensation (“SFAS 123”) and recognized in the statements of operations over the requisite remaining service period; compensation expense for all awards granted after the adoption of SFAS 123R is calculated according to the provision of SFAS 123R. Results for prior periods have not been restated. For the three month period ended June 30, 2006, the Company recognized $0.4 million in compensation expense, of which less than $0.1 million related to options. The Company recognized $0.7 million in compensation expense during the six month period ended June 30, 2006, of which $0.1 million related to options. The Company calculates the fair value of stock options using the Black-Scholes model. The total value of the stock option awards is expensed ratably over the requisite service period of the employees receiving the awards. At June 30, 2006, the Company continues to evaluate the available methods for computing the windfall tax pool as required under SFAS 123R.

Prior to January 1, 2006, the Company accounted for stock-based awards under the measurement and recognition provisions of APB 25. Under APB 25, stock options granted at the fair market value of the underlying stock required no recognition of compensation cost. However, the Company disclosed the pro-forma effect on net income of recognizing compensation cost, as required by SFAS 123 and SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure.

6

NOTE B – SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

Stock-Based Compensation (continued)

General (continued)

The following table illustrates the effect on net income (loss) applicable to common stock and income (loss) per share if the Company had applied fair value recognition to stock-based employee compensation for all awards in the prior year periods:

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
(In thousands, except per share amounts)
Net income applicable to common stock, as reported	$	2,361		$	2,277
Add: stock-based employee compensation expense related to
restricted shares of common stock, net of related tax effects,
included in net income as reported		165			317
Deduct: total stock-based employee compensation
expense determined under the fair value method for all
awards, net of related tax effects		(2,269	)		(2,829	)
Pro forma net income (loss) applicable to common stock	$	257		$	(235	)
Income (loss) per share:
Basic - as reported	$	0.11		$	0.11
Basic - pro forma		0.01			(0.01	)
Diluted - as reported		0.11			0.10
Diluted - pro forma		0.01			(0.01	)

The adoption of SFAS 123R reduced income from operations, income before income tax expense, and net income for the three months ended March 31, 2006 by less than $0.1 million. Additionally, upon adoption the Company eliminated the balance of Unearned Compensation, on the Consolidated Balance Sheets, to Additional Paid-in-Capital.

7

NOTE B – SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

Stock-Based Compensation (continued)

Options

A summary of the stock option activity for the six month period ended June 30, 2006 is as follows:

	Employee Plans					Director Plans					Non-Qualified Awards
(In thousands, except per share and weighted average price amounts)	Shares			Weighted Average Price		Shares			Weighted Average Price		Shares		Weighted Average Price
Outstanding at December 31, 2005		2,576,050		$	10.24		198,411		$	9.83		406,000	$	5.95
Granted		--			--		--			--		--		--
Terminated		(22,882	)		8.19		--			--		--		--
Exercised		(74,262	)		2.72		(10,000	)		5.88		--		--
Outstanding at June 30, 2006		2,478,906		$	10.49		188,411		$	10.04		406,000	$	5.95
Aggregate intrinsic value at June 30, 2006	$	26,004				$	1,892				$	2,415
Weighted average remaining contractual term (years)		3.4					5.7					3.8

The intrinsic value of options exercised during the three and six month periods ended June 30, 2006 was $0.1 million and $0.3 million, respectively. Options exercisable under the Company’s share-based compensation plans at June 30, 2006 were 3.0 million shares with a weighted average exercise price of $13.32, an average remaining contractual term of 3.5 years, and an aggregate intrinsic value of $30.0 million. Cash received by the Company related to the exercise of options during the three and six month periods ended June 30, 2006 amounted to $0.1 million and $0.2 million, respectively. As of June 30, 2006, total unrecognized compensation cost related to stock option awards was approximately $0.1 million and the related weighted-average period over which it is expected to be recognized is approximately 1.1 years.

In the prior year periods, the fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Expected term (years)		1.0			3.5
Volatility factor		83	%		83	%
Risk free interest rate		3.9	%		3.9	%
Dividend yield		0.0	%		0.0	%
Fair value	$	1.71		$	4.26

8

NOTE B – SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

Stock-Based Compensation (continued)

Options (continued)

The expected term of options is an average of the contractual terms and historical data. The expected stock price volatility is based on historical data of the Company’s common stock performance. The risk-free interest rate is based on an average of the U.S. 5-year Treasury bill rate. The Company did not grant any options during the three and six month periods ended June 30, 2006.

Restricted Shares of Common Stock

A summary of the activity of restricted shares of common for the six month period ended June 30, 2006 is as follows:

	Employee Plans					Director Plans
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2005		388,000		$	8.28		28,571		$	5.18
Granted		742,250			7.96		87,762			7.54
Vested		(71,125	)		6.72		(22,682	)		5.09
Forfeited		(5,000	)		--		--			--
Nonvested at June 30, 2006		1,054,125		$	8.16		93,651		$	7.41

During the three month period ended June 30, 2006, 26,182 restricted shares of common stock with an intrinsic value of $0.1 million became fully vested. During the six month period ended June 30, 2006, 93,807 restricted shares of common stock with an intrinsic value of $0.6 million became fully vested. As of June 30, 2006, total unrecognized compensation cost related to restricted shares of common stock was approximately $9.8 million and the related weighted-average period over which it is expected to be recognized is approximately 3.2 years.

Segment Information

The Company applies a “management” approach to disclosure of segment information. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the basis of the Company’s reportable segments. The description of the Company’s reportable segments and the disclosure of segment information are presented in Note M.

9

NOTE B – SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

New Accounting Standards

In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments (“SFAS 155”). SFAS 155 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”). The provisions of SFAS 155 allow for the fair value remeasurement of hybrid financial instruments that contain embedded derivatives that otherwise would require bifurcation and eliminates the interim guidance that provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS 133. Additionally, SFAS 155 eliminates SFAS 140’s restriction on qualifying special-purpose entities of holding derivative financial instruments that pertain to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. The Company believes the adoption of SFAS 155 will not have an impact on its financial statements.

In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assets (“SFAS 156”), amending SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 156 permits entities the choice between either the amortization method or the fair value measurement method for valuing separately recognized servicing assets and liabilities. SFAS 156 is effective for fiscal years beginning after September 15, 2006; early adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements for any interim period of that fiscal year. The Company believes the adoption of SFAS 156 will not have an impact on its financial statements.

In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”), which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires the Company to recognize, in its financial statements, the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

10

NOTE C — SUPPLEMENTAL CASH FLOW FINANCIAL INFORMATION

The supplemental disclosure requirements for the statements of cash flows are as follows:

	Six Months Ended June 30,
(In thousands)	2006			2005
Cash paid during the period for:
Interest	$	24,618		$	17,210
Income taxes		4,254			2,184
Non-cash financing and investing activities:
Preferred stock dividends declared and accretion	$	2,918		$	2,874
Accretion of beneficial conversion feature		2,224			--
Issuance of notes in connection with acquisitions		--			485
(Cancellation) issuance of restricted shares of common stock		(32	)		1,828

NOTE D — GOODWILL AND OTHER INTANGIBLE ASSETS

The activity related to goodwill for the six month period ended June 30, 2006 is as follows:

(In thousands)	Patient-Care Centers		Distribution		Total
Balance at December 31, 2005	$	417,596	$	28,383	$	445,979
Additions due to acquisitions		--		--		--
Additions due to earn-outs		20		--		20
Balance at June 30, 2006	$	417,616	$	28,383	$	445,999

NOTE E – ACQUISITIONS

The Company did not make any acquisitions during the three and six month periods ended June 30, 2006. During the three and six month periods ended June 30, 2005, the Company acquired three and four orthotics and prosthetics companies, respectively, that operated a total of two and five patient-care centers, respectively. The Company paid $0.4 million and $2.1 million for acquisitions realized during the three and six month periods ended June 30, 2005, respectively.

The Company accounts for its acquisitions using the purchase method of accounting. The results of operations for these acquisitions are included in the Company’s results of operations from their date of acquisition. Pro forma results would not be materially different.

In connection with acquisitions, the Company occasionally agrees to make earnout payments if future earnings targets are reached. Earnouts are defined in the purchase agreement and are accrued based on earnout targets for the following quarter being attained. These estimates are adjusted in the actual quarter the payment is made. The Company made earnout payments of $0.5 million and $0.8 million during the six month periods ended June 30, 2006 and 2005, respectively. The Company accounts for these amounts as additional purchase price, resulting in an increase in excess cost over net assets acquired. The Company estimates that it may pay up to $1.2 million related to earnout provisions in future periods.

11

NOTE F – INVENTORY

Inventories, which are recorded at the lower of cost or market using the first-in, first-out method, were as follows:

	June 30, 2006		December 31, 2005
(In thousands)
Raw materials	$	36,412	$	31,796
Work-in-process		25,983		26,409
Finished goods		16,023		18,520
	$	78,418	$	76,725

NOTE G – LONG TERM DEBT

Long-term debt consists of the following:

	June 30, 2006			December 31, 2005
(In thousands)
Revolving Credit Facility	$	--		$	5,000
Term Loan		230,000			146,625
10 3/8% Senior Notes due 2009 (1)		9,140			201,605
11 1/4% Senior Subordinated Notes due 2009		77			15,562
10 1/4% Senior Notes due 2014		175,000			--
Subordinated seller notes, non-collateralized, net of unamortized discount
with principal and interest payable in either monthly, quarterly or annual
installments at effective interest rates ranging from 6.0% to 10.8%, maturing
through December 2011		8,510			9,639
		422,727			378,431
Less current portion		(14,524	)		(4,466	)
	$	408,203		$	373,965

(1) At June 30, 2006 and December 31, 2005, the outstanding amount includes $0.1 million and $1.6 million, respectively, of interest rate swap termination income to be recognized, as a reduction of interest expense, using the effective interest method, over the remaining life of the Senior Notes.

Refinancing

On May 26, 2006, the Company refinanced its debt and preferred stock with the issuance of the following instruments: (i) $175.0 million of 10 ¼% Senior Notes due 2014; (ii) a $230.0 million term loan facility; and (iii) $50.0 million of Series A Convertible Preferred Stock. The Company also established a new $75.0 million revolving credit facility, which was unused at June 30, 2006. The proceeds from these instruments were used to retire (i) $190.9 million of the 10 3/8% Senior Notes; (ii) $15.5 million of the 11 ¼% Senior Subordinated Notes; (iii) $146.3 million of the Term Loan; (iv) $11.0 million outstanding under the Revolving Credit facility; (v) $64.7 million of 7% Redeemable Preferred Stock; and (vi) pay $24.7 million of transaction costs. At

12

NOTE G – LONG TERM DEBT (CONTINUED)

Refinancing (continued)

June 30, 2006, $9.1 million of 10 3/8% Senior Notes and $0.1 million of 11 ¼% Senior Subordinated Notes remained outstanding. Such outstanding notes were redeemed in July 2006. In conjunction with the refinancing, the Company incurred a $16.4 million loss on the extinguishment of debt. The extinguishment loss is comprised of $11.4 million of premiums paid to debt holders, $0.3 million of fees paid to the 7% Redeemable Preferred Stock holders and $6.0 million write-off of debt issuance costs offset by a $1.3 million gain related to the interest rate swap.

Revolving Credit Facility

The $75.0 million Revolving Credit Facility matures on May 26, 2011. The Revolving Credit Facility bears interest, at the Company’s option, of LIBOR plus 2.75% or a Base Rate (as defined in the credit agreement) plus 1.75%. The obligations under the Revolving Credit Facility are guaranteed by the Company’s subsidiaries and are secured by a first priority perfected interest in the Company’s subsidiaries’ shares, all of the Company’s assets and all the assets of the Company’s subsidiaries. Beginning September 30, 2006, the Company is subject to certain covenants including but not limited to (i) minimum consolidated interest coverage ratio; (ii) maximum total leverage ratio; and (iii) maximum annual capital expenditures. As of June 30, 2006, the Company has not made draws on the Revolving Credit Facility.

Term Loan

The $230.0 million Term Loan matures on May 26, 2013 and requires quarterly payments commencing September 30, 2006. From time to time, mandatory payments may be required as a result of capital stock issuances, additional debt incurrences, asset sales or other events as defined in the credit agreement. The Term Loan bears interest, at the Company’s option, of LIBOR plus 2.50% or a Base Rate (as defined in the credit agreement) plus 1.50%. The obligations under the Term Loan are guaranteed by the Company’s subsidiaries and are secured by a first priority perfected interest in the Company’s subsidiaries’ shares, all of the Company’s assets and all the assets of the Company’s subsidiaries. The Term Loan is subject to covenants that mirror those of the Revolving Credit Facility.

10 ¼% Senior Notes

The 10 ¼% Senior Notes mature June 1, 2014, are senior indebtness and are guaranteed on a senior unsecured basis by all of the Company’s current and future domestic subsidiaries. Interest is payable semi-annually on June 1 and December 1, commencing December 1, 2006.

On or prior to June 1, 2009, the Company may redeem up to 35% of the aggregate principal amount of the notes at a redemption price of 110.250% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, with the net cash proceeds of an equity offering; provided that (i) at least 65% of the aggregate principal amount of the notes remains outstanding immediately after the redemption (excluding notes held by the Company and its

13

NOTE G – LONG TERM DEBT (CONTINUED)

10 ¼% Senior Notes (continued)

subsidiaries); and (ii) the redemption occurs within 90 days of the date of the closing of the equity offering.

Except as discussed above, the notes are not redeemable at the Company’s option prior to June 1, 2010. On or after June 1, 2010, the Company may redeem all or part of the notes upon not less than 30 days and no more than 60 days’ notice, for the twelve-month period beginning on May 26 of the following years; at (i) 105.125% during 2010; (ii) 102.563% during 2011; and (iii) 100.0% during 2012 and thereafter.

NOTE H –RESTRUCTURING

The activity related to the restructuring reserve during the six month period ended June 30, 2006 is as follows:

	Total Restructuring Reserve
(In thousands)
2001 Restructuring Reserve
Balance at December 31, 2005	$	220
Spending		(64	)
Balance at June 30, 2006		156
2004 Restructuring Reserve
Balance at December 31, 2005		161
Spending		(50	)
Balance at June 30, 2006		111
2001 and 2004 Restructuring Reserves	$	267

2001 Restructuring Reserve

During 2001, as a result of the initiatives associated with the Company’s performance improvement plan developed in conjunction with AlixPartners, LLC (formerly Jay Alix & Associates, Inc.), the Company recorded approximately $4.5 million in restructuring and asset impairment costs. The plan called for the closure of certain facilities and the termination of approximately 135 employees.

As of December 31, 2002, all properties had been vacated, all of the employees had been terminated and all corresponding payments under the severance initiative had been made. At June 30, 2006, the remaining reserve of $0.2 million is adequate to provide for the lease costs which are expected to be paid through October 2012.

14

NOTE H –RESTRUCTURING (CONTINUED)

2004 Restructuring Reserve

During the first quarter of 2004, the Company adopted a restructuring plan as a result of acquiring an O&P company. The restructuring plan includes estimated expenses of $0.7 million related to the closure/merger of nine facilities and the payment of severance costs to 20 terminated employees.

As of December 31, 2005, all of the nine patient-care centers had been closed/merged and approximately $0.3 million in lease costs were paid, and the employment of 11 employees had been terminated and $0.1 million of severance payments had been paid. At June 30, 2006, the remaining reserve of $0.1 million is adequate to provide for the lease costs which are expected to be paid through April 2008.

NOTE I – COMMITMENTS AND CONTINGENT LIABILITIES

Contingencies

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business, including additional payments under business purchase agreements. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the financial position, liquidity or results of operations of the Company.

On June 15, 2004, the Company announced that an employee at its patient-care center in West Hempstead, New York alleged in a television news story aired on June 14, 2004 that there were instances of billing discrepancies at that facility.

On June 18, 2004, the Company announced that on June 17, 2004, the Audit Committee of the Company’s Board of Directors had engaged the law firm of McDermott, Will & Emery LLP to serve as independent counsel to the Audit Committee and to conduct an independent investigation of the allegations. The scope of that independent investigation was expanded to cover certain of the Company’s other patient-care centers and included consideration of some of the allegations made in the Amended Complaint recently filed in the class actions discussed below. On June 17, 2004, the U.S. Attorney’s Office for the Eastern District of New York subpoenaed records of the Company regarding various billing activities and locations. In addition, the Company also announced on June 18, 2004 that the Securities and Exchange Commission had commenced an informal inquiry into the matter. The Company is cooperating with the regulatory authorities. The Audit Committee’s investigation will not be complete until all regulatory authorities have indicated that their inquiries are complete.

Management believes that any billing discrepancies are likely to be primarily at the West Hempstead patient-care center. Furthermore, management does not believe the resolution of the matters raised by the allegations will have a material adverse effect on the Company’s financial statements. The West Hempstead facility generated $0.3 million and $0.7 million in net sales during the six month period ended June 30, 2006 and the year ended 2005, respectively, or less than 0.5% of the Company’s net sales, for each period.

15

NOTE I – COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

Contingencies (continued)

It should be noted that additional regulatory inquiries or issues may be raised relating to the Company’s billing activities at other locations. No assurance can be given that the final results of the regulatory agencies’ inquiries will be consistent with the results to date or that any discrepancies identified during the ongoing regulatory review will not have a material adverse effect on the Company’s financial statements.

Between June 22, 2004 and July 1, 2004, five putative securities class action complaints were filed against the Company, four in the Eastern District of New York, Twist Partners v. Hanger Orthopedic Group, Inc., et al., No. 1:04-cv-02585 (filed 06/22/2004, E.D.N.Y); Shapiro v. Hanger Orthopedic Group, Inc., et al., No. 1:04-cv-02681 (filed 06/28/2004, E.D.N.Y.); Imperato v. Hanger Orthopedic Group, Inc., No. 1:04-cv-02736 (filed 06/30/2004, E.D.N.Y.); Walters v. Hanger Orthopedic Group, Inc., et al., No. 1:04-cv-02826 (filed 07/01/2004, E.D.N.Y.); and one in the Eastern District of Virginia, Browne v. Hanger Orthopedic Group, Inc., et al., No. 1:04-cv-715 (filed 06/23/2004, E.D. Va.). The complaints asserted that the Company’s reported revenues were inflated through certain billing improprieties at one of the Company’s facilities. The plaintiffs in Browne subsequently dismissed their complaint without prejudice, and the four remaining cases were consolidated into a single action in the Eastern District of New York encaptioned In re Hanger Orthopedic Group, Inc. Securities Litigation, No. 1:04-cv-2585 (the “Consolidated Securities Class Action”). On June 12, 2006, a Second Consolidated Amended Class Action Complaint was filed against the Company in the District of Maryland, In re Hanger Orthopedic Group, Inc. Securities Litigation, No. 8:06-cv-00579-AW (the “Second Amended Complaint”). The Second Amended Complaint asserts that the Company’s reported revenues were inflated through certain billing improprieties at some of the Company’s facilities. In addition, the Second Amended Complaint asserts that the Company violated the federal securities laws in connection with a restatement announced by the Company on August 16, 2004, restating certain of the Company’s financial statements during 2001 through the first quarter of 2004. The Second Amended Complaint purports to allege violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as violations of Section 20(a) of the Exchange Act by certain of the Company’s executives as “controlling persons” of the Company. The Company has not yet filed its response to the Second Amended Complaint. On February 28, 2006, the court granted the Company’s motion to transfer the Consolidated Securities Class Action to the District of Maryland.

The Company believes that the class action allegations of fraudulent conduct by the Company’s executive directors and officers are without merit and it intends to vigorously defend the suits. The claims have been reported to the Company’s insurance carrier.

On March 17, 2005, a derivative action was filed against the Company and its directors in the Circuit Court for Montgomery County, Maryland. The lawsuit which was encaptioned James Elgas v. Ivan Sabel, et al, Civil No. 259940-V, largely repeated the billing allegations made in the consolidated amended complaint filed by the plaintiffs in In re Hanger Orthopedic Group, Inc. Securities Litigation, discussed above. On that basis, the Elgas complaint alleged that Hanger’s directors breached their fiduciary duties to the Company. The plaintiff sought monetary damages

16

NOTE I – COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

Contingencies (continued)

and unspecified equitable relief, on behalf of the Company, against the Company’s directors. The Company and the individual defendants filed motions to dismiss the suit for failure to state a claim and for failure to comply with the demand requirement under Delaware law. At a hearing on August 12, 2005, the Circuit Court granted the defendants’ motion to dismiss for failure to comply with the demand requirement, granting the plaintiff leave to amend within 90 days. The plaintiff filed an amended complaint, and the defendants again moved to dismiss the suit for failure to state a claim and for failure to comply with the demand requirement. Subsequently, the plaintiff sold his shares of the Company’s common stock and this action has been dismissed with prejudice.

On September 8, 2005, a derivative action was filed against the Company and certain of its current and former directors in the United States District Court for the Eastern District of New York. The lawsuit, which is encaptioned Green Meadows Partners, LLP v. Ivan R. Sabel, et al, No. CV 05 4259 (E.D.N.Y.), also largely repeats the allegations made in the consolidated amended complaint filed by the plaintiffs in In re Hanger Orthopedic Group, Inc. Securities Litigation, discussed above. On that basis, the Green Meadows Partners complaint purports to assert claims against the individual defendants, on behalf of the Company, for contribution in connection with the In re Hanger Orthopedic Group, Inc. Securities Litigation matter; forfeiture of certain bonuses and other incentive-based or equity-based compensation pursuant to Section 304; breach of fiduciary duty; unjust enrichment; and “abuse of control.” The Complaint seeks unspecified compensatory damages, restitution and disgorgement, injunctive relief, and award of attorneys’ fees and costs. The defendants have not yet filed their response to the Green Meadows Partners Complaint. After the transfer of the Consolidated Securities Class Action to the District of Maryland, the parties agreed to the transfer of the Green Meadows Partners case to the District of Maryland and to stay the case pending the outcome of the defendants’ motion to dismiss the Consolidated Securities Class Action case.

Guarantees and Indemnifications

In the ordinary course of its business, the Company may enter into service agreements with service providers in which it agrees to indemnify or limit the service provider against certain losses and liabilities arising from the service provider’s performance of the agreement. The Company has reviewed its existing contracts containing indemnification or clauses of guarantees and does not believe that its liability under such agreements will result in any material liability.

17

NOTE J –REDEEMABLE PREFERRED STOCK

In May 2006, in connection with its debt refinancing, the Company redeemed 37,881 shares of its 7% Redeemable Preferred Stock for $64.7 million and issued 50,000 shares of Series A Convertible Preferred Stock (“Series A Preferred”) with a stated value of $1,000 per share. The Company incurred $0.3 million of fees in connection with the redemption of the 7% Redeemable Preferred Stock and $2.3 million of costs to issue the Series A Preferred shares. The Series A Preferred provides for cumulative dividends at a rate of 3.33% per annum, payable quarterly in arrears. The Company may elect to defer the payment of dividends. The Series A Preferred may be converted into common shares at $7.56 per share at the option of the holders after a required holding period of 61 days or at the option of the Company upon satisfaction of certain conditions. In addition, the initial holders of the Series A Preferred are entitled to have representation on the board of directors of the Company and are entitled to vote on all matters on which the holders of the Company’s common stock are entitled to vote.

The Company has separately accounted for the beneficial conversion feature granted to the holders of the Series A Preferred. The value of the beneficial conversion feature is $3.8 million and is comprised of $1.8 million related to the cost paid by the Company on behalf of the holders and $2.0 million related to the difference between the stated conversion price of the preferred shares and the fair market value of the common stock at the commitment date. The beneficial conversion feature has been included in the value of the Series A Preferred; and is being amortized as a reduction of income available to common shareholders over the 61 day holding period.

NOTE K – NET (LOSS) INCOME PER COMMON SHARE

Basic per common share amounts are computed using the weighted average number of common shares outstanding during the period. Diluted per common share amounts are computed using the weighted average number of common shares outstanding during the period and dilutive potential common shares. Dilutive potential common shares consist of stock options, restricted shares, and redeemable preferred stock and are calculated using the treasury stock method.

18

NOTE K – NET (LOSS) INCOME PER COMMON SHARE (CONTINUED)

Net (loss) income per share is computed as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands, except share and per share data)	2006			2005		2006			2005
Net (loss) income	$	(5,724	)	$	3,816	$	(4,895	)	$	5,151
Less preferred stock dividends declared and accretion-7% Redeemable Preferred Stock (1)		1,186			1,455		2,751			2,874
Less preferred stock dividends declared-Series A Convertible Preferred Stock (1)		167			--		167			--
Accretion of beneficial conversion feature		2,224			--		2,224			--
Net (loss) income applicable to common stock	$	(9,301	)	$	2,361	$	(10,037	)	$	2,277
Shares of common stock outstanding used to compute basic per common share amounts		21,946,319			21,661,157		21,891,694			21,644,918
Effect of dilutive options		--			451,847		--			506,472
Shares used to compute dilutive per common share amounts (2)		21,946,319			22,113,004		21,891,694			22,151,390
Basic (loss) income per share applicable to common stock	$	(0.42	)	$	0.11	$	(0.46	)	$	0.11
Diluted (loss) income per share applicable to common stock		(0.42	)		0.11		(0.46	)		0.10

(1) For the three and six month periods ended June 30, 2006 and 2005, excludes the effect of the conversion of the 7% Redeemable Preferred Stock as it is considered anti-dilutive. For the three and six month periods ended June 30, 2006, excludes the effect of the Series A Convertible Preferred Stock as it is considered anti-dilutive.

(2) For the three months ended June 30, 2006 and 2005, options to purchase 1,684,065 and 2,396,801 shares of common stock, respectively, are not included in the computation of diluted income per share as these options are anti-dilutive because the exercise prices of these options were greater than the average market price of the Company’s stock during the period. Options to purchase 1,684,065 and 2,330,801 shares of common stock are not included in the computation of diluted income per share for the six month periods ended June 30, 2006 and 2005, respectively, as these options are anti-dilutive.

NOTE L –SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The Company’s unfunded noncontributory defined benefit plan (the “Plan”) covers certain senior executives, is administered by the Company and calls for annual payments upon retirement based on years of service and final average salary. Net periodic benefit expense is actuarially determined.

The change in the Plan’s net benefit obligation is as follows:

	(In thousands)
Benefit obligation at December 31, 2005	$	3,624
Service cost		1,010
Interest cost		103
Amortization of (gain) loss		--
Benefit obligation at June 30, 2006	$	4,737

19

NOTE L – SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (CONTINUED)

At June 30, 2006, the Company has accrued approximately $4.7 million in benefit obligations related to the Plan.

NOTE M – SEGMENT AND RELATED INFORMATION

The Company has identified two reportable segments in which it operates based on the products and services it provides. The Company evaluates segment performance and allocates resources based on the segments’ income from operations.

The reportable segments are: (i) patient-care centers and (ii) distribution. The reportable segments are described further below:

Patient-Care Centers – This segment consists of the Company’s owned and operated patient-care centers, fabrication centers of O&P components, Innovative Neurotronics, Inc. (“IN, Inc.”) and Linkia, LLC (“Linkia”). The patient-care centers provide services to design and fit O&P devices to patients. These centers also instruct patients in the use, care and maintenance of the devices. Fabrication centers are involved in the fabrication of O&P components for both the O&P industry and the Company’s own patient-care centers. IN, Inc. specializes in bringing emerging MyoOrthotics Technologies® to the O&P market. MyoOrthotics Technologies represents the merging of orthotic technologies with electrical stimulation. Linkia is a provider network management company.

Distribution – This segment distributes O&P products and components to both the O&P industry and the Company’s own patient-care practices.

The accounting policies of the segments are the same as those described in the summary of “Significant Accounting Policies” in Note B to the condensed consolidated financial statements.

20

NOTE M – SEGMENT AND RELATED INFORMATION (CONTINUED)

Summarized financial information concerning the Company’s reportable segments is shown in the following table. Intersegment sales mainly include sales of O&P components from the distribution segment to the patient-care centers segment and were made at prices which approximate market values.

	Patient-Care Centers			Distribution		Other			Total
(In thousands)
Three Months Ended June 30, 2006
Net sales
Customers	$	138,416		$	14,439	$	--		$	152,855
Intersegments		--			27,878		(27,878	)		--
Depreciation and amortization		3,138			76		545			3,759
Income (loss) from operations		21,090			4,916		(10,007	)		15,999
Interest (income) expense		(1,586	)		1,727		9,773			9,914
Income (loss) before taxes		22,676			3,188		(36,194	)		(10,330	)
Three Months Ended June 30, 2005
Net sales
Customers	$	138,635		$	11,019	$	--		$	149,654
Intersegments		--			19,816		(19,816	)		--
Depreciation and amortization		2,922			72		444			3,438
Income (loss) from operations		20,739			3,509		(8,269	)		15,979
Interest (income) expense		(1,546	)		1,733		9,213			9,400
Income (loss) before taxes		22,285			1,776		(17,482	)		6,579
(In thousands)
Six Months Ended June 30, 2006
Net sales
Customers	$	265,555		$	27,745	$	--		$	293,300
Intersegments		--			51,981		(51,981	)		--
Depreciation and amortization		6,241			152		1,054			7,447
Income (loss) from operations		36,878			9,582		(19,546	)		26,914
Interest (income) expense		(3,160	)		3,454		19,120			19,414
Income (loss) before taxes		40,039			6,128		(55,082	)		(8,915	)
Total assets		628,817			86,550		3,549			718,916
Capital expenditures		4,198			45		934			5,177
Six Months Ended June 30, 2005
Net sales
Customers	$	261,472		$	21,182	$	--		$	282,654
Intersegments		--			36,436		(36,436	)		--
Depreciation and amortization		5,902			147		898			6,947
Income (loss) from operations		35,830			6,775		(15,517	)		27,088
Interest (income) expense		(3,104	)		3,465		17,883			18,244
Income (loss) before taxes		38,934			3,311		(33,401	)		8,844
Total assets		614,704			75,815		14,983			705,502
Capital expenditures		3,504			41		412			3,957

21

NOTE N – CONSOLIDATING FINANCIAL INFORMATION

The Company’s Revolving Credit Facility, Senior Notes, Senior Subordinated Notes, and Term Loan are guaranteed fully, jointly and severally, and unconditionally by all of the Company’s current and future domestic subsidiaries. The following are summarized Condensed Consolidating Balance Sheets as of June 30, 2006 and December 31, 2005, Condensed Statements of Operations for the three and six month periods ended June 30, 2006 and 2005 and Condensed Cash Flows for the six month periods ended June 30, 2006 and 2005 of the Company, segregating the parent company (Hanger Orthopedic Group, Inc.) and its guarantor subsidiaries, as each of the Company’s subsidiaries is 100% owned. The parent company accounts for its investment in subsidiaries under the equity method of accounting.

22

NOTE N – CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

BALANCE SHEET - June 30, 2006	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Totals
(In thousands)
ASSETS
Cash and cash equivalents	$	7,892		$	4,799		$	--		$	12,691
Accounts receivable		--			97,570			--			97,570
Inventories		--			78,418			--			78,418
Prepaid expenses, other assets and income taxes receivable		11,775			5,743			--			17,518
Intercompany receivable		383,077			--			(383,077	)		--
Deferred income taxes		8,656			--			--			8,656
Total current assets		411,400			186,530			(383,077	)		214,853
Property, plant and equipment, net		5,364			36,214			--			41,578
Intangible assets, net		--			449,347			--			449,347
Investment in subsidiaries		248,931			--			(248,931	)		--
Other assets		11,913			1,225			--			13,138
Total assets	$	677,608		$	673,316		$	(632,008	)	$	718,916
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS’ EQUITY
Current portion of long-term debt	$	11,517		$	3,007		$	--		$	14,524
Accounts payable		1,244			17,164			--			18,408
Accrued expenses		7,537			3,202			--			10,739
Accrued interest payable		2,200			109			--			2,309
Accrued compensation related costs		1,176			17,325			--			18,501
Income taxes payable		3,494			(3,494	)		--			--
Total current liabilities		27,168			37,313			--			64,481
Long-term debt, less current portion		402,700			5,503			--			408,203
Deferred income taxes		37,024			(4,862	)		--			32,162
Intercompany payable		--			383,077			(383,077	)		--
Other liabilities		4,363			3,354			--			7,717
Total liabilities		471,255			424,385			(383,077	)		512,563
Redeemable preferred stock		49,426			--			--			49,426
Common stock		223			35			(35	)		223
Additional paid-in capital		154,772			7,460			(7,460	)		154,772
Retained earnings		2,588			241,976			(241,976	)		2,588
Treasury stock		(656	)		(540	)		540			(656	)
Total shareholders’ equity		156,927			248,931			(248,931	)		156,927
Total liabilities, redeemable preferred stock
and shareholders’ equity	$	677,608		$	673,316		$	(632,008	)	$	718,916

23

NOTE N – CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

BALANCE SHEET - December 31, 2005	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries			Consolidating Adjustments			Consolidated Totals
(In thousands)
ASSETS
Cash and cash equivalents	$	3,120		$	4,801		$	--		$	7,921
Accounts receivable		--			103,200			--			103,200
Inventories		--			76,725			--			76,725
Prepaid expenses, other assets and income taxes receivable		1,520			5,034			--			6,554
Intercompany receivable		425,211			--			(425,211	)		--
Deferred income taxes		7,087			--			--			7,087
Total current assets		436,938			189,760			(425,211	)		201,487
Property, plant and equipment, net		5,263			38,234			--			43,497
Intangible assets, net		--			449,744			--			449,744
Investment in subsidiaries		206,163			--			(206,163	)		--
Other assets		8,400			1,339			--			9,739
Total assets	$	656,764		$	679,077		$	(631,374	)	$	704,467
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS’ EQUITY
Current portion of long-term debt	$	1,500		$	2,966		$	--		$	4,466
Accounts payable		2,534			17,986			--			20,520
Accrued expenses		7,096			3,859			--			10,955
Accrued interest payable		8,257			63			--			8,320
Accrued compensation related costs		1,485			20,190			--			21,675
Total current liabilities		20,872			45,064			--			65,936
Long-term debt, less current portion		367,292			6,673			--			373,965
Deferred income taxes		35,713			(4,862	)		--			30,851
Income taxes payable		2,418			(2,418	)		--			--
Intercompany payable		--			425,211			(425,211	)		--
Other liabilities		3,285			3,246			--			6,531
Total liabilities		429,580			472,914			(425,211	)		477,283
Redeemable preferred stock		61,942			--			--			61,942
Common stock		222			35			(35	)		222
Additional paid-in capital		156,346			7,460			(7,460	)		156,346
Unearned compensation		(2,615	)		--			--			(2,615	)
Retained earnings		11,945			199,208			(199,208	)		11,945
Treasury stock		(656	)		(540	)		540			(656	)
Total shareholders’ equity		165,242			206,163			(206,163	)		165,242
Total liabilities, redeemable preferred stock
and shareholders’ equity	$	656,764		$	679,077		$	(631,374	)	$	704,467

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NOTE N – CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

STATEMENT OF OPERATIONS Three Months Ended June 30, 2006 (In thousands)	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Totals
Net sales	$	--		$	152,855	$	--		$	152,855
Cost of goods sold (exclusive of depreciation and amortization)		--			75,346		--			75,346
Selling, general and administrative		7,986			49,765		--			57,751
Depreciation and amortization		419			3,340		--			3,759
(Loss) income from operations		(8,405	)		24,404		--			15,999
Interest expense, net		9,773			141		--			9,914
Extinguishment of debt		16,415			--		--			16,415
Equity in earnings of subsidiaries		24,263			--		(24,263	)		--
(Loss) income before taxes		(10,330	)		24,263		(24,263	)		(10,330	)
Income taxes benefit		(4,606	)		--		--			(4,606	)
Net (loss) income	$	(5,724	)	$	24,263	$	(24,263	)	$	(5,724	)

STATEMENT OF OPERATIONS Three Months Ended June 30, 2005 (In thousands)	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Totals
Net sales	$	--		$	149,654	$	--		$	149,654
Cost of goods sold (exclusive of depreciation and amortization)		--			71,738		--			71,738
Selling, general and administrative		6,525			51,974		--			58,499
Depreciation and amortization		386			3,052		--			3,438
(Loss) income from operations		(6,911	)		22,890		--			15,979
Interest expense, net		9,213			187		--			9,400
Equity in earnings of subsidiaries		22,703			--		(22,703	)		--
Income before taxes		6,579			22,703		(22,703	)		6,579
Provision for income taxes		2,763			--		--			2,763
Net income	$	3,816		$	22,703	$	(22,703	)	$	3,816

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NOTE N – CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

STATEMENT OF OPERATIONS Six Months Ended June 30, 2006 (In thousands)	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Totals
Net sales	$	--		$	293,300	$	--		$	293,300
Cost of goods sold (exclusive of depreciation and amortization)		--			145,561		--			145,561
Selling, general and administrative		15,314			98,064		--			113,378
Depreciation and amortization		833			6,614		--			7,447
(Loss) income from operations		(16,147	)		43,061		--			26,914
Interest expense, net		19,120			294		--			19,414
Extinguishment of debt		16,415			--		--			16,415
Equity in earnings of subsidiaries		42,767			--		(42,767	)		--
(Loss) income before taxes		(8,915	)		42,767		(42,767	)		(8,915	)
Income taxes benefit		(4,020	)		--		--			(4,020	)
Net (loss) income	$	(4,895	)	$	42,767	$	(42,767	)	$	(4,895	)

STATEMENT OF OPERATIONS Six Months Ended June 30, 2005 (In thousands)	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries		Consolidating Adjustments			Consolidated Totals
Net sales	$	--		$	282,654	$	--		$	282,654
Cost of goods sold (exclusive of depreciation and amortization)		--			139,184		--			139,184
Selling, general and administrative		12,505			96,930		--			109,435
Depreciation and amortization		782			6,165		--			6,947
(Loss) income from operations		(13,287	)		40,375		--			27,088
Interest expense, net		17,883			361		--			18,244
Equity in earnings of subsidiaries		40,014			--		(40,014	)		--
Income before taxes		8,844			40,014		(40,014	)		8,844
Provision for income taxes		3,693			--		--			3,693
Net income	$	5,151		$	40,014	$	(40,014	)	$	5,151

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NOTE N – CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)

STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2006 (In thousands)	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries			Consolidating Adjustments		Consolidated Totals
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(12,893	)	$	5,819		$	--	$	(7,074	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(934	)		(4,243	)		--		(5,177	)
Acquisitions and earnouts		--			(506	)		--		(506	)
Proceeds from sale of property, plant and equipment		--			57			--		57
Net cash used in investing activities		(934	)		(4,692	)		--		(5,626	)
Cash flows from financing activities:
Borrowings under revolving credit agreement		21,000			--			--		21,000
Repayments under revolving credit agreement		(26,000	)		--			--		(26,000	)
Repayment of term loan		(146,625	)		--			--		(146,625	)
Repayment of senior notes		(190,921	)		--			--		(190,921	)
Repayment of senior subordinated debt		(15,485	)		--			--		(15,485	)
Repurchase of 7% Redeemable Preferred Stock		(64,693	)		--			--		(64,693	)
Proceeds from new term loan facility		230,000			--			--		230,000
Proceeds from senior note issuance		175,000			--			--		175,000
Proceeds from issuance of Series A Convertible Preferred Stock		50,000			--			--		50,000
Scheduled repayment of long-term debt		--			(1,129	)		--		(1,129	)
Increase in financing costs		(13,263	)		--			--		(13,263	)
Proceeds from issuance of Common Stock		253			--			--		253
Change in book overdraft		(667	)		--			--		(667	)
Net cash provided by (used in) financing activities		18,599			(1,129	)		--		17,470
Net increase (decrease) in cash and cash equivalents		4,772			(2	)		--		4,770
Cash and cash equivalents, at beginning of period		3,120			4,801			--		7,921
Cash and cash equivalents, at end of period	$	7,892		$	4,799		$	--	$	12,691

STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2005 (In thousands)	Hanger Orthopedic Group (Parent Company)			Guarantor Subsidiaries			Consolidating Adjustments		Consolidated Totals
Cash flows from operating activities:
Net cash (used in) provided by operating activities	$	(3,988	)	$	7,839		$	--	$	3,851
Cash flows from investing activities:
Purchase of property, plant and equipment		(412	)		(3,545	)		--		(3,957	)
Acquisitions and earnouts		--			(2,215	)		--		(2,215	)
Net cash used in investing activities		(412	)		(5,760	)		--		(6,172	)
Cash flows from financing activities:
Borrowings under revolving credit agreement		29,000			--			--		29,000
Repayments under revolving credit agreement		(31,000	)		--			--		(31,000	)
Scheduled repayment of long-term debt		(750	)		(1,211	)		--		(1,961	)
Increase in financing costs		(3	)		--			--		(3	)
Proceeds from issuance of Common Stock		189			--			--		189
Change in book overdraft		4,350			2,334			--		6,684
Net cash provided by financing activities		1,786			1,123			--		2,909
Net (decrease) increase in cash and cash equivalents		(2,614	)		3,202			--		588
Cash and cash equivalents, at beginning of period		3,466			4,885			--		8,351
Cash and cash equivalents, at end of period	$	852		$	8,087		$	--	$	8,939

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following is a discussion of our results of operations and financial position for the periods described below. This discussion should be read in conjunction with the Condensed Consolidated Financial Statements included in this report.

Business Overview

General

We are the largest owner and operator of orthotic and prosthetic (“O&P”) patient-care centers in the United States. Through our wholly-owned subsidiary, Southern Prosthetic Supply, Inc. (“SPS”), we are also the largest distributor of branded and private label O&P devices and components in the United States, all of which are manufactured by third parties. We also create products, through our wholly-owned subsidiary, Innovative Neurotronics, Inc. (“IN, Inc.”), for sale in our patient-care centers and through a sales force, to patients who have had a loss of mobility due to strokes, multiple sclerosis or other similar conditions. Another subsidiary, Linkia, LLC (“Linkia”), is a provider network management company.

We have increased our net sales during the past two years principally through acquisitions, increased distribution revenues, sales generated by the two national contracts signed by our Linkia subsidiary and by opening new patient-care centers. We strive to improve our local market position to enhance operating efficiencies and generate economies of scale. We generally acquire small and medium-sized O&P patient care businesses and open new patient-care centers to achieve greater density in our existing markets.

Patient Care

In our orthotics business, we design, fabricate, fit and maintain a wide range of standard and custom-made braces and other devices (such as spinal, knee and sports-medicine braces) that provide external support to patients suffering from musculoskeletal disorders, such as ailments of the back, extremities or joints and injuries from sports or other activities. In our prosthetics business, we design, fabricate, fit and maintain custom-made artificial limbs for patients who are without limbs as a result of traumatic injuries, vascular diseases, diabetes, cancer or congenital disorders. O&P devices are increasingly technologically advanced and are custom-designed to add functionality and comfort to patients’ lives, shorten the rehabilitation process and lower the cost of rehabilitation.

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At June 30, 2006, we operated 621 O&P patient-care centers (“patient-care centers”) in 45 states and the District of Columbia and employed in excess of 1,000 revenue-generating O&P practitioners (“practitioners”). Patients are referred to our local patient-care centers directly by physicians as a result of our reputation with them or through our agreements with managed care providers. Practitioners, technicians and office administrators staff our patient-care centers. Our practitioners generally design and fit patients with, and the technicians fabricate, O&P devices as prescribed by the referring physician. Following the initial design, fabrication and fitting of our O&P devices, our technicians conduct regular, periodic maintenance of O&P devices as needed. Our practitioners are also responsible for managing and operating our patient-care centers and are compensated, in part, based on their success in managing costs and collecting accounts receivable. We provide centralized administrative, marketing and materials management services to take advantage of economies of scale and to increase the time practitioners have to provide patient care. In areas where we have multiple patient-care centers, we also utilize shared fabrication facilities where technicians fabricate devices for practitioners in that area.

Distribution

Our distribution segment, SPS, is the largest distributor in the O&P market with sales generated through a dedicated sales force and product catalogue. SPS purchases and distributes O&P products to our patient-care centers as well as independent O&P providers. SPS maintains three distribution sites throughout the U.S. to facilitate prompt shipping.

Products

In 2004, the Company formed a new subsidiary, IN, Inc. Specializing in the field of functional electrical stimulation, IN, Inc. identifies emerging MyoOrthotics Technologies® developed at research centers and universities throughout the world that use neuromuscular stimulation to improve the functionality of an impaired limb. MyoOrthotics Technologies represents the merging of orthotic technologies with electrical stimulation. Working with the inventors, IN, Inc. advances the design and manufacturing, as well as the regulatory and clinical aspects of the technology, and then introduces the devices to the marketplace through a variety of distribution channels. IN, Inc.’s first product, the WalkAide System, was released for sale during the second quarter of 2006.

Provider Network Management

Linkia, the first provider network management service company dedicated solely to serving the O&P market, was created in 2003 and is dedicated to managing the O&P services of national insurance companies. Linkia partners with healthcare insurance companies by securing national and regional contracts to manage the O&P networks of those companies. In 2004, Linkia entered into its first contract and in September 2005, Linkia signed an agreement with CIGNA HealthCare which will cover nine million beneficiaries. We will continue the deployment of Linkia and although it is too early to assess the overall success of this effort, we expect the Linkia contracts to increasingly impact sales in the second half of fiscal 2006, as the CIGNA contract is phased in on a geographic basis.

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Industry Overview

We estimate the O&P patient care market in the United States represented approximately $2.5 billion in revenues in 2005, of which we accounted for approximately 21%. The O&P patient care services market is highly fragmented and is characterized by local, independent O&P businesses, with the majority generally having a single facility with annual revenues of less than $1.0 million. We do not believe that any of our patient care competitors account for a market share of more than 2% of the country’s total estimated O&P patient care services revenue.

The care of O&P patients is part of a continuum of rehabilitation services including diagnosis, treatment and prevention of future injury. This continuum involves the integration of several medical disciplines that begins with the attending physician’s diagnosis. A patient’s course of treatment is generally determined by an orthopedic surgeon, vascular surgeon or physiatrist, who writes a prescription and refers the patient to an O&P patient care services provider for treatment. A practitioner then, using the prescription, consults with both the referring physician and the patient to formulate the design of an orthotic or prosthetic device to meet the patient’s needs.

The O&P industry is characterized by stable, recurring revenues, primarily resulting from the need for periodic replacement and modification of O&P devices. Based on our experience, the average replacement time for orthotic devices is one to three years, while the average replacement time for prosthetic devices is three to five years. There is also an attendant need for continuing O&P patient care services. In addition to the inherent need for periodic replacement and modification of O&P devices and continuing care, we expect the demand for O&P services will continue to grow as a result of several key trends, including:

Aging U.S. Population. The growth rate of the over-65 age group is nearly triple that of the under-65 age group. There is a direct correlation between age and the onset of diabetes and vascular disease, which is the leading cause of amputations. With broader medical insurance coverage, increasing disposable income, longer life expectancy, greater mobility expectations and improved technology of O&P devices, we believe the elderly will increasingly seek orthopedic rehabilitation services and products.

Growing Physical Health Consciousness. The emphasis on physical fitness, leisure sports and conditioning, such as running and aerobics, is growing, which has led to increased injuries requiring orthopedic rehabilitative services and products. These trends are evidenced by the increasing demand for new devices that provide support for injuries, prevent further or new injuries or enhance physical performance.

Increased Efforts to Reduce Healthcare Costs. O&P services and devices have enabled patients to become ambulatory more quickly after receiving medical treatment in the hospital. We believe that significant cost savings can be achieved through the early use of O&P services and products. The provision of O&P services and products in many cases reduces the need for more expensive treatments, thus representing a cost savings to third-party payors.

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Advancing Technology. The range and effectiveness of treatment options for patients requiring O&P services have increased in connection with the technological sophistication of O&P devices. Advances in design technology and lighter, stronger and more cosmetically acceptable materials have enabled patients to replace older O&P devices with new O&P products that provide greater comfort, protection and patient acceptability. As a result, treatment can be more effective or of shorter duration, giving the patient greater mobility and a more active lifestyle. Advancing technology has also increased the prevalence and visibility of O&P devices in many sports, including skiing, running and tennis.

Competitive Strengths

The combination of the following competitive strengths should help us in growing our business through an increase in our net sales, net income and market share:

• Leading market position, with an approximate 21% share of total industry revenues and operations in 45 states and the District of Columbia, in an otherwise fragmented industry;

• National scale of operations, which has better enabled us to:

- establish our brand name and generate economies of scale;

- implement best practices throughout the country;

- utilize shared fabrication facilities;

- contract with national and regional managed care entities;

- identify, test and deploy emerging technology; and

- increase our influence on, and input into, regulatory trends;

• Distribution of, and purchasing power for, O&P components and finished O&P products, which enables us to:

- negotiate greater purchasing discounts from manufacturers and freight providers;

- reduce patient-care center inventory levels and improve inventory turns through centralized purchasing control;

- quickly access prefabricated and finished O&P products;

- promote the usage by our patient-care centers of clinically appropriate products that also enhance our profit margins;

- engage in co-marketing and O&P product development programs with suppliers; and

- expand the non-Hanger client base of our distribution segment;

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• Development of leading-edge technology for sale in our practices and through distributors;

• Full O&P product offering, with a balanced mix between orthotics services and products and prosthetics services and products;

• Practitioner compensation plans that financially reward practitioners for their efficient management of accounts receivable collections, labor, materials, and other costs, and encourages cooperation among our practitioners within the same local market area;

• Proven ability to rapidly incorporate technological advances in the fitting and fabrication of O&P devices;

• History of successful integration of small and medium-sized O&P business acquisitions, including 55 O&P businesses since 1997, representing over 150 patient-care centers;

• Highly trained practitioners, whom we provide with the highest level of continuing education and training through programs designed to inform them of the latest technological developments in the O&P industry, and our certification program located at the University of Connecticut; and

• Experienced and committed management team.

Business Strategy

Our goal is to continue to provide superior patient care and to be the most cost-efficient, full service, national O&P operator. The key elements of our strategy to achieve this goal are to:

• improve our performance by:

- developing and deploying new processes to improve the productivity of our practitioners;

- continuing periodic patient evaluations to gauge patients' device and service satisfaction;

- improving the utilization and efficiency of administrative and corporate support services;

- enhancing margins through continued consolidation of vendors and product offering; and

- leveraging our market share to increase sales and enter into more competitive payor contracts;

• increase our market share and net sales by:

- continued marketing of Linkia services to regional and national providers;

- contracting with national and regional managed care providers who we believe select us as a preferred O&P provider because of our reputation, national reach, density of our patient-care centers in certain markets and our ability to help reduce administrative expenses;

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- increasing our volume of business through enhanced comprehensive marketing programs aimed at referring physicians and patients, such as our Patient Evaluation Clinics program, which reminds patients to have their devices serviced or replaced and informs them of technological improvements of which they can take advantage; and our “People in Motion” program which introduces potential patients to the latest O&P technology; and

- expansion of the breadth of products being offered out of our patient-care centers;

• develop businesses that provide services and products to the broader rehabilitation and post-surgical healthcare areas as demonstrated by our emerging venture called TotalCare, a program designed to provide comprehensive O&P services to our patients;

• continue to create, license or patent and market devices based on new cutting edge technology. We anticipate bringing new technology to the market through our IN, Inc. product line. The first new product, the WalkAide System, became available for sale in May 2006;

• provide our practitioners with the training necessary to utilize existing technology for different patient service facets, such as the use of our Insignia scanning system for burns and cranial helmets;

• selectively acquire small and medium-sized O&P patient care service businesses and open satellite patient-care centers primarily to expand our presence within an existing market and secondarily to enter into new markets; and

• provide our practitioners with:

- career development and increased compensation opportunities;

- a wide array of O&P products from which to choose;

- administrative and corporate support services that enable them to focus their time on providing superior patient care; and

- selective application of new technology to improve patient care.

Critical Accounting Estimates

Our analysis and discussion of our financial condition and results of operations are based upon our Consolidated Financial Statements that have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. GAAP provides the framework from which to make these estimates, assumptions, adjustments, and disclosures. We have chosen accounting policies within GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. Our significant accounting policies are stated in Note B to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2005. We believe the following accounting policies are critical to understanding the results of operations and affect the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements.

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• Revenue Recognition: Revenues on the sale of orthotic and prosthetic devices and associated services to patients are recorded when the device is accepted by the patient, provided that (i) delivery has occurred or services have been rendered; (ii) persuasive evidence of an arrangement exists; (iii) the sales price is fixed or determinable; and (iv) collectibility is reasonably assured. Revenues on the sale of orthotic and prosthetic devices to customers by our distribution segment are recorded upon the shipment of products, in accordance with the terms of the invoice, net of merchandise returns received and the amount established for anticipated returns. Discounted sales are recorded at net realizable value. Deferred revenue represents prepaid tuition and fees received from students enrolled in our practitioner education program.

Revenue at our patient-care centers segment is recorded net of all governmental adjustments, contractual adjustments and discounts. We employ a systematic process to ensure that our sales are recorded at net realizable value and that any required adjustments are recorded on a timely basis. The contracting module of our centralized, computerized billing system is designed to record revenue at net realizable value based on our contract with the patient’s insurance company. Updated billing information is received periodically from payors and is uploaded into our centralized contract module and then disseminated to all patient-care centers electronically.

The following represents the summary aging of our patient-care segment’s accounts receivable balance by payor at June 30, 2006:

(In thousands)	0-60 days		61-120 days		Over 120 days		Total
Commercial and other	$	35,328	$	7,759	$	7,679	$	50,766
Private pay		3,988		1,714		3,102		8,804
Medicaid		8,404		2,348		2,940		13,692
Medicare		11,453		2,693		2,814		16,960
VA		1,289		199		146		1,634
	$	60,462	$	14,713	$	16,681	$	91,856

We completed the rollout of OPS, the Company’s centralized, computerized billing system, in the second quarter of 2005, prior to which we were unable to develop reports to determine the composition of our accounts receivable by payor.

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Disallowed sales generally relate to billings to payors with whom we do not have a formal contract. In these situations we record the sale at usual and customary rates and simultaneously record a disallowed sale to reduce the sale to net value, based on our historical experience with the payor in question. Disallowed sales may also result if the payor rejects or adjusts certain billing codes. Billing codes are frequently updated within our industry. As soon as updates are received, we reflect the change in our centralized billing system.

As part of our preauthorization process with payors, we validate our ability to bill the payor for the service we are providing before we deliver the device. Subsequent to billing for our devices and services, there may be problems with pre-authorization or with other insurance coverage issues with payors. If there has been a lapse in coverage, the patient is financially responsible for the charges related to the devices and services received. If we do not collect from the patient, we record bad debt expense. Occasionally, a portion of a bill is rejected by a payor due to a coding error on our part and we are prevented from pursuing payment from the patient due to the terms of our contract with the insurance company. We appeal these types of decisions and are generally successful. This activity is factored into our methodology to determine the estimate for the allowance for doubtful accounts. We immediately record, as a reduction of sales, a disallowed sale for any claims that we know we will not recover and adjust our future estimates accordingly.

Certain accounts receivable may be uncollectible, even if properly pre-authorized and billed. Regardless of the balance, accounts receivable amounts are periodically evaluated to assess collectibility. In addition to the actual bad debt expense recognized during collection activities, we estimate the amount of potential bad debt expense that may occur in the future. This estimate is based upon our historical experience as well as a review of our receivable balances. On a quarterly basis, we evaluate cash collections, accounts receivable balances and write-off activity to assess the adequacy of our allowance for doubtful accounts. Additionally, a company-wide evaluation of collectibility of receivable balances older than 180 days is performed at least semi-annually, the results of which are used in the next allowance analysis. In these detailed reviews, the account’s net realizable value is estimated after considering the customer’s payment history, past efforts to collect on the balance and the outstanding balance, and a specific reserve is recorded if needed. From time to time, the Company may outsource the collection of such accounts to outsourced agencies after internal collection efforts are exhausted. In the cases when valid accounts receivable cannot be collected, the uncollectible account is written off to bad debt expense.

• Inventories: Inventories, which consist principally of raw materials, work-in-process and finished goods, are stated at the lower of cost or market using the first-in, first-out method. At our patient-care centers segment, we calculate cost of goods sold in accordance with the gross profit method for all reporting periods. We base the estimates used in applying the gross profit method on the actual results of the most recently completed fiscal year and other factors, such as sales mix and purchasing trends among other factors, affecting cost of goods sold during the current reporting periods. Estimated cost of goods sold during the period is adjusted when the annual physical inventory is taken. We treat these adjustments as changes in accounting estimates. At our distribution segment, a perpetual inventory is maintained. Management adjusts our reserve for inventory obsolescence whenever the facts and circumstances indicate that the carrying cost of certain inventory items is in excess of its market price. Shipping and handling costs are included in cost of goods sold.

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• Property, Plant and Equipment: We record property, plant and equipment at cost. Equipment acquired under capital leases is recorded at the lower of fair market value or the present value of the future lease payments. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed of are removed from the respective accounts, and any resulting gains or losses are included in the Consolidated Statements of Operations. Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the related assets as follows:

Furniture and fixtures	5 years
Machinery and equipment	5 years
Computers and software	5 years
Buildings	10 to 40 years
Assets under capital leases	Shorter of asset life or term of lease
Leasehold improvements	Shorter of asset life or term of lease

We capitalize internally developed computer software costs incurred during the application development stage in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.

• Goodwill and Other Intangible Assets: Excess cost over net assets acquired (“Goodwill”) represents the excess of purchase price over the value assigned to net identifiable assets of purchased businesses. We assess goodwill for impairment when events or circumstances indicate that the carrying value may not be recoverable, or, at a minimum, annually in the Company’s fourth quarter. Any impairment would be recognized by a charge to operating results and a reduction in the carrying value of the intangible asset.

Non-compete agreements are recorded based on agreements entered into by us and are amortized, using the straight-line method, over their terms ranging from five to seven years. Other definite-lived intangible assets are recorded at cost and are amortized, using the straight-line method, over their estimated useful lives of up to 16 years. Whenever the facts and circumstances indicate that the carrying amounts of these intangibles may not be recoverable, management reviews and assesses the future cash flows expected to be generated from the related intangible for possible impairment. Any impairment would be recognized as a charge to operating results and a reduction in the carrying value of the intangible asset.

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• Deferred Tax Assets (Liabilities). We account for certain income and expense items differently for financial accounting purposes than for income tax purposes. Deferred income tax assets or liabilities are provided in recognition of these temporary differences. We recognize deferred tax assets if it is more likely than not the assets will be realized in future years. We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure and assess the temporary differences resulting from differing treatment of items, such as the deductibility of certain intangible assets, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income. To the extent we believe the recovery is not likely, we must establish a valuation allowance, which will continually be assessed. After having determined that we will be able to begin utilizing a significant portion of the deferred tax assets, the valuation allowance may be reversed, resulting in a benefit to the statement of operations in some future period.

• Stock-Based Compensation. Stock-based compensation is accounted for using the grant-date fair value method. Compensation expense is recognized ratably over the service period. We estimate a 0% forfeiture rate for unvested options, as they relate to director awards and we do not foresee any director terminations prior to vesting. Based on the history of restricted stock forfeitures, we do not believe future forfeitures will have a material impact on future compensation expense or earnings per share.

• Supplemental Executive Retirement Plan. Benefit costs and liabilities balances are calculated based on certain assumptions including benefits earned, discount rates, interest costs, mortality rates and other factors. Actual results that differ from the assumptions are accumulated and amortized over future periods, affecting the recorded obligation and expense in future periods. The following assumptions were used in the calculation of the net benefit cost and obligation at June 30, 2006:

Discount rate	5.5%
Average rate of increase in compensation	3.0%

We believe the assumptions used are appropriate, however, changes in assumptions or differences in actual experience may affect our benefit obligation and future expenses.

New Accounting Guidance

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) 123R, Share-Based Payment (“SFAS 123R”), which require companies to measure and recognize compensation expense for all share-based payments at fair value. SFAS 123R eliminates the ability to account for share-based compensation transactions using APB Opinion 25, Accounting for Stock Issued to Employees (“APB 25”) and generally requires that such transactions be accounted for using prescribed fair-value-based methods.

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Prior to January 1, 2006, we accounted for stock-based awards under the measurement and recognition provisions of APB 25. Under APB 25, stock options granted at the fair market value of the underlying stock required no recognition of compensation cost. However, we disclosed the pro-forma effect on net income of recognizing compensation cost, as required by SFAS 123, Accounting for Stock-Based Compensation and SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure.

Given our recent trend of compensating certain of our employees with restricted shares of common stock instead of options, and in anticipation of the implementation of SFAS 123R, during the second quarter 2005 we accelerated the vesting of 1.2 million non-director stock options which had a grant price in excess of the market value of the underlying common stock. These options had grant prices ranging from $6.02 to $16.81 and vesting periods through January 3, 2009. The compensation expense related to this acceleration was $3.3 million which was reflected, net of tax, in our 2005 pro-forma net income calculation.

We adopted SFAS 123R using the modified prospective method allowed for in SFAS 123R. Under the modified prospective method, compensation expense related to awards granted prior to and unvested as of the adoption of SFAS 123R is calculated in accordance with SFAS 123 and recognized in the statements of operations over the requisite remaining service period; compensation expense for all awards granted after the adoption of SFAS 123R is calculated according to the provision of SFAS 123R. Results for prior periods have not been restated. For the three and six month periods ended June 30, 2006, we recognized $0.4 million and $0.7 million in compensation expense, respectively. For the three and six month periods ended June 30, 2006 less than $0.1 million and $0.1 million of compensation expense related to options.

The adoption of SFAS 123R reduced income from operations, income before income tax expense, and net income for the three months ended March 31, 2006 by less than $0.1 million. Additionally, effective January 1, 2006, we eliminated the balance of Unearned Compensation, on the Consolidated Balance Sheets, to Additional Paid-in-Capital.

As of June 30, 2006, total unrecognized compensation cost related to stock option awards was approximately $0.1 million and the related weighted-average period over which it is expected to be recognized is approximately 1.1 years. Total unrecognized compensation cost related to restricted shares of common stock was approximately $9.8 million as of June 30, 2006 and the weighted-average period over which it is expected to be recognized is approximately 3.2 years.

In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments (“SFAS 155”). SFAS 155 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) and SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”). The provisions of SFAS 155 allow for the fair value remeasurement of hybrid financial instruments that contain embedded derivatives that otherwise would require bifurcation and eliminates the interim guidance that provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS 133. Additionally, SFAS 155 eliminates SFAS 140’s restriction on qualifying special-purpose entities of holding derivative financial instruments that pertain to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after fiscal years beginning after September 15, 2006. We believe the adoption of SFAS 155 will not have an impact on our financial statements.

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In March 2006, the FASB issued SFAS 156, Accounting for Servicing of Financial Assets (“SFAS 156”), amending SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 156 permits entities the choice between either the amortization method or the fair value measurement method for valuing separately recognized servicing assets and liabilities. SFAS 156 is effective for fiscal years beginning after September 15, 2006; early adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements for any interim period of that fiscal year. We believe the adoption of SFAS 156 will not have an impact on our financial statements.

In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”), which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires us to recognize, in our financial statements, the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact adoption FIN 48 may have on our financial statements.

Results of Operations

The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Operations and their percentage of our net sales:

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Net sales		100.0	%		100.0	%		100.0	%		100.0
Cost of goods sold		49.3			47.9			49.6			49.2
Selling, general and administrative		37.8			39.1			38.8			38.7
Depreciation and amortization		2.5			2.3			2.5			2.5
Income from operations		10.4			10.7			9.1			9.6
Interest expense, net		6.5			6.3			6.6			6.5
Extinguishment of debt		10.7			--			5.6			--
(Loss) income before taxes		(6.8	)		4.4			(3.1	)		3.1
(Benefit) provision for income taxes		(3.1	)		1.9			(1.4	)		1.3
Net (loss) income		(3.7	)		2.5			(1.7	)		1.8

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Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005

Net Sales. Net sales for the three months ended June 30, 2006 were $152.9 million, an increase of $3.2 million, or 2.1%, versus net sales of $149.7 million for the three months ended June 30, 2005. The sales increase was the result of a $0.2 million, or 0.1%, same-center sales growth and a $3.4 million, or 31.0%, increase in external sales of our distribution segment, offset by a $0.3 million decline as a result of closed practices.

Cost of Goods Sold. Cost of goods sold for the three months ended June 30, 2006 was $75.3 million, an increase of $3.6 million, or 5.0%, over $71.7 million for the same period in the prior year. The increase was the result of the increased sales volume at our patient-care centers and distribution segments. Cost of goods sold as a percentage of net sales increased to 49.3% in 2006 from 47.9% in 2005 as a result of an increase in the cost of materials. The increase in cost of materials was due principally to the increase in external sales at our distribution segment.

Selling, General and Administrative. Selling, general and administrative expenses for the three months ended June 30, 2006 decreased by $0.7 million to $57.8 million, or 37.8% of net sales from $58.5 million, or 39.1% of net sales, for the three months ended June 30, 2005. The decrease was principally due to a $0.9 million decrease in bad debt expense and a $0.5 million reduction in labor costs, offset by a $0.7 million increase in the investments in our growth initiatives.

Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2006 was $3.8 million versus $3.4 million for the three months ended June 30, 2005. This increase was primarily due to the depreciation of computer related assets and amortization of leasehold improvements.

Income from Operations. As a result of the above, income from operations for each of the three month periods ended June 30, 2006 and 2005 was $16.0 million. Income from operations, as a percentage of net sales, decreased to 10.4% for the three months ended June 30, 2006 versus 10.7% for the prior year’s comparable period as a result of the increase in net sales in the three month period ended June 30, 2006.

Interest Expense, Net. Interest expense in the three months ended June 30, 2006 increased to $9.9 million compared to $9.4 million in the three months ended June 30, 2005 due to higher variable interest rates coupled with interest expense being recognized on both the existing and refinanced debt instruments during part of the quarter.

Extinguishment of Debt. During May of 2006, we completed a refinancing of substantially all our outstanding debt and preferred stock, in conjunction with which we recognized a $16.4 million loss on extinguishment of debt.

Income Taxes. An income tax benefit of $4.6 million was recognized for the three months ended June 30, 2006 compared to an expense of $2.8 million for the same period of the prior year. The change in the income tax provision was primarily the result of the loss on the extinguishment of debt. The effective tax rate for the three months ended June 30, 2006 was 44.6% compared to 42.0% for the three months ended June 30, 2005. The lower net income in the 2006 period coupled with permanent book-to-tax differences resulted in the higher effective tax rate.

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Net Income. As a result of the above, we recorded a net loss of $5.7 million for the three months ended June 30, 2006, compared to net income of $3.8 million for the same period in the prior year.

Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Net Sales. Net sales for the six months ended June 30, 2006 were $293.3 million, an increase of $10.6 million, or 3.7%, versus net sales of $282.7 million for the six months ended June 30, 2005. The sales increase was the result of a $5.0 million, or 1.9%, same-center sales growth and a $6.6 million, or 31.0%, increase in external sales of our distribution segment, offset by a $0.7 million decline as a result of closed practices.

Cost of Goods Sold. Cost of goods sold for the six months ended June 30, 2006 was $145.6 million, an increase of $6.4 million, or 4.6%, over $139.2 million for the same period in the prior year. The increase was the result of the increased sales volume at our patient-care centers and distribution segments. Cost of goods sold as a percentage of net sales increased to 49.6% in 2006 from 49.2% in 2005 as a result of an increase in the cost of materials. The increase in cost of materials was due principally to the increase in external sales at our distribution segment.

Selling, General and Administrative. Selling, general and administrative expenses for the six months ended June 30, 2006 increased by $4.0 million to $113.4 million, or 38.8% of net sales from $109.4 million, or 38.7% of net sales, for the six months ended June 30, 2005. The increase was principally due to the following: (i) $3.4 million increase in labor costs related to merit increases and increased health insurance costs; (ii) $1.6 million invested in Linkia and IN, Inc. growth strategies; and (iii) $0.6 million in professional fees, offset by a $1.7 million decrease in bad debt expense.

Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2006 was $7.4 million versus $6.9 million for the six months ended June 30, 2005. This increase was primarily due to the depreciation of computer related assets and amortization of leasehold improvements.

Income from Operations. As a result of the above, income from operations for the six months ended June 30, 2006 was $26.9 million compared to $27.1 million for the six months ended June 30, 2005. Income from operations, as a percentage of net sales, decreased to 9.1% for the six months ended June 30, 2006 versus 9.6% for the prior year’s comparable period primarily as a result of the increase in net sales in the six month period ended June 30, 2006.

Interest Expense, Net. Interest expense in the six months ended June 30, 2006 increased to $19.4 million compared to $18.2 million in the six months ended June 30, 2005 due to higher variable interest rates as well as the recognition of interest expense on both the old and refinanced debt instruments during part of the six month period.

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Extinguishment of Debt. In May 2006, we completed a refinancing of substantially all of our outstanding debt and preferred stock; in conjunction with this transaction, a $16.4 million loss on extinguishment of debt was recorded.

Income Taxes. Income tax benefit of $4.0 million was recognized for the six months ended June 30, 2006 compared to an expense of $3.7 million for the same period of the prior year. The change in the income tax provision was primarily the result of the loss on extinguishment of debt. The effective tax rate for the six months ended June 30, 2006 was 45.1% compared to 41.8% for the six months ended June 30, 2005. The lower net income in the 2006 period coupled with permanent book-to-tax differences resulted in a higher effective tax rate.

Net Income. As a result of the above, we recorded a net loss of $4.9 million for the six months ended June 30, 2006, compared to net income of $5.2 million for the same period in the prior year.

Ratio of Earnings to Fixed Charges

Our ratio of earnings to fixed charges for the three month periods ended June 30, 2006 and 2005 was 2.28 to 1 and 2.34 to 1, respectively. For the six month periods ended June 30, 2006 and 2005 our ratio of earnings to fixed charges was 2.09 to 1 and 2.17 to 1, respectively. For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense (including amortization of debt issuance costs, but not losses relating to the early extinguishment of debt) and 33% of rental expense (considered to be representative of the interest factors).

Restructuring and Integration Costs

The following summarizes the components of the restructuring reserve and the remaining balances:

(In thousands)	Total Restructuring Reserve
2001 Restructuring Reserve
Balance at December 31, 2005	$	220
Spending		(64	)
Balance at June 30, 2006		156
2004 Restructuring Reserve
Balance at December 31, 2005		161
Spending		(50	)
Balance at June 30, 2006		111
2001 and 2004 Restructuring Reserves	$	267

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2001 Restructuring Reserve

During 2001, as a result of the initiatives associated with our performance improvement plan developed in conjunction with AlixPartners, LLC (formerly Jay Alix & Associates, Inc.), we recorded approximately $4.5 million in restructuring and asset impairment costs. The plan called for the closure of certain facilities and the termination of approximately 135 employees.

As of December 31, 2002, all properties had been vacated, all of the employees had been terminated and all corresponding payments under the severance initiative had been made. At June 30, 2006, the remaining reserve of $0.2 million is adequate to provide for the lease costs which are expected to be paid through October 2012.

2004 Restructuring Reserve

During the first quarter of 2004, we adopted a restructuring plan as a result of acquiring an O&P company. The restructuring plan includes estimated expenses of $0.7 million related to the closure/merger of nine facilities and the payment of severance costs to 20 terminated employees.

As of December 31, 2005, all of the nine patient-care centers had been closed/merged and approximately $0.3 million in lease costs were paid, and the employment of 11 employees had been terminated and $0.1 million of severance payments had been paid. At June 30, 2006, the remaining reserve of $0.1 million is adequate to provide for the lease costs which are expected to be paid through April 2008.

Financial Condition, Liquidity, and Capital Resources

Our working capital at June 30, 2006 was $150.4 million compared to $135.6 million at December 31, 2005. Working capital increased principally as a result of the increase in prepaid expenses and cash on hand, offset by an increase in the current balance of long-term debt. Prepaid expenses increased principally due to an $8.0 million increase in income tax receivable which was generated as a result of the net loss for the period and cash on hand increased as a result of cash received from the May refinancing. The current balance of long-term debt increased as a result of the $9.1 million balance of the 10 3/8% Senior Notes, $0.1 million of 11 ¼% Senior Subordinated Notes and $0.1 million of interest rate swap, all of which were redeemed in July 2006. Days sales outstanding (“DSO”), which is the number of days between the billing for our O&P services and the date of our receipt of payment thereof, for the six months ended June 30, 2006, decreased to 60 days, compared to 66 days for the same period last year. The decrease in DSO is due to a continued effort at our patient-care centers to target collections as well as the implementation of electronic billing and standard workflow protocols. Our ratio of current assets to current liabilities was 3.3 to 1 at June 30, 2006 compared to 3.1 to 1 at December 31, 2005. At June 30, 2006 the Company did not have any outstanding Revolving Credit Facility balance.

Net cash used in operating activities for the six months ended June 30, 2006 was $7.1 million, compared to net cash provided by operating activities of $3.9 million for the six months ended June 30, 2005. The current year operating cash flows included payment of $11.4 million of premiums related to the refinancing of certain debt instruments. In addition, the current year operating cash flows reflected improved collections coupled with the recognition of income taxes receivable as a result of the net loss for the period, offset by an increase in interest payments due to the debt refinancing and the quarterly payment of the variable compensation plan.

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Net cash used in investing activities was $5.6 million for the six months ended June 30, 2006, versus $6.2 million for the same period in the prior year. Cash used in investing activities was principally related to the purchase of computer related assets, machinery and equipment and leasehold improvements.

Net cash provided by financing activities was $17.5 million for the six months ended June 30, 2006, compared to $2.9 million for the six months ended June 30, 2005. The increase in cash provided by financing activities was primarily due to the debt refinancing, as discussed below.

On May 26, 2006, we refinanced our debt and preferred stock with the issuance of the following instruments: (i) $175.0 million of 10 ¼% Senior Notes due 2014; (ii) a $230.0 million term loan facility; and (iii) $50.0 million of Series A Convertible Preferred Stock. We also established a new $75.0 million revolving credit facility, which was unused at June 30, 2006. The proceeds from these instruments were used to retire (i) $190.9 million of the 10 3/8% Senior Notes; (ii) $15.5 million of the 11 ¼% Senior Subordinated Notes; (iii) $146.3 million of the Term Loan; (iv) $11.0 million outstanding under the Revolving Credit facility; (v) $64.7 million of 7% Redeemable Preferred Stock; and (vi) pay $24.7 million of transaction costs. At June 30, 2006, we had $9.1 million of 10 3/8% Senior Notes and $0.1 million of 11 ¼% Senior Subordinated Notes still outstanding. Such outstanding notes were redeemed in July 2006. In conjunction with the refinancing, we incurred a $16.4 million loss on the extinguishment of debt. The extinguishment loss is comprised of $11.4 million of premiums paid to debt holders, $0.3 million of fees paid to the 7% Redeemable Preferred Stock holders and $6.0 million write-off of debt issuance costs offset by a $1.3 million gain related to the interest rate swap.

The Revolving Credit Facility and the Term Loan require compliance with various covenants, including, but not limited to, a minimum consolidated interest coverage ratio, a maximum total leverage ratio and a maximum annual capital expenditure limit. Beginning September 30, 2006, we will assess, on a quarterly basis, our compliance with these covenants and monitor any matters critical to continue our compliance.

We believe that, based on current levels of operations and anticipated growth, cash generated from operations, together with other available sources of liquidity, including borrowings available under the Revolving Credit Facility, will be sufficient for at least the next twelve months to fund anticipated capital expenditures and make required payments of principal and interest on our debt, including payments due on our outstanding debt. In addition, we continually evaluate potential acquisitions and expect to fund such acquisitions from our available sources of liquidity, as discussed above. We are limited to $40.0 million in acquisitions, annually, by the terms of the Revolving Credit Facility.

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The following table sets forth our contractual obligations and commercial commitments as of June 30, 2006:

	Payments Due by Period
	2006		2007		2008		2009		2010		Thereafter		Total
(In thousands)
Long-term debt	$	12,144	$	5,384	$	4,644	$	3,152	$	2,511	$	394,832	$	422,667
Interest payments on long-term debt		18,942		36,537		36,165		35,862		35,644		104,505		267,655
Operating leases		26,314		24,021		19,232		13,618		6,828		4,911		94,924
Capital leases		93		166		87		35		--		--		381
Other long-term obligations (1)		464		416		232		276		12,746		720		14,854
Total contractual cash obligations	$	57,957	$	66,524	$	60,360	$	52,943	$	57,729	$	504,968	$	800,481

(1) Other long-term obligations consist primarily of amounts related to our Supplemental Executive Retirement Plan, earnout payments and payments under the restructuring plans.

Market Risk

We are exposed to the market risk that is associated with changes in interest rates. At June 30, 2006, all our outstanding debt, with the exception of the Revolving Credit Facility and the Term Loan, is subject to a fixed interest rate. (See Item 3 below.)

Forward Looking Statements

This report contains forward-looking statements setting forth our beliefs or expectations relating to future revenues, contracts and operations, as well as the results of an internal investigation and certain legal proceedings. Actual results may differ materially from projected or expected results due to changes in the demand for our O&P products and services, uncertainties relating to the results of operations or recently acquired O&P patient-care centers, our ability to enter into and derive benefits from managed-care contracts, our ability to successfully attract and retain qualified O&P practitioners, federal laws governing the health-care industry, uncertainties inherent in incomplete investigations and legal proceedings, governmental policies affecting O&P operations and other risks and uncertainties generally affecting the health-care industry. Readers are cautioned not to put undue reliance on forward-looking statements. We disclaim any intent or obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

We have existing obligations relating to our 10 ¼% Senior Notes, Term Loan, Subordinated Seller Notes, and Series A Convertible Preferred Stock. As of June 30, 2006, we have cash flow exposure to the changing interest rate on the Term Loan and Revolving Credit Facility. The other obligations have fixed interest or dividend rates.

We have a $75.0 million revolving credit facility, with no outstanding balance at June 30, 2006, as discussed in Note G to our Condensed Consolidated Financial Statements. The rates at which interest accrues under the entire outstanding balance are variable.

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In addition, in the normal course of business, we are exposed to fluctuations in interest rates. From time to time, we execute LIBOR contracts to fix interest rate exposure for specific periods of time. At June 30, 2006, we had one contract outstanding which fixed LIBOR at 8.0% and is set to expire on September 29, 2006.

Presented below is an analysis of our financial instruments as of June 30, 2006 that are sensitive to changes in interest rates. The table demonstrates the change in estimated annual cash flow related to the outstanding balance under the Term Loan (the Revolving Credit Facility did not have an outstanding balance at June 30, 2006), calculated for an instantaneous parallel shift in interest rates, plus or minus 50 basis points (“BPS”), 100 BPS, and 150 BPS.

Cash Flow Risk	Annual Interest Expense Given an Interest Rate Decrease of X Basis Points						No Change in Interest Rates		Annual Interest Expense Given an Interest Rate Increase of X Basis Points
(In thousands)	(150 BPS)		(100 BPS)		(50 BPS)				50 BPS		100 BPS		150 BPS
Term Loan	$	14,950	$	16,100	$	17,250	$	18,400	$	19,550	$	20,700	$	21,850
	$	14,950	$	16,100	$	17,250	$	18,400	$	19,550	$	20,700	$	21,850

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by it in its periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Based on an evaluation of the Company’s disclosure controls and procedures conducted by the Company’s Chief Executive Officer and Chief Financial Officer, such officers concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2006.

Change in Internal Control Over Financial Reporting

In accordance with Rule 13a-15(d) under the Securities Exchange Act of 1934, management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer determined that there was no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2006, that has materially effected, or is reasonably likely to materially effect, the Company’s internal control over financial reporting.

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Part II. Other Information

ITEM 1. Legal Proceedings

For a description of certain legal proceedings, refer to the disclosure set forth in Note I (“Commitments and Contingent Liabilities”) in Part I, Item 1 (“Condensed Consolidated Financial Statements”).

The Company is also party to various legal proceedings that are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on the Company’s financial statements.

ITEM 1A. Risk Factors

Item 1A (“Risk Factors”) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 sets forth information relating to important risks and uncertainties that could materially adversely affect the Company’s business, financial condition or operating results. Those risk factors continue to be relevant to an understanding of the Company’s business, financial condition and operating results. Certain of those risk factors have been updated in this Form 10-Q to provide updated information, as set forth below. References to “we,” “our” and “us” in these risk factors refer to the Company.

We incurred net losses for the three and six month periods ended June 30, 2006 and for the year ended December 31, 2004 and could incur net losses in the future.

We incurred a net loss of $23.4 million for the year ended December 31, 2004 primarily as a result of the recognition of $45.8 million in non-cash charges related to goodwill impairment. For the three and six month periods ended June 30, 2006 we generated net losses of $5.7 million and $4.9 million, respectively, as a result of our debt refinancing. During the year ended December 31, 2005, we generated net income of $17.8 million. We cannot assure that we will not incur net losses in the future.

Changes in government reimbursement levels could adversely affect our net sales, cash flows and profitability.

We derived 41.4% and 42.6% of our net sales for the three months ended June 30, 2006 and 2005, respectively, from reimbursements for O&P services and products from programs administered by Medicare, Medicaid and the U.S. Veterans Administration. For the six month periods ended June 30, 2006 and 2005, we derived 41.5% and 42.6%, respectively, in reimbursements from the programs administered by Medicare, Medicaid and the U.S. Veterans Administration. Each of these programs sets maximum reimbursement levels for O&P services and products. If these agencies reduce reimbursement levels for O&P services and products in the future, our net sales could substantially decline. In addition, the percentage of our net sales derived from these sources may increase as the portion of the U.S. population over age 65 continues to grow, making us more vulnerable to maximum reimbursement level reductions by these organizations. Reduced government reimbursement levels could result in reduced private payor reimbursement levels because fee schedules of certain third-party payors are indexed to Medicare. Furthermore, the healthcare industry is experiencing a trend towards cost containment as government and other third-party payors seek to impose lower reimbursement rates and negotiate reduced contract rates with service providers. This trend could adversely affect our net sales. Medicare provides for reimbursement for O&P products and services based on prices set forth in fee schedules for ten regional service areas. Additionally, if the U.S. Congress were to legislate modifications to the Medicare fee schedules, our net sales from Medicare and other payors could be adversely and materially affected. We cannot predict whether any such modifications to the fee schedules will be enacted or what the final form of any modifications might be. In November 2003, Congress legislated a three-year freeze on Medicare reimbursement levels beginning January 1, 2004 on all O&P services. The effect of this legislation has been a downward pressure on our income from operations. We have, however, initiated certain purchasing and efficiency programs which we believe will minimize such effects.

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On April 24, 2006, the Centers for Medicare & Medicaid Services announced a proposed rule that would call for a competitive bidding program for certain covered prosthetic and orthotic equipment as required by the Medicare Modernization Act of 2003. We cannot now identify the impact of such proposed rule on us.

If we cannot collect our accounts receivable and effectively manage our inventory, our business, results of operations, financial condition and ability to satisfy our obligations under our indebtedness could be adversely affected.

As of June 30, 2006 and December 31, 2005, our accounts receivable over 120 days represented approximately 17.5% and 20.4% of total accounts receivable outstanding in each period, respectively. If we cannot collect our accounts receivable, our business, results of operations, financial condition and ability to satisfy our obligations under our indebtedness could be adversely affected. In addition, our principal means of control with respect to accounting for inventory and costs of goods sold is a physical inventory conducted on an annual basis. This accepted method of accounting controls and procedures may result in an understatement or overstatement, as the case may be, of inventory between our annual physical inventories. We did not record a book-to-physical inventory adjustment as a result of our October 1, 2005 inventory count. Because our income from operations percentage is based on our inventory levels, adjustments to inventory during interim periods following our physical inventory could adversely affect our results of operations and financial condition.

ITEM 4. Submission of Matters to a Vote of Security Holders

The Company’s Annual Meeting of Shareholders was held on May 12, 2006.

The first proposal was the election of directors. The following persons were nominated and elected to serve as members of the Board of Directors for one year or until their successors are elected and qualified by the votes indicated: Edmond E. Charrette, M.D. (17,429,530 shares for and 2,692,455 shares withheld), Thomas P. Cooper, M.D. (17,316,268 shares for and 2,805,717 shares withheld), Cynthia L. Feldman (17,227,980 shares for and 2,894,005 shares withheld), William R. Floyd (17,364,664 shares for and 2,757,321 shares withheld), Eric A. Green (17,031,397 shares for and 3,090,588 shares withheld), Isaac Kaufman (17,358,809 shares for and 2,763,176 shares withheld), Thomas F. Kirk (17,532,787 shares for and 2,589,198 shares withheld), Ivan R. Sabel (17,523,788 shares for and 2,598,197 shares withheld), and H.E. Thranhardt (17,653,633 shares for and 2,468,352 shares withheld).

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The second proposal was a proposed amendment to the Company’s 2002 Stock Incentive Plan and authorization of an additional 2,700,000 shares of the Company’s Common Stock for issuance under that plan. The proposal was approved by the holders of more than the required majority of the shares of Common Stock voting at the meeting. The proposal was approved by a vote of 10,014,974 shares of Common Stock for (representing approximately 68.58% of the shares voting), 4,587,546 shares of Common Stock against, with 23,740 shares of Common Stock abstaining.

The third proposal was a proposed amendment to the Company’s 2003 Non-Employee Directors’ Stock Incentive Plan to provide for (i) an automatic annual grant of 8,500 restricted shares of common stock to eligible directors in lieu of the current equity component of a director’s compensation, and (ii) an automatic annual grant of 2,000 restricted shares of common stock to the lead non-management director. The proposal was approved by the holders of more than the required majority of the shares of Common Stock voting at the meeting. The proposal was approved by a vote of 10,843,365 shares of Common Stock for (representing approximately 74.25% of the shares voting), 3,759,323 shares of Common Stock against, with 23,572 shares of Common Stock abstaining.

ITEM 6. Exhibits

        (a)       Exhibits. The following exhibits are filed herewith or incorporated by reference herein:

Exhibit No. Document

3.1 Certificate of Designations of Series A Convertible Preferred Stock filed by the Registrant with the Delaware Secretary of State on May 26, 2006. (Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form 8-K dated May 23, 2006.)

10.1 Purchase Agreement, dated as of May 23, 2006, between the Registrant and the Initial Purchasers named in Schedule I thereto relating to the Registrant’s 10 ¼% Senior Notes due 2014. (Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K dated May 23, 2006.)

10.2 Indenture, dated as of May 26, 2006, among the Registrant, the Registrant’s subsidiaries signatory thereto and Wilmington Trust Company, as trustee, relating to the Registrant’s 10 ¼% Senior Notes due 2014. (Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form 8-K dated May 26, 2006.)

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10.3 Registration Rights Agreement, dated as of May 26, 2006, among the Registrant, the Registrant’s subsidiaries signatory thereto and the initial purchasers named therein relating to the Registrant’s 10 ¼% Senior Notes due 2014. (Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Form 8-K dated May 26, 2006.)

10.4 Amended and Restated Preferred Stock Purchase Agreement, dated as of May 25, 2006, by and among the Registrant, Ares Corporate Opportunities Fund, L.P. and the Initial Purchasers identified therein. (Filed herewith.)

10.5 Registration Rights Agreement, dated as of May 26, 2006, among the Registrant and Ares Corporate Opportunities Fund, L.P. (Filed herewith.)

10.6 Letter Agreements, dated May 26, 2006, between the Registrant and Ares Corporate Opportunities Fund, L.P. regarding board and management rights. (Filed herewith.)

10.7 Credit Agreement, dated as of May 26, 2006, among the Registrant, the Several Lenders identified therein, Lehman Brothers Inc. and Citigroup Global Markets Inc., as Joint Lead Arrangers and Joint Book-Runners, Citicorp North America, Inc., as Administrative Agent, Lehman Commercial Paper Inc., as Syndication Agent, and LaSalle Bank National Association and General Electric Capital Corporation, as Co-Documentation Agents. (Filed herewith.)

10.8 Guarantee and Collateral Agreement, dated as of May 26, 2006, made by the Registrant, as Borrower, and certain of its subsidiaries, in favor of Citicorp North America, Inc., as Administrative Agent. (Filed herewith.)

12 Computation of Ratio of Ratio of Earnings to Fixed Charges. (Filed herewith)

31.1 Written Statement of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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31.2 Written Statement of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HANGER ORTHOPEDIC GROUP, INC.
Dated:  August 4, 2006	/s/ Ivan R. Sabel
	Ivan R. Sabel, CPO
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
Dated:  August 4, 2006	/s/ George E. McHenry
	George E. McHenry
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)
Dated:  August 4, 2006	/s/ Thomas C. Hofmeister
	Thomas C. Hofmeister
	Vice President of Finance
	(Chief Accounting Officer)

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Exhibit Index

Exhibit No. Document

10.4 Amended and Restated Preferred Stock Purchase Agreement, dated as of May 25, 2006, by and among the Registrant, Ares Corporate Opportunities Fund, L.P. and the Initial Purchasers identified therein. (Filed herewith.)

10.5 Registration Rights Agreement, dated as of May 26, 2006, among the Registrant and Ares Corporate Opportunities Fund, L.P. (Filed herewith.)

10.6 Letter Agreements, dated May 26, 2006, between the Registrant and Ares Corporate Opportunities Fund, L.P. regarding board and management rights. (Filed herewith.)

10.7 Credit Agreement, dated as of May 26, 2006, among the Registrant, the Several Lenders identified therein, Lehman Brothers Inc. and Citigroup Global Markets Inc., as Joint Lead Arrangers and Joint Book-Runners, Citicorp North America, Inc., as Administrative Agent, Lehman Commercial Paper Inc., as Syndication Agent, and LaSalle Bank National Association and General Electric Capital Corporation, as Co-Documentation Agents. (Filed herewith.)

10.8 Guarantee and Collateral Agreement, dated as of May 26, 2006, made by the Registrant, as Borrower, and certain of its subsidiaries, in favor of Citicorp North America, Inc., as Administrative Agent. (Filed herewith.)

12 Computation of Ratio of Ratio of Earnings to Fixed Charges. (Filed herewith)

31.1 Written Statement of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Written Statement of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10.4

Exhibit 10.4

AMENDED AND RESTATED PREFERRED STOCK PURCHASE AGREEMENT

dated as of May 25, 2006

by and among

HANGER ORTHOPEDIC GROUP, INC.

and

THE PURCHASERS SIGNATORY HERETO

AMENDED AND RESTATED PREFERRED STOCK PURCHASE AGREEMENT

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

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

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

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

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

ARTICLE I.
DEFINITIONS

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

            “$” means U.S. Dollars.

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

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

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

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

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

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

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

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

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

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

            “Debt Refinancing” means (a) the repayment in full and refinancing of the Company’s existing credit facilities, (b) the refinancing in full of the Company’s 10 3/8% senior notes, (c) the refinancing in full of the Company’s 11¼% senior subordinated notes, and (d) irrevocable provision for the redemption of all the Company’s outstanding preferred stock, with the proceeds of (i) new revolving credit and term loan facilities, and (ii) the issuance of new senior notes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE II.
PURCHASE AND SALE

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

        2.2     Closing Deliveries.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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ARTICLE III.
REPRESENTATIONS AND WARRANTIES

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

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

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

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

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

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

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

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

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

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

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

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

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

            (m)    Employee Benefit Plans.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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            (aa)    Health Regulatory Compliance.

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

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

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

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

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

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

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

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

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

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

            (cc)    Environmental Matters.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

        4.1     Transfer Restrictions.

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

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

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

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

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

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

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

        4.4     Reservation and Listing of Securities.

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

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

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

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

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

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

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

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

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

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

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

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

            (a)     dissolve or liquidate the Company;

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

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

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

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

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

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

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

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

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

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

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

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

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        4.12     Indemnification.

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

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

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

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

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

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

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

ARTICLE V.
CONDITIONS

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

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE VI.
MISCELLANEOUS

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        6.1     Termination.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]

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

HANGER ORTHOPEDIC GROUP, INC.

By:___________________________________

      Name:

      Title:

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

INITIAL PURCHASER:

LEHMAN BROTHERS INC.

By:___________________________________

      Name:

      Title:

Initial Purchase Price

      delivered to Company:    $29,700,000

Shares:         30,000

Address for Notice:

Lehman Brothers Inc.

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

With a copy to:

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

INITIAL PURCHASER:

CITIGROUP GLOBAL MARKETS INC.

By:___________________________________

      Name:

      Title:

Initial Purchase Price

      delivered to Company:    $19,800,000

Shares:         20,000

Address for Notice:

Citigroup Global Markets Inc.

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

With a copy to:

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

SUBSEQUENT PURCHASER:

ARES CORPORATE OPPORTUNITIES FUND, L.P.

By:  ACOF MANAGEMENT, L.P.,

        Its General Partner

        By:  ACOF OPERATING MANAGER, L.P.,

                Its General Partner

                By:  ARES MANAGEMENT, INC.,

                        Its General Partner

                        By:______________________________

Aggregate Purchase Price

      delivered to Initial Purchasers:    $50,000,000

Shares:         50,000

Address for Notice:

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

With a copy to:

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

EX-10.5

Exhibit 10.5

REGISTRATION RIGHTS AGREEMENT

        This Registration Rights Agreement (this “Agreement”) is made and entered into as of May 26, 2006, among HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the “Company”), and the investors signatory hereto (each such investor is a “Purchaser” and all such investors are, collectively, the “Purchasers”).

        WHEREAS, the parties have agreed to enter into this Agreement in connection with, and as a condition to the Closing under, the Amended and Restated Preferred Stock Purchase Agreement, dated as of May 25, 2006, among the Company and the Purchasers (the “Purchase Agreement”); and

        WHEREAS, pursuant to the Purchase Agreement and concurrently with the execution of this Agreement, the Purchasers are acquiring from the Company shares of the Company’s Series A Convertible Preferred Stock, par value $0.01 per share.

        NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:

            1.    Definitions. In addition to the terms defined elsewhere in this Agreement, (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms have the meanings indicated:

        “Demand Registration Statement” means a Registration Statement filed or to be filed pursuant to a written Purchaser Request pursuant to either Section 2 or Section 3.

        “Holder”means any holder, from time to time, of Registrable Securities.

        “Piggy-Back Registration Statement” means a Registration Statement filed or to be filed pursuant to which the Company has received one or more written requests to participate pursuant to Section 4.

        “Purchaser Request” means a request from Purchasers that in the aggregate possess a majority of the Registrable Securities outstanding as of the date of such request.

        “Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rules 430A, 430B or 430C promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

        “Registrable Securities” means any Common Stock (including Underlying Shares) issued or issuable pursuant to the Transaction Documents, together with any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

        “Registration Statement” shall mean any registration statement to be filed under the Exchange Act, which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included therein, all amendments and supplements to such Registration Statement, including pre- and post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statement.

        “Rule 144,” “Rule 415,” “Rule 424” and “Rule 461” means Rule 144, Rule 415, Rule 424 and Rule 461, respectively, promulgated by the Commission pursuant to the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

        “Shelf Registration Statement” means a Registration Statement filed or to be filed pursuant to a written Purchaser Request pursuant to Section 2.

            2.    Shelf Registration. If at any time the Company shall receive a written Purchaser Request under this Section 2 that the Company file a registration statement under the Securities Act, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall prepare and file (as expeditiously as practicable, and in any event within thirty (30) days of the receipt of any other such request) with the Commission a “Shelf” Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. Such Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith as the Holders may consent) and shall contain (except if otherwise directed by the Holders) the “Plan of Distribution” attached hereto as Annex A. The Company shall use its best efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and in any event within sixty (60) days of the Purchaser Request (or one hundred twenty (120) days in the event the SEC has determined to review the applicable Registration Statement) and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (i) the date on which all Registrable Securities are eligible for sale under paragraph (k) of Rule 144 without any volume, manner of sale or other restrictions and (ii) when all Registrable Securities covered by such Registration Statement have been sold (the “Effectiveness Period”). The Company shall notify each Holder in writing promptly (and in any event within one Trading Day) after receiving notification from the Commission that a Registration Statement has been declared effective.

            3.    Demand Registration.

            (a)     If at any time the Company shall receive a written Purchaser Request that the Company file a registration statement under the Securities Act, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and, subject to the limitations of Section 3(b) below, shall file (as expeditiously as practicable, and in any event within thirty (30) days of the receipt of such request) and use its commercially reasonable best efforts to have declared effective, a registration statement under the Securities Act with respect to all Registrable Securities which the Holders request to be registered within eighteen (18) days of the mailing of such notice by the Company in accordance with Section 8(g) below.

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            (b)     If the Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 3 and the Company shall include such information in the written notice referred to in Section 3(a). In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Holders participating in the underwriting and such Holder) to the extent provided herein. A majority in interest of the Holders of Registrable Securities participating in the underwriting, in consultation with the Company, shall select the managing underwriter or underwriters in such underwriting. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 5(l)) enter into an underwriting agreement in customary form with the underwriter or underwriters so selected for such underwriting by a majority in interest of such Holders; provided, however, that no Holder (or any of their assignees) shall be required to make any representations, warranties or indemnities except as they relate to such Holder’s ownership of shares and authority to enter into the underwriting agreement and to such Holder’s intended method of distribution, and the liability of such Holder shall be limited to an amount equal to the net proceeds from the offering received by such Holder. Notwithstanding any other provision of this Section 3, if the underwriter advises a Holder that marketing factors require a limitation of the number of shares to be underwritten, then the Holder shall so advise the Company and the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated as follows: (i) first, among holders of Registrable Securities that have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the aggregate amount of Registrable Securities held by all such holders, until such holders have included in the underwriting all shares requested by such holders to be included, and (ii) thereafter, among all other holders of Common Stock, if any, that have the right and have elected to participate in such underwritten offering, in proportion (as nearly as practicable) to the amount of shares of Common Stock owned by such holders. Without the consent of a majority in interest of the Holders of Registrable Securities participating in a registration referred to in Section 3(a), no securities other than Registrable Securities shall be covered by such registration if the inclusion of such other securities would result in a reduction of the number of Registrable Securities covered by such registration or included in any underwriting or if, in the opinion of the managing underwriter, the inclusion of such other securities would adversely impact the marketing of such offering.

            (c)     The Company shall be obligated to effect only two (2) registrations (and only if such registration would include Registrable Securities with an aggregate value of at least ten million dollars ($10,000,000), calculated using the closing price of the Company’s Common Shares on the Trading Market on the date preceding the date of the Purchaser Request) pursuant to Purchaser Requests under this Section 3 (an offering which is not consummated shall not be counted for this purpose).

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            (d)     Notwithstanding the foregoing, if the Company shall furnish to the Holders requesting a registration statement pursuant to this Section 3, a certificate signed by the chief executive officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed by reason of a material pending transaction and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the Purchaser Request provided, however, that the Company may not utilize this right more than once in any twelve (12) month period.

            4.    Piggy-Back Registrations. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Purchasers) any of its Common Shares under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-8 (or similar or successor form) relating solely to the sale of securities to participants in a Company stock plan or to other compensatory arrangements to the extent includable on Form S-8 (or similar or successor form), or a registration on Form S-4 (or similar or successor form)), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder received by the Company within ten (10) Trading Days after mailing of such notice by the Company in accordance with Section 9(g), the Company shall use its best efforts to cause to be registered under the Securities Act all of the Registrable Securities that each such Holder (the “Electing Holders”) has requested to be registered. The Company shall have no obligation under this Section 4 to make any offering of its securities, or to complete an offering of its securities that it proposes to make.

            5.    Demand Registration Procedures. In connection with the Company’s registration obligations hereunder with respect to a Demand Registration Statement, the Company shall:

            (a)     Not less than three Trading Days prior to the filing of each Demand Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and Purchaser Counsel copies of all such documents proposed to be filed, which documents will be subject to the review of such Holders and Purchaser Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file such Demand Registration Statement or any related Prospectus, amendments or supplements thereto to which the Holders of a majority of the Registrable Securities and Purchaser Counsel shall reasonably object.

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        (b)     (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Demand Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Demand Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period in the case of a Shelf Registration Statement, and until the end of the related offering in the case of any other Demand Registration Statement, and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within ten (10) Trading Days, to any comments received from the Commission with respect to any Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders and Purchaser Counsel true and complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Demand Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the applicable Demand Registration Statement as so amended or in such Prospectus as so supplemented.

            (c)     Notify the Holders of Registrable Securities to be sold pursuant to a Demand Registration Statement and Purchaser Counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a “review” of any Demand Registration Statement; (ii) the Commission comments in writing on any Demand Registration Statement (in which case the Company shall deliver to each Holder a copy of such comments and of all written responses thereto); (iii) any Demand Registration Statement or any post-effective amendment thereto is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Demand Registration Statement or Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Demand Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Demand Registration Statement become ineligible for inclusion therein or any statement made in any Demand Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Demand Registration Statement, related Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

            (d)     Use its best efforts to avoid the issuance of or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of any Demand Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

            (e)     Furnish to each Holder and Purchaser Counsel, without charge, at least one conformed copy of each Demand Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (excluding those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

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            (f)     Promptly deliver to each Holder and Purchaser Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) related to a Demand Registration Statement and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

            (g)     In the time and manner required by each Trading Market, if at all, prepare and file with such Trading Market an additional shares listing application covering all of the Registrable Securities; (ii) take all steps necessary to cause such Registrable Securities to be approved for listing on each Trading Market as soon as reasonably practicable thereafter; (iii) to the extent available to the Company, provide to the Purchasers evidence of such listing; and (iv) maintain the listing of such Registrable Securities on each such Trading Market.

            (h)     Prior to any public offering of Registrable Securities pursuant to a Demand Registration Statement, use its best efforts to register or qualify or cooperate with the selling Holders and Purchaser Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period in the case of a Shelf Registration Statement, and until the offering is completed in the case of any other Demand Registration Statement, and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Demand Registration Statement.

            (i)     Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Demand Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

            (j)     Upon the occurrence of any event described in Section 5(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to such a Demand Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither such Demand Registration Statement nor its related Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

            (k)     Cooperate with any due diligence investigation undertaken by the Holders in connection with the sale of Registrable Securities pursuant to a Demand Registration Statement, including without limitation by making available any documents and information.

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            (l)     If Holders of a majority of the Registrable Securities being offered pursuant to a Demand Registration Statement select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, by providing customary legal opinions, comfort letters and indemnification and contribution obligations.

            (m)     In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering.

            (n)     Comply with all applicable rules and regulations of the Commission.

            (o)     The Company shall not be required to deliver any document pursuant to any provision of this Section 5 to any Holder that is not selling Registrable Securities under the applicable Demand Registration Statement. The Company shall also not be required to deliver any document pursuant to any provision of this Section 5, other than Section 5(f), to any Holder that proposes to sell Registrable Securities with less than $50,000 in aggregate offering price to the public under the Demand Registration Statement (based on the last sale price per Common Share on the Trading Market on the Trading Day preceding the date of the Purchaser Request).

            6.    Piggy-Back Registration Procedures. In connection with the Company’s registration obligations hereunder with respect to a Piggy-Back Registration Statement, the Company shall:

            (a)     Not less than three Trading Days prior to the filing of each Piggy-Back Registration Statement or any related Prospectus or any amendment or supplement thereto (i) furnish to the Electing Holders and Purchaser Counsel copies of all such documents proposed to be filed, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.

            (b)     (i) Cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (ii) as promptly as reasonably possible provide the Electing Holders and Purchaser Counsel true and complete copies of all correspondence from and to the Commission relating to a Piggy-Back Registration Statement; and (iii) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Piggy-Back Registration Statement during the offering.

            (c)     Notify the Electing Holders and Purchaser Counsel as promptly as reasonably possible, and (if requested by any such Person) confirm such notice in writing no later than one Trading Day thereafter, of any of the following events: (i) the Commission notifies the Company whether there will be a “review” of any Piggy-Back Registration Statement; (ii) the Commission comments in writing on any Piggy-Back Registration Statement (in which case the Company shall deliver to each Electing Holder a copy of such comments and of all written responses thereto); (iii) any Piggy-Back Registration Statement or any post-effective amendment is declared effective; (iv) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Piggy-Back Registration Statement or related Prospectus or requests additional information related thereto; (v) the Commission issues any stop order suspending the effectiveness of any Piggy-Back Registration Statement or initiates any Proceedings for that purpose; (vi) the Company receives notice of any suspension of the qualification or exemption from qualification of any Registrable Securities for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose; or (vii) the financial statements included in any Piggy-Back Registration Statement become ineligible for inclusion therein or any statement made in any Piggy-Back Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference is untrue in any material respect or any revision to a Piggy-Back Registration Statement, related Prospectus or other document is required so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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            (d)     Furnish to each Electing Holder and Purchaser Counsel, without charge, at least one conformed copy of each Piggy-Back Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (excluding those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

            (e)     Promptly deliver to each Electing Holder and Purchaser Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Electing Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

            (f)     Cooperate with the Electing Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Piggy-Back Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Electing Holders may request.

            (g)     Comply with all applicable rules and regulations of the Commission.

            (h)     The Company shall not be required to deliver any document pursuant to any provision of this Section 6, other than Section 6(e), to any Electing Holder that proposes to sell Registrable Securities with less than $50,000 in aggregate offering price to the public under the Piggy-Back Registration Statement (based on the last sale price per Common Share on the Trading Market on the Trading Day preceding the date of the written request sent by such Electing Holder under Section 4).

            (i)     Upon the occurrence of any event described in Section 6(c)(vii), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to such a Piggy-Back Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither such Piggy-Back Registration Statement nor its related Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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            7.    Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (a) all registration and filing fees (including, without limitation, fees and expenses (i) with respect to filings required to be made with any Trading Market, and (ii) in compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders )), (b) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses requested by the Holders), (c) messenger, telephone and delivery expenses, (d) fees and disbursements of counsel for the Company and reasonable fees and expenses of Purchaser Counsel, and (e) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.

            8.    Indemnification

            (a)    Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, partners, members, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, partners, members, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (ii) in the case of an occurrence of an event of the type specified in Section 5(c)(v)-(vii), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 9(f). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.

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            (b)    Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review) arising solely out of any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

            (c)    Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

            An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (i) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (iii) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

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            All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

            (d)    Contribution. If a claim for indemnification under Section 7(a) or 7(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 8(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

            The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by prorata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

            The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

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            9.    Miscellaneous

            (a)    Remedies. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

            (b)    Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least two-thirds of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

            (c)    No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as and to the extent specified in the applicable schedule to the Purchase Agreement, neither the Company nor any Subsidiary has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

            (d)    No Piggyback on Registrations. Except as and to the extent specified in Schedule 3.1(g) to the Purchase Agreement, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in a Demand Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders.

            (e)    Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

            (f)    Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 5(c)(v), 5(c)(vi), or 5(c)(vii), or Sections 6(c)(v), 6(c)(vi), or 6(c)(vii), as applicable, such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of any supplemented Prospectus and/or amended Registration Statement (if required pursuant to Section 5(j) or 6(i)), or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

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            (g)    Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 4:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement on a day that is not a Trading Day or later than 4:30 p.m. (New York City time) and earlier than 11:59 p.m. (New York City time) on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth in the Purchase Agreement.

            (h)    Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign its rights and obligations hereunder in the manner and to the extent permitted under the Purchase Agreement.

            (i)    Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

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

            (k)    Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

            (l)    Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

            (m)    Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES TO FOLLOW]

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        IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

HANGER ORTHOPEDIC GROUP, INC.

By:______________________________

Name:____________________________

Title:_____________________________

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASERS TO FOLLOW]

ARES CORPORATE OPPORTUNITIES FUND, L.P.

By:  ACOF MANAGEMENT, L.P.,

        Its General Partner

        By:  ACOF OPERATING MANAGER, L.P.,

                Its General Partner

                By:  ARES MANAGEMENT, INC.,

                        Its General Partner

                        By:______________________________

Address for Notice:

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

With a copy to:

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

Annex A

Plan of Distribution

        The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales;

• broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

        The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

        The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.

        Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

        The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

        The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

        The selling stockholders and any broker-dealers or agents that are involved in selling the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

        We are required to pay all fees and expenses incident to the registration of the shares of common stock, including the fees and disbursements of counsel to the selling stockholders. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

        The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus. If the selling stockholders use this prospectus for any sale of the shares of common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

        The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.

EX-10.6

Exhibit 10.6

Hanger Orthopedic Group, Inc.
Two Bethesda Metro Center, Suite 1300
Bethesda, Maryland 20814

May 26, 2006

Ares Corporate Opportunities Fund, L.P.
c/o Ares Management, Inc.
1999 Avenue of the Stars
Suite 1900
Los Angeles, California 90067
Attention: Bennett Rosenthal and Adam Stein

Gentlemen:

Reference is made to that certain Amended and Restated Preferred Stock Purchase Agreement dated as of May 25, 2006 among HANGER ORTHOPEDIC GROUP, INC. (the “Company”), Ares Corporate Opportunities Fund, L.P. (“Ares”) and the Initial Purchasers party thereto (the “Purchase Agreement”). Capitalized terms used but not defined herein shall have the meanings given to them in the Purchase Agreement.

In order to induce the Ares to enter into the Purchase Agreement and purchase the Shares, the Company agrees to grant the board director and board observer rights to Ares as set forth below.

For so long as Ares and its Affiliates beneficially own in the aggregate at least 1,984,126 shares of Common Stock, subject to proportional adjustments to reflect stock-splits, combinations, subdivisions, or other similar recapitalizations or events:

        1.     The Company’s Board of Directors (the “Board”) shall appoint and elect Bennett Rosenthal to fill the next vacancy on the Board, which will occur within ninety (90) days of the Closing. Bennett Rosenthal, or any successor to Bennett Rosenthal that Ares may designate from time to time in accordance with the terms of this letter agreement to serve as a member of the Board, is hereinafter referred to as the “Investor Director.”

        2.     The Company will include the Investor Director as one of the Company’s nominees for election as directors at each annual or special meeting of stockholders at which directors will be elected.

        3.     Provided that the Investor Director meets the applicable membership requirements of the Commission and the Trading Market, the Board shall elect the Investor Director to all committees of the Board, it being understood that the Investor Director does not meet the current applicable requirements to serve on the Audit Committee. The Company shall provide the same compensation and rights and benefits of indemnity to the Investor Director as are provided to other non-employee directors of the Company. The Investor Director may resign from the Board at any time without notice. In the event that any Investor Director shall cease to serve as a director of the Company for any reason, at the discretion of Ares, the Board shall fill the vacancy resulting therefrom with another Investor Director designated by Ares that is reasonably acceptable to the Board, it being understood that any senior professional of Ares shall be acceptable to the Board.

        4.     Subject to the execution of a non-disclosure agreement, customary in form and substance, as requested in good faith by the Company, the Company shall allow a representative of Ares (other than the Investor Director, and at anytime when no Investor Director is a member of the Board, the Company shall allow two representatives of Ares) to attend all meetings of the Board in a nonvoting capacity, and in connection with each such Board observer’s attendance, the Company shall give such Board observer copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to the Board prior to any such meeting. Ares shall provide the Company with written notice identifying any individuals who shall exercise Board observation rights on behalf of Ares from time to time. Effective upon execution and delivery of this letter agreement, Ares hereby appoints Bennett Rosenthal and Adam Stein as initial Board observers.

This letter agreement shall be governed by and construed in accordance with the laws of the State of New York and each of the parties hereto irrevocably consents to the exclusive jurisdiction of all courts, federal and state, located in the City of New York for the adjudication of any dispute arising hereunder. This letter agreement may not be amended or waived except in writing, by a document executed by the Company and Ares. This letter agreement may be executed in two or more counterparts, together constituting one agreement, and may be executed by facsimile, having the same force as if originally executed.

Very truly yours,

HANGER ORTHOPEDIC GROUP, INC.

By:______________________________
Name:
Title:

Accepted:

ARES CORPORATE OPPORTUNITIES FUND, L.P.

By: ACOF MANAGEMENT, L.P.,
Its General Partner

By: ACOF OPERATING MANAGER, L.P.,
Its General Partner

By: ARES MANAGEMENT, INC.,
Its General Partner

By:
______________________________

2

MANAGEMENT RIGHTS LETTER AGREEMENT

Hanger Orthopedic Group, Inc.
Two Bethesda Metro Center, Suite 1300
Bethesda, Maryland 20814

May 26, 2006

Ares Corporate Opportunities Fund, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, California 90067
Attn: Bennett Rosenthal

Re: Management Rights

Ladies and Gentlemen:

You have requested that Hanger Orthopedic Group, Inc., a Delaware corporation (the “Company”), grant certain contractual management rights to Ares Corporate Opportunities Fund, L.P. (the “Investor”) so that the purchase by the Investor of shares of the Company’s Series A Convertible Preferred Stock, par value $0.01 per share (the “Stock”) pursuant to the Amended and Restated Preferred Stock Purchase Agreement, dated as of May 25, 2006 among the Company, the Investor and the other parties thereto, as such agreement may be amended, supplemented or otherwise modified from time to time (the “Purchase Agreement”), from the Company, may qualify as a “venture capital investment” as described in clause (d)(3)(i) of the U.S. Department of Labor Regulations § 2510.3-101 (the “DOL Regulation”). This letter will confirm our agreement that the Investor will be entitled to the contractual management rights enumerated below and, in addition, will be entitled to all rights specifically provided to “Investors” (as defined in the Purchase Agreement) pursuant to the Purchase Agreement as in effect as of the date hereof or any other rights the Investor may hold as a holder of the Stock or otherwise, including, without limitation, the right to receive financial information and inspection rights (all such information, inspection, management and other rights hereinafter collectively referred to as “Management Rights”):

    (1)        The Company and its subsidiaries shall provide to the Investor, true and correct copies of all documents, reports, financial data and other information as the Investor may reasonably request. Additionally, the Company shall permit any authorized representatives designated by the Investor to visit and inspect any of the properties of the Company and its subsidiaries, including its and their books of account, and to discuss its and their affairs, finances and accounts with its and their officers, all at such times during regular business hours as the Investor may reasonably request.

3

    (2)        At any time during which the Investor does not have a representative designated to serve on the Board of Directors of the Company, the Investor shall have the right to designate one (1) observer who shall be entitled to attend all meetings of the Company’s Board of Directors (the “Board”) (and all committees thereof) and receive copies of all materials provided to the Board, including, without limitation, notices, minutes, consents and any and all other materials provided to directors, provided that such observer shall have no voting rights with respect to actions taken or elected not to be taken by the Board or any Committee thereof. Such representative may participate in discussions of matters brought to the Board and may address the Board with respect to the Investor’s concerns regarding business issues facing the Company.

    (3)        The Investor (or its authorized representative) shall have the right to consult with and advise the management of the Company and its subsidiaries, upon reasonable notice at reasonable times from time to time, on all matters relating to the operation of the Company and its subsidiaries.

    (4)        The Company agrees to consider, in good faith, the recommendations of the Investor (or its authorized representative) in connection with the matters on which it is consulted as described above, recognizing that the ultimate discretion with respect to all such matters shall be retained by the Company.

    (5)        If the Company is not a “reporting company” under Section 12 of the Securities Exchange Act of 1934, as amended, the Company shall deliver to the Investor:

    a.        as soon as available and in any event within 30 days after the end of each of the first three quarters of each fiscal year of the Company, consolidated balance sheets of the Company and its subsidiaries as of the end of such period, and consolidated statements of income and cash flows of the Company, and its subsidiaries for the period then ended prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis, except as otherwise noted therein, and subject to the absence of footnotes and to year-end adjustment;

    b.        as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries as of the end of such year, and consolidated statements of income and cash flows of the Company and its subsidiaries for the year then ended prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis, except as otherwise noted therein, together with an auditor’s report thereon of a firm of established national reputation.

This letter may not be amended except by a written instrument signed by the Investor and the Company.

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The Company hereby further agrees that (x) if legal counsel for the Investor reasonably concludes that the rights granted hereby should be altered to preserve the qualification of the Investor as a “venture capital operating company” as defined in the DOL Regulation or otherwise to ensure that the assets of the Investor are not considered “plan assets” for purposes of the Employee Retirement Income Security Act of 1974, as amended, the Company will agree to amendments to this letter to effect such alterations; provided that no such alteration would result in a material adverse effect on the operation or business of the Company, and (y) if the Investor transfers a portion of the shares of stock it acquires in the Company to an affiliate that is seeking to qualify as a venture capital operating company, the Company will enter into a letter with the transferee containing substantially similar terms and conditions as this letter.

If the Company engages in a restructuring or similar transaction, any resulting entity or entities shall be subject to this letter agreement in the same manner as the Company.

The rights described herein shall terminate and be of no further force or effect at such time as the Investor no longer holds any shares of capital stock of the Company.

Very truly yours,

Hanger Orthopedic Group, Inc.

By:  __________________________________
        Name:
        Title:

ACKNOWLEDGED AND ACCEPTED:

Ares Corporate Opportunities Fund, L.P.

By: ACOF MANAGEMENT, L.P.,
Its General Partner

By: ACOF OPERATING MANAGER, L.P.,
Its General Partner

By: ARES MANAGEMENT, INC.,
Its General Partner

By:
______________________________

5

EX-10.7

Exhibit 10.7

$305,000,000

CREDIT AGREEMENT

among

HANGER ORTHOPEDIC GROUP, INC.,
as Borrower,

The Several Lenders
from Time to Time Parties Hereto,

LEHMAN BROTHERS INC. and CITIGROUP GLOBAL MARKETS INC.,
as Joint Lead Arrangers and Joint Book-Runners,

CITICORP NORTH AMERICA, INC.,
as Administrative Agent

LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent

GENERAL ELECTRIC CAPITAL CORPORATION,
as Co-Documentation Agent

and

LASALLE BANK, N.A.,
as Co-Documentation Agent

Dated as of May 26, 2006

TABLE OF CONTENTS

		Page
SECTION 1.	DEFINITIONS	1
1.1	Defined Terms	1
1.2	Other Definitional Provisions	26
1.3	Accounting Changes	26
SECTION 2.	AMOUNT AND TERMS OF COMMITMENTS	27
2.1	Tranche B Term Loan Commitments	27
2.2	Procedure for Tranche B Term Loan Borrowing	27
2.3	Repayment of Tranche B Term Loans	27
2.4	Revolving Credit Commitments	28
2.5	Procedure for Revolving Credit Borrowing	29
2.6	Swing Line Commitment	29
2.7	Procedure for Swing Line Borrowing; Refunding of Swing Line Loans	30
2.8	Repayment of Loans; Evidence of Debt	31
2.9	Commitment Fees, etc	32
2.10	Termination or Reduction of Revolving Credit Commitments	32
2.11	Optional Prepayments	33
2.12	Mandatory Prepayments	33
2.13	Conversion and Continuation Options	34
2.14	Minimum Amounts and Maximum Number of Eurodollar Tranches	35
2.15	Interest Rates and Payment Dates	35
2.16	Computation of Interest and Fees	36
2.17	Inability to Determine Interest Rate	36
2.18	Pro Rata Treatment and Payments	37
2.19	Requirements of Law	39
2.20	Taxes	40
2.21	Indemnity	42
2.22	Illegality	42
2.23	Change of Lending Office	43

i

TABLE OF CONTENTS
(continued)

		Page
2.24	Replacement of Lenders under Certain Circumstances	43
SECTION 3.	LETTERS OF CREDIT	43
3.1	L/C Commitment	44
3.2	Procedure for Issuance of Letter of Credit	44
3.3	Fees and Other Charges	44
3.4	L/C Participations	45
3.5	Reimbursement Obligation of the Borrower	46
3.6	Obligations Absolute	46
3.7	Letter of Credit Payments	47
3.8	Applications	47
SECTION 4.	REPRESENTATIONS AND WARRANTIES	47
4.1	Financial Condition	47
4.2	No Change	48
4.3	Corporate Existence; Compliance with Law	48
4.4	Corporate Power; Authorization; Enforceable Obligations	49
4.5	No Legal Bar	49
4.6	No Material Litigation	49
4.7	No Default	49
4.8	Ownership of Property; Liens	49
4.9	Intellectual Property	50
4.10	Taxes	50
4.11	Federal Regulations	50
4.12	Labor Matters	50
4.13	ERISA	50
4.14	Investment Company Act; Public Utility Holding Company Act; Other Regulations	51
4.15	Subsidiaries	51
4.16	Use of Proceeds	51
4.17	Environmental Matters	52
4.18	Accuracy of Information, etc	53

ii

TABLE OF CONTENTS
(continued)

		Page
4.19	Security Documents	53
4.20	Solvency	54
4.21	Licenses; Permits; Approvals; Franchises	54
4.22	Patriot Act	54
SECTION 5.	CONDITIONS PRECEDENT	55
5.1	Conditions to Initial Extension of Credit	55
5.2	Conditions to Each Extension of Credit	59
SECTION 6.	AFFIRMATIVE COVENANTS	59
6.1	Repurchase of Existing Notes; Redemption of Preferred Stock	59
6.2	Financial Statements	59
6.3	Certificates; Other Information	60
6.4	Payment of Obligations	62
6.5	Conduct of Business and Maintenance of Existence, etc	62
6.6	Maintenance of Property; Insurance	62
6.7	Inspection of Property; Books and Records; Discussions	62
6.8	Notices	62
6.9	Environmental Laws	63
6.10	Additional Collateral, etc	64
6.11	Further Assurances	65
6.12	Post-Closing Covenants	66
SECTION 7.	NEGATIVE COVENANTS	66
7.1	Financial Condition Covenants	66
7.2	Limitation on Indebtedness	68
7.3	Limitation on Liens	69
7.4	Limitation on Fundamental Changes	71
7.5	Limitation on Disposition of Property	71
7.6	Limitation on Restricted Payments	72
7.7	Limitation on Capital Expenditures	73
7.8	Limitation on Investments	73

iii

TABLE OF CONTENTS
(continued)

		Page
7.9	Limitation on Optional Payments and Modifications of Debt Instruments, etc	75
7.10	Limitation on Transactions with Affiliates	76
7.11	Limitation on Sales and Leasebacks	76
7.12	Limitation on Changes in Fiscal Periods	76
7.13	Limitation on Negative Pledge Clauses	76
7.14	Limitation on Restrictions on Subsidiary Distributions	76
7.15	Limitation on Lines of Business	77
7.16	Limitation on Hedge Agreements	77
SECTION 8.	EVENTS OF DEFAULT	77
SECTION 9.	THE ADMINISTRATIVE AGENT; THE AGENTS	80
9.1	Authorization and Action	80
9.2	Administrative Agent's Reliance, Etc	81
9.3	Posting of Approved Electronic Communications	82
9.4	The Administrative Agent Individually	83
9.5	Lender Credit Decision	83
9.6	Indemnification	84
9.7	Successor Administrative Agent	84
9.8	Concerning the Collateral and the Security Documents	85
SECTION 10.	MISCELLANEOUS	86
10.1	Amendments and Waivers	86
10.2	Notices	89
10.3	No Waiver; Cumulative Remedies	90
10.4	Survival of Representations and Warranties	90
10.5	Payment of Expenses	91
10.6	Successors and Assigns; Participations and Assignments	92
10.7	Adjustments; Set-off	95
10.8	Counterparts	96
10.9	Severability	96
10.10	Integration	96

iv

TABLE OF CONTENTS
(continued)

		Page
10.11	GOVERNING LAW	97
10.12	Submission To Jurisdiction; Waivers	97
10.13	Acknowledgments	97
10.14	Confidentiality	98
10.15	Delivery of Lender Addenda	98
10.16	WAIVERS OF JURY TRIAL	98

v

ANNEXES:

A	Pricing Grid
B	Existing Letters of Credit

SCHEDULES:

1.1(a)	Existing Earn-Out Obligations
1.1(b)	Existing Seller Notes
4.4	Consents, Authorizations, Filings and Notices
4.15(a)	Subsidiaries
4.15(b)	Agreements Relating to Capital Stock
4.19(a)-1	UCC Filing Jurisdictions
4.19(a)-2	UCC Financing Statements to Remain on File
4.19(a)-3	UCC Financing Statements to be Terminated
6.12	Post-Closing Covenants
7.2(d)	Existing Indebtedness
7.3(f)	Existing Liens
7.8(i)	Existing Investments

EXHIBITS:

A	Form of Guarantee and Collateral Agreement
B	Form of Compliance Certificate
C	Form of Closing Certificate
D	Form of Assignment and Acceptance
E	Form of Legal Opinion of Foley & Lardner LLP
F-1	Form of Term Note
F-2	Form of Revolving Credit Note
F-3	Form of Swing Line Note
G	Form of Exemption Certificate
H	Form of Lender Addendum
I	Form of Borrowing Notice

        CREDIT AGREEMENT, dated as of May 26, 2006, among HANGER ORTHOPEDIC GROUP, Inc., a Delaware corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (the “Lenders”), LEHMAN BROTHERS INC., as joint lead arranger and joint bookrunner, CITIGROUP GLOBAL MARKETS INC., as joint lead arranger and joint bookrunner, CITICORP NORTH AMERICA, INC., (“Citicorp”) as administrative agent (in such capacity, the “Administrative Agent”), LEHMAN COMMERCIAL PAPER INC. (“LCPI”), as syndication agent (in such capacity, the “Syndication Agent”), GENERAL ELECTRIC CAPITAL CORPORATION (“GECC”), as co–documentation agent, and LASALLE BANK, N.A. (“LaSalle”), as co-documentation agent (LaSalle in its capacity as co-documentation agent together with GECC in its capacity as co-documentation agent, collectively, the “Documentation Agents”).

W I T N E S S E T H:

        WHEREAS, the Borrower has requested that the Lenders and the Issuing Lenders make available for the purposes specified in this agreement, certain term loan, revolving credit and letter of credit facilities;

        WHEREAS, the Lenders and the Issuing Lenders are willing to make such credit facilities available upon and subject to the terms and conditions hereinafter set forth;

        NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

    1.1        Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1.

        “Adjustment Date”: as defined in the Pricing Grid.

        “Administrative Agent”: as defined in the preamble hereto.

        “Affiliate”: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

        “Agents”: the collective reference to the Syndication Agent, the Documentation Agents and the Administrative Agent.

        “Aggregate Exposure”: with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and (b) thereafter, the sum of (i) the aggregate then unpaid principal amount of such Lender’s Tranche B Term Loans and (ii) the amount of such Lender’s Revolving Credit Commitment then in effect or, if the Revolving Credit Commitments have been terminated, the amount of such Lender’s Revolving Extensions of Credit then outstanding.

        “Aggregate Exposure Percentage”: with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the sum of the Aggregate Exposures of all Lenders at such time.

        “Agreement”: this Credit Agreement, as amended, supplemented, replaced or otherwise modified from time to time.

        “Annualized”: for purposes of calculating Consolidated Interest Expense of the Borrower and its Subsidiaries in connection with determining the Consolidated Interest Coverage Ratio, (a) with respect to any Consolidated Interest Expense of the Borrower and its Subsidiaries attributable to one fiscal quarter, such amount multiplied by four, (b) with respect to any amount of Consolidated Interest Expense of the Borrower and its Subsidiaries attributable to two fiscal quarters, such amount multiplied by two, and (c) with respect to any amount of Consolidated Interest Expense of the Borrower and its Subsidiaries attributable to three fiscal quarters, such amount divided by 0.75.

        “Applicable Margin”: for each Type of Loan under each Facility, the rate per annum set forth opposite such Facility under the relevant column heading below:

	Base Rate Loans	Eurodollar Loans
Revolving Credit Facilities	1.75%	2.75%
(including Swing Line Loans)
Tranche B Term Loan Facility	1.50%	2.50%

provided, that on and after the first Adjustment Date occurring after the completion of the first full fiscal quarter of the Borrower after the Closing Date, (a) the Applicable Margins with respect to Revolving Credit Loans and Swing Line Loans will be determined pursuant to the Pricing Grid and (b) if the Borrower shall have a corporate credit rating of “B2” or better from Moody’s and “B” or better from S&P, in each case with stable outlook, and (y) Consolidated Leverage Ratio as of the most recent Adjustment Date shall be less than 5.0 to 1.0, the Applicable Margin with respect to (i) Tranche B Term Loans maintained as Base Rate Loans shall be equal to 1.25% per annum and (ii) Tranche B Term Loans maintained as Eurodollar Loans shall be equal to 2.25% per annum.

        “Application”: an application, in such form as the relevant Issuing Lender may specify from time to time, requesting such Issuing Lender to issue a Letter of Credit.

        “Approved Electronic Platform”: as defined in Section 9.3(a).

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        “Ares”: Ares Management LLC or any of its Affiliates, any investment fund solely managed by any such Persons or any Affiliate of any such investment fund.

        “Arrangers”: each of Lehman Brothers Inc. and Citigroup Global Market Inc., each in its capacity as joint lead arranger.

        “Asset Sale”: any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c), (d) or (e) of Section 7.5) which yields gross proceeds the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $1,000,000.

      “Assignee”: as defined in Section 10.6(c).

        “Assignment and Acceptance”: as defined in Section 10.6(c).

      “Assignor”: as defined in Section 10.6(c).

        “Available Revolving Credit Commitment”: with respect to any Revolving Credit Lender at any time, an amount equal to the excess, if any, of (a) such Lender’s Revolving Credit Commitment then in effect over (b) such Lender’s Revolving Extensions of Credit then outstanding; provided, that in calculating any Lender’s Revolving Extensions of Credit for the purpose of determining such Lender’s Available Revolving Credit Commitment pursuant to Section 2.9(a), the aggregate principal amount of Swing Line Loans then outstanding shall be deemed to be zero.

        “Base Rate”: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) 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 ½ of 1%. For purposes hereof: “Prime Rate” shall mean the prime lending rate as set forth on the British Banking Association Telerate Page 5 (or such other comparable page as may, in the opinion of the Administrative Agent, replace such page for the purpose of displaying such rate), as in effect from time to time. Any change in the Base Rate due to a change in the Prime Rate actually available or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually available.

        “Base Rate Loans”: Loans for which the applicable rate of interest is based upon the Base Rate.

      “Benefitted Lender”: as defined in Section 10.7.

        “Board”: the Board of Governors of the Federal Reserve System of the United States (or any successor).

        “Borrower”: as defined in the preamble hereto.

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        “Borrowing Date”: any Business Day specified by the Borrower in a Borrowing Notice as a date on which the Borrower requests the relevant Lenders to make Loans hereunder.

        “Borrowing Notice”: with respect to any request for borrowing of Loans hereunder, a notice from the Borrower, substantially in the form of, and containing the information prescribed by, Exhibit I, delivered to the Administrative Agent.

        “Business Day”: (a) for all purposes other than as covered by clause (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market.

        “Capital Expenditures”: for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which are required to be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries.

        “Capital Lease Obligations”: with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP; and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP.

        “Capital Stock”: any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

        “Cash Equivalents”: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by S&P or P 2 by Moody’s, or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; and (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

4

        “Change of Control”: the occurrence of any of the following: (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) other than the Permitted Holder shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 35% or more of the issued and outstanding Voting Stock of the Borrower, (b) during any period of twelve consecutive calendar months, individuals who, at the beginning of such period, constituted the board of directors of the Borrower (together with any new directors whose election by the board of directors of the Borrower or whose nomination for election by the stockholders of the Borrower was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose elections or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office or (c) a Specified Change of Control; provided that it shall not constitute a Change of Control under clause (a) above solely because Ares ceases to be a Permitted Holder at a time when it owns 35% or more of the issued and outstanding Voting Stock of the Borrower, unless Ares thereafter acquires beneficial ownership or voting control of additional Capital Stock of the Borrower.

        “Citicorp”: as defined in the preamble hereto.

        “Closing Date”: the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied, which date shall be not later than May 26, 2006.

        “Code”: the United States Internal Revenue Code of 1986, as amended from time to time.

        “Collateral”: all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document.

        “Commitment”: with respect to any Lender, each of the Tranche B Term Loan Commitment and the Revolving Credit Commitment of such Lender.

5

        “Commitment Fee Rate”: ½ of 1% per annum; provided, that on and after the first Adjustment Date occurring after the completion of the first full fiscal quarter of the Borrower after the Closing Date, the Commitment Fee Rate will be determined pursuant to the Pricing Grid.

        “Commonly Controlled Entity”: an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code.

        “Compliance Certificate”: a certificate duly executed by a Responsible Officer, substantially in the form of Exhibit B.

        “Confidential Information Memorandum”: the Confidential Information Memorandum dated May 2006 and furnished to the initial Lenders in connection with the syndication of the Facilities.

        “Consolidated Current Assets”: of any Person at any date, all amounts (other than cash and Cash Equivalents) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of such Person and its Subsidiaries at such date.

        “Consolidated Current Liabilities”: of any Person at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of such Person and its Subsidiaries at such date, but excluding, (a) the current portion of Funded Debt of such Person and (b) all Indebtedness consisting of Revolving Credit Loans or Swing Line Loans.

        “Consolidated EBITDA”: of any Person for any period, Consolidated Net Income of such Person and its Subsidiaries for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) Consolidated Interest Expense of such Person and its Subsidiaries, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness, (c) depreciation and amortization expense, (d) amortization and impairment of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business), (f) the amount of any non-recurring restructuring charges or reserves deducted from such Consolidated Net Income for such period, including any one-time, non-recurring costs incurred in connection with the closure and/or consolidation of facilities and (g) any other non-cash charges minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income (except to the extent deducted in determining Consolidated Interest Expense), (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (c) any other non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, all as determined on a consolidated basis; provided that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, (i) the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders’ equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (x) have been previously provided to the Administrative Agent and the Lenders and (y) either (1) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (2) have been found acceptable by the Administrative Agent and (ii) the Consolidated EBITDA of any Person Disposed of by the Borrower or its Subsidiaries during such period shall be excluded for such period (assuming the consummation of such Disposition and the repayment of any Indebtedness in connection therewith occurred on the first day of such period).

6

        “Consolidated Interest Coverage Ratio”: for any period, the ratio of (a) Consolidated EBITDA of the Borrower and its Subsidiaries for such period to (b) Consolidated Interest Expense of the Borrower and its Subsidiaries for such period.

        “Consolidated Interest Expense”: of any Person for any period, total interest expense (including that attributable to Capital Lease Obligations) of such Person and its Subsidiaries for such period with respect to all outstanding Indebtedness of such Person and its Subsidiaries (including all commissions, discounts and other fees and charges owed by such Person with respect to letters of credit and bankers’ acceptance financing and net costs of such Person under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP); provided that the Consolidated Interest Expense of the Borrower and its Subsidiaries for the first fiscal quarter which has started after the Closing Date shall be reduced by an amount equal to the Borrower’s interest expense with respect to any Existing Notes outstanding during the period commencing on the first day of such fiscal quarter and ending 45 days after the Closing Date.

        “Consolidated Leverage Ratio”: as at the last day of any period of four consecutive fiscal quarters of the Borrower, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA of the Borrower and its Subsidiaries for such period.

        “Consolidated Net Income”: of any Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that in calculating Consolidated Net Income of the Borrower and its consolidated Subsidiaries for any period, there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary.

7

        “Consolidated Total Debt”: at any date, the aggregate principal amount of all Indebtedness (other than Indebtedness of the type specified in clause (f) of the definition of Indebtedness) of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP.

        “Consolidated Working Capital”: at any date, the difference of (a) Consolidated Current Assets of the Borrower on such date less (b) Consolidated Current Liabilities of the Borrower on such date.

        “Contractual Obligation”: with respect to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound.

        “Control Investment Affiliate”: with respect to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

        “Default”: any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of the applicable grace period, or both, has been satisfied.

        “Derivatives Counterparty”: as defined in Section 7.6.

        “Disposition”: with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms “Dispose” and “Disposed of” shall have correlative meanings.

        “Documentation Agents”: as defined in the preamble hereto.

        “Dollars” and “$": lawful currency of the United States of America.

8

        “Dollar Equivalent” of any amount means, at the time of determination thereof, (a) if such amount is expressed in Dollars, such amount, (b) if such amount is expressed in any other currency, the equivalent of such amount in Dollars determined by using the rate of exchange quoted by the Citibank, N.A. in New York, New York at 11:00 a.m. (New York time) on the date of determination (or, if such date is not a Business Day, the last Business Day prior thereto) to prime banks in New York for the spot purchase in the New York foreign exchange market of such amount of Dollars with such currency and (c) if such amount is denominated in any currency for which Citibank N.A. does not quote a rate of exchange, the equivalent of such amount in Dollars as determined by the Administrative Agent using any method of determination it deems appropriate.

        “Domestic Subsidiary”: any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America.

        “ECF Percentage”: with respect to any fiscal year of the Borrower, 50%; provided, that, with respect to any fiscal year of the Borrower ending on or after December 31, 2007, the ECF Percentage shall be 25% if the Consolidated Leverage Ratio as of the last day of such fiscal year is less than or equal to 4.5 to 1.0 and greater than 3.5 to 1.0, and 0% if the Consolidated Leverage Ratio as of the last day of such fiscal year is less than or equal to 3.5 to 1.0.

        “Environmental Laws”: any and all laws, rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or other legally enforceable requirements (including common law) of any international authority, foreign government, the United States, or any state, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect.

        “Environmental Permits”: any and all permits, licenses, approvals, registrations, notifications, exemptions and other authorizations required under any Environmental Law.

        “Equity Financing”: the issuance and sale by the Borrower of its Series A Convertible Preferred Stock pursuant to the Equity Financing Documentation.

        “Equity Financing Documentation”: the Preferred Stock Purchase Agreement dated as of May 3, 2006, among the Borrower, Lehman Brothers Inc., Citigroup Global Markets Inc. and Ares Corporate Opportunities Fund, L.P., entered into in connection with the Equity Financing, in each case, together with (i) each exhibit thereto, (ii) any amendments, supplements or other modifications to any of the forgoing and (iii) each other document and instrument delivered with respect thereto.

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

        “Eurocurrency Reserve Requirements”: for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.

9

        “Eurodollar Base Rate”: with respect to each day during each Interest Period, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the “Eurodollar Base Rate” for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent.

        “Eurodollar Loans”: Loans for which the applicable rate of interest is based upon the Eurodollar Rate.

        “Eurodollar Rate”: with respect to each day during each Interest Period, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):

Eurodollar Base Rate

1.00 – Eurocurrency Reserve Requirements

        “Eurodollar Tranche”: the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).

        “Event of Default”: any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

        “Excess Cash Flow”: for any fiscal year of the Borrower, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal year, (ii) the amount of all non-cash charges (including depreciation and amortization) deducted in arriving at such Consolidated Net Income, (iii) the amount of the decrease, if any, in Consolidated Working Capital for such fiscal year, (iv) the aggregate net amount of non cash loss on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income and (v) the net increase during such fiscal year (if any) in deferred tax accounts of the Borrower minus (b) the sum, without duplication, of (i) the amount of all non-cash credits included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures (minus the principal amount of Indebtedness incurred in connection with such expenditures and minus the amount of any such expenditures financed with the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of Revolving Credit Loans and Swing Line Loans during such fiscal year to the extent accompanying permanent optional reductions of the Revolving Credit Commitments and all optional prepayments of the Tranche B Term Loans and other Funded Debt during such fiscal year, (iv) the aggregate amount of all principal payments and prepayment of Indebtedness (including the Tranche B Term Loans) of the Borrower and its Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), (v) the aggregate amount of all cash consideration paid in connection with Permitted Acquisitions in accordance with Section 7.8(g) during such fiscal year, (vi) the aggregate amount of all payments made with respect to the Series A Convertible Preferred Stock pursuant to Section 7.6(d), (vii) the amount of the increase, if any, in Consolidated Working Capital for such fiscal year, (viii) the aggregate net amount of non-cash gain on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, and (ix) the net decrease during such fiscal year (if any) in deferred tax accounts of the Borrower.

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        “Excess Cash Flow Application Date”: as defined in Section 2.12(c).

        “Excluded Foreign Subsidiaries”: any Subsidiary of the Borrower that is not a Domestic Subsidiary.

        “Existing Credit Facility”: the Amended and Restated Credit Agreement dates as of October 3, 2003, among the Borrower, General Electric Capital Corporation, as administrative agent, GECC Capital Markets Group, Inc. and Lehman Brothers, Inc., as joint lead arrangers and join book managers, Lehman Commercial Paper Inc., as syndication agent, Harris Trust and Saving Bank, as documentation agent, and General Electric Capital Corporation, as documentation agent, as amended.

        “Existing Earn-Out Obligations”: the obligations listed on Schedule 1.1(a).

      “Existing Issuing Lender”: LaSalle.

        “Existing Letters of Credit”: the letters of credit described in Annex B.

        “Existing Notes”: each of the Borrower’s (a) 10 3/8% Senior Notes due 2009 issued pursuant to the 2002 Indenture and (b) 11 1/4% Senior Subordinated Notes due 2009 issued pursuant to the 1999 Indenture.

        “Existing Seller Notes”: the promissory notes listed on Schedule 1.1(b).

        “Facility”: each of (a) the Tranche B Term Loan Commitments and the Tranche B Term Loans made thereunder (the “Tranche B Term Loan Facility”) and (b) the Revolving Credit Commitments and the extensions of credit made thereunder (the “Revolving Credit Facility”).

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        “Federal Funds Effective Rate”: 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 for any day which is a 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.

        “Fee Letter”: the later dated May 3, 2006, addressed to the Borrower from Lehman Commercial Paper Inc., Lehman Brothers Inc. and Citigroup Global Markets Inc. and accepted by the Borrower on May 3, 2006.

        “FQ1", “FQ2", “FQ3", and “FQ4": when used with a numerical year designation, means the first, second, third or fourth fiscal quarters, respectively, of the designated fiscal year of the Borrower (e.g., FQ1 2006 means the first fiscal quarter of the Borrower’s 2006 fiscal year, which ended on March 31, 2006).

        “Funded Debt”: with respect to any Person, all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation and, in the case of the Borrower, Indebtedness in respect of the Loans.

        “Funding Office”: the office specified from time to time by the Administrative Agent as its funding office by notice to the Borrower and the Lenders.

        “GAAP”: generally accepted accounting principles in the United States of America as in effect from time to time, except that for the purposes of Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements referred to in Section 4.1(b).

        “Governmental Authority”: any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government.

        “Guarantee and Collateral Agreement”: the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be amended, supplemented, replaced or otherwise modified from time to time.

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        “Guarantee Obligation”: with respect to any Person (the “guaranteeing person”), any obligation of (a) the guaranteeing person or (b) another Person (including any bank under any letter of credit), if to induce the creation of such obligation of such other Person the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

        “Guarantors”: the collective reference to the Subsidiary Guarantors.

        “Health Care Permit”: as defined in Section 4.21.

        “Hedge Agreements”: all interest rate or currency swaps, caps or collar agreements, foreign exchange agreements, commodity contracts or similar arrangements entered into by the Borrower or its Subsidiaries providing for protection against fluctuations in interest rates, currency exchange rates, commodity prices or the exchange of nominal interest obligations, either generally or under specific contingencies.

        “Indebtedness”: of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than trade payables incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations or Synthetic Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation and (j) for the purposes of Section 8(e) only, all obligations of such Person in respect of Hedge Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provides that such Person is not liable therefor.

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        “Indemnified Liabilities”: as defined in Section 10.5.

        “Indemnitee”: as defined in Section 10.5.

        “1999 Indenture”: the Indenture, dated as of June 16, 1999, by and among the Borrower, the guarantors party thereto, and U.S. Bank Trust National Association, as trustee.

        “2002 Indenture”: the Indenture, dated as of February 15, 2002, by and among the Borrower, the guarantors party thereto, and Wilmington Trust Company, as trustee.

        “Insolvency”: with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.

        “Insolvent”: pertaining to a condition of Insolvency.

        “Intellectual Property”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, state, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, service-marks, technology, know-how and processes, recipes, formulas, trade secrets, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

        “Interest Payment Date”: (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan (other than any Revolving Credit Loan that is a Base Rate Loan (unless all Revolving Credit Loans are being repaid in full and all Revolving Credit Commitments are terminated) and any Swing Line Loan), the date of any repayment or prepayment made in respect thereof.

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        “Interest Period”: as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six or (if available to all Lenders under the relevant Facility, as determined by such Lenders in their sole discretion) nine or twelve months thereafter, as selected by the Borrower in its Borrowing Notice or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six or (if available to all Lenders under the relevant Facility, as determined by such Lenders in their sole discretion) nine or twelve months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided, that all of the foregoing provisions relating to Interest Periods are subject to the following:

(1) if any Interest Period 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 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;

(2) any Interest Period that would otherwise extend beyond the Revolving Credit Termination Date or beyond the date final payment is due on the Tranche B Term Loans shall end on the Revolving Credit Termination Date or such due date, as applicable; and

(3) any Interest Period 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 calendar month at the end of such Interest Period.

        “Investments”: as defined in Section 7.8.

        “Issuing Lender”: the Existing Issuing Lender and any Lender or an Affiliate of a Lender that (a) is listed on the signature pages hereof as an “Issuing Lender” or (b) hereafter becomes an Issuing Lender with the approval of the Administrative Agent and the Borrower by agreeing pursuant to an agreement with and in form and substance satisfactory to the Administrative Agent and the Borrower to be bound by the terms hereof applicable to Issuing Lender.

        “L/C Commitment”: $25,000,000.

        “L/C Fee Payment Date”: the last day of each March, June, September and December and the last day of the Revolving Credit Commitment Period.

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        “L/C Obligations”: at any time, an amount equal to the sum of, without duplication, (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 3.5.

        “L/C Participants”: with respect to any Letter of Credit, the collective reference to all the Revolving Credit Lenders other than the Issuing Lender that issued such Letter of Credit.

        “Lender Addendum”: with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit H, or otherwise acceptable to the Administrative Agent, to be executed and delivered by such Lender on the Closing Date as provided in Section 10.15.

        “Lenders”: as defined in the preamble hereto.

        “Letters of Credit”: as defined in Section 3.1(a).

        “Lien”: 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 any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing).

        “Loan”: any loan made by any Lender pursuant to this Agreement.

        “Loan Documents”: this Agreement, the Security Documents, the Fee Letter, the Applications and the Notes.

        “Loan Parties”: the Borrower and each Subsidiary of the Borrower that is a party to a Loan Document.

        “Majority Facility Lenders”: with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Tranche B Term Loans or the Total Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or, in the case of the Revolving Credit Facility, prior to any termination of the Revolving Credit Commitments, the holders of more than 50% of the Total Revolving Credit Commitments).

        “Majority Revolving Credit Facility Lenders”: the Majority Facility Lenders in respect of the Revolving Credit Facility.

        “Material Adverse Effect”: a material adverse effect on (a) the business, financial condition, results of operations, assets or liabilities of the Borrower and its Subsidiaries taken as a whole, (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder or (c) the ability of any Loan Party to perform its obligations under any Loan Documents to which it is a party.

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        “Material Environmental Amount”: an amount or amounts payable by the Borrower and/or any of its Subsidiaries, in the aggregate in excess of $2,000,000, for: costs to comply with any Environmental Law; costs of any investigation, and any remediation, of any Material of Environmental Concern; and compensatory damages (including damages to natural resources), punitive damages, fines, and penalties pursuant to any Environmental Law.

        “Materials of Environmental Concern”: any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity, and any other substances or forces of any kind, whether or not any such substance or force is defined as hazardous or toxic under any Environmental Law, that is regulated pursuant to or could give rise to liability under any Environmental Law.

        “Moody’s”: Moody’s Investors Service, Inc.

        “Mortgaged Properties”: the real properties of the Borrower or any Subsidiary Guarantor having a book value of $1,000,000 or more, as to which the Administrative Agent for the benefit of the Secured Parties shall be granted a Lien pursuant to one or more Mortgages.

        “Mortgages”: any and all mortgages or deeds of trust made by any Loan Party in favor of, or for the benefit of, the Administrative Agent for the benefit of the Secured Parties, in a form as may be reasonably agreed by the Administrative Agent and the Loan Parties party thereto, as the same may be amended, supplemented or otherwise modified from time to time.

        “Multiemployer Plan”: a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

        “Net Cash Proceeds”: (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of reasonable attorneys’ fees, accountants’ fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other reasonable fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (b) in connection with any issuance or sale of equity securities (other than the (x) Series A Convertible Preferred Stock or any conversion thereof or (y) issuance or sale of the Borrower’s common stock in a private placement exempt from the registration requirements under the Securities Act of 1933, as amended) or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of (i) attorneys’ fees, investment banking fees, accountants’ fees, underwriting discounts and commissions and other fees and expenses actually incurred in connection therewith and (ii) such cash proceeds used to prepay, repurchase, redeem or otherwise defease Senior Notes in accordance with Section 7.9(a)(i), and (c) in connection with any Purchase Price Refund, the cash amount thereof, net of any expenses incurred in the collection thereof.

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        “Non-Excluded Taxes”: as defined in Section 2.20(a).

        “Non-U.S. Lender”: as defined in Section 2.20(d).

        “Note”: any promissory note evidencing any Loan.

        “Obligations”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans, the Reimbursement Obligations and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender or any Qualified Counterparty, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Specified Hedge Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to each Arranger, to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise; provided that (i) obligations of the Borrower or any Subsidiary under any Specified Hedge Agreement shall be secured and guaranteed pursuant to the Security Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (ii) any release of Collateral or Guarantors effected in the manner permitted by this Agreement shall not require the consent of holders of obligations under Specified Hedge Agreements.

        “Other Taxes”: any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

        “Participant”: as defined in Section 10.6(b).

        “Payment Office”: the office specified from time to time by the Administrative Agent as its payment office by notice to the Borrower and the Lenders.

        “PBGC”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).

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        “Permits”: the collective reference to any and all other franchises, licenses, leases, permits, approvals, notifications, certifications, registrations, authorizations, exemptions, qualifications, easements, and rights of way.

        “Permitted Acquisitions”: as defined in Section 7.8(g).

        “Permitted Earn-Out Obligations”: obligations of the Borrower or any of its Subsidiaries incurred in connection with a Permitted Acquisition which (i) are not secured or guaranteed by the Borrower or any of its Subsidiaries and shall be subordinated to the Obligations on terms satisfactory to the Administrative Agent, (ii) are payable solely by the Borrower or such Subsidiaries in the event that certain future performance goals are achieved in the business acquired in such Permitted Acquisition, and (iii) arise under written agreements, in form and substance satisfactory to the Administrative Agent, specifying, in each case, an amount as the maximum potential liability of the Borrower or such Subsidiary in respect thereof; provided that the aggregate amount of all Permitted Earn-Out Obligations outstanding at any time shall not exceed $15,000,000.

        “Permitted Holder”: Ares, unless Ares does not have a representative on the Borrower’s board of directors as a result of (x) the resignation by such representative without Ares nominating a replacement Ares designee, (y) the failure of the Ares representative (or a replacement nominee of Ares) to stand for election or (z) the failure of the Ares designee to be elected to the Borrower’s board of directors if Ares failed to vote in favor of such nominee.

        “Permitted Joint Ventures”: any joint venture that the Borrower or any Subsidiary Guarantor is a party to that is engaged in the same businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto.

        “Permitted Liens”: the collective reference to (i) in the case of Collateral other than Pledged Stock, Liens permitted by Section 7.3 and (ii) in the case of Collateral consisting of Pledged Stock, non-consensual Liens permitted by Section 7.3 to the extent arising by operation of law.

        “Permitted Seller Notes”: promissory notes issued by the Borrower or any of its Subsidiaries to sellers of stock or assets in one or more Permitted Acquisitions, which promissory notes shall (i)  be unsecured and not guaranteed by any Subsidiaries of the Borrower, (ii) be subordinated to the Obligations on terms satisfactory to the Administrative Agent, (iii) not mature earlier than the date that is six months after the Revolving Credit Termination Date, and (iv)  otherwise be in form and substance satisfactory to the Administrative Agent; provided that such promissory notes in an aggregate principal amount outstanding at any time shall not exceed $30,000,000.

        “Person”: 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.

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        “Plan”: at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower 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.

        “Preferred Stock” the Borrower’s 7% redeemable preferred stock, par value $0.01 per share.

        “Pricing Grid”: the pricing grid attached hereto as Annex A.

        “Pro Forma Balance Sheet”: as defined in Section 4.1(a).

        “Projections”: as defined in Section 6.3(c).

        “Property”: any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including Capital Stock.

        “Purchase Price Refund”: any amount received by the Borrower or any Subsidiary as a result of a purchase price adjustment or similar event in connection with any acquisition of Property by the Borrower or any Subsidiary.

        “Qualified Counterparty”: with respect to any Specified Hedge Agreement, any counterparty thereto that, at the time such Specified Hedge Agreement was entered into, was a Lender or an affiliate of a Lender.

        “Recovery Event”: any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Borrower or any of its Subsidiaries.

        “Refunded Swing Line Loans”: as defined in Section 2.7.

        “Refunding Date”: as defined in Section 2.7.

        “Register”: as defined in Section 10.6(d).

        “Regulation H”: Regulation H of the Board as in effect from time to time.

        “Regulation U”: Regulation U of the Board as in effect from time to time.

        “Reimbursement Obligation”: the obligation of the Borrower to reimburse each Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit issued by such Issuing Lender.

        “Reinvestment Deferred Amount”: with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any of its Subsidiaries in connection therewith that are not applied to prepay the Tranche B Term Loans or reduce the Revolving Credit Commitments pursuant to Section 2.12(b) as a result of the delivery of a Reinvestment Notice.

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        “Reinvestment Event”: any Asset Sale, Purchase Price Refund or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice.

        “Reinvestment Notice”: a written notice executed by a Responsible Officer stating that no Default or Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Wholly Owned Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale, Purchase Price Refund or Recovery Event to acquire or repair assets useful in its or such Wholly Owned Subsidiary’s business within 365 days.

        “Reinvestment Prepayment Amount”: with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire or repair assets useful in the Borrower’s business.

        “Reinvestment Prepayment Date”: with respect to any Reinvestment Event, the earlier of (a) the date occurring one year after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire or repair assets useful in the Borrower’s business with all or any portion of the relevant Reinvestment Deferred Amount.

        “Related Fund”: with respect to any Lender, any fund that (x) invests in commercial loans and (y) is managed or advised by the same investment advisor as such Lender, by such Lender or an Affiliate of such Lender or such investment advisor.

        “Reorganization”: with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.

        “Reportable Event”: 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 subsections .27, .28, .29, ..30, .31, .32, .34 or .35 of PBGC Reg. § 4043.

        “Required Lenders”: at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Tranche B Term Loans then outstanding and (ii) the Total Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit then outstanding.

        “Required Prepayment Lenders”: the Majority Facility Lenders in respect of each Facility.

        “Requirement of Law”: as to any Person, the Certificate of Incorporation and By Laws or other organizational or governing documents of such Person, and any 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 Property or to which such Person or any of its Property is subject.

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        “Responsible Officer”: the chief executive officer, president, treasurer, chief accounting officer, or chief financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower.

        “Restricted Payments”: as defined in Section 7.6.

        “Revolving Credit Commitment”: as to any Lender, the obligation of such Lender, if any, to make Revolving Credit Loans and participate in Swing Line Loans and Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading “Revolving Credit Commitment” opposite such Lender’s name on Schedule 1 to the Lender Addendum delivered by such Lender, or, as the case may be, in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original aggregate amount of the Total Revolving Credit Commitments is $75,000,000.

        “Revolving Credit Commitment Period”: the period from and including the Closing Date to the Revolving Credit Termination Date.

        “Revolving Credit Facility”: as defined in the definition of "Facility" in this Section 1.1.

        “Revolving Credit Lender”: each Lender that has a Revolving Credit Commitment or holds Revolving Extensions of Credit.

        “Revolving Credit Loans”: as defined in Section 2.4.

        “Revolving Credit Note”: as defined in Section 2.8(e).

        “Revolving Credit Percentage”: as to any Revolving Credit Lender at any time, the percentage which such Lender’s Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate amount of such Lender’s Revolving Extensions of Credit then outstanding constitutes of the amount of the Total Revolving Extensions of Credit then outstanding).

        “Revolving Credit Termination Date”: May 26, 2011.

        “Revolving Extensions of Credit”: as to any Revolving Credit Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans then outstanding to such Lender, (b) such Lender’s Revolving Credit Percentage of the L/C Obligations then outstanding and (c) such Lender’s Revolving Credit Percentage of the aggregate principal amount of Swing Line Loans then outstanding.

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        “SEC”: the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority).

        “Seller Notes“: the Existing Seller Notes and the Permitted Seller Notes.

        “Secured Parties”: as defined in the Guarantee and Collateral Agreement.

        “Security Documents”: the collective reference to the Guarantee and Collateral Agreement, any Mortgages, any intellectual property security agreements or control agreements required to be delivered pursuant to the Guarantee and Collateral Agreement or any other Loan Document and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document.

        “Senior Note Indenture”: the Indenture entered into by the Borrower and the guarantors party thereto in connection with the issuance of the Senior Notes, together with all instruments and other agreements entered into by the Borrower and such guarantors in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9.

        “Senior Notes”: the senior notes of the Borrower issued on the Closing Date pursuant to the Senior Note Indenture.

        “Series A Convertible Preferred Stock”: the Borrower’s Series A Convertible Preferred Stock, par value $0.01 per share.

        “Single Employer Plan”: any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan.

        “Solvent”: with respect to any Person, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, (d) such Person will be able to pay its debts as they mature in the ordinary course of business and (e) such Person is not insolvent within the meaning of any applicable Requirement of Law. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

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        “Specified Change of Control”: a “Change of Control”, or like event, as defined in the Senior Note Indenture.

        “Specified Hedge Agreement”: any Hedge Agreement entered into by the Borrower or any Guarantor and any Qualified Counterparty.

        “S&P”: Standard & Poor’s Rating Services.

        “Subordinated Debt”: as defined in Section 7.2(h).

        “Subsidiary”: as to any Person, 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 directors or other managers of such corporation, partnership 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. 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”: each Subsidiary of the Borrower other than any Excluded Foreign Subsidiary.

        “Swing Line Commitment”: the obligation of the Swing Line Lender to make Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount at any one time outstanding not to exceed $15,000,000.

        “Swing Line Lender”: Citicorp or any other Revolving Credit Lender that becomes the Administrative Agent, or agrees, with the approval of the Administrative Agent and the Borrower, to act as the Swing Line Lender, in each case in its capacity as the lender of Swing Line Loans.

        “Swing Line Loans”: as defined in Section 2.6(a).

        “Swing Line Note”: as defined in Section 2.8(e).

        “Swing Line Participation Amount”: as defined in Section 2.7(c).

        “Syndication Agent”: as defined in the preamble hereto.

        “Synthetic Lease Obligations”: all monetary obligations of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations which do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).

        “Term Note”: as defined in Section 2.8(e).

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        “Total Revolving Credit Commitments”: at any time, the aggregate amount of the Revolving Credit Commitments then in effect.

        “Total Revolving Extensions of Credit”: at any time, the aggregate amount of the Revolving Extensions of Credit of the Revolving Credit Lenders outstanding at such time.

        “Tranche B Term Loan”: as defined in Section 2.1.

        “Tranche B Term Loan Commitment”: as to any Lender, the obligation of such Lender, if any, to make a Tranche B Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading “Tranche B Term Loan Commitment” opposite such Lender’s name on Schedule 1 to the Lender Addendum delivered by such Lender, or, as the case may be, in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original aggregate amount of the Tranche B Term Loan Commitments is $230,000,000.

        “Tranche B Term Loan Facility”: as defined in the definition of “Facility” in this Section 1.1.

        “Tranche B Term Loan Lender”: each Lender that has a Tranche B Term Loan Commitment or is the holder of a Tranche B Term Loan.

        “Tranche B Term Loan Maturity Date”: May 26, 2013.

        “Tranche B Term Loan Percentage”: as to any Tranche B Term Loan Lender at any time, the percentage which such Lender’s Tranche B Term Loan Commitment then constitutes of the aggregate Tranche B Term Loan Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender’s Tranche B Term Loans then outstanding constitutes of the aggregate principal amount of the Tranche B Term Loans then outstanding).

      “Transferee”: as defined in Section 10.14.

        “Trust Indenture Act”: as defined in Section 9.1(d).

        “Type”: as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan.

        “UCC”: the Uniform Commercial Code as in effect from time to time in the State of New York.

        “U.S. Person”: a “United States person” as defined in Section 7701(a)(30) of the Code.

        “Voting Stock”: the Capital Stock of any Person having ordinary power to vote in the election of members of the board of directors, managers, trustees or other controlling Persons, of such Person (irrespective of whether, at the time, Capital Stock of any other class or classes of such entity shall have or might have voting power by reason of the happening of any contingency).

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        “Wholly Owned Subsidiary”: as to any Person, any other Person all of the Capital Stock of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

        “Wholly Owned Subsidiary Guarantor”: any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower.

    1.2        Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto.

        (a)        As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the terms “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, and (iii) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time.

        (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, 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.

        (d)        All calculations of financial ratios set forth in Section 7.1 and the calculation of the Consolidated Leverage Ratio for purposes of determining the Applicable Margin shall be calculated to the same number of decimal places as the relevant ratios are expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or greater. For example, if the relevant ratio is to be calculated to the hundredth decimal place and the calculation of the ratio is 5.126, the ratio will be rounded up to 5.13.

        (e)        The expressions “payment in full,” “paid in full” and any other similar terms or phrases when used herein with respect to the Obligations shall mean the payment in full, in immediately available funds, of all of the Obligations.

    1.3        Accounting Changes. In the event that any “Accounting Change” (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Change with the desired result that the criteria for evaluating the Borrower’s financial condition shall be the same after such Accounting Change as if such Accounting Change had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Change had not occurred. “Accounting Change” refers to any change in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC.

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SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

    2.1        Tranche B Term Loan Commitments. Subject to the terms and conditions hereof the Tranche B Term Loan Lenders severally agree to make Tranche B Term Loans (each, a “Tranche B Term Loan”) to the Borrower on the Closing Date in an amount for each Tranche B Term Loan Lender not to exceed the amount of the Tranche B Term Loan Commitment of such Lender. The Tranche B Term Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.13.

    2.2        Procedure for Tranche B Term Loan Borrowing. The Borrower shall deliver to the Administrative Agent a Borrowing Notice (which Borrowing Notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, one Business Day prior to the anticipated Closing Date) requesting that the Tranche B Term Loan Lenders make the Tranche B Term Loans on the Closing Date and specifying the amount to be borrowed. The Tranche B Term Loans made on the Closing Date shall initially be Base Rate Loans, and no Tranche B Term Loan may be converted into or continued as a Eurocurrency Loan having an Interest Period in excess of one month prior to the date which is 30 days after the Closing Date. Upon receipt of such Borrowing Notice the Administrative Agent shall promptly notify each Tranche B Term Loan Lender thereof. Not later than 12:00 noon, New York City time, on the Closing Date each Tranche B Term Loan Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Tranche B Term Loans to be made by such Lender. The Administrative Agent shall make available to the Borrower the aggregate of the amounts made available to the Administrative Agent by the Tranche B Term Loan Lenders, in like funds as received by the Administrative Agent.

    2.3        Repayment of Tranche B Term Loans. The Tranche B Term Loan of each Tranche B Term Loan Lender shall mature in 27 consecutive quarterly installments, commencing on September 30, 2006, each of which shall be in an amount equal to such Lender’s Tranche B Term Loan Percentage multiplied by the percentage set forth below opposite such installment of the aggregate principal amount of Tranche B Term Loans made on the Closing Date; provided that to the extent that a portion of such Tranche B Term Loans are prepaid pursuant to Sections 2.11 or 2.12, the amounts set forth below shall be reduced to reflect the required application of such prepayment:

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Installment	Percentage
September 30, 2006	0.25%
December 31, 2006	0.25%
March 31, 2007	0.25%
June 30, 2007	0.25%
September 30, 2007	0.25%
December 31, 2007	0.25%
March 31, 2008	0.25%
June 30, 2008	0.25%
September 30, 2008	0.25%
December 31, 2008	0.25%
March 31, 2009	0.25%
June 30, 2009	0.25%
September 30, 2009	0.25%
December 31, 2009	0.25%
March 31, 2010	0.25%
June 30, 2010	0.25%
September 30, 2010	0.25%
December 31, 2010	0.25%
March 31, 2011	0.25%
June 30, 2011	0.25%
September 30, 2011	0.25%
December 31, 2011	0.25%
March 31, 2012	0.25%
June 30, 2012	0.25%
September 30, 2012	0.25%
December 31, 2012	0.25%
March 31, 2013	0.25%

provided, further, that the Borrower shall repay the entire unpaid principal amount of the Tranche B Term Loans on the Tranche B Term Loan Maturity Date.

    2.4        Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, the Revolving Credit Lenders severally agree to make revolving credit loans (“Revolving Credit Loans”) to the Borrower from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding for each Revolving Credit Lender which, when added to such Lender’s Revolving Credit Percentage of the sum of (i) the L/C Obligations then outstanding and (ii) the aggregate principal amount of the Swing Line Loans then outstanding, does not exceed the amount of such Lender’s Revolving Credit Commitment. During the Revolving Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.13, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Termination Date.

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        (b)     The Borrower shall repay all outstanding Revolving Credit Loans on the Revolving Credit Termination Date.

    2.5        Procedure for Revolving Credit Borrowing. The Borrower may borrow under the Revolving Credit Commitments on any Business Day during the Revolving Credit Commitment Period, provided that the Borrower shall deliver to the Administrative Agent a Borrowing Notice (which Borrowing Notice must be received by the Administrative Agent prior to 12:00 noon, New York City time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans). Each borrowing of Revolving Credit Loans under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $500,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $500,000, such lesser amount) and (y) in the case of Eurodollar Loans, $1,000,000 or a whole multiple thereof; provided that the Swing Line Lender may request, on behalf of the Borrower, borrowings of Base Rate Loans under the Revolving Credit Commitments in other amounts pursuant to Section 2.7. Upon receipt of any such Borrowing Notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will make its Revolving Credit Percentage of the amount of each borrowing of Revolving Credit Loans available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 12:00 noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent in like funds as received by the Administrative Agent.

    2.6        Swing Line Commitment. (a) Subject to the terms and conditions hereof, the Swing Line Lender agrees that, during the Revolving Credit Commitment Period, it will make available to the Borrower in the form of swing line loans (“Swing Line Loans”) a portion of the credit otherwise available to the Borrower under the Revolving Credit Commitments; provided that (i) the aggregate principal amount of Swing Line Loans outstanding at any time shall not exceed the Swing Line Commitment then in effect (notwithstanding that the Swing Line Loans outstanding at any time, when aggregated with the Swing Line Lender’s other outstanding Revolving Credit Loans hereunder, may exceed the Swing Line Commitment then in effect or such Swing Line Lender’s Revolving Credit Commitment then in effect) and (ii) the Borrower shall not request, and the Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to the making of such Swing Line Loan, the aggregate amount of the Available Revolving Credit Commitments would be less than zero. During the Revolving Credit Commitment Period, the Borrower may use the Swing Line Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swing Line Loans shall be Base Rate Loans only.

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        (b)     The Borrower shall repay all outstanding Swing Line Loans on the Revolving Credit Termination Date.

    2.7        Procedure for Swing Line Borrowing; Refunding of Swing Line Loans. (a) The Borrower may borrow under the Swing Line Commitment on any Business Day during the Revolving Credit Commitment Period, provided that the Borrower shall give the Swing Line Lender written notice (which written notice must be received by the Swing Line Lender not later than 2:00 P.M., New York City time, on the proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date. Each borrowing under the Swing Line Commitment shall be in an amount equal to $500,000 or a whole multiple of $100,000 in excess thereof. Not later than 3:00 P.M., New York City time, on the Borrowing Date specified in the borrowing notice in respect of any Swing Line Loan, the Swing Line Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the amount of such Swing Line Loan. The Administrative Agent shall make the proceeds of such Swing Line Loan available to the Borrower on such Borrowing Date in like funds as received by the Administrative Agent.

        (b)     The Swing Line Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swing Line Lender to act on its behalf), on one Business Day’s notice given by the Swing Line Lender no later than 12:00 noon, New York City time, request each Revolving Credit Lender to make, and each Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan (which shall initially be a Base Rate Loan), in an amount equal to such Revolving Credit Lender’s Revolving Credit Percentage of the aggregate amount of the Swing Line Loans (the “Refunded Swing Line Loans”) outstanding on the date of such notice, to repay the outstanding Swing Line Loans. Each Revolving Credit Lender shall make the amount of such Revolving Credit Loan available to the Administrative Agent at the Funding Office in immediately available funds, not later than 10:00 A.M., New York City time, one Business Day after the date of such notice. The proceeds of such Revolving Credit Loans shall be made immediately available by the Administrative Agent to the Swing Line Lender for application by the Swing Line Lender to the repayment of the Refunded Swing Line Loans.

        (c)     If prior to the time a Revolving Credit Loan would have otherwise been made pursuant to Section 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower, or if for any other reason, as determined by the Swing Line Lender in its sole discretion, Revolving Credit Loans may not be made as contemplated by Section 2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit Loan was to have been made pursuant to the notice referred to in Section 2.7(b) (the “Refunding Date”), purchase for cash an undivided participating interest in the then outstanding Swing Line Loans by paying to the Swing Line Lender an amount (the “Swing Line Participation Amount”) equal to (i) such Revolving Credit Lender’s Revolving Credit Percentage times (ii) the sum of the aggregate principal amount of Swing Line Loans then outstanding which were to have been repaid with such Revolving Credit Loans.

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        (d)     Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Lender’s Swing Line Participation Amount, the Swing Line Lender receives any payment on account of the Swing Line Loans, the Swing Line Lender will distribute to such Lender its Swing Line Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender’s prorata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swing Line Loans then due); provided that in the event that such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender.

        (e)     Each Revolving Credit Lender’s obligation to make the Loans referred to in Section 2.7(b) and to purchase participating interests pursuant to Section 2.7(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (i) any setoff, counterclaim, recoupment, defense or other right which such Revolving Credit Lender or the Borrower may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Revolving Credit Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.

    2.8        Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Revolving Credit Lender or the Swing Line Lender and to the Administrative Agent for the account of the appropriate Tranche B Term Loan Lender, as the case may be, (i) the then unpaid principal amount of each Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit Termination Date (or on such earlier date on which the Loans become due and payable pursuant to Section 8), (ii) the then unpaid principal amount of each Swing Line Loan of such Swing Line Lender on the Revolving Credit Termination Date (or on any earlier date on which the Loans become due and payable pursuant to Section 8) and (iii) the principal amount of each Tranche B Term Loan of such Tranche B Term Loan Lender in installments according to the amortization schedule set forth in Section 2.3 (or on such earlier date on which the Loans become due and payable pursuant to Section 8). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.15.

        (b)     Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement.

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        (c)     The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 10.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type of such Loan and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender’s share thereof.

        (d)     The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.8(b) shall, to the extent permitted by applicable law, be primafacie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement.

        (e)     The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will promptly execute and deliver to such Lender a promissory note of the Borrower evidencing any Tranche B Term Loans, Revolving Credit Loans or Swing Line Loans, as the case may be, of such Lender, substantially in the forms of Exhibit F-1, F-2 or F-3, respectively (a “Term Note”, “Revolving Credit Note” or “Swing Line Note”, respectively), with appropriate insertions as to date and principal amount; provided that delivery of Notes shall not be a condition precedent to the occurrence of the Closing Date or the making of the Loans on the Closing Date and the obligations of the Borrower in respect of each Loan shall be enforceable in accordance with the provisions of the Loan Documents whether or not evidenced by any Note.

    2.9        Commitment Fees, etc. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Credit Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date, commencing on the first of such dates to occur after the date hereof.

        (b)     The Borrower agrees to pay to each of the Arrangers the fees in the amounts and on the dates agreed to in the Fee Letter.

        (c)     The Borrower agrees to pay to the Agents the fees in the amounts and on the dates agreed to in the Fee Letter.

    2.10        Termination or Reduction of Revolving Credit Commitments. The Borrower shall have the right, upon not less than three Business Days’ notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the aggregate amount of the Revolving Credit Commitments; provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans and Swing Line Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect.

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    2.11        Optional Prepayments. (a) The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (except as otherwise provided herein), upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of Base Rate Loans, which notice shall specify the date and amount of such prepayment, whether such prepayment is of Tranche B Term Loans or Revolving Credit Loans, and whether such prepayment is of Eurodollar Loans or Base Rate Loans; provided that (i) if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.21 and (ii) same day notice is required for the prepayment of Swing Line Loans.

        (b)     Upon receipt of any notice pursuant to clause (a) above, the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Credit Loans that are Base Rate Loans and Swing Line Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Tranche B Term Loans and Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. Partial prepayments of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof.

        (c)     Any reduction of the Revolving Credit Commitments shall be accompanied by prepayment of the Revolving Credit Loans and/or Swing Line Loans to the extent, if any, that the Total Revolving Extensions of Credit exceed the amount of the Total Revolving Credit Commitments as so reduced, provided that if the aggregate principal amount of Revolving Credit Loans and Swing Line Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Secured Parties on terms and conditions satisfactory to the Administrative Agent.

    2.12        Mandatory Prepayments . (a) Unless the Required Prepayment Lenders shall otherwise agree, if any Capital Stock shall be issued, or Indebtedness incurred, by the Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with Section 7.2), then on the date of such issuance or incurrence, the Tranche B Term Loans shall be prepaid by an amount equal to (i) in the case of Capital Stock issuance (other than as a result of exercise of stock options pursuant to the Company’s stock option plans and severance plans), 50% of the Net Cash Proceeds of such issuance or (ii) in the case of Indebtedness incurrence, 100% of the Net Cash Proceed of such incurrence, as the case may be, as set forth in Section 2.12(d). The provisions of this Section do not constitute a consent to the issuance of any equity securities by any entity whose equity securities are pledged pursuant to the Guarantee and Collateral Agreement, or a consent to the incurrence of any Indebtedness by the Borrower or any of its Subsidiaries.

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        (b)     Unless the Required Prepayment Lenders shall otherwise agree, if on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale, Purchase Price Refund or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, on the date of receipt by the Borrower of such Net Cash Proceeds, the Tranche B Term Loans shall be prepaid by an amount equal to the amount of such Net Cash Proceeds, as set forth in Section 2.12(d); provided that, notwithstanding the foregoing, on each Reinvestment Prepayment Date the Tranche B Term Loans shall be prepaid by an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event, as set forth in Section 2.12(d). The provisions of this Section do not constitute a consent to the consummation of any Disposition not permitted by Section 7.5.

        (c)     Unless the Required Prepayment Lenders shall otherwise agree, if, for any fiscal year of the Borrower commencing with the fiscal year ending December 31, 2007, there shall be Excess Cash Flow, then, on the relevant Excess Cash Flow Application Date, the Tranche B Term Loans shall be prepaid by an amount equal to the ECF Percentage of such Excess Cash Flow, as set forth in Section 2.12(d). Each such prepayment shall be made on a date (an “Excess Cash Flow Application Date”) no later than five days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 6.2(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered.

        (d)     Amounts to be applied in connection with prepayments made pursuant to this Section 2.12 shall be applied to the prepayment of the Tranche B Term Loans.

    2.13        Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Business Days’ prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may be made only on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days’ prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan under a particular Facility may be converted into a Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Majority Facility Lenders in respect of such Facility have, determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.

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        (b)     The Borrower may elect to continue any Eurodollar Loan as such upon the expiration of the then current Interest Period with respect thereto by giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan under a particular Facility may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Majority Facility Lenders in respect of such Facility have, determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso, such Loans shall be converted automatically to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof.

    2.14        Minimum Amounts and Maximum Number of Eurodollar Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole multiple thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time.

    2.15        Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin in effect for such day.

        (b)     Each Base Rate Loan shall bear interest for each day on which it is outstanding at a rate per annum equal to the Base Rate in effect for such day plus the Applicable Margin in effect for such day.

        (c)     (i)     If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) (to the extent legally permitted) shall bear interest at a rate per annum that is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans under the Revolving Credit Facility plus 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans under the relevant Facility plus 2% (or, in the case of any such other amounts that do not relate to a particular Facility, the rate then applicable to Base Rate Loans under the Revolving Credit Facility plus 2%), in each case, with respect to clauses (i) and (ii) above, from the date of such non payment until such amount is paid in full (after as well as before judgment).

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        (d)     Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand.

    2.16        Computation of Interest and Fees. (a) Interest, fees, commissions payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans on which interest is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.

        (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 quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.15(a).

    2.17        Inability to Determine Interest Rate. If prior to the first day of any Interest Period:

        (a)     the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or

        (b)     the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period,

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the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the relevant Facility shall be converted, on the last day of the then current Interest Period with respect thereto, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans.

    2.18        Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee or Letter of Credit fee, and any reduction of the Commitments of the Lenders, shall be made prorataaccording to the respective Tranche B Term Loan Percentages or Revolving Credit Percentages, as the case may be, of the relevant Lenders. Each payment (other than prepayments) in respect of principal or interest in respect of the Tranche B Term Loans and each payment in respect of fees or expenses payable hereunder shall be applied to the amounts of such obligations owing to the Lenders prorata according to the respective amounts then due and owing to the Lenders.

        (b)     Each payment (including each prepayment) of the Tranche B Term Loans outstanding shall be allocated among the Tranche B Term Loan Lenders holding Tranche B Term Loans prorata based on the principal amount of the Tranche B Term Loans held by such Tranche B Term Loan Lenders and shall (i) in the case of optional prepayment pursuant to Section 2.11 shall be applied to the remaining outstanding principal amount of such installments as requested by the Borrower and (ii) in the case of mandatory prepayment pursuant to Section 2.12 shall be applied, first, to the remaining installments due within the 24 months immediately following the date of such prepayment in the direct order of maturity of such installments and, second, prorata based on the remaining outstanding principal amount of such installments. Amounts prepaid on account of the Tranche B Term Loans may not be reborrowed.

        (c)     Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made prorata according to the respective outstanding principal amounts of the Revolving Credit Loans then held by the Revolving Credit Lenders. Each payment in respect of Reimbursement Obligations in respect of any Letter of Credit shall be made to the Issuing Lender that issued such Letters of Credit.

        (d)     The application of any payment of Loans under any Facility (including optional and mandatory prepayments) shall be made, first, to Base Rate Loans under such Facility and, second, to Eurodollar Loans under such Facility. Each payment of the Loans (except in the case of Swing Line Loans and Revolving Credit Loans that are Base Rate Loans) shall be accompanied by accrued interest to the date of such payment on the amount paid.

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        (e)     All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the relevant Lenders, at the Payment Office, in Dollars and in immediately available funds. Any payment made by the Borrower after 12:00 noon, New York City time, on any Business Day shall be deemed to have been on the next following Business Day. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar 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. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.

        (f)     Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender’s share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans under the relevant Facility, on demand, from the Borrower.

        (g)     Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective prorata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower.

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    2.19        Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation 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 any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.20 and 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 that is not otherwise included in the determination of the Eurodollar 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, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender on an after-tax basis for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled.

        (b)     If any Lender shall have 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 Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit 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 deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction on an after-tax basis; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section 2.19 for any amounts incurred more than six months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; and provided, further, that, if the circumstances giving rise to such claim have a retroactive effect, then such six-month period shall be extended to include the period of such retroactive effect.

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        (c)     A certificate as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

    2.20        Taxes.

        (a)     Except as compelled by law, all payments made by the Borrower or any Guarantor under this Agreement or any other Loan Document shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding taxes imposed on the Administrative Agent, either of the Arrangers, the Syndication Agent, either of the Documentation Agents, any Transferee, or any Lender as a result of a present or former connection between the Administrative Agent, either of the Arrangers, the Syndication Agent, either of the Documentation Agents, any Transferee, or Lender, or (in the event that the recipient of the payment is a partnership, trust, estate, or any other person that is treated for purposes of such tax as not being the person to whom the payment is attributable) a member, beneficiary, or fiduciary of such recipient, or any other person to whom the payment is so attributable, as applicable, and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such recipient’s having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings (“Non-Excluded Taxes”) or any Other Taxes are required to be withheld from any amounts payable under this Agreement or any other Loan Document, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to the recipient (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided that the Borrower or any Guarantor shall not be required to increase any such amounts by reason of any Non-Excluded Taxes (i) that are attributable to the failure of a Lender or Transferee to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes that would have been imposed if amounts had been payable under this Agreement or any other Loan Document to a Lender or Transferee at the time such Lender or Transferee becomes a party to this Agreement or such other Loan Document, except to the extent that such Lender’s or Transferee’s assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph (a).

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        (b)     In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

        (c)     Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify each Arranger, the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

        (d)     Each Lender (or Transferee) that is not a U.S. Person (a “Non U.S. Lender”) shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of (i) Form W-8ECI (claiming exemption from U.S. withholding tax because the income is effectively connected with a U.S. trade or business) or any successor form, (ii) Form W-8BEN (claiming exemption from, or a reduction of, U.S. withholding tax under an income tax treaty) or any successor form, (iii) in the case of a Non-U.S. Lender claiming exemption under Sections 871(h) or 881(c) of the Code, a Form W-8BEN (claiming exemption from U.S. withholding tax under the portfolio interest exemption) or any successor form, together with a certification that the Non-U.S. Lender is not a bank described in section 881(c)(3)(A) of the Code, (iv) in the case of a Non-U.S. Lender not acting for its own account with respect to any portion of any sums paid to such Non-U.S. Lender (for example, in the case of a typical participation), with respect to U.S. withholding tax applicable to such Non-U.S. Lender, a Form W-8IMY and any withholding statements and other supplementary documentation required under applicable U.S. Treasury Regulations or (v) any other applicable form, certificate or document prescribed by the IRS certifying as to such Non-U.S. Lender’s entitlement to such exemption from U.S. withholding tax or reduced rate with respect to all payments to be made to such Non-U.S. Lender under the Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender that delivers a form pursuant to this paragraph on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation) shall, upon the obsolescence or invalidity of such form, not be required to deliver a replacement form pursuant to this paragraph, if such Non-U.S. Lender is not legally able to deliver such replacement form; provided that if the inability to deliver such form is attributable to any reason other than a change in a law, treaty, rule, or regulation, then the Borrower shall not be required to pay any additional amounts to the Non-U.S. Lender under paragraph (a) of this Section.

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        (e)     A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower or any Guarantor is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower or Guarantor (with a copy to the Administrative Agent), at the time or times prescribed by applicable law and reasonably requested by the Borrower or Guarantor, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender.

    2.21        Indemnity. The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment or conversion of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over(ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. A certificate as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

    2.22        Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b) such Lender’s Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.21.

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    2.23        Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.19, 2.20(a) or 2.22 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.19, 2.20(a) or 2.22.

    2.24        Replacement of Lenders under Certain Circumstances. The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.19 or 2.20 or gives a notice of illegality pursuant to Section 2.22 or (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.23 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.19 or 2.20 or to eliminate the illegality referred to in such notice of illegality given pursuant to Section 2.22, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.21 (as though Section 2.21 were applicable) if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 10.6 (providedthat the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.19 or 2.20, as the case may be, in respect of any period prior to the date on which such replacement shall be consummated, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender.

SECTION 3. LETTERS OF CREDIT

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    3.1        L/C Commitment. (a) Prior to the Closing Date, the Existing Issuing Lender has issued the Existing Letters of Credit which, from and after the Closing Date, shall constitute Letter of Credit hereunder. Subject to the terms and conditions hereof, each Issuing Lender, in reliance on the agreements of the other Revolving Credit Lenders set forth in Section 3.4(a), agrees to issue letters of credit (the letters of credit issued on and after the Closing Date pursuant to this Section 3, together with the Existing Letters of Credit, collectively, the “Letters of Credit”) for the account of the Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by such Issuing Lender; provided that no Issuing Lender shall have any obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Revolving Credit Termination Date; provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above).

        (b)     No Issuing Lender shall at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause such Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law.

    3.2        Procedure for Issuance of Letter of Credit. The Borrower may from time to time request that an Issuing Lender issue a Letter of Credit by delivering to such Issuing Lender, with a copy to the Administrative Agent, at its address for notices specified herein an Application therefor, completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may request. Upon receipt of any Application, an Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by such Issuing Lender and the Borrower (but in no event shall any Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto). Promptly after issuance by an Issuing Lender of a Letter of Credit, such Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower and the Administrative Agent. Each Issuing Lender shall promptly give notice to the Administrative Agent of the issuance of each Letter of Credit issued by such Issuing Lender (including the amount thereof).

    3.3        Fees and Other Charges. (a) The Borrower will pay a fee on the aggregate face amount of all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility, shared ratably among the Revolving Credit Lenders in accordance with their respective Revolving Credit Percentages and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date of such Letter of Credit. In addition, the Borrower shall pay to the relevant Issuing Lender for its own account a fronting fee on the aggregate drawable amount of all outstanding Letters of Credit issued by it of 1/4 of 1% per annum, payable quarterly in arrears on each L/C Fee Payment Date after the issuance date of such Letter of Credit.

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        (b)     In addition to the foregoing fees, the Borrower shall pay or reimburse each Issuing Lender for such normal and customary costs and expenses as are incurred or charged by such Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit.

    3.4        L/C Participations. (a) Each Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce each Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from each Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant’s own account and risk, an undivided interest equal to such L/C Participant’s Revolving Credit Percentage in each Issuing Lender’s obligations and rights under each Letter of Credit issued by such Issuing Lender hereunder and the amount of each draft paid by such Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with each Issuing Lender that, if a draft is paid under any Letter of Credit issued by such Issuing Lender for which such Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to such Issuing Lender, regardless of the occurrence or continuance of a Default or Event of Default or the failure to satisfy any of the other conditions specified in Section 5, upon demand at the Administrative Agent’s address for notices specified herein (and thereafter, the Administrative Agent shall promptly pay to the Issuing Lender) an amount equal to such L/C Participant’s Revolving Credit Percentage of the amount of such draft, or any part thereof, that is not so reimbursed.

        (b)     If any amount required to be paid by any L/C Participant to an Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by such Issuing Lender under any Letter of Credit is paid to such Issuing Lender within three Business Days after the date such payment is due, the Issuing Lender shall so notify the Administrative Agent, who shall promptly notify the L/C Participants and each such L/C Participant shall pay to the Administrative Agent, for the account of the Issuing Lender on demand (and thereafter the Administrative Agent shall promptly pay to the Issuing Lender) an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to such Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to the Administrative Agent, for the account of such Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Administrative Agent, on behalf of such Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans under the Revolving Credit Facility. A certificate of the Administrative Agent on behalf of such Issuing Lender submitted to any L/C Participant with respect to any such amounts owing under this Section shall be conclusive in the absence of manifest error.

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        (c)     Whenever, at any time after an Issuing Lender has made payment under any Letter of Credit and has received from the Administrative Agent any L/C Participant’s prorata share of such payment in accordance with Section 3.4(a), such Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by such Issuing Lender), or any payment of interest on account thereof, such Issuing Lender will distribute to the Administrative Agent for the account of such L/C Participant (and thereafter, the Administrative Agent will promptly distribute to such L/C Participant) its prorata share thereof; provided, that in the event that any such payment received by such Issuing Lender shall be required to be returned by such Issuing Lender, such L/C Participant shall return to the Administrative Agent for the account of such Issuing Lender the portion thereof previously distributed by such Issuing Lender to it.

    3.5        Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse each Issuing Lender, on each date on which such Issuing Lender notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by such Issuing Lender, for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by such Issuing Lender in connection with such payment (the amounts described in the foregoing clauses (a) and (b) in respect of any drawing, collectively, the “Payment Amount”). Each such payment shall be made to such Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on each Payment Amount from the date of the applicable drawing until payment in full at the rate set forth in (i) until the second Business Day following the date of the applicable drawing, Section 2.15(b) and (ii) thereafter, Section 2.15(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 of Base Rate Loans (or, at the option of the Administrative Agent and the Swing Line Lender in their sole discretion, a borrowing pursuant to Section 2.7 of Swing Line Loans) in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the first date on which a borrowing of Revolving Credit Loans (or, if applicable, Swing Line Loans) could be made, pursuant to Section 2.5 (or, if applicable, Section 2.7), if the Administrative Agent had received a notice of such borrowing at the time the Administrative Agent receives notice from the relevant Issuing Lender of such drawing under such Letter of Credit.

    3.6        Obligations Absolute. The Borrower’s obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or has had against any Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with each Issuing Lender that such Issuing Lender shall not be responsible for, and the Borrower’s Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. No Issuing Lender shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions judicially determined to have resulted from the gross negligence or willful misconduct of such Issuing Lender. The Borrower agrees that any action taken or omitted by an Issuing Lender under or in connection with any Letter of Credit issued by it or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards or care specified in the UCC, shall be binding on the Borrower and shall not result in any liability of such Issuing Lender to the Borrower.

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    3.7        Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the relevant Issuing Lender shall promptly notify the Administrative Agent and Borrower of the date and amount thereof. The responsibility of the relevant Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit, in addition to any payment obligation expressly provided for in such Letter of Credit issued by such Issuing Lender, shall be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment appear on their face to be in conformity with such Letter of Credit.

    3.8        Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply.

SECTION 4. REPRESENTATIONS AND WARRANTIES

        To induce the Arrangers, the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and any extensions of credit and issue or participate in the Letters of Credit, the Borrower hereby represents and warrants to each Arranger, the Administrative Agent and each Lender that:

    4.1        Financial Condition. (a) The unaudited proforma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at March 31, 2006 (including the notes thereto) (the “Pro Forma Balance Sheet”), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the Loans to be made, the Senior Notes to be issued and the Equity Financing to be consummated on the Closing Date and the use of proceeds thereof and (ii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a proforma basis the estimated financial position of the Borrower and its consolidated Subsidiaries as at March 31, 2006, assuming that the events specified in the preceding sentence had actually occurred at such date.

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        (b)     The audited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at December 31, 2005, December 31, 2004 and December 31, 2003, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from PricewaterhouseCoopers LLP, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at March 31, 2006, and the related unaudited consolidated statements of income and cash flows for the three-month period ended on such date, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the three-month period then ended (subject to normal year end audit adjustments), and shall have been reviewed by the aforementioned firm of accountants as provided in Statement of Auditing Standards No. 100. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Borrower and its Subsidiaries do not have any material obligation, material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long term leases or unusual forward or long term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. During the period from December 31, 2005 to and including the date hereof there has been no Disposition by the Borrower or any of its Subsidiaries of any material part of the Borrower’s or any of its Subsidiaries’ business or Property.

    4.2        No Change. Since December 31, 2005 there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect.

    4.3        Corporate Existence; Compliance with Law. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate 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 as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification, unless failure to so qualify could not 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.

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    4.4        Corporate Power; Authorization; Enforceable Obligations. The Borrower has the corporate power and authority, and the legal right to borrow hereunder. Each Loan Party has taken all necessary corporate or other action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement. 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 the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 4.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 4.19. Each Loan Document has been duly executed and delivered on behalf of each Loan Party that is a party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party that is a party thereto, enforceable against each such Loan 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).

    4.5        No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Borrower or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect.

    4.6        No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of their respective properties, operations or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect.

    4.7        No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

    4.8        Ownership of Property; Liens. Each of the Borrower and each of its Subsidiaries is the sole owner of, legally and beneficially, and has good marketable and insurable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid lease of, all its other Property, and none of such Property is subject to any claims, liabilities, obligations, charges or restrictions of any kind, nature or description or to any Lien except for Permitted Liens. None of the Pledged Stock is subject to any Lien except for Permitted Liens.

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    4.9        Intellectual Property. The Borrower and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Borrower know of any valid basis for any such claim. The use of Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect.

    4.10        Taxes. The Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); and no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge.

    4.11        Federal Regulations. No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U 1, as applicable, referred to in Regulation U.

    4.12        Labor Matters. There are no strikes, stoppages or slowdowns or other labor disputes against the Borrower or any of its Subsidiaries pending or, to the knowledge of the Borrower, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payment made to employees of the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Borrower or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Borrower or the relevant Subsidiary.

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    4.13        ERISA. Neither a Reportable Event nor an “accumulated funding deficiency” (within the meaning of Section 412 of the Code 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 Plan that (individually or in the aggregate) has had or could reasonably be expected to have a Material Adverse Effect, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code, except where such non-compliance (individually or in the aggregate) has not had or could not reasonably be expected to have a Material Adverse Effect. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period that (individually or in the aggregate) has had or could reasonably be expected to have a Material Adverse Effect. 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 by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that (individually or in the aggregate) has had or could reasonably be expected to have a Material Adverse Effect, and a Material Adverse Effect could not reasonably be expected to result if the Borrower and/or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.

    4.14        Investment Company Act; Public Utility Holding Company Act; Other Regulations. None of the Borrower or any Subsidiary of the Borrower is (a) an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended or (b) a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company”of a “holding company,” as each such term is defined and used in the Public Utility Holding Company Act of 1935, as amended, or, as the case may be, the Public Utility Holding Company Act of 2005, enacted as part of the Energy Policy Act of 2005, Pub. L. No. 109-58 as codified at §§ 1261 et seq., and the regulations adopted thereunder, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness.

    4.15        Subsidiaries. (a) The Subsidiaries listed on Schedule 4.15(a) constitute all the Subsidiaries of the Borrower as of the Closing Date. Schedule 4.15(a) sets forth as of the Closing Date, the exact legal name (as reflected on the certificate of incorporation (or formation) and jurisdiction of incorporation (or formation) of each Subsidiary of the Borrower and, as to each Subsidiary, the percentage and number of each class of Capital Stock owned by each Loan Party and its Subsidiaries.

        (b)     Other than as set forth on Schedule 4.15(b), there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of the Borrower or any Subsidiary.

    4.16        Use of Proceeds. The proceeds of the Tranche B Term Loans shall be used to (i) refinance all Indebtedness outstanding under the Existing Credit Facility, (ii) repurchase or redeem the outstanding Existing Notes, (iii) redeem the outstanding Preferred Stock and (iv) pay related fees and expenses incurred in connection with this Agreement and the transaction contemplated hereby. The proceeds of the Revolving Credit Loans and the Swing Line Loans, and the Letters of Credit, shall be used for general corporate purposes.

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    4.17        Environmental Matters. Other than exceptions to any of the following that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect:

        (a)     The Borrower and its Subsidiaries: (i) are, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws; (ii) hold all Environmental Permits (each of which is in full force and effect) required for any of their current or intended operations or for any property owned, leased, or otherwise operated by any of them; (iii) are, and within the period of all applicable statutes of limitation have been, in compliance with all of their Environmental Permits; and (iv) reasonably believe that: each of their Environmental Permits will be timely renewed and complied with, without material expense; any additional Environmental Permits that may be required of any of them will be timely obtained and complied with, without material expense; and compliance with any Environmental Law that is or is expected to become applicable to any of them will be timely attained and maintained, without material expense.

        (b)     Materials of Environmental Concern are not present at, on, under, in, or about any real property now or formerly owned, leased or operated by the Borrower or any of its Subsidiaries, or at any other location (including any location to which Materials of Environmental Concern have been sent for re-use or recycling or for treatment, storage, or disposal) which could reasonably be expected to (i) give rise to liability of the Borrower or any of its Subsidiaries under any applicable Environmental Law or otherwise result in costs to the Borrower or any of its Subsidiaries, or (ii) interfere with the Borrower’s or any of its Subsidiaries’ continued operations, or (iii) impair the fair saleable value of any real property owned or leased by the Borrower or any of its Subsidiaries.

        (c)     There is no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under or relating to any Environmental Law to which the Borrower or any of its Subsidiaries is, or to the knowledge of the Borrower or any of its Subsidiaries will be, named as a party that is pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened.

        (d)     Neither the Borrower nor any of its Subsidiaries has received any written request for information, or been notified that it is a potentially responsible party under or relating to the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or with respect to any Materials of Environmental Concern.

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        (e)     Neither the Borrower nor any of its Subsidiaries has entered into or agreed to any consent decree, order, or settlement or other agreement, or is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum for dispute resolution, relating to compliance with or liability under any Environmental Law.

        (f)     Neither the Borrower nor any of its Subsidiaries has assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect to any Material of Environmental Concern.

    4.18        Accuracy of Information, etc. No statement or information contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished to the Administrative Agent, the Arrangers or the Lenders or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading. The projections and proforma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Arrangers, the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents.

    4.19        Security Documents. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid, binding and enforceable security interest in the Collateral described therein and proceeds and products thereof. In the case of the Pledged Stock (as defined and) described in the Guarantee and Collateral Agreement, when any stock certificates representing such Pledged Stock are delivered to the Administrative Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements in appropriate form are filed in the offices specified on Schedule 4.19(a)-1 (which financing statements have been delivered to (and may be filed by the Administrative Agent) at any time and such other filings as are specified on Schedule 3 to the Guarantee and Collateral Agreement have been completed (all of which filings may be filed by the Administrative Agent) at any time, the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds and products thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except Permitted Liens). Schedule 4.19(a)-2 lists each UCC Financing Statement that (i) names any Loan Party as debtor and (ii) will remain on file after the Closing Date. Schedule 4.19(a)-3 lists each UCC Financing Statement that (i) names any Loan Party as debtor and (ii) will be terminated on or prior to the Closing Date; and on or prior to the Closing Date, the Borrower will have delivered to the Administrative Agent, or caused to be filed, duly completed UCC termination statements in respect of each UCC Financing Statement listed in Schedule 4.19(a)-3.

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        (b)     Each of the Mortgages, if any, is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof; and when the Mortgages are filed in the recording office designated by the Borrower, each Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Properties described therein and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person (other than Persons holding Liens or other encumbrances or rights permitted by the relevant Mortgage).

    4.20        Solvency. The Borrower is, and the Loan Parties on a consolidated basis are, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent.

    4.21        Licenses; Permits; Approvals; Franchises. Each of the Borrower and its Subsidiaries has (i) all licenses, consents, certificates, permits, authorizations, approvals, franchises, registrations, certificates of need, accreditations, and other rights from, and has made all declarations and filings with, all applicable Governmental Authorities and accrediting organizations (each, a “Health Care Permit”) material to its business, and (ii) not received notice and has no knowledge that any Governmental Authority or accreditation organization is considering limiting, suspending, terminating, or revoking any such Health Care Permit which in each case (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All such Health Care Permits are valid and in full force and effect, except as could not reasonably be expected to have a Material Adverse Effect, and the Borrower and each of its Subsidiaries is in material compliance with the terms and conditions of all such Health Care Permits and with the rules and regulations of the Governmental Authorities and accrediting organizations having jurisdiction with respect to such Health Care Permits.

    4.22        Patriot Act. To the extent applicable, each Loan Party is in compliance, in all material respects, with the (i) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the Untied States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (ii) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001). No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

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SECTION 5. CONDITIONS PRECEDENT

    5.1        Conditions to Initial Extension of Credit. The agreement of each Lender to make the initial extension of credit requested to be made by it hereunder is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent:

        (a)    Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Borrower, (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of the Borrower and each Subsidiary Guarantor, (iii) a Mortgage covering each of the Mortgaged Properties, executed and delivered by a duly authorized officer of each party thereto and (iv) a Lender Addendum executed and delivered by each Lender and accepted by the Borrower.

        (b)    Related Transactions. The following transactions shall have been consummated, in each case on terms and conditions reasonably satisfactory to the Lenders:

(i) the Borrower shall have received at least $50,000,000 in gross cash proceeds from the Equity Financing and the terms and conditions of the Equity Financing Documentation shall be reasonably satisfactory to each Arranger; and

(ii) the Borrower shall have received at least $175,000,000 in gross cash proceeds from the issuance of the Senior Notes and the terms and conditions of the Senior Notes shall be reasonably satisfactory to each Arranger.

        (c)    Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated financial statements of the Borrower and its consolidated Subsidiaries described in Section 4.1(b) and (iii) unaudited interim consolidated financial statements of the Borrower and its consolidated Subsidiaries for each fiscal month and quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available; and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Borrower and its consolidated Subsidiaries, as reflected in the financial statements or projections contained in the Confidential Information Memorandum.

        (d)    Approvals. All governmental and third party approvals (including landlords’ and other consents) necessary in connection with the continuing operations of the Borrower and its Subsidiaries and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the financing contemplated hereby.

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        (e)    Related Agreements. The Administrative Agent shall have received (in a form reasonably satisfactory to the Administrative Agent), true and correct copies, certified as to authenticity by the Borrower, of (i) the Senior Note Indenture, (ii) the Equity Financing Documentation and (iii) such other documents or instruments as may be reasonably requested by the Administrative Agent, including a copy of any debt instrument, security agreement or other material contract to which the Loan Parties may be a party.

        (f)    Termination of Existing Credit Facility; Repurchase of Existing Notes; Redemption of Preferred Stock. The Administrative Agent shall have received evidence satisfactory to the Administrative Agent that:

(i) the Existing Credit Facility shall be simultaneously terminated, all amounts thereunder shall be simultaneously paid in full and arrangements satisfactory to the Administrative Agent shall have been made for the termination of Liens and security interests granted in connection therewith;

(ii) (A) all Existing Notes shall be simultaneously repurchased or redeemed and all amounts thereunder shall be simultaneously paid in full or (B) an irrevocable notice shall simultaneously be given to the Trustee under each of the 1999 Indenture and the 2002 Indenture with respect to the redemption of the outstanding Existing Notes; and

(iii) irrevocable notice shall simultaneously be given with respect to the redemption of all outstanding Preferred Stock.

        (g)    Fees. The Lenders, each Arranger and the Administrative Agent shall have received all fees required to be paid, and all expenses for which invoices have been presented (including reasonable fees, disbursements and other charges of counsel to the Administrative Agent), on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date.

        (h)    Solvency Certificate. The Lenders shall have received a reasonably satisfactory solvency certificate certified by the chief financial officer of the Borrower which shall document the solvency of the Borrower and its Subsidiaries considered as a whole after giving effect to the transactions contemplated hereby.

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        (i)    Budget. The Lenders shall have received a budget for the Borrower and its Subsidiaries for fiscal years 2006 through and including 2013.

        (j)    Lien Searches. The Administrative Agent shall have received the results of a recent lien and litigation search in each of the jurisdictions in which Uniform Commercial Code financing statement or other filings or recordations should be made to evidence or perfect security interests in all assets of the Loan Parties, and such search shall reveal no Liens on any of the assets of the Loan Party, except for Permitted Liens.

        (k)    Closing Certificate. The Administrative Agent shall have received a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments.

        (l)    Other Certifications. The Administrative Agent shall have received the following:

            (i)     a copy of the charter of each Loan Party and each amendment thereto, certified (as of a date reasonably near the date of the initial extension of credit) as being a true and correct copy thereof by the Secretary of State or other applicable Governmental Authority of the jurisdiction in which each such Loan Party is organized;

            (ii)     a copy of a certificate of the Secretary of State or other applicable Governmental Authority of the jurisdiction in which each Loan Party is organized, dated reasonably near the date of the initial extension of credit, listing the charter of such Loan Party and each amendment thereto on file in such office and certifying that (A) such amendments are the only amendments to such Loan Party’s charter on file in such office, (B) such Loan Party has paid all franchise taxes to the date of such certificate and (C) such Loan Party is duly organized and in good standing under the laws of such jurisdiction; and

            (iii)     an electronic confirmation from the Secretary of State or other applicable Governmental Authority of each jurisdiction in which each such Loan Party is organized certifying that such Loan Party is duly organized and in good standing under the laws of such jurisdiction on the date of the initial extension of credit, prepared by, or on behalf of, a filing service acceptable to the Administrative Agent.

        (m)    Legal Opinions. The Administrative Agent shall have received the following executed legal opinions:

(i) the legal opinion of Foley & Lardner LLP, counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit E; and

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(ii) to the extent consented to by the relevant counsel, each legal opinion, if any, delivered in connection with the Equity Financing, accompanied by a reliance letter in favor of the Lenders.

Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require.

        (n)    Pledged Stock; Stock Powers; Acknowledgment and Consent; Pledged Notes. The Administrative Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof, (ii) an Acknowledgment and Consent, substantially in the form of Annex II to the Guarantee and Collateral Agreement, duly executed by any issuer of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement that is not itself a party to the Guarantee and Collateral Agreement and (iii) each promissory note pledged pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank satisfactory to the Administrative Agent) by the pledgor thereof.

        (o)    Filings, Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Permitted Liens), shall have been filed, registered or recorded or shall have been delivered to the Administrative Agent be in proper form for filing, registration or recordation.

        (p)    Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 5.3(b) of the Guarantee and Collateral Agreement.

        (q)    Patriot Act. The Administrative Agent shall have received all documentation and other information required by bank regulatory authorities under applicable “know your customer” and Anti-Money Laundering rules and regulations, including without limitation, the USA Patriot Act.

        (r)    Credit Ratings. The Borrower shall have received credit ratings from Moody’s and S&P in respect of the Senior Notes and the Facilities, which ratings shall remain in effect on the Closing Date.

        (s)    Miscellaneous. The Administrative Agent shall have received such other documents, agreements, certificates and information as it shall reasonably request.

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        Each Lender, by delivering its signature page to this Agreement or a Lender Addendum and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be approved by the Administrative Agent, Required Lenders or Lenders, as applicable on the Closing Date.

    5.2        Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it hereunder on any date (including its initial extension of credit) is subject to the satisfaction of the following conditions precedent:

        (a)    Representations and Warranties. Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects (to the extent not otherwise qualified by materiality) on and as of such date as if made on and as of such date, except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct as of such earlier date.

        (b)    No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date.

        Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.2 have been satisfied.

SECTION 6. AFFIRMATIVE COVENANTS

        The Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, The Borrower shall and shall cause each of its Subsidiaries to:

    6.1        Repurchase of Existing Notes; Redemption of Preferred Stock. Within 45 days after the Closing Date (a) the Borrower shall pay in full all amounts outstanding under the Existing Notes and arrangements satisfactory to the Administrative Agent shall have been made for the termination of the guarantees and the release of the guarantors thereunder and (b) all outstanding Preferred Stock shall be redeemed and all amounts thereunder shall be paid in full.

    6.2        Financial Statements. Furnish to each Agent and each Lender:

        (a)     as soon as available, but in any event within 75 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures as of the end of and for the previous year, reported on without a “going concern” or like qualification or exception, or qualification arising out of the scope of the audit, by PricewaterhouseCoopers LLP or other independent certified public accountants of nationally recognized standing;

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        (b)     as soon as available, but in any event not later than 40 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures as of the end of and for the corresponding period in the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and

        (c)     as soon as available, but in any event not later than 40 days after the end of each month occurring during each fiscal year of the Borrower (other than the first, third, sixth, ninth and twelfth such month), and with respect to the first such month, not later than 60 days after the end of such month, the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures as of the end of and for the corresponding period in the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments);

all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein).

    6.3        Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (h), to the relevant Lender:

        (a)     concurrently with the delivery of the financial statements referred to in Section 6.2(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate (it being understood that such certificate shall be limited to the items that independent certified public accountants are permitted to cover in such certificates pursuant to their professional standards and customs of the profession);

        (b)     concurrently with the delivery of any financial statements pursuant to Section 6.2, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer’s knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party 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 (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information and calculations necessary for determining compliance by the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be, (y) to the extent not previously disclosed to the Administrative Agent, a description of any change in the jurisdiction of organization of any Loan Party and a list of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date) and (z) any UCC financing statements or other filings or actions specified in such Compliance Certificate as being required to be delivered or taken therewith;

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        (c)     as soon as available, and in any event no later than 60 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the then current fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income and a description of the underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the “Projections”), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect;

        (d)     within 40 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year;

        (e)     no later than 10 Business Days or such lesser period of time as the Administrative Agent may agree prior to the effectiveness thereof, copies of substantially final drafts of any proposed amendment, supplement, waiver or other modification with respect to the Senior Note Indenture or the governing documents of the Borrower;

        (f)     within five days after the same are sent, copies of all financial statements and reports that the Borrower or any of its Subsidiaries sends to the holders of any class of its debt securities or public equity securities and, within five days after the same are filed, copies of all financial statements and reports that the Borrower or any of its Subsidiaries may make to, or file with, the SEC;

        (g)     as soon as possible and in any event within 10 days of obtaining knowledge thereof: (i) any development, event, or condition that, individually or in the aggregate with other developments, events or conditions, could reasonably be expected to result in the payment by the Borrower and its Subsidiaries, in the aggregate, of a Material Environmental Amount; and (ii) any notice that any governmental authority may deny any application for an Environmental Permit sought by, or revoke or refuse to renew any Environmental Permit held by, the Borrower; and

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        (h)     promptly, such additional financial and other information as any Lender may from time to time reasonably request.

    6.4        Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or its Subsidiaries, as the case may be.

    6.5        Conduct of Business and Maintenance of Existence, etc.. (a) (i) Preserve, renew and keep in full force and effect its corporate or other existence and (ii) take all reasonable action to maintain all rights, privileges, franchises, Permits and licenses necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law, except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

    6.6        Maintenance of Property; Insurance. (a) Keep all Property and systems useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business.

    6.7        Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and 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 business and activities and (b) permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Borrower and its Subsidiaries with officers and employees of the Borrower and its Subsidiaries and with its independent certified public accountants.

    6.8        Notices. Promptly give notice to the Administrative Agent and each Lender of:

        (a)     the occurrence of any Default or Event of Default;

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        (b)     any (i) default or event of default (or alleged default) under any Contractual Obligation of the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect;

        (c)     any litigation or proceeding affecting the Borrower or any of its Subsidiaries in which the amount involved is $10,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought;

        (d)     the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof, in each case if such event (individually or in the aggregate together with all such other events) could reasonably be expected to result in a Material Adverse Effect: (i) the occurrence of any Reportable Event with respect to any Plan, a failure by the Borrower or its Subsidiaries to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and

        (e)     any development or event that has had or could reasonably be expected to have a Material Adverse Effect.

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower or the relevant Subsidiary proposes to take with respect thereto.

    6.9        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 Environmental Laws, the loss or violation of which (individually or in the aggregate) could 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, in each case, unless the failure to do so (individually or in the aggregate) could not reasonably be expected to have a Material Adverse Effect.

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    6.10        Additional Collateral, etc. (a) With respect to (i) any material Intellectual Property and (ii) any other Properties with an aggregate book value or fair market value of $1,000,000 or more acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than (w) vehicles, (x) any Property described in paragraph (b) or paragraph (c) of this Section, (y) any Property subject to a Lien expressly permitted by Section 7.3(g) and (z) Property acquired by an Excluded Foreign Subsidiary) as to which the Administrative Agent, for the benefit of the Secured Parties, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent.

        (b)     With respect to any fee interest in any real property having a value (together with improvements thereof) of at least $1,000,000 acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than any such real property owned by an Excluded Foreign Subsidiary or subject to a Lien expressly permitted by Section 7.3(g)), promptly (i) execute and deliver a first priority Mortgage in favor of the Administrative Agent, for the benefit of the Secured Parties, covering such real property, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance reasonably acceptable to the Administrative Agent, covering such real property and improvements in an amount at least equal to the purchase price of such real property and improvements (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA or comparable survey thereof reasonably acceptable to the Administrative Agent, together with a surveyor’s certification in favor of the Administrative Agent, the Secured Parties and their respective successors and assigns and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

        (c)     With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), by the Borrower or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by the Borrower or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Secured Parties a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including the recording of instruments in the United States Patent and Trademark Office and the United States Copyright Office and the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent, and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

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        (d)     With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Borrower or any of its Subsidiaries (other than any Excluded Foreign Subsidiaries), promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by Borrower or any of its Subsidiaries (other than any Excluded Foreign Subsidiaries), (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Borrower or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Lien of the Administrative Agent thereon, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

    6.11        Further Assurances. From time to time execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take all such actions, as the Administrative Agent may reasonably request for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents, or of more fully perfecting or renewing the rights of the Administrative Agent and the Lenders with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Borrower or any Subsidiary which may be deemed to be part of the Collateral) pursuant hereto or thereto. After the occurrence of any Default or Event of Default, upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any consent, approval, recording, qualification or authorization of any Governmental Authority, the Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lender may be required to obtain from the Borrower or any of its Subsidiaries for such governmental consent, approval, recording, qualification or authorization.

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    6.12        Post-Closing Covenants. The Borrower shall, and shall cause each of its Subsidiaries to, comply with the terms and conditions set forth on Schedule 6.12.

SECTION 7. NEGATIVE COVENANTS

        The Borrower hereby agrees that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly:

    7.1        Financial Condition Covenants.

        (a)    Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with the last day of any fiscal quarter set forth below to exceed the ratio set forth below opposite the last day of such fiscal quarter:

Fiscal Quarter	Consolidated Leverage Ratio
FQ3 2006	6.25:1.00
FQ4 2006	6.25:1.00
FQ1 2007	6.25:1.00
FQ2 2007	6.00:1.00
FQ3 2007	6.00:1.00
FQ4 2007	5.50:1.00
FQ1 2008	5.50:1.00
FQ2 2008	5.50:1.00
FQ3 2008	5.25:1.00
FQ4 2008	5.00:1.00
FQ1 2009	5.00:1.00
FQ2 2009	5.00:1.00
FQ3 2009	4.75:1.00
FQ4 2009	4.50:1:00
FQ1 2010	4.50:1.00
FQ2 2010	4.50:1.00
FQ3 2010	4.25:1.00
FQ4 2010	4.00:1.00
FQ1 2011	4.00:1.00
FQ2 2011	4.00:1.00
FQ3 2011	4.00:1.00
FQ4 2011	4.00:1.00
FQ1 2012	4.00:1.00
FQ2 2012	4.00:1.00
FQ3 2012	4.00:1.00
FQ4 2012	4.00:1.00
FQ1 2013	4.00:1.00
FQ1 2013	4.00:1.00

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        (b)    Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with the last day of any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter; provided that if on such date the number of fiscal quarters which have started and ended subsequent to the Closing Date is less than four, Consolidated Interest Expense of the Borrower and its Subsidiaries used for determining such ratio shall be Annualized based on the number of fiscal quarters which have then ended subsequent to the Closing Date:

Fiscal Quarter	Consolidated Interest Coverage Ratio
FQ3 2006	1.65:1.00
FQ4 2006	1.65:1.00
FQ1 2007	1.65:1.00
FQ2 2007	1.75:1.00
FQ3 2007	1.75:1.00
FQ4 2007	1.75:1.00
FQ1 2008	2.00:1.00
FQ2 2008	2.00:1.00
FQ3 2008	2.00:1.00
FQ4 2008	2.00:1.00
FQ1 2009	2.25:1.00
FQ2 2009	2.25:1.00
FQ3 2009	2.25:1.00
FQ4 2009	2.25:1.00
FQ1 2010	2.50:1.00
FQ2 2010	2.50:1.00
FQ3 2010	2.50:1.00
FQ4 2010	2.50:1.00
FQ1 2011	2.50:1.00
FQ2 2011	2.50:1.00
FQ3 2011	2.50:1.00
FQ4 2011	2.50:1.00
FQ1 2012	2.50:1.00
FQ2 2012	2.50:1.00
FQ3 2012	2.50:1.00
FQ4 2012	2.50:1.00
FQ1 2013	2.50:1.00
FQ2 2013	2.50:1.00

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    7.2        Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except:

        (a)     Indebtedness of any Loan Party pursuant to any Loan Document;

        (b)     Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary Guarantor;

        (c)     Indebtedness (including Capital Lease Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding;

        (d)     Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and, other than with respect to the Existing Notes, any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof or any shortening of the maturity of any principal amount thereof);

        (e)     Guarantee Obligations made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of the Borrower or any Wholly Owned Subsidiary Guarantor;

        (f)     (i) Indebtedness of the Borrower in respect of the Senior Notes in an aggregate principal amount not to exceed $175,000,000 and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof or any shortening of the maturity of any principal amount thereof), and (ii) Guarantee Obligations of any Subsidiary Guarantor in respect of such Indebtedness;

        (g)     Indebtedness constituting Permitted Earn-Out Obligations and Permitted Seller Notes to the extent incurred by the Borrower in connection with any Permitted Acquisition under Section 7.8(g);

        (h)     Indebtedness of the Borrower that is subordinated to the payment in full of the Obligations on terms satisfactory to the Administrative Agent (all such Indebtedness permitted to be incurred pursuant to this clause (h) being “Subordinated Debt”); provided that, in each case (i) such Indebtedness shall not mature or otherwise have any scheduled principal payment date, in each case earlier than the date that is six months after the Tranche B Term Loan Maturity Date, (ii) no Default or Event of Default shall exist on the date of incurrence of such Indebtedness and (iii) the Borrower shall be in pro forma compliance, after giving effect to the incurrence of such Indebtedness and any previously incurred Subordinated Debt, with the covenants set forth in Section 7.1 (calculated using Consolidated EBITDA as of the most recently ended fiscal quarter for which financial statements are available); provided, further, that for the purpose of this clause (ii), the Consolidated Leverage Ratio levels under Section 7.1(a) and the Consolidated Interest Coverage Ratio levels under Section 7.1(b) shall be more restrictive by a ratio of 0.25:1.00 (for example, for the purpose of this clause (ii), the Consolidated Leverage Ratio level for FQ3 2006 shall be deemed to be 6.00:1:00 and the Consolidated Interest Coverage Ratio level for FQ3 2006 shall be deemed to be 1.90:1:00);

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        (i)     Indebtedness of the Borrower or any Subsidiary not in excess of $7,500,000 in the aggregate assumed or acquired in connection with any Permitted Acquisition under Section 7.8(g); provided that such Indebtedness was not incurred (i) to provide all or a portion of the funds utilized to consummate the transaction or series of related transactions constituting such Permitted Acquisition or (ii) otherwise in connection with, or in contemplation of, such Permitted Acquisition);

        (j)     Indebtedness with respect of Existing Seller Notes and Existing Earn-Out Obligations;

        (k)     Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, in each case, so long as such Indebtedness is extinguished within 5 Business Days of the incurrence thereof;

        (l)     Indebtedness of any Excluded Foreign Subsidiary under lines of credit and overdraft facilities extended by any Person to such Excluded Foreign Subsidiary, provided, that, in each case, the proceeds of such Indebtedness are used for such Excluded Foreign Subsidiary’s working capital and general corporate purposes and provided, further, that the aggregate principal amount of all Indebtedness permitted under this clause (l) at any time outstanding shall not exceed the Dollar Equivalent of $1,000,000;

        (m)     Indebtedness with respect of Existing Notes outstanding prior to a date that is 45 days after the Closing Date; and

        (n)     additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $30,000,000 at any one time outstanding.

    7.3        Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except for:

        (a)     Liens for taxes, customs, governmental charges or levies (excluding any such governmental charges or levies relating to Medicare, Medicaid or similar governmental programs) not yet due 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 its Subsidiaries, as the case may be, in conformity with GAAP;

        (b)     carriers’, warehousemen’s, mechanics’, landlords’, 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 30 days or that are being contested in good faith by appropriate proceedings provided that adequate reserves with respect thereto are maintained on the books of the applicable Loan Party, in conformity with GAAP;

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        (c)     pledges or deposits in connection with workers’ compensation, unemployment insurance and other social security legislation;

        (d)     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, so long as the aggregate amount of deposits at any one time securing appeal bonds does not exceed $5,000,000;

        (e)     easements, rights-of-way, licenses, sublicenses, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries;

        (f)     Liens in existence on the date hereof listed on Schedule 7.3(f), securing Indebtedness permitted by Section 7.2(d), provided that no such Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased;

        (g)     Liens securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created simultaneously with or promptly after the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property other than the Property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the amount of Indebtedness initially secured thereby is not less than 80%, nor more than 100% of the purchase price of such fixed or capital asset;

        (h)     Liens created pursuant to the Security Documents;

        (i)     any interest or title of a lessor or sublessor under any lease or sublease entered into by the Borrower or any other Subsidiary in the ordinary course of its business and covering only the assets or real property so leased or subleased;

        (j)     Liens on the property or assets of a Person which becomes a Subsidiary of the Borrower after the date hereof securing Indebtedness permitted by Section 7.2(i); provided, that (i) such Liens existed at the time such Person became a Subsidiary of the Borrower and were not created in anticipation thereof, (ii) any such Lien is not expanded to cover any property or assets of such Person after the time such Person becomes a Subsidiary of the Borrower (other than after acquired title in or on such property or proceeds of the existing collateral in accordance with the instrument creating such Lien), and (iii) the amount of Indebtedness secured thereby is not increased;

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        (k)     Liens granted by Subsidiaries of the Borrower that are not Loan Parties in favor of the Borrower or any Subsidiary Guarantor;

        (l)     customary Liens in favor or banking institutions encumbering deposits (including the right of set-off) held by such banking institutions incurred in the ordinary course of business;

        (m)     Liens consisting of rights of customers with respect to inventory which arise from deposits and progress payments made in the ordinary course of business; and

        (n)     Liens not otherwise permitted by this Section 7.3 so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined, in the case of each such Lien, as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and all Subsidiaries) $15,000,000 at any one time.

    7.4        Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its Property or business, except that:

        (a)     any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or with or into any Wholly Owned Subsidiary Guarantor (provided that (i) the Wholly Owned Subsidiary Guarantor shall be the continuing or surviving corporation or (ii) simultaneously with such transaction, the continuing or surviving corporation shall become a Subsidiary Guarantor and the Borrower shall comply with Section 6.10 in connection therewith);

        (b)     any Subsidiary of the Borrower may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Wholly Owned Subsidiary Guarantor; and

        (c)     any Investment expressly permitted by Section 7.8 may be structured as a merger, consolidation or amalgamation.

    7.5        Limitation on Disposition of Property. Dispose of any of its Property (including receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s Capital Stock to any Person, except:

        (a)     the Disposition of obsolete or worn out Property or Property no longer used or useful in the business of the Borrower and its Subsidiaries in the ordinary course of business;

        (b)     the sale of inventory in the ordinary course of business;

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        (c)     Dispositions permitted by Section 7.4(b);

        (d)     the sale or issuance of any Subsidiary’s Capital Stock to the Borrower or any Wholly Owned Subsidiary Guarantor;

        (e)     Dispositions consisting of Investments permitted by Section 7.8;

        (f)     the Disposition of other assets having a fair market value not to exceed $10,000,000 in the aggregate; and

        (g)     any Recovery Event, provided that the requirements of Section 2.12(b) are complied with in connection therewith.

    7.6        Limitation on Restricted Payments. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of the Borrower or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Subsidiary, or enter into any derivatives or other transaction with any financial institution, commodities or stock exchange or clearinghouse (a “Derivatives Counterparty”) obligating, the Borrower or any Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of any such Capital Stock (collectively, “Restricted Payments”), except that:

        (a)     any Subsidiary may make Restricted Payments to the Borrower or any Wholly Owned Subsidiary Guarantor;

        (b)     the Borrower may make Restricted Payments in the form of common stock of the Borrower;

        (c)     the Borrower may purchase the Borrower’s common stock or common stock options from present or former officers, directors or employees of the Borrower or any Subsidiary upon the death, disability or termination of employment of such officer, director or employee, provided that the aggregate amount of payments under this paragraph subsequent to the date hereof (net of any proceeds received by the Borrower subsequent to the date hereof in connection with resales of any common stock or common stock options so purchased) shall not exceed $1,000,000 in any twelve-month period; and

        (d)     any non-Wholly Owned Subsidiary of the Borrower may declare or pay any dividend on its Capital Stock, so long as the Borrower or its Wholly Owned Subsidiary, which owns such Capital Stock, receives at least its proportionate share of such dividends (based on its ratable share of the ownership interests in such non-Wholly Owned Subsidiary’s Capital Stock, taking into account the relative preferences, if any, of the various classes of Capital Stock of such non-Wholly Owned Subsidiary).

        (e)     the Borrower may make additional Restricted Payments (including the payment of dividends and redemption of Capital Stock) in an aggregate amount not in excess of $15,000,000 during the term of this Agreement, provided that, if, after giving pro forma effect to the making of such Restricted Payments, the Consolidated Leverage Ratio (calculated using Consolidated EBITDA as of the most recently ended fiscal quarter for which financial statements are available) is less than 4.5 to 1.0, such amount shall be increased to $25,000,000.

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    7.7        Limitation on Capital Expenditures. Make or commit to make any Capital Expenditure, except (a) Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding $25,000,000 in any fiscal year of the Borrower; provided, that (i) any such amount referred to above, if not so expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next succeeding fiscal year and (ii) Capital Expenditures made pursuant to this clause (a) during any fiscal year shall be deemed made, first, in respect of amounts permitted for such fiscal year as provided above and second, in respect of amounts carried over from the prior fiscal year pursuant to subclause (i) above and (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount.

    7.8        Limitation on Investments. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting an ongoing business from, or make any other investment in, any other Person (all of the foregoing, “Investments”), except:

        (a)     extensions of trade credit in the ordinary course of business;

        (b)     Investments in Cash Equivalents;

        (c)     Investments arising in connection with the incurrence of Indebtedness permitted by Section 7.2(b) and (e);

        (d)     loans and advances to employees of the Borrower or any Subsidiaries of the Borrower in the ordinary course of business (including for travel, entertainment and relocation expenses) in an aggregate amount for the Borrower and its Subsidiaries not to exceed $3,000,000 at any one time outstanding;

        (e)     Investments in assets useful in the Borrower’s or the applicable Subsidiary’s business made by the Borrower or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount;

        (f)     Investments (other than those relating to the incurrence of Indebtedness permitted by Section 7.8(c)) (i) by the Borrower or any of its Subsidiaries in the Borrower or any Person that, prior to such Investment, is a Wholly Owned Subsidiary Guarantor and (ii) by any Excluded Foreign Subsidiary in any other Excluded Foreign Subsidiary;

        (g)     in addition to Investments otherwise expressly permitted by this Section, Investments by the Borrower constituting acquisitions of Persons or ongoing businesses (“Permitted Acquisitions”); provided that:

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(i) immediately prior to and after giving affect to any such Permitted Acquisition, no Default or Event of Default shall exist and be continuing and the Borrower shall have certified same to the Administrative Agent in writing;

(ii) if such Permitted Acquisition is structured as a stock acquisition, then either (A) the Person so acquired becomes a domestic Wholly Owned Subsidiary of the Borrower or (B) such Person is merged with and into either the Borrower or a domestic Wholly Owned Subsidiary of the Borrower (with the Borrower or such domestic Wholly Owned Subsidiary being the surviving corporation in such merger);

(iii) all of the provisions of Section 6.10 have been or will be complied with in respect of such Permitted Acquisition;

(iv) the only consideration paid in connection with such Permitted Acquisition shall consist of cash, Permitted Seller Notes, Permitted Earn-Out Obligations or Capital Stock of the Borrower;

(v) after giving pro forma effect to the proposed Permitted Acquisition, the Borrower shall be in compliance with the financial covenants set forth in Section 7.1 (calculated using Consolidated EBITDA as of the most recently ended fiscal quarter for which financial statements are available);

(vi) the aggregate consideration (as described in clause (iv) above) of all such Permitted Acquisitions does not exceed $40,000,000 in any fiscal year of the Borrower; provided that any such amount not used for Permitted Acquisition in any fiscal year for which it is permitted, may be carried over for Permitted Acquisitions in the next succeeding fiscal year of the Borrower;

(viii) the aggregate amount of Revolving Credit Commitments less the Revolving Extensions of Credit (in each case, as of the date on which such proposed Permitted Acquisition is to be consummated and after giving effect thereto) together with the Borrower’s then available cash and Cash Equivalents shall be greater than $15,000,000;

        (h)     Investments in Permitted Joint Ventures consisting of up to (i) $5,000,000 in cash and Cash Equivalents and (ii) $15,000,000 in assets, property or securities other than cash or Cash Equivalents; provided that, in the case of this clause (ii), at the time of such Investment and after giving pro forma effect thereto the Borrower shall be in compliance with the financial covenants set forth in Section 7.1 (calculated using Consolidated EBITDA as of the most recently ended fiscal quarter for which financial statements are available);

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        (i)     Investments existing on the Closing Date and described on Schedule 7.8;

        (j)     Investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers of the Borrower or any of its Subsidiaries and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers of the Borrower or any of its Subsidiaries arising in the ordinary course of business;

        (k)     Investment constituting Hedge Agreements to the extent permitted by Section 7.16; and

        (l)     in addition to Investments otherwise expressly permitted by this Section, Investments by the Borrower or any of its Subsidiaries in an aggregate amount (valued at cost) not to exceed $15,000,000 during the term of this Agreement.

    7.9        Limitation on Optional Payments and Modifications of Debt Instruments, etc. (a)(i) Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise voluntarily or optionally defease, any Indebtedness, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, provided that (A) so long as no Event of Default shall have occurred and be continuing on the date of such prepayment, repurchase, redemption or other defeasance or would result therefrom, and (B) after giving pro forma effect to such prepayment, repurchase, redemption or other defeasance, the Borrower shall be in compliance with the financial covenants set forth in Section 7.1 (calculated using Consolidated EBITDA as of the most recently ended fiscal quarter for which financial statements are available), the Borrower may, (x) prepay, repurchase or redeem any Seller Notes and (y) on or prior to June 1, 2009 prepay, repurchase or redeem up to 35% of the aggregate principal amount of the Senior Notes with cash proceeds of Capital Stock issued by the Borrower, or (ii) enter into any derivative or other transaction with any Derivatives Counterparty obligating the Borrower or any Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of the Senior Notes, (b) amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Senior Notes (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof, reduce the rate or extend the date for payment of interest thereon or relax any covenant or other restriction applicable to the Borrower or any of its Subsidiaries and (ii) does not involve the payment of a consent fee) or (c) amend its certificate of incorporation, by-laws or other like governing documents in any manner determined by the Administrative Agent to be materially adverse to the Lenders.

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    7.10        Limitation on Transactions with Affiliates. Enter into any transaction, including any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Wholly Owned Subsidiary Guarantor), other than (x) loans and advances permitted by Section 7.8(d) or (y) Restricted Payments permitted by clauses (a) and (c) of Section 7.6, unless such transaction is (a) not otherwise prohibited under this Agreement, (b) (i) approved by the Borrower’s board of directors and a notice with respect thereto has been provided to the Administrative Agent or (ii) in the ordinary course of business of the Borrower or such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.

    7.11        Limitation on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Borrower or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or such Subsidiary.

    7.12        Limitation on Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower’s method of determining fiscal quarters.

    7.13        Limitation on Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, to secure the Obligations or, in the case of any guarantor, its obligations under the Guarantee and Collateral Agreement, other than (a) this Agreement and the other Loan Documents and (c) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby).

    7.14        Limitation on Restrictions on Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay or subordinate any Indebtedness owed to the Borrower or any other Subsidiary, (b) make Investments in the Borrower or any other Subsidiary or (c) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) applicable Requirement of Law, (iii) the Senior Note Indenture, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any of its Subsidiaries, (v) customary provisions restricting assignment of any licensing agreement or other contract entered into by the Borrower or any of its Subsidiaries in the ordinary course of business, (vi) restrictions on the transfer of any asset subject to Lien permitted by Section 7.3 and (vii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary.

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    7.15        Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto.

    7.16        Limitation on Hedge Agreements. Enter into any Hedge Agreement other than Hedge Agreements entered into in the ordinary course of business, and not for speculative purposes, to protect against changes in interest rates or foreign exchange rates.

SECTION 8. EVENTS OF DEFAULT

        If any of the following events shall occur and be continuing:

        (a)     The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any Loan Party shall fail to pay any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof or thereof; or

        (b)     Any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made or furnished; or

        (c)     Any Loan Party shall default in the observance or performance of any agreement contained in Section 6.1, clause (i) or (ii) of Section 6.5(a) (with respect to the Borrower only), Section 6.8(a) or Section 7, or in Section 5 of the Guarantee and Collateral Agreement or (ii) an “Event of Default” under and as defined in any Mortgage shall have occurred and be continuing; or

        (d)     Any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after the date on which any Loan Party obtains knowledge of such default, either by the receipt of notice with respect thereto or otherwise; or

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        (e)     The Borrower or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans and Reimbursement Obligations) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness 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 beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or to become subject to a mandatory offer to purchase by the obligor thereunder or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $10,000,000; or

        (f)     The Borrower or any of its 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, 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 or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its 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 that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its 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 clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or

        (g)     Any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower 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, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders shall be likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) 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

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        (h)     One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving for the Borrower and its Subsidiaries taken as a whole a liability (not paid or fully covered by insurance) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or

        (i)     Any of the Security Documents shall cease, for any reason (other than by reason of the express release thereof pursuant to Section 9.8), to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or

        (j)     The guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason (other than by reason of the express release thereof pursuant to Section 9.8), to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or

        (k)     Any Change of Control shall occur;

then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Revolving Credit Facility Lenders, the Administrative Agent may, or upon the request of the Majority Revolving Credit Facility Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving Credit Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. In the case of all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount in immediately available funds equal to the aggregate then undrawn and unexpired amount of such Letters of Credit (deposits in such collateral account shall bear interest for the account of the Borrower and applied to repay the Obligations as described below), and the Borrower hereby grants to the Administrative Agent, for the ratable benefit of the Secured Parties, a continuing security interest in all amounts at any time on deposit in such cash collateral account, including any interest thereon, to secure the undrawn and unexpired amount of such Letters of Credit and all other Obligations. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower.

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SECTION 9. THE ADMINISTRATIVE AGENT; THE AGENTS

    9.1        Authorization and Action . (a) Each Lender and each Issuing Lender hereby appoints Citicorp as the Administrative Agent hereunder and each Lender and each Issuing Lender authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent under such agreements and to exercise such powers as are reasonably incidental thereto. Without limiting the foregoing, each Lender and each Issuing Lender hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents and, in the case of the Security Documents, to act as agent for the Lenders, the Issuing Lenders and the other Secured Parties under such Security Documents. Each Lender and each Issuing Lender appoints LCPI as Syndication Agent and each of GECC and LaSalle as Documentation Agent, and hereby authorizes each of LCPI, GECC and LaSalle, each to act in its capacity on behalf of such Lender and such Issuing Lender in accordance with the terms of this Agreement and the other Loan Documents.

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        (b)     As to any matters not expressly provided for by this Agreement and the other Loan Documents (including enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and each Issuing Lender; provided that the Administrative Agent shall not be required to take any action that (i) the Administrative Agent in good faith believes exposes it to personal liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders and the Issuing Lenders with respect to such action or (ii) is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender and each Issuing Lender prompt notice of each notice given to it by any Loan Party pursuant to the terms of this Agreement or the other Loan Documents.

        (c)     In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent is acting solely on behalf of the Lenders and the Issuing Lenders except to the limited extent provided in Section 10.6(d), and its duties are entirely administrative in nature. The Administrative Agent does not assume and shall not be deemed to have assumed any obligation other than as expressly set forth herein and in the other Loan Documents or any other relationship as the agent, fiduciary or trustee of or for any Lender, Issuing Lender or holder of any other Obligation. The Administrative Agent may perform any of its duties under any Loan Document by or through its agents or employees.

        (d)     In the event that the Citicorp or any of its Affiliates shall be or become an indenture trustee under the Trust Indenture Act of 1939 (as amended, the “Trust Indenture Act”) in respect of any securities issued or guaranteed by any Loan Party, the parties hereto acknowledge and agree that any payment or property received in satisfaction of or in respect of any Obligation of such Loan Party hereunder or under any other Loan Document by or on behalf of Citicorp in its capacity as the Administrative Agent for the benefit of any Loan Party under any Loan Document (other than Citicorp or an Affiliate of Citicorp) and which is applied in accordance with the Loan Documents shall be deemed to be exempt from the requirements of Section 311 of the Trust Indenture Act pursuant to Section 311(b)(3) of the Trust Indenture Act.

        (e)     None of the Arrangers or the Syndication Agent nor either of the Documentation Agents shall have any obligations or duties whatsoever in such capacity under this Agreement or any other Loan Document and incur no liability hereunder or thereunder in such capacity.

    9.2        Administrative Agent’s Reliance, Etc.. None of the Administrative Agent, any of its Affiliates or any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it, him, her or them under or in connection with this Agreement or the other Loan Documents, except for its, his, her or their own gross negligence or willful misconduct. Without limiting the foregoing, the Administrative Agent (a) may treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 10.6, (b) may rely on the Register to the extent set forth in Section 10.6(d), (c) may consult with legal counsel (including counsel to the Borrower or any other Loan Party), 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, (d) makes no warranty or representation to any Lender or Issuing Lender and shall not be responsible to any Lender or Issuing Lender for any statements, warranties or representations made by or on behalf of the Borrower or any of its Subsidiaries in or in connection with this Agreement or any other Loan Document, (e) shall not have any duty to ascertain or to inquire either as to the performance or observance of any term, covenant or condition of this Agreement or any other Loan Document, as to the financial condition of any Loan Party or as to the existence or possible existence of any Default or Event of Default, (f) shall not be responsible to any Lender or Issuing Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto or thereto and (g) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which writing may be a telecopy or electronic mail) or any telephone message believed by it to be genuine and signed or sent by the proper party or parties.

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    9.3        Posting of Approved Electronic Communications. (a) Each of the Lenders, the Issuing Lenders and the Borrower agrees, and the Borrower shall cause each Guarantor to agree, that the Administrative Agent may, but shall not be obligated to, make the Approved Electronic Communications available to the Lenders and Issuing Lenders by posting such Approved Electronic Communications on IntraLinks™ or a substantially similar electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).

        (b)     Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Closing Date, a dual firewall and a User ID/Password Authorization System) and the Approved Electronic Platform is secured through a single-user-per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders, the Issuing Lenders and the Borrower acknowledges and agrees, and the Borrower shall cause each Guarantor to acknowledge and agree, that the distribution of material through an electronic medium is not necessarily secure and that there are confidentiality and other risks associated with such distribution. In consideration for the convenience and other benefits afforded by such distribution and for the other consideration provided hereunder, the receipt and sufficiency of which is hereby acknowledged, each of the Lenders, the Issuing Lenders and the Borrower hereby approves, and the Borrower shall cause each Guarantor to approve, distribution of the Approved Electronic Communications through the Approved Electronic Platform and understands and assumes, and the Borrower shall cause each Guarantor to understand and assume, the risks of such distribution.

        (c)     THE APPROVED ELECTRONIC PLATFORM AND THE APPROVED ELECTRONIC COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. NONE OF THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (THE “AGENT AFFILIATES”) WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE APPROVED ELECTRONIC COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM AND EACH EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE APPROVED ELECTRONIC COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT AFFILIATES IN CONNECTION WITH THE APPROVED ELECTRONIC PLATFORM OR THE APPROVED ELECTRONIC COMMUNICATIONS.

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        (d)     Each of the Lenders, each Issuing Lender and the Borrower agrees, and the Borrower shall cause each Guarantor to agree, that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Approved Electronic Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally-applicable document retention procedures and policies.

    9.4        The Administrative Agent Individually. With respect to its Aggregate Exposure Percentage, each Agent that is a Lender shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms “Lenders”, “Revolving Credit Lenders”, “Tranche B Term Loan Lenders”, “Required Lenders” and any similar terms shall, unless the context clearly otherwise indicates, include the each Agent in its individual capacity as a Lender, a Revolving Credit Lender, Tranche B Term Loan Lender or as one of the Required Lenders. Each Agent and each of its Affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with, any Loan Party as if such Agent were not acting as the Agent.

    9.5        Lender Credit Decision. Each Lender and each Issuing Lender acknowledges that it shall, independently and without reliance upon the Administrative Agent, the Syndication Agent, either of the Documentation Agents, either of the Arrangers or any other Lender, conduct its own independent investigation of the financial condition and affairs of the Borrower and each other Loan Party in connection with the making and continuance of the Loans and with the issuance of the Letters of Credit. Each Lender and each Issuing Lender also acknowledges that it shall, independently and without reliance upon the Administrative Agent, the Syndication Agent, either of the Documentation Agents, either of the Arrangers 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 decisions in taking or not taking action under this Agreement and other Loan Documents. Except for the documents expressly required by any Loan Document to be transmitted by the Administrative Agent to the Lenders or the Issuing Lenders, the Administrative Agent shall not have any duty or responsibility to provide any Lender or any Issuing Lender with any credit or other information concerning the business, prospects, operations, property, financial or other condition or creditworthiness of any Loan Party or any Affiliate of any Loan Party that may come into the possession of the Administrative Agent or any Affiliate thereof or any employee or agent of any of the foregoing.

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    9.6        Indemnification. Each Lender agrees to indemnify the Administrative Agent and each of its Affiliates, and each of their respective directors, officers, employees, agents and advisors (to the extent not reimbursed by the Borrower), from and against such Lender’s Aggregate Exposure Percentage of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements (including fees, expenses and disbursements of financial and legal advisors) of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against, the Administrative Agent or any of its Affiliates, directors, officers, employees, agents and advisors in any way relating to or arising out of this Agreement or the other Loan Documents or any action taken or omitted by the Administrative Agent under this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s or such Affiliate’s gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including fees, expenses and disbursements of financial and legal advisors) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement or the other Loan Documents, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower or another Loan Party.

    9.7        Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, selected from among the Lenders. In either case, such appointment shall be subject to the prior written approval of the Borrower (which approval may not be unreasonably withheld and shall not be required upon the occurrence and during the continuance of an Event of Default). Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. Prior to any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the retiring Administrative Agent shall take such action as may be reasonably necessary to assign to the successor Administrative Agent its rights as Administrative Agent under the Loan Documents. After such resignation, the retiring Administrative Agent shall continue to have the benefit of this Section 9 as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents.

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    9.8        Concerning the Collateral and the Security Documents. (a) Each Lender and each Issuing Lender agrees that any action taken by the Administrative Agent or the Required Lenders (or, where required by the express terms of this Agreement, a greater proportion of the Lenders) in accordance with the provisions of this Agreement or of the other Loan Documents, and the exercise by the Administrative Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders, the Issuing Lenders and the other Secured Parties. Without limiting the generality of the foregoing, the Administrative Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders and the Issuing Lenders with respect to all payments and collections arising in connection herewith and with the Security Documents, (ii) execute and deliver each Security Document and accept delivery of each such agreement delivered by the Borrower or any of its Subsidiaries, (iii) act as collateral agent for the Lenders, the Issuing Lenders and the other Secured Parties for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein, provided that the Administrative Agent hereby appoints, authorizes and directs each Lender and each Issuing Lender to act as collateral sub-agent for the Administrative Agent, the Lenders and the Issuing Lenders for purposes of the perfection of all security interests and Liens with respect to the Collateral, including any deposit accounts maintained by a Loan Party with, and cash and Cash Equivalents held by, such Lender or such Issuing Lender, (iv) manage, supervise and otherwise deal with the Collateral, (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Security Documents and (vi) except as may be otherwise specifically restricted by the terms hereof or of any other Loan Document, exercise all remedies given to the Agents, the Lenders, the Issuing Lenders and the other Secured Parties with respect to the Collateral under the Loan Documents relating thereto, applicable law or otherwise.

        (b)     Each of the Lenders and the Issuing Lenders hereby consents to the release and hereby directs, in accordance with the terms hereof, the Administrative Agent to release (or, in the case of clause (ii) below, release or subordinate) any Lien held by the Administrative Agent for the benefit of the Lenders and the Issuing Lenders against any of the following:

(i)     all of the Collateral and all Loan Parties, upon termination of the Commitments and payment and satisfaction in full of all Loans, all Reimbursement Obligations and all other Obligations that the Administrative Agent has been notified in writing are then due and payable (and, in respect of contingent L/C Obligations, with respect to which cash collateral has been deposited or a back-up letter of credit has been issued, in either case in the appropriate currency and on terms satisfactory to the Administrative Agent and the applicable Issuing Lender);

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(ii)     any assets that are subject to a Lien permitted by Section 7.3(f) or (g); and

(iii)     any part of the Collateral sold or disposed of by a Loan Party if such sale or disposition is permitted by this Agreement (or permitted pursuant to a waiver of or consent to a transaction otherwise prohibited by this Agreement).

Each of the Lenders and the Issuing Lenders hereby directs the Administrative Agent to execute and deliver or file such termination and partial release statements and do such other things as are necessary to release Liens to be released pursuant to this Section 9.8 promptly upon the effectiveness of any such release.

SECTION 10. MISCELLANEOUS

    10.1        Amendments and Waivers. (a) Neither this Agreement or any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or (with the written consent of the Required Lenders) the Administrative Agent and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents (including amendments and restatements hereof or thereof) for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as may be specified in the instrument of waiver, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided that no such waiver and no such amendment, supplement or modification shall:

(i) forgive or reduce the principal amount or extend the final scheduled date of maturity of any Loan or Reimbursement Obligation, extend the scheduled date of or reduce the amount of any amortization payment in respect of any Tranche B Term Loan, reduce the stated rate of any interest or fee payable hereunder (except (x) in connection with the waiver of applicability of any post-default increase in interest rates (which waiver shall be effective with the consent of the Majority Facility Lenders of each adversely affected Facility) and (y) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or fees for purposes of this clause (i)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Commitment of any Lender; require additional consents to be obtained with respect to the sale or any assignment or participations of any interests of the Lenders hereunder, in each case without the consent of each Lender directly affected thereby;

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(ii) amend, modify or waive any provision of this Section or reduce any percentage specified in the definition of Required Lenders or Required Prepayment Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Guarantors from their guarantee obligations under the Guarantee and Collateral Agreement, in each case without the consent of all Lenders;

(iii) amend, modify or waive any condition precedent to any extension of credit under the Revolving Credit Facility set forth in Section 5.2 (including the waiver of an existing Default or Event of Default required to be waived in order for such extension of credit to be made) without the consent of the Majority Revolving Credit Facility Lenders;

(iv) reduce the percentage specified in the definition of Majority Facility Lenders with respect to any Facility without the written consent of all Lenders under such Facility;

(v) amend, modify or waive any provision of Section 9, or any other provision of this Agreement affecting the rights, duties and obligations of the Arrangers or the Administrative Agent, as the case may be, without the consent of each Arranger or the Administrative Agent, as applicable, directly affected thereby;

(vi) reduce the amount of Net Cash Proceeds or Excess Cash Flow required to be applied to prepay Loans under this Agreement without the written consent of the Majority Facility Lenders with respect to each Facility;

(vii) amend, modify or waive any provision of Section 2.6 or 2.7 without the written consent of the Swing Line Lender;

(viii) amend, modify or waive the prorata provisions of Section 2.17 without the consent of each Lender directly affected thereby; or

(ix) amend, modify or waive any provision of Section 3 without the consent of each Issuing Lender.

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Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Arrangers, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders, the Arrangers and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default 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. Any such waiver, amendment, supplement or modification shall be effected by a written instrument signed by the parties required to consent pursuant to the foregoing provisions of this Section; provided, that delivery of an executed signature page of any such instrument by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof.

        (b)     If, in connection with any proposed amendment, modification, waiver or termination requiring the consent of all Lenders under any Facility, the consent of the Required Lenders is obtained but the consent of any Revolving Credit Lender or Tranche B Term Loan Lender whose consent is required is not obtained (any such Lender whose consent is not obtained as described in this Section 10.1 being referred to as a “Non-Consenting Lender”), then, as long as the Lender acting as the Administrative Agent is not a Non-Consenting Lender, at the Borrower’s request, an Assignee acceptable to the Administrative Agent shall have the right with the Administrative Agent’s consent and in the Administrative Agent’s sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lender, and such Non-Consenting Lender agrees that it shall, upon the Administrative Agent’s request, sell and assign to the Lender acting as the Administrative Agent or such Assignee, all of the Revolving Credit Commitments and Revolving Extensions of Credit of such Non-Consenting Lender if such Non-Consenting Lender is a Revolving Credit Lender and all of the Tranche B Term Loans of such Non-Consenting Lender if such Non-Consenting Lender is a Tranche B Term Loan Lender, in each case for an amount equal to the principal balance of all such Revolving Loans or Tranche B Term Loans, as applicable, held by the Non-Consenting Lender and all accrued and unpaid interest and fees with respect thereto through the date of sale; provided, that such purchase and sale shall be recorded in the Register and not be effective until (x) the Administrative Agent shall have received from such Assignee an agreement in form and substance satisfactory to the Administrative Agent and the Borrower whereby such Assignee shall agree to be bound by the terms hereof and (y) such Non-Consenting Lender shall have received payments of all Revolving Loans or Tranche B Term Loans, as applicable, held by it and all accrued and unpaid interest and fees with respect thereto through the date of the sale. Each Lender agrees that, if it becomes a Non-Consenting Lender, it shall execute and deliver to the Administrative Agent an Assignment an Acceptance to evidence such sale and purchase and shall deliver to the Administrative Agent any Note (if the assigning Lender’s Loans are evidenced by Notes) subject to such Assignment and Acceptance; provided that the failure of any Non-Consenting Lender to execute an Assignment and Acceptance shall not render such sale and purchase (and the corresponding assignment) invalid and such assignment shall be recorded in the Register.

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        (c)     Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and each Loan Party party to each relevant Loan Document (x) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof (collectively, the “Additional Extensions of Credit”) to share ratably in the benefits of this Agreement and the other Loan Documents with the Tranche B Term Loans and Revolving Extensions of Credit and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders, Required Prepayment Lenders and Majority Revolving Credit Facility Lenders; provided that no such amendment shall permit the Additional Extensions of Credit to share ratably with or with preference to the Loans in the application of mandatory prepayments without the consent of the Required Prepayment Lenders.

    10.2        Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed (a) in the case of the Borrower, the Arrangers and the Administrative Agent, as follows and (b) in the case of the Lenders, as set forth in an administrative questionnaire delivered to the Administrative Agent or on Schedule I to the Lender Addendum to which such Lender is a party or, in the case of a Lender which becomes a party to this Agreement pursuant to an Assignment and Acceptance, in such Assignment and Acceptance or (c) in the case of any party, to such other address as such party may hereafter notify to the other parties hereto:

The Borrower: Hanger Orthopedic Group, Inc.
Two Bethesda Metro Center, Suit 1200
Bethesda, Maryland 20814
Attention: Jason P. Owen
Telecopy: (301) 280-4650
Telephone: (301) 280-4505

with a copy to:

Foley & Lardner LLP
3000 K Street, N.W., Suite 500
Washington, DC 20007
Attention: Arthur H. Bill
Telecopy: (202) 295 4003
Telephone: (202) 672 5399

The Administrative Agent:

Citicorp North America, Inc.
Global Loans Support Services
2 Penns Way, Suite 110
New Castle, Delaware 19720
Attention: Anne Keyser
Telecopy: (302) 894-6128
Telephone: (212) 994-0961

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Issuing Lender:

As notified by such Issuing Lender to the
Administrative Agent and the Borrower

provided, that any notice, request or demand to or upon the any Agent, the Issuing Lender or any Lender shall not be effective until received.

        Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

    10.3        No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents 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.

    10.4        Survival of Representations and Warranties. All representations and warranties made herein, in the other Loan Documents 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 making of the Loans and other extensions of credit hereunder.

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    10.5        Payment of Expenses. The Borrower agrees (a) to pay or reimburse each Agent and each Arranger for all their reasonable out of pocket costs and expenses incurred in connection with the syndication of the Facilities (other than fees payable to syndicate members) and the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable fees and disbursements and other charges of counsel to the Administrative Agent and the charges of Intralinks, (b) to pay or reimburse each Lender, each Arranger, the Administrative Agent, the Syndication Agent and each Documentation Agent, for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any other documents prepared in connection herewith or therewith, including the fees and disbursements of counsel (including the allocated fees and disbursements and other charges of in-house counsel) to each Lender, each Arranger, the Syndication Agent, each Documentation Agent and of counsel to the Administrative Agent, (c) to pay, indemnify, or reimburse each Lender, each Agent and each Arranger for, and hold each Lender, each Agent and each Arranger 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 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, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify or reimburse each Lender, each Agent, each Arranger, their respective affiliates, and their respective officers, directors, trustees, employees, advisors, agents, attorneys in fact and controlling persons (each, an “Indemnitee”) for, and hold each Indemnitee 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 this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower any of its Subsidiaries or any of the Properties or the use by unauthorized Persons of information or other materials sent through electronic telecommunications or other information transmission systems that are intercepted by such Persons and the reasonable fees and disbursements and other charges of legal counsel in connection with claims, actions or proceedings by any Indemnitee against the Borrower hereunder (all the foregoing in this clause (d), collectively, the “Indemnified Liabilities”), provided that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are judicially determined to have resulted from the gross negligence or willful misconduct of such Indemnitee or its officers, directors, employees or co-employees. No Indemnitee shall be liable for any damages arising from the use by unauthorized persons of Information or other materials sent through electronic, telecommunications or other information transmission systems that are intercepted by such persons or for any special, indirect, consequential or punitive damages in connection with the Facilities. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries so to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section shall be payable not later than 30 days after written demand therefor. Statements payable by the Borrower pursuant to this Section shall be submitted to Hai Tran (Telephone No. (301) 280-4871 (Fax No. (301) 986-0325), at the address of the Borrower set forth in Section 10.2, or to such other Person or address as may be hereafter designated by the Borrower in a notice to the Administrative Agent. The agreements in this Section shall survive repayment of the Loans and all other amounts payable hereunder.

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    10.6        Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Arrangers, the Agents, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Arranger, each Agent and each Lender.

        (b)     Any Lender may, without the consent of the Borrower or any other Person, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a “Participant”) participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest 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 Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower, the Arrangers 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 and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would require the consent of all Lenders pursuant to Section 10.1. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if such Participant were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.19, 2.20 and 2.21 with respect to its participation in the Commitments and the Loans outstanding from time to time as if such Participant were a Lender; provided, that, in the case of Section 2.20, such Participant shall have complied with the requirements of said Section, and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section 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.

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        (c)     Any Lender (an “Assignor”) may, in accordance with applicable law and upon written notice to the Administrative Agent, at any time and from time to time assign to any Lender or any affiliate, Related Fund or Control Investment Affiliate thereof or, with the consent of the Borrower and the Administrative Agent and, in the case of any assignment of Revolving Credit Commitments, the written consent of the Issuing Lenders and the Swing Line Lender (which, in each case, shall not be unreasonably withheld or delayed) (provided that (x) no such consent need be obtained by the Administrative Agent or its affiliates and (y) the consent of neither the Administrative Agent nor the Borrower need be obtained with respect to any assignment of funded Tranche B Term Loans), to an additional bank, financial institution or other entity (an “Assignee”) all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit D (“Assignment and Acceptance”), executed by such Assignee and such Assignor (and, where the consent of the Borrower, the Administrative Agent or the Issuing Lenders or the Swing Line Lender is required pursuant to the foregoing provisions, by the Borrower and such other Persons) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided, that no such assignment to an Assignee (other than, in each case, any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $1,000,000 with respect to Tranche B Term Loans and $5,000,000 with respect to the Revolving Credit Facility (other than, in each case, in the case of an assignment of all of a Lender’s interests under this Agreement), unless otherwise agreed by the Borrower and the Administrative Agent. Any such assignment need not be ratable as among the Facilities. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Commitments and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor’s rights and obligations under this Agreement, such Assignor shall cease to be a party hereto, except as to Section 2.19, 2.20 and 10.5 in respect of the period prior to such effective date). Notwithstanding any provision of this Section, the consent of the Borrower shall not be required (x) for any assignment that occurs at any time when any Event of Default shall have occurred and be continuing and (y) for any assignment in connection with the primary syndication of the Facilities. For purposes of the minimum assignment amounts set forth in this paragraph, multiple assignments by two or more Related Funds shall be aggregated.

        (d)     The Administrative Agent shall, on behalf of the Borrower, maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance 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, each Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Notes evidencing such Loans recorded therein for all purposes of this Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance; thereupon one or more new Notes in the same aggregate principal amount shall be issued to the designated Assignee, and the old Notes shall be returned by the Administrative Agent to the Borrower marked “canceled”. The Register shall be available for inspection by the Borrower or any Lender (with respect to any entry relating to such Lender’s Loans) at any reasonable time and from time to time upon reasonable prior notice.

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        (e)     Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in any case where the consent of any other Person is required by Section 10.6(c), by each such other Person) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (if required by the Administrative Agent and, in any case treating multiple, simultaneous assignments by or to two or more Related Funds as a single assignment) (except that no such registration and processing fee shall be payable in the case of an Assignee which is already a Lender or is an affiliate or Related Fund of a Lender or a Person under common management with a Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Revolving Credit Note and/or applicable Term Notes, as the case may be, of the assigning Lender) a new Revolving Credit Note and/or applicable Term Notes, as the case may be, to the order of such Assignee in an amount equal to the Revolving Credit Commitment and/or applicable Tranche B Term Loans, as the case may be, assumed or acquired by it pursuant to such Assignment and Acceptance and, if the Assignor has retained a Revolving Credit Commitment and/or Tranche B Term Loans, as the case may be, upon request, a new Revolving Credit Note and/or Term Notes, as the case may be, to the order of the Assignor in an amount equal to the Revolving Credit Commitment and/or applicable Tranche B Term Loans, as the case may be, retained by it hereunder. Such new Note or Notes shall be dated the Closing Date and shall otherwise be in the form of the Note or Notes replaced thereby.

        (f)     For the avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests in Loans and Notes, including any pledge or assignment by a Lender of any Loan or Note to (i) any Federal Reserve Bank in accordance with applicable law, (ii) any holder of, or trustee for the benefit of, the holders of such Lender’s securities or (iii) any SPC to which such Lender granted an option pursuant to clause (g) below.

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        (g)     Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPC”), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided, that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any state thereof. In addition, notwithstanding anything to the contrary in this Section 10.6(g), any SPC may (A) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender, or with the prior written consent of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld) to any financial institutions providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans, and (B) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC; provided, that non-public information with respect to the Borrower may be disclosed only with the Borrower’s consent which will not be unreasonably withheld. This paragraph (g) may not be amended without the written consent of any SPC with Loans outstanding at the time of such proposed amendment.

    10.7        Adjustments; Set-off. (a) Except to the extent that this Agreement provides for payments to be allocated to a particular Lender or to the Lenders under a particular Facility, if any Lender (a “Benefitted Lender”) shall at any time receive any payment of all or part of the Obligations owing to it, 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 8(f), 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 Obligations, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender’s Obligations, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.

        (b)     In addition to any rights and remedies of the Lenders provided by law, 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, upon any amount becoming due and payable by the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount 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 or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees to notify promptly the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application.

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    10.8        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 instrument. Delivery of an executed signature page of this Agreement or of a Lender Addendum by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.

    10.9        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.

    10.10        Integration. This Agreement and the other Loan Documents represent the entire agreement of the Borrower, the Administrative Agent, the Arrangers and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Arrangers, the Agents or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.

    10.11        GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

    10.12        Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally:

        (a)     submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York located in the County of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

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        (b)     consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

        (c)     agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at its address set forth in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;

        (d)     agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

        (e)     waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

    10.13        Acknowledgments. The Borrower hereby acknowledges that:

        (a)     it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents;

        (b)     neither the Arrangers, the Syndication Agent, the Documentation Agents, the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between each Arranger, the Syndication Agent, the Documentation Agent, the Administrative Agent and the Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

        (c)     no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among either of the Arrangers, the Syndication Agent, either of the Documentation Agents, the Administrative Agent and the Lenders or among the Borrower and the Lenders.

    10.14        Confidentiality. Each of the Arrangers, the Administrative Agent, the Syndication Agent, each of the Documentation Agents, and the Lenders agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided, that nothing herein shall prevent either of the Arrangers, the Administrative Agent, the Syndication Agent, either of the Documentation Agents, or any Lender from disclosing any such information (a) to either of the Arrangers, any Agent, any other Lender or any affiliate of any thereof, (b) to any Participant or Assignee (each, a “Transferee”) or prospective Transferee that agrees to comply with the provisions of this Section or substantially equivalent provisions, (c) to any of its employees, directors, trustees, agents, attorneys, accountants and other professional advisors that are or are expected to be involved in the review or evaluation of such information in connection with the transactions contemplated by this Agreement and are advised of the confidential nature of such information, (d) to any financial institution that is a direct or indirect contractual counterparty in swap agreements or such contractual counterparty’s professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section), (e) upon the request or demand of any Governmental Authority having jurisdiction over it, (f) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (g) in connection with any litigation or similar proceeding, (h) that has been publicly disclosed other than in breach of this Section, (i) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender or (j) in connection with the exercise of any remedy hereunder or under any other Loan Document.

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        10.15 Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, the Borrower and the Administrative Agent.

        10.16 WAIVERS OF JURY TRIAL. THE BORROWER, EACH ARRANGER, EACH AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

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        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

HANGER ORTHOPEDIC GROUP, INC.

By:_______________________________
      Name:
      Title:

LEHMAN BROTHERS INC.,
as Arranger

By:_______________________________
      Name:
      Title:

LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent

By:_______________________________
      Name:
      Title:

CITICORP NORTH AMERICA, INC.,
as Administrative Agent

By:_______________________________
      Name:
      Title:

CITIGROUP GLOBAL MARKETS INC.,
as Arranger

By:_______________________________
      Name:
      Title:

GENERAL ELECTRIC CAPITAL CORPORATION,
as Co-Documentation Agent

By:_______________________________
      Name:
      Title:

LASALLE BANK, N.A.,
as Co-Documentation Agent

By:_______________________________
      Name:
      Title:

Annex A

PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS
AND COMMITMENT FEES

Consolidated Leverage Ratio	Applicable Margin for Eurodollar Loans	Applicable Margin for Base Rate Loans	Commitment Fee Rate
Less than or equal to 5.00:1.00	2.50%	1.50%	0.500%
Less than or equal to 4.25:1.00	2.25%	1.25%	0.500%
Less than or equal to 3.50:1.00	2.00%	1.00%	0.375%

Changes in the Applicable Margin with respect to the Commitment Fee Rate resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the “Adjustment Date”) on which financial statements are delivered to the Lenders pursuant to Section 6.2 (but in any event not later than the 40th day after the end of each of the first three quarterly periods of each fiscal year or the 75th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 5.00 to 1.00. In addition, at all times while an Event of Default shall have occurred and be continuing, the Consolidated Leverage Ratio shall for the purposes of this Pricing Grid be deemed to be greater than 5.00 to 1.00. Each determination of the Consolidated Leverage Ratio pursuant to this Pricing Grid shall be made for the periods and in the manner contemplated by Section 7.1(a).

EX-10.8

Exhibit 10.8

GUARANTEE AND COLLATERAL AGREEMENT

made by

HANGER ORTHOPEDIC GROUP, INC.,
as Borrower,

and certain of its Subsidiaries

in favor of

CITICORP NORTH AMERICA, INC.,
as Administrative Agent

Dated as of May 26, 2006

TABLE OF CONTENTS

		Page
SECTION 1.	DEFINED TERMS	1
1.1	Definitions	1
1.2	Other Definitional Provisions	6
SECTION 2.	GUARANTEE	7
2.1	Guarantee	7
2.2	Right of Contribution	8
2.3	Subrogation	8
2.4	Amendments, etc. with respect to the Borrower Obligations	9
2.5	Guarantee Absolute and Unconditional	9
2.6	Reinstatement	11
2.7	Payments	11
SECTION 3.	GRANT OF SECURITY INTEREST	12
SECTION 4.	REPRESENTATIONS AND WARRANTIES	13
4.1	Representations in Credit Agreement	13
4.2	Title; No Other Liens	13
4.3	Perfected First Priority Liens	13
4.4	Jurisdiction of Organization; Chief Executive Office	13
4.5	Inventory and Equipment	14
4.6	Farm Products	14
4.7	Investment Property	14
4.8	Receivables	14
4.9	Intellectual Property	14
SECTION 5.	COVENANTS	15
5.1	Covenants in Credit Agreement	15
5.2	Delivery of Instruments and Chattel Paper	15
5.3	Maintenance of Insurance	16
5.4	Payment of Obligations	16
5.5	Maintenance of Perfected Security Interest; Further Documentation	16
5.6	Changes in Name, etc	17
5.7	Notices	17
5.8	Investment Property	18

5.9	Receivables	19
5.10	Intellectual Property	19
5.11	Vehicles	21
5.12	Commercial Tort Claims	21
SECTION 6.	REMEDIAL PROVISIONS	21
6.1	Certain Matters Relating to Receivables	21
6.2	Communications with Obligors; Grantors Remain Liable	22
6.3	Pledged Stock	23
6.4	Proceeds to be Turned Over To Administrative Agent	23
6.5	Application of Proceeds	24
6.6	Code and Other Remedies	24
6.7	Sale of Pledged Stock	25
6.8	Deficiency	26
SECTION 7.	THE ADMINISTRATIVE AGENT	26
7.1	Administrative Agent's Appointment as Attorney-in-Fact, etc	26
7.2	Duty of Administrative Agent	27
7.3	Execution of Financing Statements	28
7.4	Authority of Administrative Agent	28
SECTION 8.	MISCELLANEOUS	28
8.1	Amendments in Writing	28
8.2	Notices	29
8.3	No Waiver by Course of Conduct; Cumulative Remedies	29
8.4	Enforcement Expenses; Indemnification	29
8.5	Successors and Assigns	29
8.6	Set-Off	30
8.7	Counterparts	30
8.8	Severability	30
8.9	Section Headings	30
8.10	Integration	30
8.11	GOVERNING LAW	30
8.12	Submission To Jurisdiction; Waivers	31
8.13	Acknowledgements	31
8.14	Additional Grantors	31

ii

8.15	Releases	31
8.16	WAIVER OF JURY TRIAL	32

iii

Schedules

Schedule 1	Notice Addresses of Guarantors
Schedule 2	Description of Pledged Securities
Schedule 3	Filings and Other Actions Required to Perfect Security Interest
Schedule 4	Jurisdiction of Organization, Identification Number and Location of Chief Executive Office
Schedule 5	Locations of Inventory and Equipment
Schedule 6	Existing Prior Liens
Schedule 7	Intellectual Property
Schedule 8	Intellectual Property Matters
Schedule 9	Deposit Accounts

Annexes

Annex I	Assumption Agreement
Annex II	Acknowledgment and Consent
Annex III	Form of Patent Security Agreement
Annex IV	Form of Trademark Security Agreement

        GUARANTEE AND COLLATERAL AGREEMENT, dated as of May 26, 2006, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the “Grantors”), in favor of CITICORP NORTH AMERICA, INC., as Administrative Agent (in such capacity, the “Administrative Agent”) for the banks and other financial institutions (the “Lenders”) from time to time parties to the Credit Agreement, dated as of May 26, 2006, (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time parties to the Credit Agreement (the “Lenders”), LEHMAN BROTHERS INC., as joint lead arranger and joint bookrunner, CITIGROUP GLOBAL MARKETS INC., as joint lead arranger and joint bookrunner, the Administrative Agent, LEHMAN COMMERCIAL PAPER, INC., as syndication agent (in such capacity, the “Syndication Agent”), GENERAL ELECTRIC CAPITAL CORPORATION, as co-documentation agent, and LASALLE BANK, N.A., as co-documentation agent.

W I T N E S S E T H:

        WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;

        WHEREAS, the Borrower is a member of an affiliated group of companies that includes each other

Grantor;

        WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in part to enable the Borrower to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses;

        WHEREAS, certain of the Qualified Counterparties may enter into Specified Hedge Agreements with one or more of the Grantors;

        WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the extensions of credit under the Credit Agreement and from the Specified Hedge Agreements; and

        WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent;

        NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Administrative Agent, for the benefit of the Secured Parties, as follows:

SECTION 1. DEFINED TERMS

    1.1        Definitions. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement and the following terms are used herein as defined in the New York UCC: Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims, Documents, Equipment, Farm Products, General Intangibles, Goods, Instruments, Inventory, Letter-of-Credit Rights and Supporting Obligations.

        (b)     The following terms shall have the following meanings:

        “Agreement”: this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

        “Borrower Credit Agreement Obligations”: the collective reference to the unpaid principal of and interest on the Loans and Reimbursement Obligations and all other obligations and liabilities of the Borrower (including interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and Reimbursement Obligations and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to the Administrative Agent or any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, or the other Loan Documents, or any Letter of Credit, or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements).

        “Borrower Hedge Agreement Obligations”: the collective reference to all obligations and liabilities of the Borrower (including interest accruing at the then applicable rate provided in any Specified Hedge Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to any Qualified Counterparty, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, any Specified Hedge Agreement or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all fees and disbursements of counsel to the relevant Qualified Counterparty that are required to be paid by the Borrower pursuant to the terms of any Specified Hedge Agreement).

        “Borrower Obligations”: the collective reference to (i) the Borrower Credit Agreement Obligations, (ii) the Borrower Hedge Agreement Obligations, but only to the extent that, and only so long as, the Borrower Credit Agreement Obligations are secured and guaranteed pursuant hereto, and (iii) all other obligations and liabilities of the Borrower, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement (including all fees and disbursements of counsel to the Administrative Agent or to the Secured Parties that are required to be paid by the Borrower pursuant to the terms of this Agreement).

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        “Collateral”: as defined in Section 3.

        “Collateral Account”: any collateral account established by the Administrative Agent as provided in Section 6.1 or 6.4.

        “Copyrights”: all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered, including any renewals thereof, or unregistered and whether published or unpublished (including those listed in Schedule 7), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office.

        “Copyright Licenses”: any written agreement naming any Grantor as licensor or licensee (including those listed in Schedule 7), granting any right under any Copyright, including the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

        “Deposit Account”: as defined in the Uniform Commercial Code of any applicable jurisdiction and, in any event, including any demand, time, savings, passbook or like account maintained with a depositary institution.

        “Excluded Assets”: the collective reference to (i) any contract, General Intangible, Copyright License, Patent License or Trademark License (“Intangible Assets”), in each case to the extent the grant by the relevant Grantor of a security interest pursuant to this Agreement in such Grantor’s right, title and interest in such Intangible Asset (A) is prohibited by legally enforceable provisions of any contract, agreement, instrument or indenture governing such Intangible Asset, (B) would give any other party to such contract, agreement, instrument or indenture a legally enforceable right to terminate its obligations thereunder or (C) is permitted only with the consent of another party, if the requirement to obtain such consent is legally enforceable and such consent has not been obtained; provided, that in any event any Receivable or any money or other amounts due or to become due under any such contract, agreement, instrument or indenture shall not be Excluded Assets to the extent that any of the foregoing is (or if it contained a provision limiting the transferability or pledge thereof would be) subject to Section 9-406 of the New York UCC, and (ii) Foreign Subsidiary Voting Stock excluded from the definition of “Pledged Stock” set forth in this Section 1.1.

        “Foreign Subsidiary”: any Subsidiary organized under the laws of any jurisdiction outside the United States of America.

        “Foreign Subsidiary Voting Stock”: the voting Capital Stock of any Foreign Subsidiary.

3

        “Guarantor Hedge Agreement Obligations”: the collective reference to all obligations and liabilities of a Guarantor (including interest accruing at the then applicable rate provided in any Specified Hedge Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Guarantor, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) to any Qualified Counterparty, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, any Specified Hedge Agreement or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all fees and disbursements of counsel to the relevant Qualified Counterparty that are required to be paid by such Guarantor pursuant to the terms of any Specified Hedge Agreement).

        “Guarantor Obligations”: with respect to any Guarantor, the collective reference to (i) any Guarantor Hedge Agreement Obligations of such Guarantor, but only to the extent that, and only so long as, the other Obligations of such Guarantor are secured and guaranteed pursuant hereto, and (ii) all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement (including Section 2) or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all fees and disbursements of counsel to the Administrative Agent or to any Secured Party that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document).

        “Guarantors”: the collective reference to each Grantor other than the Borrower.

        “Hedge Agreements”: as to any Person, all interest rate swaps, currency exchange agreements, commodity swaps, caps or collar agreements or similar arrangements entered into by such Person providing for protection against fluctuations in interest rates, currency exchange rates or commodity prices or the exchange of nominal interest obligations, either generally or under specific contingencies. For avoidance of doubt, Hedge Agreements shall include any interest rate swap or similar agreement that provides for the payment by the Borrower or any of its Subsidiaries of amounts based upon a floating rate in exchange for receipt by the Borrower or such Subsidiary of amounts based upon a fixed rate.

        “Intellectual Property”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, inventions, processes, designs, formulae, trade secrets and know-how, computer software (including data and related documentation), other than off-the-shelf software, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

        “Intercompany Note”: any promissory note evidencing loans made by any Grantor to Holdings or any of its Subsidiaries.

4

        “Investment Property”: the collective reference to (i) all “investment property” as such term is defined in Section 9-102(a)(49) of the New York UCC (other than any Foreign Subsidiary Voting Stock excluded from the definition of “Pledged Stock” in this Section 1.1) and (ii) whether or not constituting “investment property” as so defined, all Pledged Notes and all Pledged Stock.

        “Issuers”: the collective reference to each issuer of any Investment Property.

        “Licensed Intellectual Property”: as defined in Section 4.10.

        “New York UCC”: the Uniform Commercial Code as from time to time in effect in the State of New York.

        “Obligations”: (i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations.

        “Patents”: (i) all letters patent, including any reissues or extensions, of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including any of the foregoing referred to in Schedule 7 and (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including any of the foregoing referred to in Schedule 7.

        “Patent License”: any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including any of the foregoing referred to in Schedule 7.

        “Pledged Notes”: all promissory notes listed on Schedule 2, all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business).

        “Pledged Securities”: the collective reference to the Pledged Notes and the Pledged Stock.

        “Pledged Stock”: the shares of Capital Stock listed on Schedule 2, together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; provided that in no event shall more than 65% of the total outstanding Foreign Subsidiary Voting Stock of any Foreign Subsidiary be required to be pledged hereunder.

        “Proceeds”: all “proceeds” as such term is defined in Section 9-102(a)(64) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, including all dividends or other income from the Investment Property, collections thereon or distributions or payments with respect thereto.

5

        “Qualified Counterparty”: with respect to any Specified Hedge Agreement, any counterparty thereto that, at the time such Specified Hedge Agreement was entered into, was a Lender or an affiliate of a Lender.

        “Receivable”: any right to payment for goods sold, leased, licensed, assigned or otherwise disposed of, or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including any Account).

        “Secured Parties”: the collective reference to the Administrative Agent, the Syndication Agent, the Lenders (including any Issuing Lender in its capacity as Issuing Lender) and any Qualified Counterparties.

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

        “Specified Hedge Agreement”: any Hedge Agreement entered into by (i) the Borrower or any Guarantor and (ii) any Qualified Counterparty.

        “Trademarks”: all registered and unregistered trademarks, trade names, corporate names, company names, business names, Internet domain names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, including any renewals thereof, and all 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, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including any of the foregoing referred to in Schedule 7.

        “Trademark License”: any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including any of the foregoing referred to in Schedule 7.

        “Vehicles”: all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state and all tires and other appurtenances to any of the foregoing.

    1.2        Other Definitional Provisions. (a) The words “hereof,” “herein”, “hereto”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 and Schedule references are to this Agreement unless otherwise specified.

        (b)     The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

        (c)     The terms “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

6

        (d)     Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.

SECTION 2. GUARANTEE

    2.1        Guarantee. (a) (i) The Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantee to the Administrative Agent, for the ratable benefit of the Secured Parties and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at stated maturity, by acceleration or otherwise) of the Borrower Obligations (other than, in the case of each Guarantor, Borrower Obligations arising pursuant to clause (ii) of this Section 2.1(a) in respect of Guarantor Hedge Agreement Obligations in respect of which such Guarantor is a primary obligor).

        (ii)     The Borrower hereby unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Secured Parties and their respective successors, endorsees, transferees and assigns, the prompt and complete payment and performance by each Guarantor when due (whether at stated maturity, by acceleration or otherwise) of the Guarantor Hedge Agreement Obligations of such Guarantor.

        (b)     Anything herein or in any other Loan Document to the contrary notwithstanding, (i) the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to fraudulent conveyances or transfers or the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2) and (ii) the maximum liability of the Borrower under this Section 2 shall in no event exceed the amount which can be guaranteed by the Borrower under applicable federal and state laws relating to fraudulent conveyances or transfers or the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2).

        (c)     (i)     Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee of such Guarantor contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder.

        (ii)     The Borrower agrees that the Guarantor Hedge Agreement Obligations may at any time and from time to time exceed the amount of the liability of the Borrower under this Section 2 without impairing the guarantee of the Borrower contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any other Secured Party hereunder.

        (d)     Subject to Section 8.15 hereof, the guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations (other than Borrower Obligations arising under Section 2.1(a)(ii) hereof) and the obligations of each Guarantor under the guarantee contained in this Section 2 (other than Guarantor Obligations in respect of Borrower Obligations arising under Section 2.1(a)(ii) hereof) shall have been satisfied by full and final payment in cash, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations and any or all of the Guarantors may be free from their respective Guarantor Hedge Agreement Obligations.

7

        (e)     No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Secured Party from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations or the Guarantor Hedge Agreement Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Borrower or any Guarantor under this Section 2 which shall, notwithstanding any such payment (other than any payment made by the Borrower or such Guarantor in respect of the Borrower Obligations or the Guarantor Hedge Agreement Obligations or any payment received or collected from the Borrower or such Guarantor in respect of the Borrower Obligations or the Guarantor Hedge Agreement Obligations), remain liable for the Borrower Obligations and the Guarantor Hedge Agreement Obligations up to the maximum liability of the Borrower or such Guarantor hereunder until the Borrower Obligations and the Guarantor Hedge Agreement Obligations are fully and finally paid in cash, no Letter of Credit shall be outstanding and the Commitments are terminated.

    2.2        Right of Contribution. (a) Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder or the Guarantor Hedge Agreement Obligations, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment.

        (b)     The Borrower and each Guarantor agrees that to the extent that the Borrower or any Guarantor shall have paid more than its proportionate share of any payment made hereunder in respect of any Guarantor Hedge Agreement Obligation of any other Guarantor, the Borrower or such Guarantor, as the case may be, shall be entitled to seek and receive contribution from and against the Borrower and any other Guarantor which has not paid its proportionate share of such payment.

        (c)     The Borrower’s and each Guarantor’s right of contribution under this Section 2.2 shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of the Borrower or any Guarantor to the Administrative Agent and the Secured Parties, and the Borrower and each Guarantor shall remain liable to the Administrative Agent and the Secured Parties for the full amount guaranteed by the Borrower or such Guarantor hereunder.

    2.3        Subrogation. Notwithstanding any payment made by the Borrower or any Guarantor hereunder or any set-off or application of funds of the Borrower or any Guarantor by the Administrative Agent or any Secured Party, neither the Borrower nor any Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Secured Party against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any Secured Party for the payment of the Borrower Obligations or the Guarantor Hedge Agreement Obligations, nor shall the Borrower or any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by the Borrower or such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Secured Parties by the Borrower on account of the Borrower Obligations are fully and finally paid in cash, no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall be paid to the Borrower or any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been fully and finally paid in cash, such amount shall be held by the Borrower or such Guarantor in trust for the Administrative Agent and the Secured Parties, segregated from other funds of the Borrower or such Guarantor, and shall, forthwith upon receipt by the Borrower or such Guarantor, be turned over to the Administrative Agent in the exact form received by the Borrower or such Guarantor (duly indorsed by the Borrower or such Guarantor to the Administrative Agent, if required), to be applied against the Borrower Obligations or the Guarantor Hedge Agreement Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine.

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    2.4        Amendments, etc. with respect to the Borrower Obligations. The Borrower and each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Borrower or any Guarantor and without notice to or further assent by the Borrower or any Guarantor, any demand for payment of any of the Borrower Obligations or Guarantor Hedge Agreement Obligations made by the Administrative Agent or any Secured Party may be rescinded by the Administrative Agent or such Secured Party and any of the Borrower Obligations or Guarantor Hedge Agreement Obligations continued, and the Borrower Obligations or Guarantor Hedge Agreement Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Secured Party (with the consent of such of the Borrower and the Guarantors as shall be required thereunder), and the Specified Hedge Agreements, the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders or all Lenders, as the case may be) may (with the consent of such of the Borrower and the Guarantors as shall be required thereunder) deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Secured Party for the payment of the Borrower Obligations or Guarantor Hedge Agreement Obligations may (with the consent of such of the Borrower and the Guarantor as shall be required thereunder) be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Secured Party shall, except to the extent set forth in, and for the benefit of the parties to, the agreements and instruments governing such Lien or guarantee, have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or Guarantor Hedge Agreement Obligations or for the guarantees contained in this Section 2 or any property subject thereto.

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    2.5        Guarantee Absolute and Unconditional. (a) Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations (other than any notice with respect to any Guarantor Hedge Agreement Obligation with respect to which such Guarantor is a primary obligor and to which it is entitled pursuant to the applicable Specified Hedge Agreement) and notice of or proof of reliance by the Administrative Agent or any Secured Party upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the Secured Parties, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations (other than any diligence, presentment, protest, demand or notice with respect to any Guarantor Hedge Agreement Obligation with respect to which such Guarantor is a primary obligor and to which it is entitled pursuant to the applicable Specified Hedge Agreement). Each Guarantor understands and agrees that the guarantee of such Guarantor contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Secured Party, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against the Administrative Agent or any Secured Party, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee of such Guarantor contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent or any Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability under this Section 2, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Secured Party against any Guarantor. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

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        (b)     The Borrower waives any and all notice of the creation, renewal, extension or accrual of any of the Guarantor Hedge Agreement Obligations and notice of or proof of reliance by the Administrative Agent or any Secured Party upon the guarantee by the Borrower contained in this Section 2 or acceptance of the guarantee by the Borrower contained in this Section 2; the Guarantor Hedge Agreement Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee by the Borrower contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Administrative Agent and the Secured Parties, on the other hand, with respect to any Guarantor Hedge Agreement Obligation likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee by the Borrower contained in this Section 2. The Borrower waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower with respect to the Guarantor Hedge Agreement Obligations. The Borrower understands and agrees that the guarantee by the Borrower contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Guarantor Hedge Agreement Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Secured Party, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Person against the Administrative Agent or any Secured Party, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or any Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the applicable Guarantor for the applicable Guarantor Hedge Agreement Obligations, or of the Borrower under its guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand under this Section 2 or otherwise pursuing its rights and remedies under this Section 2 against the Borrower, the Administrative Agent or any Secured Party may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any Guarantor or any other Person or against any collateral security or guarantee for the Guarantor Hedge Agreement Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Secured Party to make any such demand, to pursue such other rights or remedies or to collect any payments from any Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve the Borrower of any obligation or liability under this Section 2, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Secured Party against the Borrower under this Section 2. For the purposes hereof “demand” shall include the commencement and continuance of any legal proceedings.

    2.6        Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations or Guarantor Hedge Agreement Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

    2.7        Payments. The Borrower and each Guarantor hereby guarantees that payments by it hereunder will be paid to the Administrative Agent without set-off or counterclaim (i) in the case of obligations in respect of Borrower Obligations arising under the Credit Agreement or any other Loan Document in Dollars at the Payment Office specified in the Credit Agreement and (ii) in the case of obligations in respect of any Borrower Hedge Agreement Obligations or any Guarantor Hedge Agreement Obligations, in the currency and at the place specified in the applicable Specified Hedge Agreement.

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SECTION 3. GRANT OF SECURITY INTEREST

        Each Grantor hereby assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the ratable benefit of the Secured Parties, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the “Collateral”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor’s Obligations:

        (a)     all Accounts;

        (b)     all Chattel Paper;

        (c)     all Deposit Accounts;

        (d)     all Documents;

        (e)     all Equipment;

        (f)     all General Intangibles;

        (g)     all Instruments;

        (h)     all Intellectual Property;

        (i)     all Inventory;

        (j)     all Investment Property;

        (k)     all Vehicles;

        (l)     all Letter-of-Credit Rights;

        (m)     all Commercial Tort Claims to the extent they have been notified to the Administrative Agent pursuant to Section 5.13;

        (n)     all Goods and other property not otherwise described above;

        (o)     all books and records pertaining to the Collateral; and

        (p)     to the extent not otherwise included, all Proceeds and products of any and all of the foregoing, all Supporting Obligations in respect of any of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing;

provided, that the Collateral shall not include any Excluded Assets.

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SECTION 4. REPRESENTATIONS AND WARRANTIES

        To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each Lender that:

    4.1        Representations in Credit Agreement. In the case of each Guarantor, the representations and warranties set forth in Section 4 of the Credit Agreement as they relate to such Guarantor or to the Loan Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each Lender shall be entitled to rely on each of them as if they were made by such Guarantor and fully set forth herein, provided that each reference in each such representation and warranty to the Borrower’s knowledge shall, for the purposes of this Section 4.1, be deemed to be a reference to such Guarantor’s knowledge.

    4.2        Title; No Other Liens. Except for the security interest granted to the Administrative Agent for the ratable benefit of the Secured Parties pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens. On the date hereof, no financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement or as are permitted by the Credit Agreement.

    4.3        Perfected First Priority Liens. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral (other than Vehicles) in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for such Grantor’s Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for (i) unrecorded Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law and (ii) Liens described on Schedule 6.

    4.4        Jurisdiction of Organization; Chief Executive Office. On the date hereof, such Grantor’s correct legal name, jurisdiction of organization, organizational identification number (if any) from its jurisdiction of organization, and the location of such Grantor’s chief executive office or sole place of business, as the case may be, are specified on Schedule 4. Such Grantor has furnished to the Administrative Agent a certified charter, certificate of incorporation or other organization document and long-form good standing certificate as of a date which is recent to the date hereof.

    4.5        Inventory and Equipment. On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on Schedule 5.

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    4.6        Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm Products.

    4.7        Investment Property. (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor or, in the case of Foreign Subsidiary Voting Stock, if less, 65% of the outstanding Foreign Subsidiary Voting Stock of each relevant Issuer.

        (b)     All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable, except as permitted by Section 180.0622 of the Wisconsin Statutes.

        (c)     Each of the Pledged Notes issued by any Loan Party and to such Grantor’s knowledge, each of the Pledged Notes issued by any other Person, constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

        (d)     Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Investment Property pledged by it hereunder, free of any and all Liens or options in favor of, any other Person, except the security interest created by this Agreement.

    4.8        Receivables. (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent to the extent required by Section 5.2.

        (b)     None of the obligors on any Receivable is a Governmental Authority, except for Receivables constituting not more than 5% of the face amount of all Receivables.

        (c)     The amounts represented by such Grantor to the Secured Parties from time to time as owing to such Grantor in respect of the Receivables will at such times be accurate.

    4.9        Intellectual Property. (a) Schedule 7 lists, the Intellectual Property (other than trade secrets) owned by such Grantor in its own name on the date hereof and, to the best of such Grantor’s knowledge, all Intellectual Property subject to a license or other agreement licensed or otherwise made available to such Grantor (the “Licensed Intellectual Property”).

        (b)     On the date hereof, all material Intellectual Property of such Grantor described on Schedule 7 is in compliance in all material respects with applicable legal requirements (including payment of maintenance fees and the like) and, to the best of such Grantor’s knowledge, all such rights are valid, subsisting, and enforceable.

        (c)     On the date hereof, to the best of such Grantor’s knowledge, the conduct by such Grantor of its business does not infringe upon, misappropriate, constitute an unauthorized use of or otherwise violate the Intellectual Property rights of any other Person in any material respect. Except as set forth in Schedule 8, no claim or demand of any Person has been made in writing, nor is there any proceeding that is pending or to the knowledge of such Grantor threatened, which (in any such case) (i) challenges the rights of such Grantor in respect of any Intellectual Property or (ii) asserts that such Grantor is infringing upon, misappropriating, making an unauthorized use of or otherwise violating or in conflict with, or is required to pay any royalty, license fee, charge or other amount with regard to, any Intellectual Property.

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        (d)     On the date hereof, to the best of such Grantor’s knowledge, no other Person is infringing upon, misappropriating, constituting an unauthorized use of or otherwise violating any material Intellectual Property owned by or licensed to such Grantor or the rights of such Grantor in any material Intellectual Property of such Grantor described on Schedule 8.

        (e)     Except as set forth in Schedule 7, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor.

        (f)     None of the Intellectual Property described in Schedule 8 is subject to any outstanding order, ruling, decree, judgment or stipulation which would limit, cancel or call into question the validity of, or such Grantor’s rights in, the Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect.

        (g)     Except as set forth in Schedule 8, no action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any material Intellectual Property or such Grantor’s ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property.

SECTION 5. COVENANTS

        Each Grantor covenants and agrees with the Administrative Agent and the Secured Parties that, from and after the date of this Agreement until the Obligations shall have been paid in full, no Letter of Credit shall be outstanding and the Commitments shall have terminated:

    5.1        Covenants in Credit Agreement. In the case of each Guarantor, such Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor or any of its Subsidiaries.

    5.2        Delivery of Instruments and Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument, Certificated Security or Chattel Paper, such Instrument, Certificated Security or Chattel Paper shall be immediately delivered to the Administrative Agent, duly indorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement; provided, that the Grantors shall not be obligated to deliver to the Administrative Agent any Instruments or Chattel Paper held by any Grantor at any time to the extent that the aggregate face amount of all such Instruments and Chattel Paper held by all Grantors at such time does not exceed $1,000,000.

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    5.3        Maintenance of Insurance. (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory, Equipment and Vehicles against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Administrative Agent and (ii) to the extent requested by the Administrative Agent, insuring such Grantor, the Administrative Agent and the Secured Parties against liability for personal injury and property damage relating to such Inventory, Equipment and Vehicles, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders.

        (b)     All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Administrative Agent of written notice thereof, (ii) name the Administrative Agent as insured party or loss payee, as applicable, (iii) if reasonably requested by the Administrative Agent, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Administrative Agent.

        (c)     The Borrower shall deliver to the Administrative Agent and the Lenders a report of a reputable insurance broker with respect to such insurance substantially concurrently with the delivery by the Borrower to the Administrative Agent of its audited financial statements for each fiscal year and such supplemental reports with respect thereto as the Administrative Agent may from time to time reasonably request.

    5.4        Payment of Obligations. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all material claims of any kind (including claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein.

    5.5        Maintenance of Perfected Security Interest; Further Documentation. (a) Such Grantor shall maintain the security interest created by this Agreement (other than the security interest in Vehicles) as a perfected security interest having at least the priority described in Section 4.3 and shall defend such security interest against the claims and demands of all Persons whomsoever.

        (b)     In addition to the obligations of the Borrower under the Credit Agreement, after the occurrence and during the continuance of an Event of Default, such Grantor will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail.

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        (c)     Each of such Grantor’s Deposit Accounts is set forth on Schedule 9 and such Grantor will, on the Closing Date or as provided in Schedule 6.12 of the Credit Agreement, execute and deliver to the Administrative Agent Deposit Account control agreements in favor of the Administrative Agent with respect to each such Deposit Account in a form reasonably satisfactory to the Administrative Agent; provided that the Grantors, collectively, shall not be required to deliver to the Administrative Agent a Deposit Account control agreement with respect to such Deposit Account in which amounts on deposit, together with the amounts on deposit in all other such Deposit Accounts not subject to a Deposit Account control agreement, in the aggregate, do not exceed $1,000,000 at any time.

        (c)     Such Grantor will execute and deliver to the Administrative Agent from time to time, Deposit Account control agreements in favor of the Administrative Agent with respect to all of such Grantor’s Deposit Accounts in a form reasonably satisfactory to the Administrative Agent; provided that the Grantors, collectively, may maintain amounts on deposit in Deposit Accounts not subject to any Deposit Account control agreement, so long as the aggregate amount of all such deposits does not exceed $1,000,000 at any time.

        (d)     At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including (i) the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and (ii) in the case of Investment Property and Letter-of-Credit Rights, taking any actions necessary to enable the Administrative Agent to obtain “control” (within the meaning of the applicable Uniform Commercial Code) with respect thereto.

    5.6        Changes in Name, etc. Such Grantor will not, except upon 15 days’ prior written notice to the Administrative Agent and delivery to the Administrative Agent of all additional executed financing statements and other documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the security interests provided for herein:

        (a)     change its jurisdiction of organization or the location of its chief executive office or sole place of business from that referred to in Section 4.4; or

        (b)     change its name.

    5.7        Notices. Such Grantor will advise the Administrative Agent and the Lenders promptly, in reasonable detail, of:

        (a)     any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and

        (b)     the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby.

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    5.8        Investment Property. (a) If such Grantor shall become entitled to receive or shall receive any certificate (including any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Administrative Agent and the Secured Parties, hold the same in trust for the Administrative Agent and the Secured Parties and deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Grantor to the Administrative Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of Investment Property upon the liquidation or dissolution of any Issuer other than a Grantor shall be paid over to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of Investment Property, or any property shall be distributed upon or with respect to the Investment Property not issued by a Grantor pursuant to the recapitalization or reclassification of the capital of such Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Administrative Agent, be delivered to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of Investment Property shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Administrative Agent, hold such money or property in trust for the Secured Parties, segregated from other funds of such Grantor, as additional collateral security for the Obligations. Notwithstanding the foregoing, the Grantors shall not be required to pay over to the Administrative Agent or deliver to the Administrative Agent as Collateral any proceeds of any liquidation or dissolution of any Issuer, or any distribution of capital or property in respect of any Investment Property, to the extent that (i) such liquidation, dissolution or distribution, if treated as a Disposition of the relevant Issuer, would be permitted by the Credit Agreement and (ii) the proceeds thereof are applied toward prepayment of Loans and reduction of Commitments to the extent required by the Credit Agreement.

        (b)     Without the prior written consent of the Administrative Agent, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, unless such securities are delivered to the Administrative Agent, concurrently with the issuance thereof, to be held by the Administrative Agent as Collateral, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Investment Property or Proceeds thereof (except pursuant to a transaction not prohibited by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for Permitted Liens or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any of the Pledged Securities or Proceeds thereof.

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        (c)     In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, mutatismutandis, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Pledged Securities issued by it.

        (d)     Each Issuer that is a partnership or a limited liability company (i) confirms that none of the terms of any equity interest issued by it provides that such equity interest is a “security” within the meaning of Sections 8-102 and 8-103 of the New York UCC (a “Security”), (ii) agrees that it will take no action to cause or permit any such equity interest to become a Security, (iii) agrees that it will not issue any certificate representing any such equity interest and (iv) agrees that if, notwithstanding the foregoing, any such equity interest shall be or become a Security, such Issuer will (and the Grantor that holds such equity interest hereby instructs such Issuer to) comply with instructions originated by the Administrative Agent for the purposes of implementing or effectuating the provisions of this Agreement, or of more fully perfecting or renewing the rights of the Administrative Agent and the Lenders with respect to such equity interests (or with respect to any additions thereto or replacements or proceeds thereof whether now existing or hereafter acquired), without further consent by such Grantor.

    5.9        Receivables. (a) Other than in the ordinary course of business consistent with its past practice, or otherwise in its best business judgment, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof.

        (b)     Such Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables.

    5.10        Intellectual Property. (a) Such Grantor (either itself or through licensees) will (i) continue to use each material Trademark in each international class for the goods and/or services set forth in its applications or registrations to maintain such Trademark in full force, free from any claim of abandonment for non-use, (ii) maintain the past quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent, for the ratable benefit of the Secured Parties, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not authorized any licensee or sublicensee thereof to) knowingly do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way; unless, in each case, such Grantor, in the exercise of its best business judgment, deems it not commercially reasonable to do so under the circumstances.

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        (b)     Such Grantor (either itself or through licensees) will not knowingly do any act, or knowingly omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public; unless such Grantor, in the exercise of its best business judgment, deems it commercially reasonable to do so under the circumstances.

        (c)     Such Grantor (either itself or through licensees) (i) will not (and will not permit any licensee or sublicensee thereof to) knowingly do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired and (ii) will not knowingly do any act whereby any material portion of the Copyrights may fall into the public domain unless, in each case, such Grantor, in the exercise of its best business judgment, deems it commercially reasonable to do so under the circumstances.

        (d)     Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person.

        (e)     Such Grantor will promptly notify the Administrative Agent and the Lenders in writing if it knows that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor’s ownership of, or the validity of, any material Intellectual Property or such Grantor’s right to register the same or to own and maintain the same.

        (f)     Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Administrative Agent within 30 Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Administrative Agent, such Grantor shall execute, deliver and authorize the recording of any and all agreements, instruments, documents, and papers as the Administrative Agent may request to evidence the Administrative Agent’s and the Secured Parties’ security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby.

        (g)     Such Grantor will, at its own expense, take all steps which such Grantor shall reasonably deem appropriate under the circumstances, which may include any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application relating to any material Intellectual Property (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including filing of applications for renewal, affidavits of use and affidavits of incontestability.

        (h)     In the event that any other Person infringes upon, misappropriates, makes an unauthorized use of or otherwise violates any material Intellectual Property, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns thereof.

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        (i)     Such Grantor shall execute and deliver to the Administrative Agent in form and substance reasonably acceptable to the Administrative Agent and suitable for filing in the United States Patent and Trademark Office, (i) a patent security agreement in the form attached hereto as Annex III for all Patents of such Grantor and (ii) a trademark security agreement in the form attached hereto as Annex IV for all Trademarks of such Grantor.

    5.11        Vehicles. With respect to any Vehicles now owned or hereafter acquired by such Grantor subsequent to the date hereof, within 30 days after the request of the Administrative Agent, all applications for certificates of title or ownership, as applicable, indicating the Administrative Agent’s first priority security interest in the Vehicle covered by such certificate, and any other necessary documentation, shall be filed in each office in each jurisdiction which the Administrative Agent shall deem advisable to perfect its security interests in the Vehicles; provided, that the Grantors shall not be obligated to make such filings to the extent that the aggregate book value or fair market value of all Vehicles owned by all Grantors at such time does not exceed $1,000,000.

    5.12        Commercial Tort Claims. If any Grantor shall at any time commence a suit, action or proceeding with respect to any Commercial Tort Claim held by it with a value which such Grantor reasonably believes to be of $1,000,000 or more, such Grantor shall promptly notify the Administrative Agent thereof in a writing signed by such Grantor and describing the details thereof and shall grant to the Administrative Agent for the benefit of the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Administrative Agent.

SECTION 6. REMEDIAL PROVISIONS

    6.1        Certain Matters Relating to Receivables. (a) The Administrative Agent shall have the right, at any time after the occurrence and during the continuance of an Event of Default, to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may require in connection with such test verifications. At any time and from time to time after the occurrence and during the continuance of an Event of Default, upon the Administrative Agent’s request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Receivables.

        (b)     The Administrative Agent hereby authorizes each Grantor to collect such Grantor’s Receivables, subject to the Administrative Agent’s direction and control after the occurrence and during the continuance of an Event of Default, and the Administrative Agent may curtail or terminate said authority at any time after the occurrence and during the continuance of an Event of Default. If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Administrative Agent if required, in a Collateral Account maintained under the sole dominion and control of the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Secured Parties only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Administrative Agent and the Secured Parties, segregated from other funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit.

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        (c)     At the Administrative Agent’s request, at any time after the occurrence and during the continuation of an Event of Default, each Grantor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including all original orders, invoices and shipping receipts.

        (d)     At any time after the occurrence and during the continuance of an Event of Default, each Grantor will cooperate with the Administrative Agent to establish a system of lockbox accounts, under the sole dominion and control of the Administrative Agent, into which all Receivables shall be paid and from which all collected funds will be transferred to a Collateral Account.

    6.2        Communications with Obligors; Grantors Remain Liable. (a) The Administrative Agent in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables to verify with them to the Administrative Agent’s satisfaction the existence, amount and terms of any Receivables.

        (b)     Upon the request of the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Receivables that the Receivables have been assigned to the Administrative Agent for the ratable benefit of the Secured Parties and that payments in respect thereof shall be made directly to the Administrative Agent.

        (c)     Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Receivables (or any agreement giving rise thereto) to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Administrative Agent nor any Secured Party shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent or any Secured Party of any payment relating thereto, nor shall the Administrative Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times.

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    6.3        Pledged Stock. (a) Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant Grantor of the Administrative Agent’s intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted by the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities; provided, however, that no vote shall be cast or corporate right exercised or other action taken which, in the Administrative Agent’s reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document.

        (b)     If an Event of Default shall occur and be continuing and the Administrative Agent shall give notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in the order set forth in Section 6.5, and (ii) any or all of the Pledged Securities shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Pledged Securities at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it, but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

        (c)     Each Grantor hereby authorizes and instructs each Issuer of any Pledged Securities pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Administrative Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Pledged Securities directly to the Administrative Agent.

    6.4        Proceeds to be Turned Over To Administrative Agent. In addition to the rights of the Administrative Agent and the Secured Parties specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and Instruments shall be held by such Grantor in trust for the Administrative Agent and the Secured Parties, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Administrative Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Administrative Agent, if required). All Proceeds received by the Administrative Agent hereunder shall be held by the Administrative Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Administrative Agent in a Collateral Account (or by such Grantor in trust for the Administrative Agent and the Secured Parties) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5.

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    6.5        Application of Proceeds. At such intervals as may be agreed upon by the Borrower and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent’s election, the Administrative Agent may apply all or any part of Proceeds constituting Collateral, whether or not held in any Collateral Account, and any proceeds of the guarantee set forth in Section 2, in payment of the Obligations in the following order:

        First, to pay incurred and unpaid fees and expenses of the Administrative Agent under the Loan Documents;

        Second, to the Administrative Agent, for application by it towards payment of amounts then due and owing and remaining unpaid in respect of the Obligations, pro rata among the Secured Parties according to the amounts of the Obligations then due and owing and remaining unpaid to the Secured Parties;

        Third, to the Administrative Agent, for application by it towards prepayment of the Obligations, pro rata among the Secured Parties according to the amounts of the Obligations then held by the Secured Parties; and

        Fourth, any balance of such Proceeds remaining after the Obligations shall have been paid in full, no Letters of Credit shall be outstanding and the Commitments shall have terminated shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive the same.

    6.6        Code and Other Remedies. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any Secured Party or elsewhere, subject to applicable law, upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent or any Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Administrative Agent’s request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor’s premises or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6 with respect to any Grantor’s Collateral, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral of such Grantor or in any way relating to the Collateral of such Grantor or the rights of the Administrative Agent and the Secured Parties hereunder with respect thereto, including reasonable attorneys’ fees and disbursements, to the payment in whole or in part of the Obligations of such Grantor, in the order specified in Section 6.5, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including Section 9-615(a)(3) of the New York UCC, need the Administrative Agent account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any Secured Party arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.

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    6.7        Sale of Pledged Stock. (a) Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.

        (b)     Each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Administrative Agent and the Secured Parties, that the Administrative Agent and the Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement.

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    6.8        Deficiency. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the reasonable fees and disbursements of any attorneys employed by the Administrative Agent or any Secured Party to collect such deficiency.

SECTION 7. THE ADMINISTRATIVE AGENT

    7.1        Administrative Agent’s Appointment as Attorney-in-Fact, etc. (a) Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

        (i)     in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable;

        (ii)     in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may request to evidence the Administrative Agent’s and the Secured Parties’ security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby;

        (iii)     pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

        (iv)     execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral;

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        (v)     (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral;(4)  commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral;(6)  settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Administrative Agent’s and the Secured Parties’ security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and

        (vi)     license or sublicense whether on an exclusive or non-exclusive basis, any Intellectual Property for such term and on such conditions and in such manner as the Administrative Agent shall in its sole judgment determine and, in connection therewith, such Grantor hereby grants to the Administrative Agent for the benefit of the Secured Parties a royalty-free, world-wide irrevocable license of its Intellectual Property.

        Anything in this Section 7.1 (a) to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing, and then subject to applicable law.

        (b)     If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement.

        (c)     The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due Revolving Credit Loans that are Base Rate Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand.

        (d)     Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.

    7.2        Duty of Administrative Agent. The Administrative Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Administrative Agent and the Secured Parties hereunder are solely to protect the Administrative Agent’s and the Secured Parties’ interests in the Collateral and shall not impose any duty upon the Administrative Agent or any Secured Party to exercise any such powers. The Administrative Agent and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

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    7.3        Execution of Financing Statements. Pursuant to any applicable law, each Grantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Administrative Agent determines appropriate to perfect the security interests of the Administrative Agent under this Agreement. Each Grantor authorizes the Administrative Agent to use the collateral description “all personal property” or “all assets” in any such financing statements. Each Grantor hereby ratifies and authorizes the filing by the Administrative Agent of any financing statement with respect to the Collateral made prior to the date hereof.

    7.4        Authority of Administrative Agent. Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. Notwithstanding any other provision herein or in any Loan Document, the only duty or responsibility of the Administrative Agent to any Qualified Counterparty under this Agreement is the duty to remit to such Qualified Counterparty any amounts to which it is entitled pursuant to Section 6.5.

SECTION 8. MISCELLANEOUS

    8.1        Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 10.1 of the Credit Agreement. No consent of any Qualified Counterparty shall be required for any waiver, amendment, supplement or other modification to this Agreement.

    8.2        Notices. All notices, requests and demands to or upon the Administrative Agent or any Grantor hereunder shall be effected in the manner provided for in Section 10.2 of the Credit Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1.

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    8.3        No Waiver by Course of Conduct; Cumulative Remedies. Neither the Administrative Agent nor any Secured Party shall by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

    8.4        Enforcement Expenses; Indemnification. (a) Each Guarantor agrees to pay, or reimburse each Secured Party and the Administrative Agent for, all its reasonable costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including the reasonable fees and disbursements of counsel to each Secured Party and of counsel to the Administrative Agent.

        (b)     Each Guarantor agrees to pay, and to save the Administrative Agent and the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

        (c)     Each Guarantor agrees to pay, and to save the Administrative Agent and the Secured Parties harmless from, any and all 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 this Agreement to the extent the Borrower would be required to do so pursuant to Section 10.5 of the Credit Agreement.

        (d)     The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents.

    8.5        Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Administrative Agent and the Secured Parties and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent.

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    8.6        Set-Off. Each Grantor hereby irrevocably authorizes the Administrative Agent and each Secured Party at any time and from time to time pursuant to Section 10.7(b) of the Credit Agreement, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor upon any amount becoming due and payable by a Grantor hereunder or under any other Loan Document (whether at the stated maturity, by acceleration or otherwise) to set-off 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 or owing by the Administrative Agent or such Secured Party to or for the credit or the account of such Grantor, or any part thereof in such amounts as the Administrative Agent or such Secured Party may elect, against and on account of the obligations and liabilities of such Grantor to the Administrative Agent or such Secured Party hereunder and claims of every nature and description of the Administrative Agent or such Secured Party against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as the Administrative Agent or such Secured Party may elect, whether or not the Administrative Agent or any Secured Party has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Administrative Agent and each Secured Party shall notify such Grantor promptly of any such set-off and the application made by the Administrative Agent or such Secured Party of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each Secured Party under this Section are in addition to other rights and remedies (including other rights of set-off) which the Administrative Agent or such Secured Party may have.

    8.7               Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

    8.8        Severability. Any provision of this Agreement which 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.

    8.9        Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

    8.10        Integration. This Agreement and the other Loan Documents represent the agreement of the Grantors, the Administrative Agent and the Secured Parties with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Secured Party relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents.

    8.11        GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

    8.12        Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably and unconditionally:

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        (a)     submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof;

        (b)     consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

        (c)     agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;

        (d)     agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

        (e)     waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

    8.13        Acknowledgements. (a) Each Grantor hereby acknowledges that:

        (b)     it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

        (c)     neither the Administrative Agent nor any Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

        (d)     no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Parties or among the Grantors and the Secured Parties.

    8.14        Additional Grantors. Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to Section 6.10 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex I hereto.

    8.15        Releases. (a) At such time as the Loans, the Reimbursement Obligations and the other Obligations (other than Borrower Hedge Agreement Obligations and Guarantor Hedge Agreement Obligations) shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Administrative Agent shall deliver to such Grantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.

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        (b)     If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Borrower, a Subsidiary Guarantor shall be released from its obligations hereunder in the event that all the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Borrower shall have delivered to the Administrative Agent, at least five Business Days prior to the date of the proposed release, a written request for release identifying the relevant Subsidiary Guarantor and the terms of the sale or other disposition in reasonable detail, including the price thereof in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.

        (c)     No consent of any Qualified Counterparty shall be required for any release of Collateral or Guarantors pursuant to this Section.

    8.16        WAIVER OF JURY TRIAL. EACH GRANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF, EACH AGENT AND EACH SECURED PARTY, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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        IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written.

HANGER ORTHOPEDIC GROUP, INC.,
as Grantor

By:___________________________________
      Name:
      Title:

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DOSTEON SOLUTIONS, LLC
INNOVATIVE NEUROTRONICS, INC.
DOBI-SYMPLEX, INC.
HANGER PROSTHETICS & ORTHOTICS, INC.
SOUTHERN PROSTHETIC SUPPLY, INC.
OPNET, INC.
HANGER SERVICES CORPORATION
LINKIA, LLC
ABI ORTHOTIC/PROSTHETIC LABORATORIES, LTD.
HPO, INC.
EUGENE TEUFEL & SON ORTHOTICS & PROSTHETICS, INC.
REHAB DESIGNS OF AMERICA CORPORATION
THE BRACE SHOP PROSTHETIC ORTHOTIC CENTERS, INC.
GREATER CHESAPEAKE ORTHOTICS & PROSTHETICS, INC.
HANGER PROSTHETICS & ORTHOTICS WEST, INC.
HANGER PROSTHETICS & ORTHOTICS EAST, INC.
CERTIFIED ORTHOTIC & PROSTHETIC ASSOCIATES, INC.
ADVANCED BIO-MECHANICS, INC.
NWPO ASSOCIATES, INC.
REHAB DESIGNS OF COLORADO, INC.
LAURENCE’S ORTHOTICS & PROSTHETICS, INC.
SHASTA ORTHOTIC PROSTHETIC SERVICE, INC.
REHAB DESIGNS OF WISCONSIN, INC.
CONNER BRACE CO., INC.
ELITE CARE, INCORPORATED
FORTITUDE MEDICAL SPECIALISTS, INC.,
as Grantor and Guarantor

By:___________________________________
      Name:
      Title:

34

EX-12

Exhibit 12

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Earnings:
Income from operations	$	15,999	$	15,979	$	26,914	$	27,088
Plus: fixed charges		12,495		11,936		24,617		23,232
		28,494	$	27,915	$	51,531	$	50,320
Fixed charges:
Interest expense (income), net including amortization of debt		9,914		9,400		19,414		18,244
Rent expense		7,744		7,609		15,610		14,964
One-third of rent expense (1)		2,581		2,536		5,203		4,988
		12,495		11,936		24,617		23,232
Ratio of earnings to fixed charges		2.28		2.34		2.09		2.17

(1) Represents the portion of rent expense which our management believes is representative of the interest component of rent expense.

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934

I, Ivan R. Sabel, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Hanger Orthopedic Group, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)         designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)         designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)         evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

d)         disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)         all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 4, 2006	/s/ Ivan R. Sabel
	Ivan R. Sabel, CPO
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934

I, George E. McHenry, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Hanger Orthopedic Group, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)         designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)         designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)         evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

d)         disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)         all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 4, 2006	/s/ George E. McHenry
	George E. McHenry
	Executive Vice President and
	Chief Financial Officer

EX-32

Exhibit 32

Written Statement of the Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer and Chief Financial Officer of Hanger Orthopedic Group, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the three months ended June 30, 2006 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Ivan R. Sabel
Ivan R. Sabel
Chairman and Chief Executive Officer

/s/ George E. McHenry
George E. McHenry
Executive Vice President and
Chief Financial Officer

August 4, 2006