EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
BETWEEN
ST. JUDE MEDICAL, INC.,
AND
VELOCIMED, LLC,
DATED AS OF FEBRUARY 14, 2005
TABLE OF CONTENTS
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STOCK PURCHASE AGREEMENT
------------------------
PAGE
----
RECITALS: 1
ARTICLE I - PURCHASE AND SALE.................................................1
Section 1.1 Purchase and Sale of the Shares....................1
Section 1.2 Holdback Amount....................................2
Section 1.3 Contingent Consideration...........................2
Section 1.4 Further Assurances.................................8
Section 1.5 Closing............................................9
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF BUYER..........................9
Section 2.1 Organization, Standing and Power...................9
Section 2.2 Authority..........................................9
Section 2.3 Consents and Approvals; No Violation..............10
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................11
Section 3.1 Organization, Standing and Power..................11
Section 3.2 Capital Structure.................................12
Section 3.3 Authority.........................................13
Section 3.4 Consents and Approvals; No Violation..............13
Section 3.5 Financial Statements..............................14
Section 3.6 No Default........................................15
Section 3.7 Absence of Certain Changes or Events..............15
Section 3.8 Permits and Compliance............................16
Section 3.9 Tax Matters.......................................18
Section 3.10 Actions and Proceedings...........................19
Section 3.11 Certain Agreements................................19
Section 3.12 ERISA.............................................21
Section 3.13 Compliance with Worker Safety Laws................23
Section 3.14 Products..........................................23
Section 3.15 Labor Matters.....................................23
Section 3.16 Intellectual Property.............................24
Section 3.17 Business Combination..............................28
Section 3.18 Accounts Receivable...............................28
Section 3.19 Inventories.......................................28
Section 3.20 Environmental Matters.............................28
Section 3.21 Suppliers and Distributors........................30
Section 3.22 Insurance.........................................30
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TABLE OF CONTENTS
(CONTINUED)
Page
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Section 3.23 Transactions with Affiliates......................30
Section 3.24 Accuracy of Information...........................31
Section 3.25 Title to and Sufficiency of Assets................31
Section 3.26 Brokers...........................................32
Section 3.27 Controls and Procedures...........................32
Section 3.28 Certain Business Practices........................32
ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS.......................32
Section 4.1 Conduct of Business by the Company Pending
the Closing.......................................32
Section 4.2 Conduct of the Business During the Contingent
Consideration Period..............................37
ARTICLE V - ADDITIONAL AGREEMENTS............................................43
Section 5.1 Access to Information.............................43
Section 5.2 Fees and Expenses.................................44
Section 5.3 No Solicitation or Negotiation....................45
Section 5.4 Cooperation.......................................45
Section 5.5 Intercompany Accounts; Indebtedness...............46
Section 5.6 Intercompany Arrangements.........................46
Section 5.7 Public Announcements..............................47
Section 5.8 Notification of Certain Matters...................47
Section 5.9 Company Option Plans..............................47
Section 5.10 Non Compete Agreement.............................49
Section 5.11 Warrant Agreement.................................49
Section 5.12 Member Agreement..................................49
Section 5.13 Assignment by the Company.........................49
Section 5.14 Invoices Received by the Company after the
Closing...........................................50
ARTICLE VI - INDEMNIFICATION.................................................50
Section 6.1 General Survival..................................50
Section 6.2 Indemnification in General........................51
Section 6.3 Manner of Indemnification.........................52
Section 6.4 Notice of Claims..................................52
Section 6.5 Third-Party Claims................................53
Section 6.6 Waiver of Defenses................................53
Section 6.7 Treatment of Indemnity Payments...................53
Section 6.8 Limits on Indemnification.........................53
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TABLE OF CONTENTS
(CONTINUED)
Page
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ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING............................54
Section 7.1 Conditions to Each Party's Obligation to Effect
the Closing.......................................54
Section 7.2 Conditions to Obligation of the Company to Effect
the Closing.......................................55
Section 7.3 Conditions to Obligations of Buyer and Sub to
Effect the Closing................................55
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER.............................57
Section 8.1 Termination.......................................57
Section 8.2 Effect of Termination.............................58
Section 8.3 Amendment.........................................58
Section 8.4 Waiver............................................58
ARTICLE IX - GENERAL PROVISIONS..............................................59
Section 9.1 Notices...........................................59
Section 9.2 Interpretation....................................60
Section 9.3 Counterparts; Facsimile Signatures................61
Section 9.4 Entire Agreement; No Third-Party Beneficiaries....61
Section 9.5 Governing Law.....................................61
Section 9.6 Dispute Resolution................................61
Section 9.7 Waivers...........................................62
Section 9.8 Assignment........................................63
Section 9.9 Severability......................................63
Section 9.10 Descriptive Headings..............................63
Section 9.11 Defined Terms.....................................63
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LIST OF EXHIBITS
----------------
Exhibit A - Form of Contingent Consideration Confidentiality
Agreement.............................................Section 4.2(d)
Exhibit B - Form of Opinion of General Counsel of Buyer...........Section 7.2(b)
Exhibit C - Form of Opinion of ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP..Section 7.3(c)
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STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement, dated as of February 14, 2005 (this
"Agreement"), is between St. Jude Medical, Inc., a Minnesota corporation
("Buyer") and Velocimed, LLC, a Delaware limited liability company (the
"Company").
RECITALS:
A. The Company owns 100% of the issued and outstanding capital stock of
each of: (i) Velocimed, Inc., a Delaware corporation ("INC"), (ii) Velocimed
PFO, Inc., a Delaware corporation ("PFO"), and (iii) Velocimed DMC, Inc., a
Delaware corporation ("DMC" and together with INC and PFO, collectively the
"Company Subs" and each individually a "Company Sub"). Such capital stock is
herein collectively referred to as the "Shares".
B. The Company wishes to sell to Buyer and Buyer wishes to purchase
from the Company, the Shares.
C. As an essential inducement for Buyer and Sub to enter into this
Agreement, certain employees of the Company have entered into employment
agreements (the "Employment Agreements") and certain consultants of the Company
have entered into consulting agreements concurrently herewith (the "Consulting
Agreements").
D. The parties acknowledge that they have different views on the
potential for future revenues of the Company Products and therefore have agreed
to use the Contingent Consideration that is potentially payable on the terms set
forth herein as a means of agreeing on a value for the Company Subs and their
future revenue potential.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I -
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE OF THE SHARES. Upon the terms and
subject to the conditions hereof, the Company shall sell, assign, transfer,
convey and deliver the Shares to Buyer, free and clear of all Encumbrances, and
Buyer, in reliance on the representations, warranties and covenants of the
Company contained herein, shall purchase the Shares from the Company in exchange
for:
(a) an amount of cash equal to $82,500,000, subject to
adjustment pursuant to Section 4.1(b)(viii), (the "Cash Purchase Price"), plus
(b) future payments of up to an aggregate of $180,000,000 in
cash, upon achievement of certain milestones as set forth in Section 1.3 hereof
(the
"Contingent Consideration" and together with the Cash Purchase Price, the "Total
Consideration").
SECTION 1.2 HOLDBACK AMOUNT. On the Closing Date, Buyer shall
withhold $5,000,000 of the Cash Purchase Price that would have otherwise been
payable to the Company pursuant to the terms of this Agreement (the "Holdback
Amount") to be held by Buyer in accordance with the terms of this Section in
order to satisfy any claims pursuant to Article VI hereof. After full
satisfaction of any claims for Indemnification made in accordance with Article
VI, Buyer shall pay and distribute to the Company the remaining Holdback Amount
plus interest thereon at the rate of 3.5% percent per annum, if any, by the
forty-fifth day following the Holdback Termination Date (subject to any
extension for any pending claims as provided in Article VI).
SECTION 1.3 CONTINGENT CONSIDERATION.
(a) Contingent Consideration Generally.
(i) Contingent Consideration as part of Total
Consideration. The parties acknowledge and agree that the Company's achievement
of certain revenue and product development targets are material factors in
determining the valuation of the Company by Buyer. The Contingent Consideration
payable pursuant to this Section 1.3 does not constitute payment for services,
but rather constitutes part of the Total Consideration and shall be treated as
such for all purposes, including for tax purposes. Payment of the Contingent
Consideration shall be subject to achievement of the revenue targets set forth
in Section 1.3(c) and/or the Premere Approval milestones set forth in Section
1.3(d).
(ii) Forfeited Amounts. Any Contingent Consideration
that is not earned pursuant to this Section 1.3 will be cancelled and deemed
forfeited and retained permanently by Buyer.
(iii) Contingent Consideration Not Transferable. The
Company may not sell, exchange, transfer or otherwise dispose of its right to
receive any portion of the Contingent Consideration. Any purported transfer in
violation of this Section 1.3(a)(iii) shall be null and void and shall not be
recognized.
(iv) Support from Buyer. During the period from the
Closing to the end of the Target Periods (such period, the "Contingent
Consideration Period"), Buyer shall provide support in connection with the
Company Products in accordance with the provisions of Section 4.2 hereof.
(b) Definitions. For purposes of this Agreement:
(i) "Buyer Licensing" means the revenue attributable to
the licensing by Buyer of any Velocimed Intellectual Property calculated in
accordance with the provisions of Section 4.2(c)(iv) hereof.
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(ii) "Company Products" means (A) the Premere Product,
(B) the Proxis Product, and (C) the Venture Product.
(iii) "Contingent Consideration Distribution Date"
means, (A) with respect to any Contingent Consideration due and payable pursuant
to Section 1.3(c), the ninetieth day following the end of the applicable Fiscal
Year, and (B) with respect to any Contingent Consideration due and payable
pursuant to Section 1.3(d), the thirtieth day after Buyer has received written
notice from the FDA of obtaining the Premere Approval.
(iv) "Contingent Consideration Notice" means either a
Revenue Notice or a Premere Approval Notice, as applicable.
(v) "Distal Device" means a device designed for distal
embolic protection unless such device is specifically labeled for carotid use
only.
(vi) "FDA" means the United States Food and Drug
Administration.
(vii) "Fiscal Year" means any of FY 2006, FY 2007, or
FY 2008.
(viii) "FY 2006" means Buyer's 2006 fiscal year.
(ix) "FY 2006 Target" means $30,000,000.
(x) "FY 2007" means Buyer's 2007 fiscal year.
(xi) "FY 2007 Target" means $50,000,000.
(xii) "FY 2008" means Buyer's 2008 fiscal year.
(xiii) "FY 2008 Target" means $70,000,000.
(xix) "Premere Product" means the device designed for
transcatheter closure of a PFO (patent foramen ovale) currently being developed
by the Company Subs, together with all improvements and modifications thereof
that, but for the ownership of any Velocimed Intellectual Property, would
infringe on such Velocimed Intellectual Property.
(xv) "Premere Approval" means the approval for marketing
by the FDA under valid pre-market approval applications in accordance with 21
U.S.C. ss. 360e and 21 C.F.R. Part 814 ("PMA's") of the Premere Product.
(xvi) "Premere First Target Period" means the period
from the Closing until June 30, 2009.
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(xvii) "Premere Second Target Period" means the period
from and including July 1, 2009 to and including December 31, 2009.
(xviii) "Premere Third Target Period" means the period
from and including January 1, 2010 to and including December 31, 2010.
(xix) "Proxis Product" means either or both of the two
devices designed for flow control or embolic protection currently being
developed by the Company Subs, together with all improvements and modifications
thereof that would, but for the ownership of any Velocimed Intellectual
Property, would infringe on such Velocimed Intellectual Property.
(xx) "Revenue" means revenue of Buyer or its
Subsidiaries derived from (A) any of the Company Products, (B) any other product
manufactured or sold by Buyer that, but for the ownership of any Velocimed
Intellectual Property, would infringe on such Velocimed Intellectual Property
(other than a Distal Device), (C) any Distal Device sold by Buyer (calculated in
accordance with Section 4.2(c)(v)), less, in all cases, (X) transportation,
insurance and handling expenses if separately stated on the invoice, (Y) any
credits or allowances granted with respect to such Company Product in the
ordinary course of business to customers, including, without limitation, credits
and allowances on account of price adjustments, returns, discounts, and
charge-backs, and (Z) any sales, excise, value-added, turnover or similar Taxes
and any duties and other governmental charges imposed on the importation, use or
sale of a Company Product; PROVIDED, HOWEVER, that revenue from Bundled Sales or
sales made through distributors in foreign jurisdictions shall be calculated in
accordance with the provisions of Section 4.2(c) hereof, or (D) Buyer Licensing
(calculated in accordance with Section 4.2(c)(iv)).
(xxi) "Target Periods" shall refer to the Premere First
Target Period, the Premere Second Target Period, and the Premere Third Target
Period, collectively, and a "Target Period" shall refer to any one of them
individually.
(xxii) "Velocimed Intellectual Property" means the
Company Registered IP, both in the U.S. and in foreign jurisdictions, except
that that no element of Intellectual Property will be considered Velocimed
Intellectual Property if it is determined to be invalid, provided that any issue
of invalidity must be based upon claims asserted by a third party. In the event
such a third party claim is asserted and the parties cannot agree upon such
determination, such determination solely for purposes of this Agreement shall be
resolved pursuant to Section 9.6 hereof. On the question of validity of
Velocimed Intellectual Property, the arbitrator will be bound by the decision of
any court.
(xxiii) "Venture Product" means the deflectable
intra-vascular catheter currently being developed by the Company Subs, together
with all improvements and modifications thereof that would, but for the
ownership of any Velocimed Intellectual Property, would infringe on such
Velocimed Intellectual Property.
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(c) Revenue-Based Contingent Consideration. The Company
shall become entitled to the applicable Contingent Consideration specified below
upon Buyer's achievement of the Revenue targets set forth below in Section
1.3(c)(i) and (ii) as may be limited by Section 1.3(c)(iii). Any such payments
are referred to herein as "Revenue-Based Contingent Consideration".
(i) Revenue-Based Payments:
(A) An amount equal to 50% of the Revenue in FY 2006
that is in excess of the FY 2006 Target shall become earned in respect of FY
2006.
(B) An amount equal to 50% of the Revenue in FY 2007
that is in excess of the FY 2007 Target shall become earned in respect of FY
2007.
(C) An amount equal to 50% of the Revenue in FY 2008
that is in excess of the FY 2008 Target shall become earned in respect of FY
2008; PROVIDED, HOWEVER, that if an Alternate Payment is determined to be due
and payable, that no Contingent Consideration shall be due and payable pursuant
to this Section 1.3(c)(i)(C) and instead shall be calculated in accordance with
Section 1.3(c)(ii).
(ii) Alternate Payment. If an amount equal to 50% of
Revenue in FY 2008 in excess of $30,000,000 exceeds the sum of (A) all payments
previously made pursuant to Sections 1.3(c)(i)(A) and 1.3(c)(i)(B) plus (B) the
payment that would, but for the operation of this 1.3(c)(ii), be payable
pursuant to Section 1.3(c)(i)(C), then an Alternate Payment shall be earned in
respect of FY 2008 in lieu of any amount that would otherwise be due and payable
pursuant to Section 1.3(c)(i)(C). The "Alternate Payment" shall be in an amount
equal to (X) 50% of Revenue in FY 2008 in excess of $30,000,000, less (Y) the
sum of all payments previously made pursuant to Sections 1.3(c)(i)(A) and
1.3(c)(i)(B).
(iii) Limitations on Revenue-Based Contingent
Consideration. The amount of all payments made pursuant to this Section 1.3(c)
shall not exceed $100,000,000.
(d) Premere Approval-Based Contingent Consideration. The
Company shall become entitled to the applicable Contingent Consideration
specified below upon Buyer's attainment of any of the specified milestones as
follows:
(i) An amount equal to $80,000,000 shall become earned
pursuant to this Section 1.3(d) if the Premere Approval is obtained during the
Premere First Target Period.
(ii) An amount equal to $65,000,000 shall become earned
pursuant to this Section 1.3(d) if the Premere Approval is obtained during the
Premere Second Target Period and an amount equal to $15,000,000 of the
Contingent Consideration shall be cancelled and deemed forfeited by the Company.
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(iii) An amount equal to $50,000,000 shall become earned
pursuant to this Section 1.3(d) if the Premere Approval is obtained during the
Premere Third Target Period and an amount equal to $30,000,000 of the Contingent
Consideration shall be cancelled and deemed forfeited by the Company.
(iv) If the Premere Approval is not achieved prior to
the end of the Premere Third Target Period, then no Contingent Consideration
shall ever become earned or become due and payable with respect to the Premere
Approval and an amount equal to $80,000,000 of the Contingent Consideration
shall be cancelled and deemed forfeited by the Company.
Any Contingent Consideration that becomes due and payable pursuant to this
Section 1.3(d) is referred to herein as "Premere Approval-Based Contingent
Consideration".
(e) Contingent Consideration Distributions; Company
Objections.
(i) Distribution of Contingent Consideration. Subject to
the rights of set-off set forth in Section 1.3(e)(vi) and Article VI, Buyer
shall pay and distribute to the Company the Contingent Consideration to which
the Company is entitled pursuant to Section 1.3(c) or Section 1.3(d), if any, by
the applicable Contingent Consideration Distribution Date.
(ii) Revenue-Based Contingent Consideration Notice.
Within forty-five days after the end of any Fiscal Year, Buyer shall deliver to
the Company a notice (a "Revenue Notice") specifying (A) the amount of Revenue
(listed by product or revenue source) earned in the preceding Fiscal Year, (B)
whether any Contingent Consideration is due and payable pursuant to Section
1.3(c) related to such preceding Fiscal Year, (C) if applicable, any proposed
setoff for Losses in accordance with Section 1.3(e)(vi) or Article VI, and (D)
the net amount, if any, to be distributed to the Company with respect to such
Revenue-Based Contingent Consideration on the relevant Contingent Consideration
Distribution Date, if applicable. Following receipt of the Revenue Notice, the
Company and its advisors shall have the right to review the accounting and
financial records reflecting unit sales by Company Product and unit sales by
country that comprise the basis for the Revenue determination and to meet and
discuss such Revenue determination with the persons who prepared the Revenue
Notice. Buyer shall provide such records to the Company within 5 days of any
written request by the Company for such records and shall arrange for such a
meeting with the persons who prepared the Revenue Notice within 10 days of any
written request therefor.
(iii) Premere Approval-Based Contingent Consideration
Notice. Within ten days after Buyer has received written notice from the FDA of
obtaining the Premere Approval, Buyer shall deliver to the Company a notice (the
"Premere Approval Notice") specifying (A) the amount of Contingent Consideration
due and payable pursuant to Section 1.3(d), (B) if applicable, any proposed
setoff for Losses in accordance with Section 1.3(e)(vi) or Article VI, and (C)
the net amount, if any, to be
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distributed to the Company with respect to the Premere Approval on the relevant
Contingent Consideration Distribution Date.
(iv) Company Objection. The Company shall have thirty
days after the giving of any Contingent Consideration Notice to make an
objection (in writing) to any item in a Contingent Consideration Notice,
specifying in reasonable detail the item objected to and the basis for such
objection (the "Notice of Objection"). If a timely Notice of Objection is not
received or to the extent an item is not objected to in the Notice of Objection,
the Contingent Consideration Notice and the portion of the Contingent
Consideration to be paid shall be deemed to have been accepted and final and
binding on the parties, absent manifest error. If the Company delivers a timely
Notice of Objection to the Contingent Consideration Notice, Buyer and the
Company shall resolve such conflict in accordance with the procedures set forth
in Section 1.3(e)(v). The Company may also, within such thirty-day period,
provide Buyer with a written request that an audit be performed with regard to
the calculation of the Revenue in the Revenue Notice. If the Company requests
such an audit, the Company will be permitted to engage an independent auditing
firm of national standing, with no conflict of interest with Buyer, to conduct
an audit of the Revenue calculation, provided that such audit firm enters into a
customary form of confidentiality agreement with Buyer with respect to the
information furnished to them in such audit. The Company will pay for the costs
and expenses of such audit, provided, however, that if the amount of
Revenue-based Contingent Consideration ultimately determined hereunder to be due
exceeds the amount thereof set forth in the Revenue Notice by more than 5% of
the amount ultimately determined to be due, the Buyer will reimburse the Company
for the reasonable costs and expenses of such audit. In the event of any dispute
related to the amount of Contingent Consideration payable, Buyer will remit the
amount due promptly following the resolution of any such dispute.
(v) Resolution of Objection. If the Company shall have
provided a Notice of Objection, the Company and Buyer will attempt in good faith
to agree upon the rights of the respective parties with respect to each of such
claims. If the Company and Buyer should so agree, a memorandum setting forth
such agreement will be prepared and signed by Buyer and the Company, and Buyer
will retain or distribute Contingent Consideration as provided therein. In the
event the parties shall fail to reach an agreement as set forth in the preceding
sentence within thirty days after the date on which the Company provided a
Notice of Objection, the dispute shall be submitted to arbitration in accordance
with the provisions of Section 9.6; PROVIDED, HOWEVER, that if such dispute
relates solely to accounting matters related to the calculation of Revenue, then
such dispute shall be submitted for resolution to the Minneapolis/St. ▇▇▇▇
office of an impartial certified public accountant of national standing (the
"Auditor") selected by the Company and Buyer. The Company and Buyer shall use
reasonable efforts to cause the report of the Auditor to be rendered within
thirty days of its appointment and the Auditor's determination as to the
resolution of all such disputed objections will be final and binding. The
Auditor will determine which party is the substantially prevailing party, and
any and all costs and expenses associated with the Auditor's review and
determination or the related audit shall be borne by the party that is not the
substantially prevailing party.
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(vi) Intellectual Property Setoffs. In addition to
claims for Losses pursuant to Article VI hereof, Buyer shall be permitted to
reduce any Contingent Consideration that becomes earned, due and payable by an
amount equal to 50% of any Intellectual Property Losses. "Intellectual Property
Losses" means any Losses incurred in connection with claims made by third
parties related to Intellectual Property and the Company Products, including
payments of royalties or license fees and including any amounts incurred or paid
pursuant to Section 6.2(b) in respect of Intellectual Property; PROVIDED,
HOWEVER, that
(A) for purposes of this Section 1.3(e)(vi), Losses
shall not include claims arising out of the Company's dispute with Formacoat
referenced in Section 3.10 of the Company Letter, and
(B) to the extent there are Losses to be setoff under
this Section 1.3(e)(vi) related to Patents issued to unrelated third parties
that have an issue date after the Closing Date (a "Post Closing Patent"), the
unused Deductible set forth in Section 6.8(c) shall apply to any such Losses so
that Buyer shall not be entitled to any setoff pursuant to this Section
1.3(e)(vi) for a Loss related to a Post Closing Patent until the Deductible has
been satisfied (whether by Losses indemnified under Article VI or by application
of setoffs under this Section 1.3(e)(vi)). For purposes of Article VI, any such
Losses that would be setoff under this section 1.3(e)(vi) but for the foregoing
limitation shall be included in the calculation of the Deductible under Article
VI regardless of whether indemnification would otherwise be available for such
setoff Losses in accordance with Article VI. For purposes of clarification and
by way of example only, if Buyer incurs a Loss related to a Post Closing Patent
in the amount of $1,000,000 and no other Losses have been claimed against the
Deductible, then $500,000 of such Loss will be attributed to the Deductible. If
Buyer thereafter incurs a second Loss related to a Post Closing Patent in the
amount of $1,000,000, then $175,000 of such second Loss will be attributable to
the Deductible and Buyer will be entitled to reduce any Contingent Consideration
that becomes due and payable by $325,000. Except for the foregoing application
of the Deductible to Losses related to Post Closing Patents, no provisions of
Article VI shall apply to Losses to be setoff under this Section 1.3(e)(vi), it
being the intention that Losses may be offset under this Section 1.3(e)(vi)
regardless of whether indemnification would be available under Article VI for
breach of a representation or warranty, both before and after expiration of the
Holdback Termination Date, and without regard to the limits set forth in the
last sentence of Section 6.8(c).
SECTION 1.4 FURTHER ASSURANCES. If at any time after the Closing
Buyer shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (a) to
vest, perfect or confirm, of record or otherwise, in Buyer its right, title or
interest in, to or under any of the Shares or any of the rights, privileges,
powers, franchises, properties or assets of the Company Subs, (b) to vest,
perfect, assign, or otherwise transfer to Buyer any right, contract, interest,
or asset (other than cash or cash equivalents) owned, held or licensed by the
Company that are necessary or desirable for the development, use, manufacture,
marketing, distribution or sale of the Company Products, or (c) otherwise to
carry out the purposes of this Agreement, Buyer and its proper officers and
directors or
8
their designees shall be authorized to execute and deliver, in the name and on
behalf of the Company, all such deeds, bills of sale, assignments and assurances
and to do, in the name and on behalf of the Company, all such other acts and
things as may be necessary, desirable or proper to vest, perfect or confirm
Buyer's right, title or interest in, to or under the Shares or right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of any Company Sub and otherwise to carry out the purposes
of this Agreement.
SECTION 1.5 CLOSING.
(a) The closing of the transactions contemplated by
this Agreement (the "Closing") and all actions specified in this Agreement to
occur at the Closing shall take place at the offices of Buyer at 10:00 a.m.
local time, no later than the second business day following the day on which the
last of the conditions set forth in Article VII shall have been fulfilled or
waived (if permissible) (the "Closing Date") or at such other time and place as
Buyer and the Company shall agree.
(b) At the Closing:
(i) Buyer shall deliver to the Company, by wire
transfer to a bank account designated in writing by the Company to Buyer at
least two business days prior to the Closing Date, an amount equal to the Cash
Purchase Price less the Holdback Amount in immediately available funds in United
States dollars, and
(ii) the Company shall deliver or cause to be
delivered to Buyer certificates representing the Shares, duly endorsed in blank
or accompanied by stock powers duly endorsed in blank in proper form for
transfer with appropriate transfer stamps, if any, affixed.
ARTICLE II -
REPRESENTATIONS AND WARRANTIES
------------------------------
OF BUYER
--------
Buyer represents and warrants to the Company as follows:
SECTION 2.1 ORGANIZATION, STANDING AND POWER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota and has the requisite corporate power and authority to carry
on its business as now being conducted. Buyer is duly qualified to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on Buyer.
SECTION 2.2 AUTHORITY. On or prior to the date of this Agreement,
the Board of Directors of Buyer has approved and adopted this Agreement in
accordance with the Minnesota Business Corporation Act. Buyer has all requisite
corporate power and authority to enter into this Agreement and to consummate the
9
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
have been duly authorized by all necessary corporate action (including all Board
action) on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer, and (assuming the valid authorization, execution and
delivery of this Agreement by the Company) this Agreement constitutes the valid
and binding obligation of Buyer enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity, whether such proceeding is considered in equity or
at law.
SECTION 2.3 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.3 have been obtained and all filings and obligations described in this Section
2.3 have been made, the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or result in the
loss of a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Buyer under, any provision of (a) the Articles of
Incorporation or the By-laws of Buyer, each as amended to date, (b) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Buyer or any
of its Subsidiaries, or (c) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Buyer or any of its properties or
assets, other than, in the case of clauses (b) or (c), any such violations,
defaults, rights, losses, Liens that, individually or in the aggregate, would
not materially impair the ability of Buyer to perform its obligations hereunder
or prevent the consummation of any of the transactions contemplated hereby or
thereby. No filing or registration with, or authorization, consent or approval
of, any domestic (federal and state), foreign or supranational court,
commission, governmental body, regulatory agency, authority or tribunal (a
"Governmental Entity") is required by or with respect to Buyer in connection
with the execution and delivery of this Agreement by Buyer or is necessary for
the consummation of the transactions contemplated by this Agreement, except for
(i) in connection, or in compliance, with the provisions of the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by consummation of the
transactions contemplated by this Agreement, (iii) such filings, authorizations,
orders and approvals as may be required by state takeover laws (the "State
Takeover Approvals"), (iv) any of such items as may be required under foreign
laws, and (v) such other consents, orders, authorizations, registrations,
declarations, approvals and filings the failure of which to be obtained or made
would not, individually or in the aggregate, have a Material Adverse Effect on
Buyer, materially impair the ability of Buyer to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby or thereby. For purposes of this Agreement, "Material Adverse Effect" and
"Material Adverse Change" mean,
10
when used with respect to Buyer, any change or effect that is or could
reasonably be expected (as far as can be foreseen at the time) to be materially
adverse to the business, operations, properties, assets, liabilities, employee
relationships, customer or supplier relationships, earnings or results of
operations, financial projections or forecasts, or the business prospects and
condition of Buyer and its Subsidiaries taken as a whole.
ARTICLE III -
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Each representation and warranty set forth below is qualified by any
exception or disclosures set forth in the letter dated the date hereof and
delivered on the date hereof by the Company to Buyer, which relates to this
Agreement and is designated therein as the Company Letter (the "Company
Letter"), which exceptions specifically reference the Sections to be qualified.
In all other respects, each representation and warranty set out in this Article
III is not qualified in any way whatsoever, will not merge on the Closing, or by
reason of the execution and delivery of any agreement, document or instrument at
the Closing, will remain in force on and after the Closing Date, is given with
the intention that liability is not confined to breaches discovered before
Closing, is separate and independent and is not limited by reference to any
other representation or warranty or any other provision of this Agreement, and
is made and given with the intention of inducing Buyer to enter into this
Agreement. Any item, information or facts disclosed in one section or subsection
of the Company Letter will be deemed to be disclosed in all other sections or
subsections of the Company Letter where such disclosure would be appropriate and
reasonably apparent on its face without any additional information or where
specifically cross referenced. For purposes of this Agreement, the "Company's
Knowledge" or "to the Knowledge of the Company" means the actual knowledge of
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Sew-▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, and, for
purposes of Section 3.20 only, ▇▇▇ ▇▇▇▇▇▇▇. The Company represents and warrants
to Buyer as follows:
SECTION 3.1 ORGANIZATION, STANDING AND POWER.
(a) The Company is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to carry on its business as
now being conducted. The Company is duly qualified to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect on the Company or the Company Subs. The
Company has previously delivered to Buyer accurate and complete copies of the
Certificate of Formation of the Company and the Fourth Amended and Restated
Limited Liability Company Agreement of the Company as currently in full force
and effect (together, the "Company Charter"). There are no other governing or
organizational documents of the Company other than the Company Charter. Except
as listed in Section 3.1 of the Company Letter, there are no agreements between
11
holders of Company Membership Units in their capacity as such. There have been
no predecessor entities of the Company.
(b) Each Company Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to carry on its business as
now being conducted. Each Company Sub is duly qualified to do business, and is
in good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on the Company Subs. The
Company has previously delivered to Buyer accurate and complete copies of the
articles of incorporation and bylaws of each Company Sub. There have been no
predecessor entities of any of the Company Subs.
SECTION 3.2 CAPITAL STRUCTURE.
(a) INC. The authorized capital stock of INC consists
of 1,500,000 shares of Common Stock, of which 1,200,000 shares of Common Stock
are issued and outstanding on the date hereof (the "INC Shares"). The INC Shares
are all duly authorized, validly issued, fully paid and nonassessable.
(b) PFO. The authorized capital stock of PFO consists of
100 shares of Common Stock, of which 100 shares of Common Stock are issued and
outstanding on the date hereof (the "PFO Shares"). The PFO Shares are all duly
authorized, validly issued, fully paid and nonassessable.
(c) DMC. The authorized capital stock of DMC consists of
100 shares of Common Stock, of which 100 shares of Common Stock are issued and
outstanding on the date hereof (the "DMC Shares"). The DMC Shares are all duly
authorized, validly issued, fully paid and nonassessable.
(d) Subsidiaries. Other than INC, PFO and DMC, the
Company has no Subsidiaries.
(e) The Shares. The INC Shares, the PFO Shares and the
DMC Shares constitute all of the shares of capital stock that comprise the
Shares. The Company is the record and beneficial owner of the Shares, free and
clear of any Encumbrance. The Company has the right, authority and power to
sell, assign and transfer the Shares to Buyer. Upon delivery to Buyer of
certificates for the Shares at the Closing, the Buyer shall acquire good, valid
and marketable title to the Shares, free and clear of any Encumbrance other than
Encumbrances created by Buyer. Other than the Shares, no Company Sub has issued
or agreed to issue any: (i) share of capital stock or other equity or ownership
interest, (ii) option, warrant or interest convertible into, exchangeable for or
exercisable for shares of capital stock or other equity or ownership interests,
(iii) stock appreciation right, phantom stock, interest in the ownership or
earnings of any Company Sub or other equity equivalent or equity-based award or
right; or (iv) bond, debenture or other indebtedness having the right to vote or
convertible or
12
exchangeable for securities having the right to vote. Except for the rights
granted to Buyer under this Agreement, there are no outstanding obligations of
any Company Sub to issue, sell or transfer or repurchase, redeem or otherwise
acquire or that relate to the holding, voting or disposition of or that restrict
the transfer of the Shares. All of the Shares have been offered, sold and
delivered in compliance with all applicable federal and state securities laws.
No Shares have been issued in violation of any rights, agreements, arrangements
or commitments under any provision of Applicable Law, the certificate of
incorporation or bylaws of the relevant Company Sub or any Contract to which the
Company or any Company Sub is a party or by which any of them are bound.
(f) Except for the Shares, neither the Company nor any
Company Sub owns any equity, partnership, membership or similar interest in, or
any interest convertible into or exchangeable therefor, or is under any current
or prospective obligation to form or participate in, provide funds to, make any
loan, capital contribution or other investment in or assume or guarantee any
liability or obligation of, any Person.
SECTION 3.3 AUTHORITY. The Company has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary action on the part of the Company,
including approval of this agreement by a majority of the holders of membership
units of the Company (the "Company Membership Units"). No further approval of
the holders of Company Membership Units is required in connection with the
consummation of the transactions contemplated by this Agreement. This Agreement
has been duly and validly executed and delivered by the Company and (assuming
the valid authorization, execution and delivery of this Agreement by Buyer and
the validity and binding effect of the Agreement on Buyer) constitutes the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity, whether such proceeding is
considered in equity or at law.
SECTION 3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as set
forth in Section 3.4 of the Company Letter, assuming that all consents,
approvals, authorizations and other actions described in this Section 3.4 have
been obtained and all filings and obligations described in this Section 3.4 have
been made and any waiting periods thereunder have terminated or expired, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof and
thereof will not, result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give to others a right of termination,
cancellation or acceleration of any obligation or result in the loss of a
benefit under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties or assets of the Company or any of its
Subsidiaries under, any provision of (a) the Company Charter, (b) any provision
of comparable charter or organizational documents of any of the Company Subs,
(c) any Material Contract, or (d)
13
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any Company Sub or any of their respective
properties or assets. No filing or registration with, or authorization, consent
or approval of, any Governmental Entity is required by or with respect to the
Company or any of its Subsidiaries in connection with the execution and delivery
of this Agreement by the Company or is necessary for the consummation of the
transactions contemplated by this Agreement, except for (i) in connection, or in
compliance, with the provisions of the HSR Act, (ii) such filings and consents
as may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
consummation of the transactions contemplated by this Agreement, and (iii) any
of such items as may be required under foreign laws.
SECTION 3.5 FINANCIAL STATEMENTS.
(a) The Company has furnished Buyer with copies of the
following (collectively, the "Financial Statements"): (i) an audited
consolidated balance sheet of the Company as of December 31, 2003, (ii) an
unaudited consolidated balance sheet for the Company as of September 30, 2004,
and (iii) the related statements of income and of changes in financial position
for such periods. The balance sheet of the Company as of September 30, 2004 is
referred to herein as the "Company Balance Sheet" and the date thereof is
referred to herein as the "Company Balance Sheet Date". The Financial Statements
are included as Section 3.5 of the Company Letter.
(b) The Financial Statements: (i) are correct and
complete in all material respects and have been prepared in accordance with the
books and records of the Company and the Company Subs; (ii) have been prepared
in accordance with GAAP consistently applied throughout the periods covered,
except as noted in the Financial Statements and except with respect to the
Financial Statements as of and for the period ended September 30, 2004, which do
not include all information and footnotes required by GAAP and do not reflect
the adjustments set forth in Section 3.5(b) of the Company Letter, but
nevertheless reflect all adjustments (other than those set forth in Section 3.5
of the Company Letter), which are of a normal recurring nature, necessary for a
fair presentation of the Company's financial position and the results of its
operations; (iii) reflect and provide in accordance with GAAP adequate reserves
in respect of all known liabilities of the Company and the Company Subs,
including all known contingent liabilities, as of such dates; (iv) do not
contain any items of a special or nonrecurring income or any other income not
earned in the ordinary course of business except as expressly specified therein;
and (v) present fairly in all material respects the consolidated financial
condition of the Company and the Company Subs at such dates and the consolidated
results of their operations for the fiscal periods then ended.
(c) The Company and each Company Sub keeps books,
records and accounts that, in reasonable detail, accurately and fairly reflect
(i) the transactions and dispositions of assets of such entities and (ii) the
value of inventory calculated in accordance with GAAP.
14
(d) Except as set forth in Section 3.5(d) of the Company
Letter, there are no intra-company amounts payable or accounts receivable
between the Company on the one hand and the Company Subs on the other hand.
(e) Except as reflected or reserved against in the
Financial Statements (which reserves have been established in accordance with
GAAP), or disclosed in the footnotes thereto and except as set forth in Section
3.5(e) of the Company Letter, the Company and its Subsidiaries had no
liabilities (including Tax liabilities) at the Balance Sheet Date, absolute or
contingent, of a type required to be recorded on a balance sheet or disclosed in
the notes thereto under GAAP. As of the date hereof, the Company and the Company
Subs had no indebtedness for borrowed money.
SECTION 3.6 NO DEFAULT. Except as set forth in Section 3.6 of the
Company Letter, neither the Company or any of its Subsidiaries is in breach,
default or violation (and no event has occurred that with notice or the lapse of
time or both would constitute a breach, default or violation) of any term,
condition or provision of (a) its charter or organizational documents, (b) any
Material Contract, (c) any order, writ, injunction, decree, law, statute, rule,
or regulation applicable to the Company or any of its Subsidiaries or any of
their respective properties or assets.
SECTION 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in Section 3.7 of the Company Letter, since the Company Balance Sheet
Date, (a) the Company and its Subsidiaries have not incurred any liability or
obligation (indirect, direct or contingent), or entered into any oral or written
agreement or other transaction, that is not in the ordinary course of business,
(b) the Company and its Subsidiaries have not sustained any loss or interference
with their business or properties from fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance), (c) there has been no change in
the capitalization of the Company except for the issuance of Company Membership
Units pursuant to Company Options, (d) there has been no change in the
capitalization of any of the Company Subs, (e) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
Company Membership Units, (f) there has been no dividend or distribution of any
kind declared, paid or made by any of the Company Subs on the Shares, (g) there
has not been (i) any adoption of a new Company Plan (as hereinafter defined),
(ii) any amendment to a Company Plan increasing benefits thereunder, (iii) any
granting by the Company or any of its Subsidiaries to any executive officer or
other key employee of the Company or any of its Subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with prior
practice or as was required under employment agreements in effect as of the date
of the Company Balance Sheet Date, (iv) any granting by the Company or any of
its Subsidiaries to any such executive officer or other key employee of any
increase in severance or termination agreements in effect as of the Company
Balance Sheet Date, or (v) any entry by the Company or any of its Subsidiaries
into any employment, severance or termination agreement with any such executive
officer or other key employee, (h) there have not been any changes in the amount
or terms of the indebtedness for borrowed money or guarantees of indebtedness
for borrowed money of the Company and its Subsidiaries from the Balance Sheet
Date (including capitalized leases), and (i) there has been no event causing a
Material Adverse Effect on the
15
Company Subs, nor any development that would, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect on the Company
Subs. For purposes of this Agreement, "Material Adverse Change" or "Material
Adverse Effect" mean, when used with respect to the Company or the Company Subs,
any change or effect that is or could reasonably be expected (as far as can be
foreseen at the time) to be materially adverse to the business, operations,
properties, assets, liabilities, employee relationships, customer or supplier
relationships, earnings or results of operations, or the financial condition of
the Company Subs, taken as a whole, other than such changes, effects or
circumstances reasonably attributable to: (i) economic conditions generally in
the United States or foreign economies in any locations where the Company Subs
have operations or sales; (ii) conditions generally affecting the industries in
which the Company Subs participate, provided, with respect to clauses (i) and
(ii) the changes, effects or circumstances do not have a materially
disproportionate effect (relative to other industry participants) on the Company
Subs; (iii) the payment of any amounts due to, or the provision of any other
benefits to, any officers or employees under employment contracts,
non-competition agreements, employee benefit plans, severance arrangements or
other arrangements in existence on the date of this Agreement and disclosed in
the Company Letter; (iv) any action taken by the Company or the Company Subs
with Buyer's express written consent (except that consent to action taken to
respond to a Material Adverse Effect or a Material Adverse Change shall not be
deemed any waiver by Buyer as to the event or circumstance giving rise to such
Material Adverse Effect or Material Change); or (v) the announcement or pendency
of the transactions contemplated by this Agreement to the extent the same causes
cancellation or delay in placing customer orders or potential customer orders.
SECTION 3.8 PERMITS AND COMPLIANCE.
(a) Each of the Company and its Subsidiaries is and at
all times has been in possession of all material franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity necessary for the
Company or any of its Subsidiaries to own, lease and operate its properties or
to carry on its business as it is now being conducted (the "Company Permits"),
and no suspension or cancellation of any of the Company Permits is pending or,
to the Knowledge of the Company or the Company Subs, threatened. Neither the
Company nor any of its Subsidiaries is nor has been in violation in any material
respect of (i) any Company Permits, or (ii) any other Applicable Law, including
any consumer protection, equal opportunity, customs, export control, foreign
trade, foreign corrupt practices (including the Foreign Corrupt Practices Act),
patient confidentiality, health, health care industry regulation and third-party
reimbursement laws including under any Federal Health Care Program (as defined
in Section 1128B(f) of the U.S. Federal Social Security Act (together with all
regulations promulgated thereunder, the "SSA")).
(b) Neither the Company nor any of its Subsidiaries is
subject to any consent decree from any Governmental Entity. Neither the Company
nor any of its Subsidiaries has received any warning letter from the FDA during
the last three years. Neither the Company nor any of its Subsidiaries has
received a communication from any
16
regulatory agency or been notified during the last three years that any product
approval is withdrawn or modified or that such an action is under consideration.
Without limiting the foregoing, the Company and its Subsidiaries are in
compliance, in all material respects, with all current applicable statutes,
rules, regulations, guidelines, policies or orders administered or issued by the
FDA or comparable foreign Governmental Entity including FDA's Quality System
Regulation, 21 CFR Part 820; the Company has no Knowledge of any facts which
furnish any reasonable basis for any Form FDA-483 observations or regulatory or
warning letters from the FDA, Section 305 notices, or other similar
communications from the FDA or comparable foreign entity; and since April 30,
1999, there have been no recalls, field notifications, alerts or seizures
requested or threatened relating to the Company Products, except set forth in
Section 3.8 of the Company Letter. The Company Products, where required, are
being marketed under valid pre market notifications under Section 510 (k) of the
Federal Food, Drug and Cosmetic Act, 21 U.S.C. ss.360(k), and 21 C.F.R. Part
807, Subpart E ("510(k)'s") or PMA's. All 510(k)'s and PMA's for the Company
Products are exclusively owned by the Company Subs, and to the Knowledge of the
Company there is no reason to believe that FDA is considering limiting,
suspending, or revoking any such 510(k)'s or PMA's or changing the marketing
classification or labeling of any such products. To the Knowledge of the
Company, there is no false information or significant omission in any product
application or product-related submission to the FDA or comparable foreign
Governmental Entity. The Company Subs have obtained all necessary regulatory
approvals from any foreign regulatory agencies related to the products
distributed and sold by the Company Subs. Neither the Company, nor its
Subsidiaries, nor any of their respective officers, directors, managing
employees or agents (as those terms are defined in 42 C.F.R. ss.1001.1001): (i)
have engaged in any activities which are prohibited under, or are cause for
civil penalties or mandatory or permissive exclusion from, any Federal Health
Care Program under Sections 1128, 1128A, 1128B, or 1877 of SSA or related state
or local statutes, including knowingly and willfully offering, paying,
soliciting or receiving any remuneration (including any kickback, bribe or
rebate), directly or indirectly, overtly or covertly, in cash or in kind in
return for, or to induce, the purchase, lease, or order, or the arranging for or
recommending of the purchase, lease or order, of any item or service for which
payment may be made in whole or in part under any such program; (ii) have had a
civil monetary penalty assessed against them under Section 1128A of SSA; (iii)
have been excluded from participation under any Federal Health Care Program; or
(iv) have been convicted (as defined in 42 C.F.R. ss. 1001.2) of any of the
categories of offenses described in Sections 1128(a) or 1128(b)(1), (b)(2), or
(b)(3) of SSA.
(c) Except as set forth in Section 3.8(c) of the Company
Letter, there are no contracts or agreements of the Company or its Subsidiaries
having terms or conditions which would have a Material Adverse Effect on the
Company Subs or having covenants not to compete that impair the ability of the
Company or its Subsidiaries to conduct the business of the Company Subs as
currently conducted or would reasonably be expected to impair Buyer's ability to
conduct the business of the Company Subs as it is currently being conducted
(other than as a result of facts or circumstances related solely to Buyer).
17
SECTION 3.9 TAX MATTERS. Except as otherwise set forth in Section
3.9 of the Company Letter, (a) the Company Subs have timely filed (taking
account of extensions to file that have been properly obtained) all Tax Returns
(as hereinafter defined) required to have been filed by them, and such Tax
Returns are correct and complete in all respects; (b) the Company Subs have
timely paid (taking account of extensions to pay that have been properly
obtained) all Taxes (as hereinafter defined) required to have been paid by them
that have been due; (c) the Company Subs have complied in all respects with all
rules and regulations relating to the withholding of Taxes and the remittance of
withheld Taxes; (d) none of the Company Subs has waived any statute of
limitations in respect of their Taxes, which remains open; (e) no federal,
state, local, or foreign audits or administrative proceedings are pending with
regard to any Taxes or Tax Returns of any of the Company Subs and none of the
Company Subs has received a written notice of any proposed audit or proceeding
from the Internal Revenue Service ("IRS") or any other taxing authority; (f)
none of the Company Subs has engaged in any transaction that would constitute a
"reportable transaction" within the meaning of Section 6111 or a "tax shelter"
within the meaning of Section 6662 of the Internal Revenue Code of 1986, as
amended (the "Code") and that has not been disclosed on an applicable Tax
Return; (g) none of the Company Subs has submitted a request for a ruling to the
IRS or any other taxing authority; (h) none of the Company Subs has at any time
changed any of its methods of reporting income or deductions for Tax purposes
from those employed in the preparation of its Tax Returns; (i) none of the
Company Subs has been a member of an affiliated group of corporations (within
the meaning of Section 1504(a)) filing a consolidated federal income tax return
(or a group of corporations filing a consolidated, combined, or unitary income
tax return under comparable provisions of state, local, or foreign tax law) for
any taxable period; (j) none of the Company Subs has any obligation under any
agreement or arrangement with any other Person with respect to Taxes of such
other Person (including pursuant to Treasury Regulations Section 1.1502-6 or
comparable provision of state, local or foreign tax law) including any liability
for Taxes of any predecessor entity; (k) the unpaid Taxes of the Company Subs do
not exceed the reserve for Tax liability (excluding any reserve for deferred
Taxes established to reflect temporary differences between book and Tax income)
set forth or included in the Company Balance Sheet as adjusted for the passage
of time through the Closing Date, and (l) Section 3.9 of the Company Letter sets
forth all jurisdictions outside of the United States in which any of the Company
Subs is subject to Tax, is engaged in business, or has a permanent
establishment. For purposes of this Agreement: (i) "Taxes" means any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, franchise, employment, payroll, withholding, alternative or added
minimum, ad valorem, value-added, transfer, excise, capital, or net worth tax,
or other tax, custom, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest thereon or penalty imposed
with respect thereto by any Governmental Entity, whether computed on a separate,
consolidated, unitary, combined, or any other basis, and shall include any
transferee or secondary liability in respect of any tax (whether imposed by law,
contractual agreement, or otherwise), and (ii) "Tax Return" means any return,
report or similar statement (including the attached schedules) required to be
filed with respect to any Tax, including any information return, claim for
refund, amended return or declaration of estimated Tax.
18
SECTION 3.10 ACTIONS AND PROCEEDINGS. Except as set forth in Section
3.10 of the Company Letter, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or involving
the Company or any of its Subsidiaries, or against or involving any of the
present or former directors, officers, employees, consultants, agents or members
of the Company or any of its Subsidiaries, in their capacities as such, any of
its or their properties, assets or business or any Company Plan (as hereinafter
defined). Except as set forth in Section 3.10 of the Company Letter, there are
no actions, suits or claims or legal, administrative or arbitrative proceedings
or investigations (including claims for workers' compensation) pending or, to
the Knowledge of the Company, threatened against or involving the Company or any
of its Subsidiaries or any of its present or former directors, officers,
employees, consultants, agents or members, in their capacities as such, or any
of the Company's or any Subsidiary's properties, assets or business or any
Company Plan.
SECTION 3.11 CERTAIN AGREEMENTS.
(a) Except as set forth in Section 3.11(a) of the
Company Letter, neither the Company nor any of the Company Subs is a party to
any oral or written agreement, program, plan or other arrangement relating to
the compensation of employees of the Company or the Company Subs, including any
employment agreement, severance agreement, option plan, appreciation rights
plan, restricted membership unit plan or membership unit purchase plan, pension
plan (as defined in Section 3(2) of ERISA) or welfare plan (as defined in
Section 3(1) of ERISA) (collectively the "Compensation Agreements"), any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. Section 3.11(a) of the Company Letter sets forth (i) for each
officer, director or employee who is a party to, or will receive benefits under,
any Compensation Agreement as a result of the transactions contemplated herein,
the total amount that each such Person may receive, or is eligible to receive,
assuming that the transactions contemplated by this Agreement are consummated on
the date hereof, and (ii) the total amount of indebtedness owed to the Company
or the Company Subs from each officer, director or employee of the Company and
the Company Subs.
(b) Set forth in Section 3.11(b) of the Company Letter
is a list of all Material Contracts to which any of the Company Subs is a party
as of the date hereof or to which any of its assets are bound. Prior to the date
hereof, the Company has provided true and complete copies of all such Material
Contracts to Buyer. "Material Contracts" means any of the following contracts,
agreements or arrangements (other than purchase or sales orders entered into in
the ordinary course), whether written or oral, currently in effect:
(i) any contract or commitment that involves a
dollar amount in excess of $50,000 or extends for a period of 12 months or more;
19
(ii) any employment contracts with employees, agents
or consultants;
(iii) any contract with sales or other agents,
brokers, franchisees, distributors or dealers;
(iv) any partnership or joint venture agreement;
(v) any lease or other occupancy or use agreements
related to Real Estate, or any options, rights of first refusal or security or
other interests in Real Estate;
(vi) any agreements giving any party the right to
renegotiate or require a reduction in price or refund of payments previously
made in connection with the business of the Company or its Subsidiaries;
(vii) any agreements for the borrowing or lending of
money with respect to the business of the Company or its Subsidiaries and any
guaranty agreement or other evidence of indebtedness;
(viii) any material agreements that contain any
provisions requiring the Company or any of its Subsidiaries to indemnify any
other party thereto;
(ix) any agreement for the sale of goods or services
to any Governmental Entity;
(x) any agreement granting any Person a Lien (other
than a Permitted Lien) on any of the assets of the Company or any of its
Subsidiaries;
(xi) any bonus, executive or deferred compensation,
profit sharing, pension or retirement, option or membership unit purchase,
hospitalization, insurance, medical reimbursement or other plan, agreement or
arrangement or practice providing employee or executive benefits to any officer
or employee or former officer or former employee;
(xii) any non-competition, secrecy or
confidentiality agreement relating to the business of the Company or its
Subsidiaries or the Assets or any other contract restricting its right to
conduct the business of the Company or its Subsidiaries at any time, in any
manner or at any place in the world, or the expansion thereof to other
geographical areas, customers, suppliers or lines of business; or
(xiii) any license agreement granting to any Company
Sub any right to use or practice any rights under any Intellectual Property
(other than commercially available software applications used generally in the
Company's or Company Subs' operations and that are licensed for a license fee of
no more than $50,000 in the aggregate) and any license agreement under which any
Company Subs grants licenses or other rights in or to use or practice any rights
under any Intellectual Property.
20
(c) Except as set forth on Section 3.11(c) of the
Company Letter, each Material Contract is a legal, valid and binding agreement
of one of the Company Subs, as applicable; no Company Sub (or to the Knowledge
of the Company, any other party thereto) is in default under any Material
Contract in any material respect; and none of such Material Contracts has been
canceled by the other party thereto. Each Material Contract is in full force and
effect and no event has occurred which, with the passage of time or the giving
of notice or both, would constitute a material default, event of default or
other material breach by the applicable Company Sub which would entitle the
other party to such Material Contract to terminate the same or declare a default
or event of default thereunder. The Company and its Subsidiaries are not in
receipt of any claim of default under any such agreement.
SECTION 3.12 ERISA.
(a) Each Company Plan is listed in Section 3.12(a) of
the Company Letter. With respect to each Company Plan, the Company has made
available to Buyer a true and correct copy of (i) the three most recent annual
reports (Form 5500) filed with the applicable government agency, (ii) each such
Company Plan that has been reduced to writing and all amendments thereto, (iii)
each trust agreement, insurance contract or administration agreement relating to
each such Company Plan, (iv) a written summary of each unwritten Company Plan,
(v) the most recent summary plan description or other written explanation of
each Company Plan provided to participants, (vi) the most recent actuarial
report or valuation relating to a Company Plan subject to Title IV of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (vii) the
most recent determination letter or opinion letter and request therefor, if any,
issued by the IRS with respect to any Company Plan intended to be qualified
under section 401(a) of the Code, (viii) any request for a determination
currently pending before the IRS, (ix) all correspondence with the IRS, the
Department of Labor, or Pension Benefit Guaranty Corporation relating to any
outstanding controversy or with respect to any matter that has been resolved in
the previous three years and (x) all forms and certificate samples used to
comply with Sections 4980, 9801 and 9802 of the Code. Except as disclosed in
Section 3.12(a) of the Company Letter, each Company Plan complies in form and
has complied in operation in all respects with ERISA, the Code and all other
Applicable Law. Except as set forth in Section 3.12(a) of the Company Letter, no
"reportable event" (within the meaning of Section 4043 of ERISA) has occurred
with respect to any Company Plan for which the 30-day notice requirement has not
been waived. Except as disclosed in Section 3.12(a) of the Company Letter,
neither the Company nor any Company Sub or ERISA Affiliates (as hereinafter
defined) has ever contributed to or had any obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA). Except as disclosed
in Section 3.12(a) of the Company Letter, no Company Plan is subject to Title IV
of ERISA or Section 412 of the Code, nor does the Company or any ERISA Affiliate
have any liability (contingent or otherwise) pursuant to Title IV of ERISA.
(b) Except as listed in Section 3.12(b) of the
Company Letter and except for routine contributions due and owing, with respect
to the Company Plans, no event has occurred and there exists no condition or set
of circumstances in connection
21
with which the Company, the Company Subs, or ERISA Affiliate or Company Plan
fiduciary could be subject to any material liability under the terms of such
Company Plans, ERISA, the Code or any other Applicable Law. Except as disclosed
in Section 3.12(a) of the Company Letter, all Company Plans that are intended to
be qualified under Section 401(a) of the Code have been determined by the IRS to
be so qualified, or a timely application for such determination is now pending
and the Company is not aware of any reason why any such Company Plan is not so
qualified in operation. Except as disclosed in Section 3.12(b) of the Company
Letter, neither the Company nor any of its ERISA Affiliates has any liability or
obligation under any welfare plan to provide benefits after termination of
employment to any employee or dependent other than as required by Section 4980B
of the Code.
(c) As used herein, (i) "Company Plan" means a "pension
plan" (as defined in Section 3(2) of ERISA (including a multiemployer plan)), a
"welfare plan" (as defined in Section 3(1) of ERISA), and any other written or
oral bonus, profit sharing, deferred compensation, incentive compensation,
membership unit ownership, membership unit purchase, option, phantom unit,
restricted unit, unit appreciation right, holiday pay, vacation, severance,
medical, dental, vision, disability, death benefit, sick leave, fringe benefit,
personnel policy, insurance or other plan, program, agreement, arrangement or
understanding, in each case established or maintained by the Company, the
Company Subs or ERISA Affiliates or as to which the Company or any of its
Subsidiaries or ERISA Affiliates has contributed or otherwise may have any
liability, and (ii) "ERISA Affiliate" means any trade or business (whether or
not incorporated) which would be considered a single employer with the Company
or any Company Sub pursuant to Section 414(b), (c), (m) or (o) of the Code and
the regulations promulgated under those sections or pursuant to Section 4001(b)
of ERISA and the regulations promulgated thereunder.
(d) Section 3.12(d) of the Company Letter contains a
list of all (i) severance and employment agreements with employees of the
Company, the Company Subs and each ERISA Affiliate, (ii) severance programs and
policies of the Company, the Company Subs, and each ERISA Affiliate with or
relating to its employees and (iii) plans, programs, agreements and other
arrangements of the Company, the Company Subs and each ERISA Affiliate with or
relating to its employees containing change of control or similar provisions.
(e) Except as set forth in Section 3.12(e) of the
Company Letter, neither the Company nor any of the Company Subs is a party to
any agreement, contract or arrangement that could result, separately or in the
aggregate, in the payment, acceleration or enhancement of any benefit as a
result of the transactions contemplated hereby including, without limitation,
the payment of any "excess parachute payments" within the meaning of Section
280G of the Code.
(f) Except as disclosed in Section 3.12(a) of the
Company Letter, there is no Company Plan that is subject to the laws of a
foreign government or jurisdiction.
22
SECTION 3.13 COMPLIANCE WITH WORKER SAFETY LAWS. The properties,
assets and operations of the Company and the Company Subs are in material
compliance with all applicable federal, state, local and foreign laws, rules and
regulations, orders, decrees, judgments, permits and licenses relating to public
and worker health and safety (collectively, "Applicable Worker Safety Laws").
With respect to such properties, assets and operations, including any previously
owned, leased or operated properties, assets or operations, there are no past or
present events, conditions, circumstances, activities, practices, incidents,
actions or plans of the Company or any of the Company Subs that may interfere
with or prevent material compliance or continued material compliance with
Applicable Worker Safety Laws.
SECTION 3.14 PRODUCTS.
(a) Since December 31, 1999, neither the Company nor
any of its Subsidiaries has received a claim for or based upon breach of product
or service warranty or guaranty or similar claim, strict liability in tort,
negligent design of product, negligent provision of services or any other
allegation of liability, including or arising from the materials, design,
testing, manufacture, packaging, labeling (including instructions for use), or
sale of its products or from the provision of services; and there is no basis
for any such claim.
(b) The Company has provided in Section 3.14(b) of the
Company Letter a schedule of the Company Subs' products in development and
planned introductions. The product and service engineering, development,
manufacturing and quality control processes which have been and are being
followed by the Company and the Company Subs are reasonably designed to produce
products and services which (i) are consistent with the claims made about them
in the sales brochures and other statements made about them by or on behalf of
the Company or the Company Subs, (ii) comply with applicable regulatory
requirements, and (iii) avoid claims of the type described in Section 3.14(a).
SECTION 3.15 LABOR MATTERS. Neither the Company nor any of the
Company Subs is a party to any collective bargaining agreement or labor
contract, nor, to the Knowledge of the Company, is there any current effort to
organize any employees of the Company or any Company Sub. Neither the Company
nor any Company Sub has engaged in any unfair labor practice with respect to any
persons employed by or otherwise performing services primarily for the Company
or any of the Company Subs (the "Company Business Personnel"), and there is no
unfair labor practice complaint or grievance against the Company or by any
Person pursuant to the National Labor Relations Act or any comparable state
agency or foreign law pending or, to the Knowledge of the Company, threatened in
writing with respect to the Company Business Personnel. There is no labor
strike, slowdown or stoppage pending or, to the Knowledge of the Company,
threatened against or affecting the Company or any Company Sub that may
interfere with the respective business activities of the Company and the Company
Subs. The Company and the Company Subs have complied in all material respects
with all Applicable Laws relating to employment and labor.
23
SECTION 3.16 INTELLECTUAL PROPERTY.
(a) As used herein, the term "Intellectual Property"
means all intellectual property rights arising from or associated with the
following, whether protected, created or arising under the laws of the United
States or any other jurisdiction with respect to the following: (i) trade names,
trademarks and service marks (registered and unregistered), domain names and
other Internet addresses or identifiers, trade dress and similar rights and
applications (including intent to use applications) to register any of the
foregoing (collectively, "Marks"); (ii) patents and patent applications and
rights with respect to utility models or industrial designs (collectively,
"Patents"); (iii) copyrights (whether registered or unregistered) and
registrations and applications therefor (collectively, "Copyrights"); and (iv)
know-how, inventions, discoveries, methods, processes, techniques,
methodologies, formulae, algorithms, technical data, specifications, research
and development information, technology, data bases and other proprietary or
confidential information, including customer lists, in each case that derives
economic value (actual or potential) from not being generally known to other
persons who can obtain economic value from its disclosure, but excluding any
Copyrights or Patents that cover or protect any of the foregoing (collectively,
"Trade Secrets").
(b) Section 3.16(b)(1) of the Company Letter sets forth
an accurate and complete list of all registered Marks and applications for
registration of Marks owned by or exclusively licensed to the Company Subs
(collectively the "Company Registered Marks"), Section 3.16(b)(2) of the Company
Letter sets forth an accurate and complete list of all Patents owned by or
exclusively licensed to the Company Subs (these Patents, as well as divisional,
continuation, continuation-in-part, reissue, reexamination, and any other
applications that claim priority to one or more of the Patents and any Patents
issuing from any such applications, both in the U.S. and in foreign
jurisdictions will be collectively referred to as collectively the "Company
Patents"), and Section 3.16(b)(3) of the Company Letter sets forth an accurate
and complete list of all registered Copyrights and all pending applications for
registration of Copyrights owned by or exclusively licensed to the Company Subs
(collectively the "Company Registered Copyrights" and, together with the Company
Registered Marks and the Company Patents, the "Company Registered IP"). No
Company Registered IP has been or is now involved in any interference, reissue,
reexamination, opposition or cancellation proceeding and, to the Knowledge of
the Company, no such action is or has been threatened with respect to any of the
Company Registered IP. To the Company's Knowledge, all Company Registered IP has
been registered or obtained in accordance with all applicable legal requirements
and is currently in compliance in all material respects with all legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications) other than any requirement that,
if not satisfied, would not result in a cancellation of any such Company
Registered IP or otherwise materially affect the priority, validity and
enforceability of such Company Registered IP. To the Company's Knowledge, the
Company Registered IP is valid, subsisting and enforceable, and no notice or
claim challenging the validity or enforceability or alleging the misuse of any
of the Company Registered IP has been received by the Company or any of its
Subsidiaries. Except as may be set forth in Section 3.16(b) of the Company
Letter and to the Company's Knowledge, (i) neither the
24
Company nor any of its Subsidiaries has taken any action or failed to take any
action that could reasonably be expected to result in the abandonment,
cancellation, forfeiture, relinquishment, invalidation or unenforceability of
any of the Company Registered IP, and (ii) all filing, examination, issuance,
post registration and maintenance fees, annuities and the like associated with
or required with respect to any of the Company Registered IP have been timely
paid.
(c) Trademarks. To the Company's Knowledge, there has
been no prior use of any Company Registered ▇▇▇▇ or any material unregistered
▇▇▇▇ adopted by the Company Subs (collectively, "Company Marks") by any third
party that would confer upon such third party superior rights in such Company
▇▇▇▇. The Company is not aware of any infringement of the Company Marks. To the
Company's Knowledge, all Company Registered Marks have been continuously used by
the Company Subs in the form appearing in, and in connection with, the goods and
services listed in their respective registration certificates and applications
therefor, respectively.
(d) Actions to Protect Trade Secrets. To the Company's
Knowledge, each of the Company Subs has taken reasonable steps to protect its
rights in its Intellectual Property and to maintain the confidentiality of all
information that constitutes or that at any time constituted a Trade Secret of
the Company Subs. Without limiting the generality of the foregoing, all current
and former employees, consultants and contractors of the Company Subs who have
participated in the creation of any Intellectual Property that is used by the
Company Subs in the conduct of their respective businesses have entered into
proprietary information, confidentiality and assignment agreements substantially
in the Company's standard forms.
(e) Ownership. The Company does not own or license any
Intellectual Property. Except as set forth in Section 3.16(e) of the Company
Letter, the Company Subs own exclusively all right, title and interest to the
Company Registered IP and all other Intellectual Property used by the Company
Subs that is not licensed to the Company Subs pursuant to a written license
agreement, free and clear of any Lien or other adverse claims or interests, and
neither the Company nor any of its Subsidiaries has received any written notice
or claim challenging the Company Subs' ownership of any of such Intellectual
Property. None of such Intellectual Property owned by the Company Subs is
subject to any outstanding order, judgment, or stipulation restricting the use
thereof by the Company Subs.
(f) License Agreements. Section 3.16(f)(1) of the
Company Letter sets forth a complete and accurate list of all agreements
granting to the Company Subs any right under or with respect to any Intellectual
Property owned by a third party that is used in connection with the business of
the Company Subs other than commercially available standard desktop software
applications used generally in the Company's or any such Company Subs'
operations and that are licensed for a license fee of no more than $50,000 in
the aggregate (collectively, the "Inbound License Agreements"), indicating for
each the title and the parties thereto. Section 3.16(f)(2) of the Company Letter
sets forth a complete and accurate list of all license agreements under which
any Company Sub grants any rights under any Intellectual Property, excluding
25
non-exclusive, end user licenses granted by the Company Subs in the ordinary
course of business to purchasers of the Company Products in which any software
is embedded. Section 3.16(f)(3) of the Company Letter lists the amount of any
future royalty, license fee or other payments that may become payable by the
Company Subs under each such Inbound License Agreements by reason of the use or
exploitation of the Intellectual Property licensed thereunder. To the Company's
Knowledge, no loss or expiration of any material Intellectual Property licensed
to the Company Subs under any Inbound License Agreement is pending or reasonably
foreseeable or threatened. To the Company's Knowledge, there is no outstanding
or threatened dispute or disagreement with respect to any Inbound License
Agreement or any license agreements under which any Company Subs grants any
rights under any Intellectual Property (collectively, the "Outbound License
Agreements") that could materially affect any of the respective rights and
obligations of the parties thereunder. To the Company's Knowledge, the
execution, delivery and performance by the Company of this Agreement, and the
consummation of the transactions contemplated hereby, will not result in the
loss or impairment of, or give rise to any right of any third party to terminate
or re-price or otherwise modify any of the Company Subs' rights or obligations
under any Inbound License Agreement or any Outbound License Agreement.
(g) Sufficiency of IP Assets. The Intellectual Property
owned by the Company Subs or licensed under the Inbound License Agreements to
the Company Subs constitutes all the material Intellectual Property rights
necessary for the conduct of the businesses of the Company Subs as each is
currently conducted and proposed to be conducted, excluding commercially
available standard desktop software applications used generally in the Company
Subs' operations and that are licensed for a license fee of no more than $50,000
in the aggregate.
(h) No Infringement. Except as set forth in Section
3.16(h) of the Company Letter, to the Company's Knowledge, none of the products
or services distributed, sold or offered by the Company Subs, nor any
technology, materials or other Intellectual Property used, displayed, published,
sold, distributed or otherwise commercially exploited by or for the Company
Subs, has infringed upon, misappropriated, or violated, or does infringe upon,
misappropriate or violate any Intellectual Property of any third party in any
material respect, and no Company Sub has received any notice or claim asserting
that any such infringement, misappropriation or violation is occurring or has
occurred. To the Company's Knowledge, no third party is misappropriating or
infringing any material Intellectual Property owned by the Company Subs in any
material respect.
(i) Software. No source code of any computer software
owned by the Company Subs has been licensed or otherwise provided to another
person other than an escrow agent pursuant to the terms of a source code escrow
agreement in customary form, and to the Company's Knowledge the Company has
taken reasonable steps to protect all such source code as a Trade Secret of one
or more of the Company Subs. Except as disclosed in Section 3.16(i) of the
Company Letter and to the Company's Knowledge, no software embedded in any
Company Products (i) contains any code that is owned by any third party,
including any code that is licensed pursuant to
26
the provisions of any "open source" license agreement, or any other license
agreement that requires source code be distributed or made available in
connection with the distribution of the licensed software in object code form or
that limits the amount of fees that may be charged in connection with
sublicensing or distributing such licensed software (each, an "Open Source
License"). None of the Company Products in which Software is embedded, as a
result of the intermingling or integration of code owned by the Company Subs
with any "open source" software licensed under any Open Source License is, in
whole or in part, subject to the provisions of any Open Source License.
(j) Performance of Existing Products. Each of the
Company Products performs, in all material respects, free of defects or errors
that adversely affect the functionality of such products, the functions
described in any applicable specifications or end user documentation provided to
customers of the Company Subs on which such customers relied when acquiring such
products.
(k) Documentation. To the Company's Knowledge, the
Company and each of its Subsidiaries has taken all actions customary in the
medical device industry to document the Company Products and their operation,
such that the materials comprising the Company Products, including source code
and documentation, have been written in a clear and professional manner.
(l) Export Restrictions. Neither the Company nor any of
its Subsidiaries has exported or transmitted products or other materials to any
country to which such export or transmission is restricted by any applicable
law, without first having obtained all necessary and appropriate United States
or foreign government licenses or permits.
(m) Employee Confidentiality Agreements. To the
Company's Knowledge, no employee of or consultant to the Company or any Company
Sub is obligated under any agreement or subject to any judgment, decree or order
of any court or administrative agency, or any other restriction that would
interfere with the use of his or her best efforts to carry out his or her duties
for the Company or any Company Sub or to promote the interests of the Company
Subs. To the Company's Knowledge, at no time during the conception of or
reduction to practice of any Intellectual Property owned or developed by the
Company Subs was any developer, inventor or other contributor to such
Intellectual Property operating under any grants from any Governmental Authority
or private source, performing research sponsored by any Governmental Authority
or private source or subject to any employment agreement or invention assignment
or nondisclosure agreement or other obligation with any third party that could
adversely affect the Company Subs' rights in such Intellectual Property. To the
Company's Knowledge, there exist no inventions by current and former employees
or consultants of any Company Sub, made or otherwise conceived prior to their
beginning employment or consultation with such Company Sub that have been or
will be incorporated into any of the Company's Intellectual Property or
products.
(n) Intellectual Property Opinions. Set forth in
Section 3.16(n) of the Company Letter is a list of all written opinions of
counsel related to Intellectual
27
Property that the Company or any Company Sub has ever received. A true and
correct copy of each such opinion has been provided to Buyer.
SECTION 3.17 BUSINESS COMBINATION. No "fair price," "interested
shareholder," "business combination" or similar provision of any state takeover
law is applicable to the transactions contemplated by this Agreement.
SECTION 3.18 ACCOUNTS RECEIVABLE. All of the accounts and notes
receivable of the Company Subs set forth on the books and records of the Company
Subs (net of the applicable reserves reflected on the books and records of the
Company and in the Financial Statements) (i) represent sales actually made or
transactions actually effected in the ordinary course of business for goods or
services delivered or rendered to unaffiliated customers in bona fide arm's
length transactions and (ii) except as set forth on Section 3.18(ii) of the
Company Letter, constitute valid claims.
SECTION 3.19 INVENTORIES. Except as set forth in Section 3.19 of the
Company Letter, all inventories of the Company Subs consist of items of
merchantable quality and quantity usable or saleable (free of any material
defect or deficiency) in the ordinary course of business, are saleable at
prevailing market prices that are not less than the book value amounts thereof
or the price customarily charged by the Company Subs therefor, conform to the
specifications established therefor, and have been manufactured in all material
respects in accordance with applicable regulatory requirements. Except as set
forth in Section 3.19 of the Company Letter, the quantities of all inventories,
materials, and supplies of the Company Subs (net of the obsolescence reserves
therefor shown in the Financial Statements and determined in the ordinary course
of business consistent with past practice) are not obsolete, damaged,
slow-moving, defective, or excessive.
SECTION 3.20 ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the following terms
shall have the following meanings: (i) "Hazardous Substances" means (A)
petroleum and petroleum products, by-products or breakdown products, radioactive
materials, asbestos-containing materials and polychlorinated biphenyls, and (B)
any other chemicals, materials or substances regulated as toxic or hazardous or
as a pollutant, contaminant or waste under any applicable Environmental Law;
(ii) "Environmental Law" means any law, past, present or future (up until the
Closing) and as amended, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, or common law, relating to pollution or protection of the environment,
health or safety or natural resources, including those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Substances; and (iii) "Environmental Permit" means any permit,
approval, identification number, license or other authorization required under
any applicable Environmental Law.
(b) The Company and its Subsidiaries are and have been
in material compliance with all applicable Environmental Laws, have obtained all
Environmental Permits and are in material compliance with their requirements,
and have
28
resolved all past non-compliance with Environmental Laws and Environmental
Permits without any pending, on-going or future obligation, cost or liability,
except in each case for the notices set forth in Section 3.20 of the Company
Letter.
(c) Except as set forth in Section 3.20 of the Company
Letter, neither the Company nor any of its Subsidiaries has (i) placed, held,
located, released, transported or disposed of any Hazardous Substances on,
under, from or at any of the Company's or any of its Subsidiaries' properties or
any other properties, (ii) Company Knowledge of any Hazardous Substances on,
under, emanating from, or at any of the Company's or any of its Subsidiaries'
properties or any other property but arising from the Company's or any of its
Subsidiaries' current or former properties or operations, or (iii) Company
Knowledge or any written notice (A) of any violation of or liability under any
Environmental Laws, (B) of the institution or pendency of any suit, action,
claim, proceeding or investigation by any Governmental Entity or any third party
in connection with any such violation or liability, (C) requiring the
investigation of, response to or remediation of Hazardous Substances at or
arising from any of the Company's or any of its Subsidiaries' current or former
properties or operations or any other properties, (D) alleging noncompliance by
the Company or any of its Subsidiaries with the terms of any Environmental
Permit in any manner reasonably likely to require significant expenditures or to
result in liability or (E) demanding payment for response to or remediation of
Hazardous Substances at or arising from any of the Company's or any of its
Subsidiaries' current or former properties or operations or any other
properties, except in each case for the notices set forth in Section 3.20 of the
Company Letter.
(d) There are no environmental assessments or audit
reports or other similar studies or analyses in the possession or control of the
Company or any of its Subsidiaries relating to any real property currently or
formerly owned, leased or occupied by the Company or any of its Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries has
exposed any employee or third party to any Hazardous Substances or condition
that has subjected or may subject the Company or any of its Subsidiaries to
liability under any Environmental Law.
(f) To the Company's Knowledge, no underground storage
tanks, asbestos-containing material, or polychlorinated biphenyls have ever been
located on property or properties presently or formerly owned or operated by the
Company or any of its Subsidiaries.
(g) Except as set forth in Section 3.20 of the Company
Letter, neither the Company nor any of its Subsidiaries has agreed to assume,
undertake or provide indemnification for any liability of any other person under
any Environmental Law, including any obligation for corrective or remedial
action.
(h) Neither the Company nor any of its Subsidiaries is
required to make any capital or other expenditures to comply with any
Environmental Law nor is
29
there any reasonable basis on which any Governmental Entity could take action
that would require such capital or other expenditures.
SECTION 3.21 SUPPLIERS AND DISTRIBUTORS.
(a) Except as set forth in Section 3.21(a) of the
Company Letter, to the Company's Knowledge, neither the Company nor any of its
Subsidiaries has received any notice, oral or written, or has any reason to
believe that any significant supplier, including without limitation any sole
source supplier, will not sell raw materials, supplies, merchandise and other
goods to the Company Subs at any time after the Closing on terms and conditions
substantially similar to those used in its current sales to the Company and its
Subsidiaries, subject only to general and customary price increases, unless
comparable raw materials, supplies, merchandise, or other goods are readily
available from other sources on comparable terms and conditions.
(b) Except as set forth in Section 3.21(b) of the
Company Letter, neither the Company nor any of its Subsidiaries has received any
notice, oral or written, or to the Company's Knowledge has any reason to believe
that any distributors, sales representatives, sales agents, or other third party
sellers, will not sell or market the products or services of the Company or any
of its Subsidiaries at any time after the Closing (without giving effect to the
transactions contemplated hereby) on terms and conditions substantially similar
to those used in the current sales and distribution contracts of the Company and
its Subsidiaries.
SECTION 3.22 INSURANCE. Section 3.22 of the Company Letter contains
a list of all policies of title, property, fire, casualty, liability, life,
business interruption, product liability, sprinkler and water damage, workmen's
compensation, libel and slander, and other forms of insurance of any kind
relating to the business and operations of the Company Subs in each case which
are in force as of the date hereof (the "Insurance Policies"). Except for the
Insurance Policies listed in Section 3.22(a) of the Company Letter, all of the
Insurance Policies are in the name of, in favor of, and for the benefit of, the
Company Subs, rather than the Company. All of the Insurance Policies are
maintained with reputable insurance carriers and provide adequate coverage for
all normal risks incident to the business of the Company Subs and their
respective properties and assets. The Company or one of its Subsidiaries has
made any and all payments required to maintain the Insurance Policies in full
force and effect. The Company and its Subsidiaries have not received notice of
default under any Insurance Policy, and has not received written notice or, to
the Knowledge of the Company, oral notice of any pending or threatened
termination or cancellation, coverage limitation or reduction or premium
increase with respect to any Insurance Policy.
SECTION 3.23 TRANSACTIONS WITH AFFILIATES.
(a) For purposes of this Section 3.23, the term
"Affiliated Person" means (i) any holder of more than 5% of the Company
Membership Units, (ii) any director, officer or senior executive of the Company
or any Subsidiary of the
30
Company, (iii) any member of the immediate family of any of such persons, or
(iv) any Person that is controlled by any of the foregoing.
(b) Except as set forth in Section 3.23(b) of the
Company Letter, since the Company Balance Sheet Date, the Company and its
Subsidiaries have not, in the ordinary course of business or otherwise, (i)
purchased, leased or otherwise acquired any property or assets or obtained any
services from, (ii) sold, leased or otherwise disposed of any property or assets
or provided any services to (except with respect to remuneration for services
rendered in the ordinary course of business as director, officer or employee of
the Company or any of its Subsidiaries), (iii) entered into or modified in any
manner any contract with, or (iv) borrowed any money from, or made or forgiven
any loan or other advance (other than expenses or similar advances made in the
ordinary course of business) to, any Affiliated Person.
(c) Except as set forth in Section 3.23 of the Company
Letter, (i) the contracts of the Company and its Subsidiaries do not include any
obligation or commitment between the Company and any Affiliated Person, (ii) the
assets of the Company and its Subsidiaries do not include any receivable or
other obligation or commitment from an Affiliated Person to the Company or any
Subsidiary and (iii) the liabilities of the Company and its Subsidiaries do not
include any payable or other obligation or commitment from the Company or any
Subsidiary to any Affiliated Person.
(d) No Affiliated Person of any of the Company or any
Subsidiary is a party to any contract with any customer or supplier of the
Company or any Subsidiary that affects in any manner the business, financial
condition or results of operation of the Company or any Subsidiary.
SECTION 3.24 ACCURACY OF INFORMATION. Neither this Agreement nor the
Company Letter contains an untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they are made, not
misleading.
SECTION 3.25 TITLE TO AND SUFFICIENCY OF ASSETS.
(a) As of the date hereof, the Company Subs own, and as
of the Closing the Company Subs will own, good and marketable title to all of
their assets constituting tangible personal property and rights under Material
Contracts (excluding, for purposes of this sentence, assets held under leases
and assets constituting Intellectual Property), free and clear of any and all
mortgages, liens, encumbrances, charges, claims, restrictions, pledges, security
interests or impositions (collectively, "Liens") other than Permitted Liens,
except as set forth in Section 3.25(a) of the Company Letter. Such tangible
assets and rights under Material Contracts, together with all assets held by the
Company Subs under leases, constitute all tangible personal property and rights
under Material Contracts used in the operation of the business as conducted by
the Company Subs, including the development, manufacture, sale and distribution
of the Company Products. The Company is not a party to any Material Contract and
does not own any tangible personal property, or other asset (other than (i) cash
and cash equivalents held by
31
the Company which will be contributed to the Company Subs prior to the Closing
in accordance with Section 4.1(b)(viii) and (ii) the Secured Recourse Promissory
Note and Pledge Agreements executed by holders of Company Options in connection
with the exercise of such Company Options, for which an amount equal to the
aggregate amounts due under such notes will be contributed to the Company Subs
prior to the Closing or offset in accordance with Section 4.1(b)(viii)).
(b) As of the date hereof, the Company and its
Subsidiaries do not own any Real Estate. All Real Estate leases held by the
Company and its Subsidiaries are adequate for the operation of the businesses of
the Company and its Subsidiaries as presently conducted. The leases to all Real
Estate occupied by the Company or its Subsidiaries are listed in Section 3.25(b)
of the Company Letter and are in full force and effect and no event has occurred
which with the passage of time, the giving of notice, or both, would constitute
a material default or event of default by the Company or any Subsidiary or, to
the Knowledge of the Company, any other Person who is a party signatory thereto.
For purposes of this Agreement, "Real Estate" means, with respect to the Company
or any Subsidiary, as applicable, all of the fee, if any, or leasehold ownership
right, title and interest of such Person, in and to all real estate and
improvement owned or leased by any such Person and which is used by any such
Person in connection with the operation of its business.
SECTION 3.26 BROKERS. Except as disclosed in Section 3.26 of the
Company Letter, no broker, investment banker or other Person is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. All such fees or commissions are payable by the
Company (out of the proceeds of the Cash Purchase Price), and not by any of the
Company Subs.
SECTION 3.27 CONTROLS AND PROCEDURES. The officers of the Company
have identified for the Company's auditors any material weaknesses in internal
controls and any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls.
SECTION 3.28 CERTAIN BUSINESS PRACTICES. None of the Company, any of
its Subsidiaries, or to the Company's Knowledge, any directors, officers, agents
or employees of the Company or any of its Subsidiaries has (a) used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses, (b)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)
made any payment in the nature of criminal bribery.
ARTICLE IV -
COVENANTS RELATING TO CONDUCT OF BUSINESS
-----------------------------------------
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING.
Except as expressly permitted by clauses (a)(i) through
32
(xxviii) of this Section 4.1, during the period from the date of this Agreement
through the Closing, the Company and the Company Subs shall carry on their
respective business in the ordinary course of business as currently conducted
and, to the extent consistent therewith, use their respective commercially
reasonable efforts to preserve intact their current businesses organizations,
keep available the services of their respective current officers and employees
and preserve their relationships with customers, suppliers and others having
business dealings with them to the end that the goodwill and ongoing business of
the Company Subs shall be unimpaired at the Closing. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement or as set forth in the Company Letter (with specific reference to
the applicable subsection below), prior to the Closing:
(a) The Company shall not, and shall cause its
Subsidiaries not to, without the prior written consent of Buyer:
(i) (A) declare, set aside or pay any dividends on,
or make any other actual, constructive or deemed distributions in respect of,
any Company Membership Units, or otherwise make any payments to the members of
the Company in their capacity as such, (B) declare, set aside or pay any
dividends on, or make any other actual, constructive or deemed distributions in
respect of, any Shares, or otherwise make any payments to the Company, (C)
split, combine or reclassify any of the Company Membership Units or Shares or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for Company Membership Units or Shares or (D) purchase,
redeem or otherwise acquire any Company Membership Units or the Shares or any
other securities of the Company or the Company Subs or any rights, warrants or
options to acquire any such units or other securities;
(ii) issue, deliver, sell, pledge, dispose of or
otherwise encumber any Company Membership Units or any Shares, any other voting
securities or equity equivalent or any securities convertible into, or any
rights, warrants or options (including options under the Company Option Plans)
to acquire any such Company Membership Units or Shares, voting securities,
equity equivalent or convertible securities, other than the issuance of Company
Membership Units upon the exercise of Company Options outstanding on the date of
this Agreement in accordance with their current terms;
(iii) amend the Company Charter (other than as
contemplated by this Agreement) or the articles or bylaws of any Company Sub;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation, limited
liability company, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets;
33
(v) alter through merger, liquidation,
reorganization, restructuring or any other fashion the corporate structure of
the Company or any Company Sub;
(vi) sell, lease or otherwise dispose of, or agree
to sell, lease or otherwise dispose of, any of its assets, other than sales of
inventory that are in the ordinary course of business consistent with past
practice;
(vii) incur any indebtedness for borrowed money,
guarantee any such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other Person;
(viii) adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization (other than the transactions contemplated by this
Agreement) or otherwise permit its corporate existence, or any of the rights or
franchises or any license, permit or authorization under which the business
operates to be suspended, lapsed or revoked;
(ix) enter into or adopt any, or amend any
existing, severance plan, agreement or arrangement or enter into or amend any
Company Plan, employment, or any consulting agreement (other than as set forth
in the Company Letter);
(x) except as provided in Section 4.1(x) of the
Company Letter, hire additional employees, consultants or other independent
contractors or increase the compensation payable or to become payable to its
directors, officers or employees (except for increases in the ordinary course of
business consistent with past practice in salaries or wages of employees of the
Company or any of its Subsidiaries who are not officers of the Company or any of
its Subsidiaries) or grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director or officer of the
Company or any of its Subsidiaries, or establish, adopt, enter into, or, except
as may be required to comply with Applicable Law, amend in any material respect
or take action to enhance in any material respect or accelerate any rights or
benefits under, any labor, collective bargaining, bonus, profit sharing, thrift,
compensation, option, restricted unit, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee;
(xi) knowingly violate or knowingly fail to perform
any obligation or duty imposed upon it or any Subsidiary by any Applicable Law;
(xii) make any change to accounting policies or
procedures (other than actions required to be taken by generally accepted
accounting principles);
(xiii) prepare or file any Tax Return inconsistent
with its past practice in preparing or filing similar Tax Returns in prior
periods or, on any such Tax Return, take any position, make any election, or
adopt any method that is
34
inconsistent with positions taken, elections made or methods used in preparing
or filing similar Tax Returns in prior periods;
(xiv) fail to file in a timely manner any Tax
Returns (except as to filings for which a proper extension has been obtained)
that become due or fail to pay any Taxes that become due;
(xv) make or rescind any express or deemed election
relating to Taxes or change any of its methods of reporting income or deductions
for Tax purposes;
(xvi) commence any litigation or proceeding with
respect to any material Tax liability or settle or compromise any material Tax
liability or commence any other litigation or proceedings or settle or
compromise any other material claims or litigation;
(xvii) except for sales of inventory in the
ordinary course of business and the hiring of employees in the ordinary course
of business as permitted in subsection (ix), enter into, renew, terminate or
amend any Material Contract; or purchase or lease any real property;
(xviii) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than (A) the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent financial statements (or the notes thereto) of
the Company included in the Financial Statements or incurred in the ordinary
course of business consistent with past practice or (B) the payment, discharge
or satisfaction of any and all amounts owed to Silicon Valley Bank pursuant to
the Loan and Security Agreement between INC and Silicon Valley Bank dated
January 31, 2003, as amended, in accordance with its terms;
(xix) create or form any Subsidiary or make any
other investment in another Person (except for the capital contributions
required by Section 4.1(b)(viii));
(xx) [INTENTIONALLY OMITTED];
(xxi) modify the standard warranty terms for
products sold by the Company or its Subsidiaries or amend or modify any product
warranties in effect as of the date hereof in any manner that is adverse to the
Company or its Subsidiaries;
(xxii) make or authorize any new capital
expenditure or expenditures that individually is in excess of $25,000 or in the
aggregate are in excess of $50,000;
35
(xxiii) allow any of the Company's or any
Subsidiaries' Intellectual Property rights to be disclosed, other than under
appropriate non-disclosure agreements, abandoned, or otherwise become
unavailable to the Company or its Subsidiaries on the same terms and conditions
as such rights were available to the Company or its Subsidiaries as of the date
of this Agreement;
(xiv) sell or license to any third party any of its
Intellectual Property other than non-exclusive licenses in the ordinary course
of business;
(xxv) allow any insurance policy relating to the
Company's or any Subsidiaries' business to be amended or terminated without
replacing such policy without a policy providing at least equal coverage,
insuring comparable risks and issued by an insurance company equivalently rated
to the prior insurance company;
(xxvi) enter into or amend any contract, agreement,
commitment or arrangement with any Affiliated Person;
(xxvii) pay any legal fees, advisory fees, or other
transaction costs incurred in connection with the transactions contemplated by
this Agreement except out of the Cash Purchase Price; or
(xxviii) authorize, recommend, propose or announce
an intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
(b) The Company shall and shall cause its Subsidiaries
to:
(i) maintain their respective assets and properties
(including Intellectual Property) in the ordinary course of business in the
manner historically maintained, reasonable wear and tear, damage by fire and
other casualty excepted;
(ii) promptly repair, restore or replace all assets
and properties in the ordinary course of business consistent with past practice;
(iii) upon any damage, destruction or loss to any
of its assets or properties, apply any and all insurance proceeds, if any,
received with respect thereto to the prompt repair, replacement and restoration
thereof;
(iv) comply with all Applicable Laws;
(v) take all actions necessary to be in compliance
with all Material Contracts and to maintain the effectiveness of all Company
Permits;
(vi) notify Buyer in writing of the commencement of
any action, suit, claim, investigation or other like proceeding by or against
the Company or any of its Subsidiaries;
36
(vii) pay accounts payable and pursue collection of
its accounts receivable in the ordinary course of business, consistent with past
practices; and
(viii) contribute to the Company Subs, on or before
the Closing Date (A) all of the cash and cash equivalents held by the Company on
the date hereof, (B) any and all cash amounts received by the Company in
connection with the exercise of Company Options, (C) cash in an amount equal to
any and all amounts payable to the Company under any promissory note or other
evidence of indebtedness held by the Company in connection with the exercise of
Company Options that have not been repaid prior to the Closing, and (D) an
amount equal to the aggregate amount owing from the Company to any Company Sub
in connection with any obligations outstanding between them. To the extent the
Company has not contributed the funds to the Company Subs as set forth in the
preceding clause, Buyer may offset against the Cash Purchase Price,
dollar-for-dollar, accordingly.
SECTION 4.2 CONDUCT OF THE BUSINESS DURING THE CONTINGENT
CONSIDERATION PERIOD.
(a) In General.
(i) Uncertainties. The parties understand and
acknowledge that there are uncertainties surrounding the business of the Company
and the Company Products, including, but not limited to: (A) the ability to
satisfactorily complete the design of the Company Products, (B) the clinical
safety of the Company Products, (C) market acceptance of the Company Products,
(D) competitive product offerings that may be introduced by third parties, and
(E) Intellectual Property owned by third parties. As a result of such
uncertainties, the parties agree and acknowledge that Buyer must have
flexibility to react to future developments. Buyer is entitled to exercise its
discretion with respect thereto subject, however, to the following provisions.
(ii) No Discontinuance. Prior to the end of FY
2008, Buyer will not withdraw from marketing and sale any Company Product that
is being sold by Buyer unless Buyer determines, in good faith, that a risk to
health, safety or Buyer's reputation exists in connection with the continued
marketing and sale of such Company Product. If Buyer does determine, in good
faith, that such a risk exists with regard to any Company Product, Buyer shall
have no liability to the Company or its members as a result of any impact such
decision, in and of itself, may have on the earning of any Contingent
Consideration.
(iii) Employment Decisions. All employment,
personnel and staffing decisions related to the Company Products shall be in the
sole discretion of Buyer. Buyer shall have no liability to the Company or its
members as a result of any impact such decision, in and of itself, may have on
the earning of any Contingent Consideration.
(iv) Restructuring and Sale. Buyer may merge all or
any of the Company Subs with or into Buyer or any of its Subsidiaries, including
any
37
merger or other similar reorganization that would result in the termination of
the existence of any Company Sub. Buyer shall be free to sell, assign, transfer
or otherwise dispose of any Company Sub or their respective assets (including a
sale or exclusive license of the Velocimed Intellectual Property related to one
or more of the Company Products) (such sale, a "Permitted Sale"); provided that
a Permitted Sale shall be treated as set forth in Section 4.2(e).
(v) Regulatory Approvals. Buyer shall use
commercially reasonable efforts to obtain regulatory approval for the Company
Products in the United States, Japan and the European Union. However, Buyer
shall have the sole right to determine the type and quantity of data and testing
needed in order to assure the safety and efficacy of the Company Products.
(vi) Competitive Products. Buyer may acquire,
develop, market, manufacture and sell products that are competitive with the
Company Products and the impact such acquisition development, marketing,
manufacturing or sale, in and of itself, may have on the earning of any
Contingent Consideration shall not be the basis of any claim by the Company or
its members; PROVIDED, HOWEVER, that if Buyer sells any such competitive
product, the revenues from such sales will be included in the calculation of
Revenue if, and only if, such competitive product (A) would, but for the
ownership of the Velocimed Intellectual Property, infringe on the Velocimed
Intellectual Property, or (B) is a Distal Device, in which event, as provided in
Section 4.2(c)(v), 50% of such revenue will be included in such Revenue. Buyer
agrees that, in cases where Buyer sells such a competitive product, Buyer will
not discriminate against the Company Products in delivery priorities nor will
Buyer give its sales force or distributors any comparatively higher commissions
or sales incentives on such competitive products relative to commissions and
incentives on sales of the competitive Company Product.
(b) Premere Approval. Buyer shall use commercially
reasonable efforts to obtain the Premere Approval during the Contingent
Consideration Period. Notwithstanding the foregoing or any other provision
herein to the contrary, but subject to Buyer's determinations being subject to a
commercial reasonableness standard, in connection with obtaining the Premere
Approval:
(i) Expenditures. Buyer and the Company acknowledge
and agree that Buyer retains the right, in its sole and absolute discretion, to
determine the nature, manner, timing and amount of each and every expenditure
and business decision related to the Premere Approval.
(ii) Product Safety. Buyer shall have the sole
right to determine the type and quantity of data and testing needed in order to
assure the safety and efficacy of the related products.
(c) Revenue. Buyer shall use commercially reasonable
efforts to develop, distribute, manufacture, market and sell the Company
Products, subject to the provisions set forth in subparagraphs (i)-(v) below.
The parties acknowledge that the nature, timing and extent of such efforts will
vary product by product and that efforts
38
undertaken with one Company Product may not be undertaken with another Company
Product, and agree that such differences shall not be the basis for any claim by
the Company or its members as long as the determinations made by Buyer have a
commercially reasonable basis.
(i) Prices. Buyer shall have absolute discretion in
setting the sales prices for any Company Product and the sales price set by
Buyer for any Company Products shall not provide any cause for any claims by the
Company or its members. Buyer shall be permitted to sell the Company Products
either on a stand-alone basis or in Bundled Sales.
(ii) Distribution. Except in the case of sales in
Japan (for which no increase shall be made), in calculating Revenue for sales
made to a third party distributor, the amount of the transfer price will be
increased by 10% for any sales in Central or South America, and by 15% for sales
in any other foreign country.
(iii) Bundled Sales. In the case of a Bundled Sale,
the gross invoiced price from the sale of the Company Product shall be
determined by first calculating the average selling price for each product
included in the Bundled Sale, in the country of sale, during the one-month
period ending on the day immediately preceding the first day of the accounting
month in which the Bundled Sale occurred. The gross invoiced price from the sale
of the Company Product shall be determined by using the ratio of individual
average selling price to allocate the Bundled Sale's gross invoiced price. For
example, if a Bundled Sale included both the Company Product, whose average
selling price in the country of sale was $1,000, and one Non-Eligible Product
whose average selling price in the country of sale was $2,000, and the Bundled
Sale gross invoiced price was $2,500, then the gross invoiced price from the
sale of the Company Product in connection with the Bundled Sale would be
$833.33. For purposes hereof:
(A) "Bundled Sale" shall mean the sale of
Company Products together with Non-Eligible Products, where the prices of the
separate products are not separately stated.
(B) "Non-Eligible Product" shall mean a
product or service sold by Buyer (or any of its Affiliates) other than a Company
Product.
(iv) Buyer Licensing. Revenue from Buyer Licensing
shall be calculated as follows:
(A) If Buyer has licensed Velocimed
Intellectual Property to a third party licensee (a "Licensee") for use in the
field of cardiology or in any other medical field in which Buyer, during the
preceding fiscal year, had $5,000,000 or more of sales revenue, then the Revenue
attributable to such Buyer Licensing for purposes of Section 1.3(b)(xx) shall
equal the aggregate of the sales price of each unit sold by such Licensee less,
(X) transportation, insurance and handling expenses if separately stated on
Licensee's invoice, (Y) any credits or allowances granted with respect to such
product in the ordinary course of business to Licensee's customers,
39
including, without limitation, credits and allowances on account of price
adjustments, returns, discounts, and charge-backs, and (Z) any sales, excise,
value-added, turnover or similar Taxes and any duties and other governmental
charges imposed on the importation, use or sale of a product; PROVIDED, HOWEVER,
that revenue from Bundled Sales or sales made through distributors in foreign
jurisdictions shall be calculated in accordance with the provisions of Section
4.2(c)(iii) hereof. Buyer will require such Licensee to provide Buyer with
sufficient information in order for Buyer to satisfy its information reporting
requirements hereunder.
(B) If Buyer has licensed Velocimed
Intellectual Property to a Licensee for use in any medical field in which Buyer
had less than $5,000,000 of sales revenue during the preceding fiscal year, then
the Revenue attributable to such Buyer Licensing for purposes of Section
1.3(b)(xx) shall equal the royalty or license payment received by Buyer for such
Velocimed Intellectual Property from such Licensee.
(v) Distal Device Sales. One-half of revenue
derived by Buyer from the sale of a Distal Device shall be included in Revenue
hereunder, without regard to whether such Distal Device constitutes a competing
product with the Company Products or would, but for the ownership of the
Velocimed Intellectual Property, infringe on the Velocimed Intellectual
Property.
(d) Status Reports.
(i) Mid-Year Reports. Subject to the
confidentiality provisions set forth in Section 4.2(d)(ii), within 45 days after
the end of the second fiscal quarter of any Fiscal Year, Buyer shall prepare and
provide to the Company a report (the "Mid-Year Report") which shall set forth
(A) Revenue, listed by Company Product or other revenue source, earned during
the first two fiscal quarters of such Fiscal Year, and (B) a report concerning
the status of the Premere Approval which shall include an update on regulatory
and clinical progress.
(ii) Confidentiality Agreement. The Company shall
execute and deliver the confidentiality agreement attached hereto as EXHIBIT A
(the "Contingent Consideration Confidentiality Agreement"). The Company will not
provide any information contained in the Mid-Year Report, including information
related to the calculation of the Revenue-Based Contingent Consideration or the
status of the Premere Approval, or any other confidential information related to
the Company Products to any Person, including any director or officer of the
Company or any holder of Company Membership Units, unless such Person also
agrees to execute and deliver to Buyer the Contingent Consideration
Confidentiality Agreement. Notwithstanding anything to the contrary provided
herein, no Person (including any director or officer of the Company or any
holder of Company Membership Units) will be entitled to any such confidential
information if such Person is employed by, a director of, or a consultant to any
company engaged in a business that is competitive with the Company Products. All
directors and officers of the Company and all holders of Company Membership
Units who are either ineligible to obtain information as a result of the
immediately preceding sentence or who
40
have not executed a Contingent Consideration Confidentiality Agreement shall be
entitled only to the information provided in the Revenue Notice and the Premere
Approval Notice.
(iii) Meetings. Subject to the provisions of
Section 4.2(d)(ii), if a Mid-Year Report, Premere Approval Notice or Revenue
Notice contains information that is of concern to the Company, the Company shall
have the right, but not the obligation, to have a representative of the Company
meet with a senior business representative of Buyer (the "Buyer Representative")
in order to ask high-level business questions of the Buyer Representative (such
meeting, a "Contingent Consideration Conference"). If the Company shall seek to
convene a Contingent Consideration Conference, the Company shall deliver notice
to Buyer of such request and the parties shall then work in good faith to
arrange for such meeting within 10 days of Buyer's receipt of such notice.
(e) Change in Control of Buyer; Permitted Sales.
(i) Definitions.
(A) "Premere Trigger" means a Change In
Control in which the Acquiring Person is engaged in the manufacture and sale of
a product that is in direct competition with the Premere Product, including an
atrial septal closure device; or
(B) "Proxis Trigger" means a Change In
Control in which the Acquiring Person is engaged in the manufacture and sale of
any Distal Device or any product that is in direct competition with the Proxis
Product.
(C) A "Change In Control" of Buyer shall mean
the occurrence of any of the following: (X) the consummation in any transaction
or series of related transactions of the sale by Buyer of all or substantially
all of the Buyer's assets to another Person, (Y) the consummation of a
transaction or series of related transactions, including a merger or
consolidation with any other Person other than a transaction which results in
the voting securities of the Buyer outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of a surviving entity or its parent) at least fifty
percent of the total voting securities of Buyer or such surviving entity or its
parent outstanding immediately after such transaction or series of transactions,
or (Z) any Person or group becomes the "beneficial owner" (as defined in Rule
13d-3 of the Securities Exchange Act of 1934), directly or indirectly, of voting
securities of Buyer representing fifty percent or more of the total voting power
represented by Buyer's then outstanding voting securities. The person acquiring
such assets or voting securities shall herein be referred to as the "Acquiring
Person".
(ii) Payment on a Premere Trigger or Permitted Sale
of Premere Product.
41
(A) If, prior to December 31, 2008, a Premere
Trigger occurs or Buyer undertakes a Permitted Sale of the Premere Product,
then:
(Y) an amount equal to $100,000,000 less
any Revenue-Based Contingent Consideration payments that have previously been
earned pursuant to Section 1.3(c) shall become earned in lieu of any
Revenue-Based Contingent Consideration payments that would otherwise be earned
pursuant to Section 1.3(c) and 50% of such amount shall be distributed in
accordance with the provisions of Section 1.3(e) following the end of each of
the next two Fiscal Years (unless such Premere Trigger or Permitted Sale occurs
in FY 2008, in which case 100% of such amount shall be distributed following the
end of FY 2008); and
(Z) the Premere Approval shall be deemed
to have been granted during the Target Period in which such Premere Trigger or
Permitted Sale occurs.
(B) If a Premere Trigger or Permitted Sale of
the Premere Product occurs between January 1, 2009 and September 30, 2010, then
the Premere Approval shall be deemed to have been granted during the Target
Period in which such Premere Trigger or Permitted Sale occurs.
(C) In the event Contingent Consideration is
earned pursuant to this Section 4.2(e)(ii), then no further Contingent
Consideration shall ever be earned, and no further amounts shall ever become due
and payable with regard to the Contingent Consideration.
(iii) Payment on a Proxis Trigger. If a Proxis
Trigger occurs prior to December 31, 2008, then an amount equal to $100,000,000
less any Revenue-Based Contingent Consideration payments that have previously
been earned pursuant to Section 1.3(c) shall become earned in lieu of any
Revenue-Based Contingent Consideration payments that would otherwise be earned
pursuant to Section 1.3(c) and 50% of such amount shall be distributed in
accordance with the provisions of Section 1.3(e) following the end of each of
the next two Fiscal Years (unless such Proxis Trigger occurs in FY 2008, in
which case 100% of such amount shall be distributed following the end of FY
2008). In the event Contingent Consideration is earned pursuant to this Section
4.2(e)(iii), then no further Revenue-Based Contingent Consideration shall ever
be earned, and no further amounts shall ever become due and payable with regard
to the Revenue-Based Contingent Consideration.
(iv) Payment on Permitted Sale of the Proxis or
Venture Product.
(A) If, prior to December 31, 2007 or during
FY 2008 if Buyer made a Revenue-Based Contingent Consideration payment for
either FY 2006 or FY 2007, Buyer undertakes a Permitted Sale of the Proxis
Product or the Venture Product, then an amount equal to $100,000,000 less any
Revenue-Based Contingent Consideration payments that have previously been earned
pursuant to Section 1.3(c) shall
42
become earned in lieu of any Revenue-Based Contingent Consideration payments
that would otherwise be earned pursuant to Section 1.3(c) and 50% of such amount
shall be distributed in accordance with the provisions of Section 1.3(e)
following the end of each of the next two Fiscal Years. In the event Contingent
Consideration is earned pursuant to this Section 4.2(e)(iv), then no further
Revenue-Based Contingent Consideration shall ever be earned, and no further
amounts shall ever become due and payable with regard to the Revenue-Based
Contingent Consideration.
(B) If, during FY 2008, Buyer undertakes a
Permitted Sale of the Proxis Product or the Venture Product and Buyer has not
made a Revenue-Based Contingent Consideration payment for either FY 2006 or FY
2007, then no amounts shall become automatically earned. Instead, Revenue for FY
2008 shall include the sales price of each unit of Proxis Product or Venture
Product (as the case may be) sold by the party acquiring such assets, less, (X)
transportation, insurance and handling expenses if separately stated on the
invoice, (Y) any credits or allowances granted with respect to such product in
the ordinary course of business to customers, including, without limitation,
credits and allowances on account of price adjustments, returns, discounts, and
charge-backs, and (Z) any sales, excise, value-added, turnover or similar Taxes
and any duties and other governmental charges imposed on the importation, use or
sale of a product; PROVIDED, HOWEVER, that revenue from Bundled Sales or sales
made through distributors in foreign jurisdictions shall be calculated in
accordance with the provisions of Section 4.2(c) hereof. Buyer will require the
buyer of such assets to provide Buyer with sufficient information in order for
Buyer to satisfy its information reporting requirements hereunder.
(v) Impossibility. Notwithstanding anything to the
contrary herein, if facts and circumstances at the time of a Change In Control
or Permitted Sale exist such that it would be impossible for any further
Revenue-Based Contingent Consideration to become earned, then no Revenue-Based
Contingent Consideration shall become due and payable pursuant to this Section
4.2(e). Similarly and notwithstanding anything to the contrary herein, if facts
and circumstances at the time of a Change In Control or Permitted Sale exist
such that it would be impossible for any Premere Approval-Based Contingent
Consideration to become earned, then no Premere Approval-Based Contingent
Consideration shall become due and payable pursuant to this Section 4.2(e). For
example, and not for purposes of limitation, if clinical trials have shown the
Premere Product to be ineffective and the Premere Approval will therefore not be
forthcoming, then no Contingent Consideration shall ever become due and payable
as a result of the operation of this Section 4.2(e).
ARTICLE V -
ADDITIONAL AGREEMENTS
---------------------
SECTION 5.1 ACCESS TO INFORMATION.
(a) The Company shall, and shall cause each of its
Subsidiaries to, afford to the Buyer and its Subsidiaries and each of their
accountants, counsel, financial advisors and other representatives of Buyer
reasonable access, and permit them
43
to make such inspections as they may reasonably require of, during the period
from the date of this Agreement through the Closing, all of their respective
properties, books, contracts, commitments and records (including engineering
records and Tax Returns and the work papers of independent accountants, if
available and subject to the consent of such independent accountants) and,
during such period, the Company shall, and shall cause each of its Subsidiaries
to, (i) promptly make available to Buyer all personnel of the Company and its
Subsidiaries knowledgeable about matters relevant to such inspections as
reasonably requested by Buyer and (ii) provide reasonable access to the
Company's facilities and operations to enable Buyer to conduct a health and
safety review of the business. No investigation pursuant to this Section 5.1
shall affect the rights of any party with respect to the representations and
warranties in Sections 3.9, 3.16, 3.25(a) or the right of setoff set forth in
Section 1.3(e)(vi) of this Agreement. All information obtained by Buyer pursuant
to this Section 5.1 shall be kept confidential in accordance with the
Confidentiality Agreement, dated January 5, 2004 between Buyer and the Company,
as amended as of August 26, 2004, and the Community of Interest Agreement dated
as of December 27, 2004 by and between Buyer, the Company and the Company Subs
(the "Confidentiality Agreement").
(b) The Company agrees to provide Buyer and its agents
and representatives with reasonable access to its employees during normal
working hours following the date of this Agreement, and after consultation with
the Company to, among other things, deliver offers of continued employment
contingent upon Closing and to provide information to such employees about
Buyer.
(c) On the Closing Date, the Company will deliver or
cause to be delivered to Buyer all original agreements, documents, books and
records and files stored on computer disks or tapes or any other storage medium
in the possession of the Company relating to the business and operations of the
Company and the Company Subs.
(d) After the Closing, at the Company's request and at
no cost to the Company, Buyer shall provide the Company with reasonable access
to such pre-Closing books and records of the Company or the Company Subs as are
in Buyer's possession and as the Company may reasonably require in connection
with any Tax Returns, Tax audits, or other bona fide business requirements.
(e) After the Closing, at Buyer's request and at no
cost to the Company, the Company shall provide Buyer with reasonable access to
such pre-Closing books and records of the Company or the Company Subs as are in
the Company's possession and as Buyer may reasonably require in connection with
any Tax Returns, Tax audits, or other bona fide business requirements.
SECTION 5.2 FEES AND EXPENSES. Whether or not the Closing occurs,
the Company and Buyer, respectively, shall each bear their own costs and
expenses incurred in connection with this Agreement in accordance with its terms
and the transactions contemplated hereby, including the fees and disbursements
of counsel, financial advisors and accountants. The Company will pay all of its
expenses in
44
connection with the transactions contemplated hereby from the Cash Purchase
Price and not from any other cash or other assets of the Company or Company
Subs.
SECTION 5.3 NO SOLICITATION OR NEGOTIATION. Between the date hereof
and the earlier of the termination of this Agreement and the Closing Date, the
Company and the Company Subs will not (nor will the Company or the Company Subs
permit any of their respective officers, directors, employees, agents,
representatives or affiliates to), directly or indirectly, take any of the
following actions with any Person other than Buyer: (i) solicit, initiate,
entertain or encourage any proposals or offers from, or conduct discussions with
or engage in negotiations with any Person relating to any possible acquisition
of the Company or any or all of the Company Subs (whether by way of merger,
purchase of Company Membership Units, purchase of Shares, purchase of assets or
otherwise), any portion of Company Membership Units or any other equity interest
in the Company or any material part of its (tangible or intangible) assets; (ii)
provide information with respect to it to any Person, other than Buyer, relating
to, or otherwise cooperate with, facilitate or encourage any effort or attempt
by any such Person with regard to, any possible acquisition of the Company or
any or all of the Company Subs (whether by way of merger, purchase of Company
Membership Units, purchase of Shares, purchase of assets or otherwise), any
portion of Company Membership Units or any other equity interest in the Company,
purchase of Shares, or any material part of the Company's or any Company Sub's
(tangible or intangible) assets; or (iii) enter into any agreement with any
Person providing for the possible acquisition of the Company or any Company Sub
(whether by way of merger, purchase of Company Membership Units, purchase of
Shares, purchase of assets or otherwise), any portion of Company Membership
Units, purchase of Shares or any other equity interest in the Company or any
Company Sub or any material part of their respective (tangible or intangible)
assets. In the event the Company or any Company Sub receives any communication
from a third party expressing an interest in such a transaction, the Company
will immediately notify Buyer and provide Buyer with a copy of any written
communications and a detailed summary of any oral communications.
SECTION 5.4 COOPERATION.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take or cause to be taken all actions and to do or cause to be done all things
reasonably necessary, proper or advisable under Applicable Law to consummate and
make effective the transactions contemplated by this Agreement and each of the
other Transaction Documents, including using all reasonable efforts to do the
following: (i) cooperate in the preparation and filing of any filings or
notifications that must be made under the HSR Act or otherwise to any
Governmental Entities; (ii) obtain consents of all third parties and
Governmental Entities necessary, proper, advisable or reasonably requested by
Buyer or the Company, for the consummation of the transactions contemplated by
this Agreement; (iii) contest any legal proceeding relating to the transactions
contemplated by this agreement; and (iv) execute any additional instruments
reasonably necessary to consummate the transactions contemplated hereby. The
Company agrees to use all reasonable efforts to encourage the employees of the
Company Subs to accept any offers of employment extended by Buyer.
45
If at any time after the Closing any further action is necessary to carry out
the purposes of this Agreement, the proper officers and directors of each party
hereto shall take all such necessary action.
(b) Buyer and the Company will consult and cooperate
with one another, and consider in good faith the views of one another, in
connection with any analyses, appearances, presentations, letters, white papers,
memoranda, briefs, arguments, opinions or proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
any foreign, federal, or state antitrust, competition, or fair trade law. In
this regard but without limitation, each party hereto shall promptly inform the
other of any material communication between such party and the Federal Trade
Commission, the Antitrust Division of the United States Department of Justice,
or any other federal, foreign or state antitrust or competition Governmental
Entity regarding the transactions contemplated herein.
(c) Notwithstanding any provision of this Agreement or
otherwise, in connection with the compliance by the parties hereto with any
Applicable Law (including the HSR Act and similar merger notification laws or
regulations of any foreign Governmental Entity) and obtaining the consent or
approval of any Governmental Entity whose consent or approval may be required to
consummate the transactions contemplated by this Agreement, Buyer shall not be
required, or be construed to be required, to proffer to, or agree to: (i) sell
or hold separate, or agree to sell or hold separate, before or after the
Closing, any assets, businesses or any interests in any assets or businesses, of
Buyer, the Company, any Company Sub or any of their respective affiliates (or to
consent to any sale, or agreement to sell, by Buyer, the Company or any Company
Sub of any assets or businesses, or any interests in any assets or businesses),
or any change in or restriction on the operation by Buyer, the Company or any
Company Sub of any assets or businesses, (ii) enter into any agreement or be
bound by any obligation that, in Buyer's good faith judgment, would likely have
an adverse effect on the benefits to Buyer of the transactions contemplated by
this Agreement, or (iii) take any other action that, in Buyer's good faith
judgment, would be adverse to Buyer.
SECTION 5.5 INTERCOMPANY ACCOUNTS; INDEBTEDNESS. All intercompany
accounts, payables, receivables, and loans between the Company, on the one hand,
and each Company Sub, on the other hand, shall be eliminated, released,
forgiven, paid or satisfied, or assigned, prior to the Closing, as directed by
Buyer.
SECTION 5.6 INTERCOMPANY ARRANGEMENTS. All intercompany contracts or
arrangements not otherwise described in Section 5.5 that exist between the
Company on the one hand, and the Company Subs on the other hand, shall be
cancelled, assigned, or terminated, immediately prior to the Closing, as
directed by Buyer.
46
SECTION 5.7 PUBLIC ANNOUNCEMENTS. Buyer and the Company will issue a
press release or make another public statement regarding the execution of this
Agreement in a form that been mutually agreed upon by Buyer and the Company, but
will in any event include any information Buyer deems is required by applicable
law or by obligations pursuant to any listing agreement with or rules of any
national securities exchange. The Company will not issue any other press release
with respect to the transactions contemplated by this Agreement or otherwise
issue any verbal or written public statements with respect to such transactions
without prior consultation with and approval of Buyer, except as may be required
by applicable law or by obligations pursuant to any listing agreement with or
rules of any national securities exchange.
SECTION 5.8 NOTIFICATION OF CERTAIN MATTERS. Buyer shall use its
best efforts to give prompt notice to the Company, and the Company shall use its
best efforts to give prompt notice to Buyer, of: (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which it is
aware and which would be reasonably likely to cause (A) any representation or
warranty contained in this Agreement and made by it to be untrue or inaccurate
in any material respect or (B) any covenant, condition or agreement contained in
this Agreement and made by it not to be complied with or satisfied in all
material respects, (ii) any failure of Buyer or the Company, as the case may be,
to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, or (iii) any change
or event which would be reasonably likely to have a Material Adverse Effect on
Buyer or the Company Subs, as the case may be; provided, however, that the
delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 5.9 COMPANY OPTION PLANS.
(a) The Company has taken, or shall take, all requisite
action so that, as of the Closing, each option to purchase Company Membership
Units (each, a "Company Option") that is outstanding immediately prior to the
Closing, whether or not then exercisable or vested, by virtue of the Closing and
without further action on the part of the Company, Buyer or the holder of that
Company Option, shall have been irrevocably exercised or forfeited by the holder
of such Company Option. The Company Subs shall pay the employer portion due, and
shall withhold and remit to the proper taxing authorities prior to the Closing
all applicable federal, state and local income, payroll and other taxes required
to be withheld by the Company with respect to the exercise of Company Options.
(b) The Company shall take all action necessary in
implementing the provisions of this Section 5.9, including amendment of the
Fourth Amended and Restated Limited Liability Company Agreement of the Company
dated August 31, 2004 or the Company Nonqualified Class C Membership Units
Option Plan (effective May 1, 2001) or the related option agreements, to ensure
that, after giving effect to the foregoing, no Company Option shall be
exercisable for Company Membership Units following the Closing. The Company
shall cancel all outstanding and
47
unexercised Company Options and the Company Nonqualified Class C Membership
Units Option Plan (effective May 1, 2001) at the Closing.
(c) The parties acknowledge that the Company Subs shall
report $1.50 per unit as the fair market value of Class C Membership Units for
Company Options exercised prior to the date of this Agreement when computing
compensation income for reporting on IRS Form W-2 or Form 1099 to each holder of
a Company Option. Buyer acknowledges that such valuation determination was made
by the Company's Board of Directors prior to the date of this Agreement.
(d) The Company agrees to indemnify and hold harmless
Buyer and each of the Company Subs from any and all federal, state and local
income tax and payroll tax withholding obligations with respect to exercise of
the Company Options and all payments made or deemed made at any time to holders
of Company Options as a result of the exercise of the Company Option.
(e) Notwithstanding anything herein to the contrary,
Buyer agrees that, unless otherwise required by the IRS or other governmental
agency, no amendment, modification or adjustment will be made with respect to
the Company Board of Directors' determination of the fair market value of
Company Membership Units with respect to any taxable period or portion thereof
ending on or prior to the Closing Date, as such valuation may have been used by
the Company and its employees, officers and directors for purposes of computing
income, wages or gains (and related compensation expense) from the exercise of
outstanding Company Options by any person holding such options. Buyer agrees
that, unless otherwise required by the IRS or other governmental agency, all
related income tax, payroll, wage and income reporting (including Forms W-2 and
1099, if applicable), will be made on a basis consistent with any such
pre-Closing Date valuation by the Company Board of Directors, irrespective of
whether the applicable Tax Returns with respect thereto are filed by Company, a
Company Sub, Buyer or its affiliates.
(f) For any taxable period of the Company Subs
beginning before and ending on or after the Closing Date, Buyer shall timely
prepare and file with the appropriate tax authorities all Tax Returns required
to be filed after the Closing Date. All such Tax Returns shall be prepared on a
basis consistent with past practice unless otherwise required by applicable law.
(g) Each of the Company, the Company Subs and Buyer
shall reasonably cooperate, and shall cause their respective affiliates,
officers, employees, agents, auditors and representatives reasonably to
cooperate, in preparing and filing all Tax Returns, including maintaining and
making available to each other all records necessary in connection with Taxes,
and in resolving all Tax claims with respect to all taxable periods.
48
SECTION 5.10 NON COMPETE AGREEMENT. The Company shall not, directly
or indirectly (including, without limitation, through any existing or future
subsidiary), own, manage, operate, control, enable (whether by license,
sublicense, assignment or otherwise) or otherwise engage or participate in, or
be connected as a shareholder, partner, member, lender, guarantor or advisor of,
or consultant to, any Person that, directly or indirectly, (a) engages in the
research, design, development, testing, distribution, manufacturing or sale of
any product that competes with the Company Products, or (b) engages in the
research, design, development, testing, distribution, manufacturing or sale of
any product that is competitive to products marketed, sold or distributed by
Buyer, a Company Sub, or any of their existing or future direct or indirect
subsidiaries (including partnerships or other entities in which such persons
hold more than 50% of the combined voting power).
SECTION 5.11 WARRANT AGREEMENT. Prior to the Closing, the Company
shall take all requisite action so that the Amended and Restated Warrant to
Purchase Class D Membership Units of the Company issued on January 24, 2003 (the
"Warrant Agreement") shall have been irrevocably exercised, in full, by Silicon
Valley Bancshares and that the registration right provisions thereof shall have
been terminated.
SECTION 5.12 MEMBER AGREEMENT. Prior to the Closing, the Company
shall take all requisite action so that, holders of a number of each class of
the Company Membership Units have executed a Member Agreement, in form and
substance reasonably satisfactory to Buyer, sufficient to effect,
contemporaneously with the Closing, (i) the termination of the Fourth Amended
and Restated Holders Agreement, (ii) the termination of the Second Amended and
Restated Registration Rights Agreement, (iii) the amendment of the Fourth
Amended and Restated Limited Liability Company Agreement of the Company as
contemplated herein, (iv) the implementation of provisions of Section 5.9 of
this Agreement regarding the treatment of options to acquire Company Membership
Units, (v) the prohibition of any transfer of the Company Membership Units other
than by operation of law in the case of the death of an individual or the
dissolution of an entity, and (vi) the prohibition of the Company from incurring
any indebtedness or engaging in any business activity other than the
distribution and management of Contingent Consideration or the monitoring and
enforcement of the Company's rights hereunder (such agreement, the "Member
Agreement").
SECTION 5.13 ASSIGNMENT BY THE COMPANY. Prior to the Closing, the
Company will assign to the Company Subs, in form and substance acceptable to the
Buyer (a) all of any interest the Company has under any Material Contract to
which it is a party, including the Material Contracts referenced in Section 3.25
of the Company Letter and the non-disclosure agreements referenced in the
Agreement dated June 25, 2003 by and among the Company, INC, PFO and DMC
(relating to the enforcement of non-disclosure agreements), and (b) all right,
title and interest in any Intellectual Property held or licensed by the Company.
The Buyer may not require that any terms of such assignments expand or enlarge
the representations and warranties of the Company set forth in this Agreement
with respect to the matter being assigned.
49
SECTION 5.14 INVOICES RECEIVED BY THE COMPANY AFTER THE CLOSING. The
Company shall deliver to Buyer at the Closing a schedule setting out a good
faith estimate of all invoices (by amount and by vendor) that are anticipated to
be rendered to the Company after the Closing Date for bona fide expenses
incurred on or prior to the Closing Date for the benefit of the business carried
on by the Company Subs, where the relevant product or service has been or will
be delivered or furnished to the Company Subs (excluding in any case legal fees,
advisory fees, or other transaction costs incurred in connection with the
transactions contemplated by this Agreement, "Eligible Invoices") As to Eligible
Invoices that are so scheduled or that the Company otherwise notifies to the
Buyer in writing within 120 days after the Closing Date, the Company shall
present such invoice to Buyer when received and Buyer shall pay such invoice in
accordance with its terms or, if Buyer wishes to dispute such invoice with the
vendor, then the Company shall reasonably cooperate with the Buyer in connection
with such dispute and Buyer shall indemnify and hold harmless the Company and
its members, officers, directors, employees and agents from and against any
claims in respect of such invoice by such vendor, provided, however, that the
foregoing obligation of Buyer shall be subject always to the Company's
representations, warranties and covenants under this Agreement and Buyer's
rights under Article VI and otherwise under this Agreement, such that in the
case of an Eligible Invoice being rendered for which the Company otherwise would
be responsible under the terms of this Agreement, Buyer may decline to pay such
Eligible Invoice or, in its sole discretion, may pay such Eligible Invoice and
recover as otherwise provided herein. Buyer shall not be responsible for any
expenses incurred by the Company that are not Eligible Invoices, or for Eligible
Invoices that are not notified in writing to Buyer within 120 days after the
Closing Date.
ARTICLE VI -
INDEMNIFICATION
---------------
SECTION 6.1 GENERAL SURVIVAL. The parties agree that, regardless of
any investigation made by the parties, the representations, warranties,
covenants and agreements of the parties contained in this Agreement shall
survive the Closing for a period beginning on the Closing Date and ending at
5:00 p.m., Minneapolis, Minnesota time, on the same day of the month as the
Closing Date in the month that is 18 months after the Closing Date (the
"Holdback Termination Date"), except that (a) the indemnities, representations,
warranties, covenants and agreements due to breaches of representations and
warranties in Section 3.9 and Section 3.20 shall survive the execution and
delivery of this Agreement until March 31, 2011, and (b) (i) the covenants of
Buyer to pay the Contingent Consideration (subject to Section 1.3(e)(vi)) shall
survive the execution and delivery of this Agreement until the expiration of the
last Target Period and the payment or offset of any Contingent Consideration, if
any is due, as provided in this Agreement, and (ii) the obligation of Buyer to
indemnify Company Indemnitees in Section 6.2(b) hereof (x) insofar as it relates
to Taxes shall survive until March 31, 2011 and (y) insofar as it relates to
Intellectual Property of the Company Subs shall survive (subject to Section
1.3(e)(vi)) until the expiration of the last Target Period and the payment or
offset of any Contingent Consideration, if any is due, as provided in this
Agreement.
50
SECTION 6.2 INDEMNIFICATION IN GENERAL.
(a) Indemnification of Buyer. Subject to Article VI,
from and after the Closing, Buyer, each of the Company Subs, and their
respective affiliates, officers, directors, stockholders, members,
representatives and agents (collectively the "Buyer Indemnitees") shall be
indemnified and held harmless by the Company from and against and in respect of
any and all Losses incurred by, resulting from, arising out of, relating to,
imposed upon or incurred by Buyer, any Company Sub, or any other Buyer
Indemnitee by reason of any of the following:
(i) any inaccuracy in or breach of any of the
Company's representations, warranties, covenants or agreements contained in this
Agreement or any of the other Transaction Documents (as hereinafter defined) to
which the Company is a party; and
(ii) any misrepresentation contained in any
certificate furnished to Buyer or any other Indemnitee by or on behalf of the
Company pursuant to this Agreement or any other Transaction Document.
(b) Indemnification of Seller. Subject to Article VI,
from and after the Closing, the Company and its affiliates, officers, directors,
stockholders, members, representatives and agents (collectively the "Company
Indemnitees") shall be indemnified and held harmless by Buyer from and against
and in respect of any and all Losses incurred by, resulting from, arising out
of, relating to, imposed upon or incurred by any Company Indemnitee by reason of
any third party claim arising from conduct of the business of the Company Subs
prior to the Closing (including the Velocimed Intellectual Property as it exists
as of the date of the Closing) so long as the circumstances relating to such
third party claim would not otherwise constitute a breach of the Company's
representations, warranties, covenants and agreements contained herein.
(c) Definitions.
(i) The term, "Losses" means (A) any and all
deficiencies, judgments, settlements, demands, claims, suits, actions or causes
of action, assessments, liabilities, losses, damages (whether direct or
indirect), interest, fines and penalties, (B) costs, expenses (including
reasonable legal, accounting and other costs and expenses of professionals)
incurred in connection with investigating, defending, settling or satisfying any
and all demands, claims, actions, causes of action, suits, proceedings,
assessments, judgments or appeals, and in seeking indemnification therefor, and
(C) interest on any of the foregoing from the date incurred until paid at the
prime rate published from time to time by ▇▇▇▇▇ Fargo Bank, N.A.
(ii) The term "Transaction Documents" means, this
Agreement, the Confidentiality Agreement, the Contingent Consideration
Confidentiality Agreement, the Member Agreement, and the certificates
contemplated by Article VII.
51
(iii) The term "Indemnitee" means either a Buyer
Indemnitee or a Company Indemnitee, as the case may be, and the term
"Indemnitor" means either Buyer or the Company, as appropriate. Any claim for
indemnification under this Article VI shall be referred to as an Indemnification
Claim (an "Indemnification Claim"),
SECTION 6.3 MANNER OF INDEMNIFICATION.
(a) To provide a fund against which a Buyer Indemnitee
may assert an Indemnification Claim, the Holdback Amount shall be withheld by
Buyer in accordance with Section 1.2.
(b) If a Buyer Indemnitee is entitled to be indemnified
for Losses, the obligation to pay the amount of indemnification owing hereunder
shall first be satisfied from the Holdback Amount and if the Holdback Amount is
exhausted, by reduction of any accrued and unpaid Contingent Consideration. In
the event an Indemnification Claim by Buyer arises and the amount of Loss in
respect thereof has not yet been determined, a portion of the Holdback Amount
and/or any accrued and unpaid Contingent Consideration sufficient to satisfy the
bona fide estimated maximum Loss shall be retained until the amount of Loss has
been determined, and shall then be applied or distributed as provided for
herein.
(c) Each Indemnification Claim shall be made only in
accordance with this Article VI.
SECTION 6.4 NOTICE OF CLAIMS.
(a) Any Indemnitee seeking indemnification hereunder
shall give to Indemnitor a notice (a "Claim Notice") specifying in reasonable
detail the facts giving rise to any Indemnification Claim and shall include in
such Claim Notice (if then known) the amount or the method of computation of the
amount of such Indemnification Claim, and a reference to the provision of this
Agreement or any agreement, certificate or instrument executed pursuant hereto
or in connection herewith upon which such Indemnification Claim is based;
PROVIDED, that a Claim Notice in respect of any action at law or suit in equity
by or against a third Person as to which indemnification will be sought shall be
given promptly after the action or suit is commenced; and PROVIDED FURTHER, that
failure to give such notice shall not relieve the Indemnitor of its obligations
hereunder except to the extent it shall have been prejudiced by such failure.
(b) The Indemntior shall have fifteen days after the
giving of any Claim Notice pursuant hereto to provide such Indemnitee with
notice that it disagrees with the amount or method of determination set forth in
the Claim Notice (the "Disagreement Notice"). If a timely Disagreement Notice is
not received or to the extent an item is not objected to in the Disagreement
Notice, the Claim Notice shall be deemed to have been accepted and final and
binding on the parties, absent manifest error. If the Indemnitor delivers a
timely Disagreement Notice, the parties shall resolve such conflict in
accordance with the procedures set forth in Section 6.4(c).
52
(c) If Indemntior shall have provided a Disagreement
Notice, the parties will attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the parties should so
agree, a memorandum setting forth such agreement will be prepared and signed by
Buyer and the Company. If such claim is an Indemnification Claim for Losses
incurred by a Buyer Indemnitee, Buyer will retain or distribute the Holdback
Amount and Contingent Consideration as provided therein. In the event the
parties shall fail to reach an agreement within thirty days after the date on
which an Indemnitor provided a Disagreement Notice, the dispute shall be
submitted to arbitration in accordance with the provisions of Section 9.6.
SECTION 6.5 THIRD-PARTY CLAIMS. If an Indemnitee becomes aware of a
third-party claim that such Indemnitee believes, in good faith, may result in an
Indemnification Claim, such Indemnitee shall promptly notify the Indemnitor of
such claim, and the Indemnitor shall be entitled to participate in any defense
of such claim; PROVIDED, HOWEVER, that failure to give such notice shall not
relieve the Indemnitor of its obligations hereunder except to the extent it
shall have been prejudiced by such failure. Notwithstanding the immediately
preceding sentence, Buyer shall conduct and control such defense, but shall not
settle any such claim without the consent of the Company, such consent not to be
unreasonably withheld; PROVIDED, HOWEVER, that, if the consent of the Company is
so obtained, the Company shall not have any power or authority to object under
any provision of this Article VI to the amount of any demand by Buyer for
Indemnification with respect to such settlement.
SECTION 6.6 WAIVER OF DEFENSES. To the maximum extent permitted by
law, the Company and Buyer each waive any claim or defense that the indemnity
provided for herein or any other provision of any Transaction Document is
unenforceable under any provision of Applicable Law.
SECTION 6.7 TREATMENT OF INDEMNITY PAYMENTS. All indemnity payments
made to Buyer will be, and will be treated as, an adjustment to the Total
Consideration.
SECTION 6.8 LIMITS ON INDEMNIFICATION.
(a) Except in the event of intentional fraud, the
Holdback Amount and, if applicable, the setoff against any accrued and unpaid
Contingent Consideration shall be the sole and exclusive remedy of the Buyer
Indemnitees from and after the Closing for any claims arising under this
Agreement or in connection with the transactions contemplated hereby, including
claims of breach of any representation, warranty or covenant in this Agreement.
(b) No party shall be entitled to any recovery under
this Agreement for its own special, incidental or consequential damages. Nothing
in this Section 6.8 shall prevent any Indemnitee from being indemnified for all
components of awards against them in actions by unrelated third parties,
including, without limitation, special, incidental or consequential damage
components.
53
(c) No Buyer Indemnitee shall be entitled to
indemnification for any Losses arising under Section 6.2(a) until the aggregate
amount of all Losses under all claims of all Buyer Indemnities under Section
6.2(a) plus any claims for setoff of Losses pursuant to Section 1.3(e)(vi)(B)
exceed $675,000 (the "Deductible"), and, Buyer shall be entitled to retain all
or a portion the Holdback Amount or make an offset under Section 6.2(a) only in
the amount by which such aggregate Losses exceed the Deductible, except that:
all amounts due to Indemnitees related to Losses for Taxes (whether under
Section 3.9 or Section 5.9) or Losses from a breach of the representations and
warranties in Section 3.2 or Section 3.20 shall not be subject to the provisions
of this Section 6.8(c) and shall be paid in full without any regard to the
Deductible. The foregoing shall not limit Buyer's rights under Section
1.3(e)(vi) except as specifically provided in Section 1.3(e)(vi). Further,
except as provided by Section 1.3(e)(vi) and except in the event of intentional
fraud, the total liability of the Company under this Agreement or in connection
with the transactions contemplated hereby shall not exceed the sum of (i) the
Holdback Amount plus (ii) fifty percent of the Contingent Consideration (the
parties' intention being that an offset claim under Section 6.2(a) and an offset
claim arising under 1.3(e)(vi) could result in claims up to 100% of the
Contingent Consideration, but in no event more than the amount set forth in
Section 6.8(a)).
(d) Except for the representations and warranties in
Sections 3.9, 3.16 and 3.25(a), no Indemnitee shall be entitled to bring an
Indemnification Claim for the breach of any representation or warranty if the
Buyer had actual knowledge on or prior to the Closing of the facts, events,
circumstances or omissions giving rise to such claim.
(e) For purposes of this Agreement, any Loss otherwise
recoverable shall be (i) reduced by the amount of any insurance proceeds
actually recovered by the Indemnitee in connection with such Loss and by the
amount of Tax benefit realized by the Indemnitee arising from the incurrence or
payment of such Loss, and (ii) increased to take account of any increased
insurance premiums arising from the incurrence or payment of such Loss and the
amount of any Tax cost incurred from the receipt of the indemnity payment
hereunder, in the case of (i) and (ii) as reasonably determinable at the time
such Loss is otherwise being determined under this Agreement.
ARTICLE VII -
CONDITIONS PRECEDENT TO THE CLOSING
-----------------------------------
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
CLOSING. The respective obligations of each party to effect the Closing shall be
subject to the fulfillment at or prior to the Closing of each of the following
conditions:
(a) HSR Approvals. The waiting period (and any
extension thereof) applicable to the consummation of the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated.
(b) No Order. No court or other Governmental Entity
having jurisdiction over the Company or Buyer, or any of their respective
Subsidiaries, shall
54
have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of, directly or indirectly, restraining, prohibiting or restricting the
transactions contemplated by this Agreement or any of the transactions
contemplated hereby; provided, however, that the provisions of this Section
7.1(c) shall not be available to any party whose failure to fulfill its
obligations pursuant to Section 5.4 shall have been the cause of, or shall have
resulted in, the enforcement or entering into of any such law, rule, regulation,
executive order, decree, injunction or other order.
SECTION 7.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
CLOSING. The obligation of the Company to effect the Closing shall be subject to
the fulfillment at or prior to the Closing of each of the following additional
conditions:
(a) Performance of Obligations; Representations and
Warranties. (i) Buyer shall have performed in all material respects each of its
agreements and covenants contained in this Agreement required to be performed on
or prior to the Closing, (ii) each of the representations and warranties of
Buyer contained in this Agreement that is qualified by materiality shall have
been true and correct when made, and shall be true and correct at and as of the
Closing as if made on and as of such date (other than representations and
warranties which address matters only as of a certain date other than the date
hereof, which shall be true and correct as of such certain date), and (iii) each
of the representations and warranties that is not so qualified shall have been
true and correct in all material respects when made, and shall be true and
correct in all material respects at and as of the Closing as if made on and as
of such date (other than representations and warranties which address matters
only as of a certain date which shall be true and correct in all material
respects as of such certain date). The Company shall have received certificates
signed on behalf of each of Buyer and Sub by one of its officers to such effect.
(b) Opinion of Counsel. The Company shall have received
an opinion of counsel from the General Counsel of Buyer, dated the Closing Date,
in substantially the form attached hereto as EXHIBIT B.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF BUYER AND SUB TO EFFECT
THE CLOSING. The obligations of Buyer and Sub to effect the Closing shall be
subject to the fulfillment at or prior to the Closing of each of the following
additional conditions:
(a) Performance of Obligations; Representations and
Warranties. (i) The Company shall have performed in all material respects each
of its covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing, (ii) each of the representations and
warranties of the Company contained in this Agreement that is qualified by
materiality shall have been true and correct when made, and shall be true and
correct at and as of the Closing as if made on and as of such date (other than
representations and warranties which address matters only
55
as of a certain date other than the date hereof, which shall be true and correct
as of such certain date), and (iii) each of the representations and warranties
that is not so qualified shall have been true and correct in all material
respects when made, and shall be true and correct in all material respects at
and as of the Closing as if made on and as of such date (other than
representations and warranties which address matters only as of a certain date
which shall be true and correct in all material respects as of such certain
date). Buyer shall have received a certificate signed on behalf of the Company
by its Chief Executive Officer or its Chief Financial Officer to such effect.
(b) Opinion of Counsel. Buyer shall have received an
opinion of counsel from ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP counsel to the
Company, dated the Closing Date, in substantially the form attached hereto as
EXHIBIT C.
(c) Consents. (i) The Company shall have obtained the
consent or approval of each Person or Governmental Entity (other than approvals
under the HSR Act) whose consent or approval shall be required in connection
with the transactions contemplated hereby under any loan or credit agreement,
note, mortgage, indenture, lease or other agreement or instrument, except as to
which the failure to obtain such consents and approvals would not, individually
or in the aggregate, have a Material Adverse Effect on the Company Subs or Buyer
or upon the consummation of the transactions contemplated in this Agreement.
(ii) In obtaining any approval or consent required
to consummate any of the transactions contemplated herein, no Governmental
Entity shall have imposed or shall have sought to impose any condition, penalty
or requirement which, individually or in aggregate would have a Material Adverse
Effect on the Company Subs or Buyer.
(d) Material Adverse Change. Since the date of this
Agreement, there shall have been no Material Adverse Change with respect to the
Company Subs. Buyer shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer or the Chief Financial Officer of the
Company to such effect.
(e) Company Option Plans. The Company shall have taken
all action required to be taken by it to implement the provisions of Section
5.9.
(f) Director and Officer Resignations. All of the
Directors of the Company Subs and any officers thereof designated by Buyer,
shall have tendered their resignations in form and substance satisfactory to
Buyer.
(g) Employment and Consulting Agreements. The
Employment Agreement and the Consulting Agreement with ▇▇. ▇▇▇▇▇▇ ▇▇▇▇ shall
remain in full force and effect and shall not have been rescinded by ▇▇. ▇▇▇▇.
The Inventions Assignment, Confidentiality and Non-Competition Agreement entered
into by the Company Subs with employees of the Company Subs shall remain
effective, and shall
56
not have been waived, released or modified by the Company or any of the Company
Subs.
(h) Member Agreement. The Member Agreement shall have
been executed by members holding 85% of the Company Membership Units, shall be
in form and substance reasonably satisfactory to Buyer, and shall be binding
upon 100% of the Company Membership Units.
(i) Silicon Valley Bank Warrant. The Company shall
deliver to Buyer written evidence, in form and substance reasonably satisfactory
to Buyer, of the irrevocable exercise of the Warrant Agreement and the
termination of any other rights associated therewith.
(j) Company Assignment. The Company shall have complied
with the provisions in Sections 5.5, 5.6 and 5.13 in form and substance
reasonably satisfactory to Buyer.
ARTICLE VIII -
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of Buyer and the Company;
(b) by either Buyer or the Company if the other party
shall have failed to comply in any material respect with any of its covenants or
agreements contained in this Agreement required to be complied with prior to the
date of such termination, which failure to comply has not been cured within five
business days following receipt by such other party of written notice of such
failure to comply;
(c) by Buyer if there has been a breach of a
representation or warranty of the Company that gives rise to a failure of the
fulfillment of a condition of the Buyer's obligations to effect the transactions
contemplated by this Agreement pursuant to Section 7.3(a)(ii) and (iii) or by
Company if there has been a breach of a representation or warranty of the Buyer
that gives rise to a failure of the fulfillment of a condition of the Company's
obligations to effect the transactions contemplated by this Agreement pursuant
to Section 7.2(a)(ii) and (iii), in each case which breach has not been cured
within five business days following receipt by the breaching party of written
notice of the breach; or
(d) by either Buyer or the Company if: (i) the Closing
has not occurred on or prior to the close of business on the later of the date
that is 180 days after the date of this Agreement or the date 75 days after the
waiting period applicable to the Closing under the HSR Act has expired or been
terminated; PROVIDED, HOWEVER, that the right to terminate this Agreement
pursuant to this Section 8.1(d)(i) shall not be available to any party whose
failure to fulfill any of its obligations contained in this Agreement has been
the cause of, or resulted in, the failure of the Closing to have occurred on or
prior to
57
the aforesaid date; or (ii) any court or other Governmental Entity having
jurisdiction over a party hereto shall have issued an order, decree or ruling or
taken any other action (which order, decree, ruling or other action the parties
shall have used their reasonable efforts to resist, resolve or lift, as
applicable, subject to the provisions of Section 5.4) permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become final
and nonappealable.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Buyer or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Buyer or their respective officers or directors
(except for the last sentence of Section 5.1(a) and the entirety of Section 5.2,
which shall survive the termination); PROVIDED, HOWEVER, that nothing contained
in this Section 8.2 shall relieve any party hereto from any liability for any
breach of a representation, warranty, or covenant contained in this Agreement.
Notwithstanding the foregoing, if either party terminates this Agreement prior
to the Closing as a result of any representation or warranty contained in this
Agreement becoming untrue due to circumstances that arise after the date hereof
and prior to the Closing, such party's sole remedy for such breach shall be the
termination of this Agreement in accordance with this Article VIII without any
liability or cost to the terminating party.
SECTION 8.3 AMENDMENT. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.4 WAIVER. At any time prior to the Closing, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein for the benefit of such party which may legally be
waived. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No delay on the part of any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder,
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
58
ARTICLE IX -
GENERAL PROVISIONS
------------------
SECTION 9.1 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered personally, one
business day after being delivered to an overnight courier or when sent by
facsimile on a business day (and if not sent on a business day, then on the next
succeeding business day) with a confirmatory copy sent by overnight courier to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Buyer, to:
St. Jude Medical, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: General Counsel
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: (which shall not constitute notice)
▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to:
Velocimed, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above. Any
party hereto may give any notice, request, demand, claim or other communication
hereunder using any
59
other means (including ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the individual for whom it is
intended.
SECTION 9.2 INTERPRETATION.
(a) When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
(b) "Applicable Laws" or "Applicable Law" means, with
respect to any Person, any domestic or foreign, federal, state or local statute,
law, ordinance, rule, regulation, order, writ, injunction, judgment, decree or
other requirement of any Governmental Entity existing as of the date hereof or
as of the Closing applicable to such Person or any of its properties, assets,
officers, directors, employees, consultants or agents.
(c) "Encumbrance" means any charge, claim, limitation,
condition, equitable interest, mortgage, lien, option, pledge, security
interest, easement, encroachment, right of first refusal, adverse claim or
restriction of any kind, including any restriction on transfer or other
assignment, as security or otherwise, of or relating to use, quiet enjoyment,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
(d) "Permitted Lien" means (i) any statutory liens for
Taxes that are not yet due and payable or are being contested in good faith by
appropriate proceedings and are disclosed in Section 3.9 of the Company Letter,
(ii) statutory or common law liens to secure obligations to landlords, lessors,
or renters under leases or rental agreements confined to the premises rented,
(iii) deposits or pledges made in connection with, or to secure payment of,
workers' compensation, unemployment insurance or other social security programs
mandated under Applicable Law, or (iv) statutory or common law liens in favor of
carriers, warehousemen, mechanics and materialmen, to secure claims for labor,
materials or supplies incurred in the ordinary course of business.
(e) "Person" means any individual, corporation,
partnership, limited partnership, limited liability company, trust, association
or entity or Governmental Entity or authority.
(f) "Subsidiary" means any corporation, partnership,
limited liability company, joint venture or other legal entity of which Buyer or
Company, as the case may be (either alone or through or together with any other
Subsidiary), owns or controls, directly or indirectly, 50% or more of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or
60
other governing body of such corporation, partnership, limited liability
company, joint venture or other legal entity.
SECTION 9.3 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may
be executed in counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties. A facsimile
signature of this Agreement or any Transaction Document shall be valid and have
the same force and effect as a manually signed original.
SECTION 9.4 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof. The parties stipulate and
agree that no prior drafts, memoranda, notes, or discussions relating to this
Agreement shall be used at any time by either party in any arbitration, trial or
hearing, or be used or discoverable in any discovery process pertaining thereto,
to prove or evidence in any way the intention or understanding of either party
with respect to any provision or part of this Agreement. This Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
SECTION 9.5 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Minnesota, without regard
to the conflicts of laws provisions thereof that would apply the laws of any
other state.
SECTION 9.6 DISPUTE RESOLUTION.
(a) Any and all disputes, controversies, or claims
arising out of, or relating to this Agreement or any of the Transaction
Documents or the validity, interpretation, breach or termination thereof (a
"Dispute"), shall be resolved in accordance with the procedures set forth in
this Agreement. If a dispute cannot be resolved at the operational level, either
party may submit such Dispute to binding arbitration conducted in Chicago,
Illinois, or such other location upon which the parties may mutually agree in
writing, before a single neutral arbitrator in an arbitration by JAMS under its
Streamlined Arbitration Rules and Procedures (revised version adopted April
2002) ("JAMS Streamlined Rules"), which rules can be viewed at ▇▇▇.▇▇▇▇▇▇▇.▇▇▇.
The JAMS Streamlined Rules will govern all aspects of the arbitration except as
modified by this Section 9.6.
(b) If a party (the "Notifying Party") wishes to submit
a Dispute to JAMS, the Notifying Party shall deliver a written notice (a
"Dispute Notice") together with a copy of this Section 9.6 to the other party
(the "Responding Party") and to JAMS. In the event that either party commences a
dispute by delivering a Dispute Notice, the other party may assert any counter
claims it may have. Following receipt by the Responding Party of the Dispute
Notice, if any, the parties shall promptly meet (but in no event later than ten
business days from the date of receipt by the Responding Party
61
of the Dispute Notice) to agree on the rights of the respective parties with
respect to each of such claims identified by the Dispute Notice. If the parties
should so agree on a resolution of such dispute or disputes, a written
memorandum (the "Memorandum"), setting forth such agreement, shall be prepared
and signed by both parties. If the parties are unable to come to an agreement,
the dispute shall be resolved by the binding arbitration procedures set forth in
this Section 9.6.
(c) The sole arbitrator, who shall be selected in
accordance with the JAMS Streamlined Rules, shall be a retired or former judge
of any Federal court appointed under Article III of the United States
Constitution or any trial court of general jurisdiction or higher court in the
State of Minnesota or the State of Illinois. Eligible arbitrator candidates
shall not be limited to those candidates who are listed on the JAMS "List of
Neutrals". The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. ▇▇.▇▇. 1-16. The arbitrator shall apply Minnesota substantive law
to the proceeding.
(d) In addition to the exchange of information and
discovery authorized by JAMS Streamlined Rule 13, each party may take up to
three 7-hour long depositions before the Arbitration Hearing.
(e) Unless the parties agree otherwise, the Arbitration
Hearing under JAMS Streamlined Rule 17 will commence within 60 days of the date
of the JAMS Commencement Letter described in Streamlined Rule 5, and the
Arbitration Hearing will not last more than four 7-hour days (with the hearing
time equally divided between the parties). The Arbitrator will issue the Award
under Streamlined Rule 19(a) within 7 calendar days of the last day of the
Arbitration Hearing (rather than the 30 calendar days provided for under JAMS
Streamlined Rule 19(a)).
(f) The arbitrator shall prepare in writing and provide
to the parties an award including factual findings and the reasons on which the
decision is based. The award and decision of the arbitrator shall be final and
binding and may be submitted to any court having jurisdiction solely for the
purpose of confirmation of the award and entry of judgment. The arbitrator shall
have the right to award or include in his award only compensatory damages (with
interest on unpaid amounts from the date due until paid), and shall not have the
right to award specific performance, injunctive relief or exemplary or punitive
damages. Any controversy concerning whether a Dispute is an arbitrable dispute
shall be determined by the arbitrator. The parties intend that this agreement to
arbitrate be valid, specifically enforceable and irrevocable.
(g) The provisions of this Section 9.6 shall survive
the expiration or early termination of this Agreement indefinitely.
SECTION 9.7 WAIVERS. Each of the parties hereby irrevocably waives
all right to trial by jury in any action, proceeding or counterclaim (whether
based on contract, tort or otherwise) arising out of or relating to this
Agreement or any other Transaction Document or the transactions contemplated
hereby or thereby. Each of the
62
parties hereby further irrevocably waives any right to specific performance,
injunctive relief or exemplary or punitive damages.
SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors or assigns.
SECTION 9.9 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.
SECTION 9.10 DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 9.11 DEFINED TERMS. Each of the following terms is defined
in the Section identified below:
501(k)'s.........................................................Section 3.8(b)
Acquiring Person.................................................Section 4.2(e)
Affiliated Person...............................................Section 3.23(a)
Agreement..............................................................Preamble
Alternate Payment............................................Section 1.3(c)(ii)
Applicable Law...................................................Section 9.2(b)
Applicable Laws..................................................Section 9.2(b)
Applicable Worker Safety Laws......................................Section 3.13
Auditor..........................................................Section 1.3(e)
Bundled Sale.....................................................Section 4.2(c)
Buyer..................................................................Preamble
Buyer Indemnitees................................................Section 6.2(a)
Buyer Licensing..................................................Section 1.3(b)
Buyer Representative.............................................Section 4.2(d)
Cash Purchase Price..............................................Section 1.1(a)
Change In Control................................................Section 4.2(e)
Claim Notice.....................................................Section 6.4(a)
Closing..........................................................Section 1.5(a)
63
Closing Date.....................................................Section 1.5(a)
Code................................................................Section 3.9
Company................................................................Preamble
Company Balance Sheet............................................Section 3.5(a)
Company Balance Sheet Date.......................................Section 3.5(a)
Company Business Personnel.........................................Section 3.15
Company Charter..................................................Section 3.1(a)
Company Indemnitees..............................................Section 6.2(b)
Company Letter..........................................Preamble to Article III
Company Marks...................................................Section 3.16(c)
Company Membership Units............................................Section 3.3
Company Option...................................................Section 5.9(a)
Company Patents.................................................Section 3.16(b)
Company Permits..................................................Section 3.8(a)
Company Plan....................................................Section 3.12(c)
Company Products.................................................Section 1.3(b)
Company Registered Copyrights...................................Section 3.16(b)
Company Registered IP...........................................Section 3.16(b)
Company Registered Marks........................................Section 3.16(b)
Company Sub............................................................Preamble
Company Subs...........................................................Preamble
Compensation Agreements.........................................Section 3.11(a)
Confidentiality Agreement........................................Section 5.1(a)
Consulting Agreements..................................................Recitals
Contingent Consideration.........................................Section 1.1(b)
Contingent Consideration Conference..............................Section 4.2(d)
Contingent Consideration Confidentiality Agreement...............Section 4.2(d)
Contingent Consideration Distribution Date.......................Section 1.3(b)
Contingent Consideration Notice..................................Section 1.3(b)
Contingent Consideration Period..................................Section 1.3(a)
Copyrights......................................................Section 3.16(a)
Deductible.......................................................Section 6.8(c)
Disagreement Notice..............................................Section 6.4(b)
Dispute..........................................................Section 9.6(a)
Dispute Notice...................................................Section 9.6(b)
Distal Device....................................................Section 1.3(b)
DMC....................................................................Preamble
DMC Shares.......................................................Section 3.2(c)
Eligible Invoices..................................................Section 5.14
Employment Agreements..................................................Recitals
Encumbrance......................................................Section 9.2(c)
Environmental Law...........................................Section 3.20(a)(ii)
Environmental Permit.......................................Section 3.20(a)(iii)
ERISA...........................................................Section 3.12(a)
ERISA Affiliate.................................................Section 3.12(c)
64
FDA..............................................................Section 1.3(b)
Financial Statements.............................................Section 3.5(a)
Fiscal Year......................................................Section 1.3(b)
FY 2006..........................................................Section 1.3(b)
FY 2006 Target...................................................Section 1.3(b)
FY 2007..........................................................Section 1.3(b)
FY 2007 Target...................................................Section 1.3(b)
FY 2008..........................................................Section 1.3(b)
FY 2008 Target...................................................Section 1.3(b)
Governmental Entity.................................................Section 2.3
Hazardous Substances.........................................Section 3.20(a)(i)
Holdback Amount.....................................................Section 1.2
Holdback Termination Date...........................................Section 6.1
HSR Act.............................................................Section 2.3
Inbound License Agreements......................................Section 3.16(f)
INC....................................................................Preamble
INC Shares.......................................................Section 3.2(a)
Indemnification Claim............................................Section 6.2(c)
Indemnitee.......................................................Section 6.2(c)
Indemnitor.......................................................Section 6.2(c)
Insurance Policies.................................................Section 3.22
Intellectual Property...........................................Section 3.16(a)
Intellectual Property Losses.................................Section 1.3(e)(vi)
IRS.................................................................Section 3.9
JAMS Streamlined Rules...........................................Section 9.6(a)
Licensee.........................................................Section 4.2(c)
Liens...........................................................Section 3.25(a)
Losses...........................................................Section 6.2(c)
Marks...........................................................Section 3.16(a)
Material Adverse Change................................Section 3.7. Section 2.3
Material Adverse Effect................................Section 3.7. Section 2.3
Material Contracts..............................................Section 3.11(b)
Member Agreement...................................................Section 5.12
Memorandum.......................................................Section 9.6(b)
Mid-Year Report..................................................Section 4.2(d)
Non-Eligible Product.............................................Section 4.2(c)
Notice of Objection..............................................Section 1.3(e)
Notifying Party..................................................Section 9.6(b)
Open Source License.............................................Section 3.16(i)
Outbound License Agreements.....................................Section 3.16(f)
Patents.........................................................Section 3.16(a)
Permitted Lien...................................................Section 9.2(d)
65
Permitted Sale...................................................Section 4.2(a)
Person...........................................................Section 9.2(e)
PFO....................................................................Preamble
PFO Shares.......................................................Section 3.2(b)
PMA's............................................................Section 1.3(b)
Post Closing Patent..........................................Section 1.3(e)(vi)
Premere Approval.................................................Section 1.3(b)
Premere Approval Notice..........................................Section 1.3(e)
Premere Approval-Based Contingent Consideration..................Section 1.3(d)
Premere First Target Period......................................Section 1.3(b)
Premere Product..................................................Section 1.3(b)
Premere Second Target Period.....................................Section 1.3(b)
Premere Third Target Period......................................Section 1.3(b)
Premere Trigger..................................................Section 4.2(e)
Proxis Product...................................................Section 1.3(b)
Proxis Trigger...................................................Section 4.2(e)
Real Estate.....................................................Section 3.25(b)
Responding Party.................................................Section 9.6(b)
Revenue..........................................................Section 1.3(b)
Revenue Notice...................................................Section 1.3(e)
Revenue-Based Contingent Consideration...........................Section 1.3(c)
Shares.................................................................Preamble
SSA..............................................................Section 3.8(a)
State Takeover Approvals............................................Section 2.3
Subsidiary.......................................................Section 9.2(f)
Target Periods...................................Section 1.3(b). Section 1.3(b)
Tax Return..........................................................Section 3.9
Taxes...............................................................Section 3.9
Total Consideration..............................................Section 1.1(b)
Trade Secrets...................................................Section 3.16(a)
Transaction Documents............................................Section 6.2(c)
Velocimed Intellectual Property..................................Section 1.3(b)
Venture Product..................................................Section 1.3(b)
Warrant Agreement..................................................Section 5.11
66
IN WITNESS WHEREOF, Buyer, and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
ST. JUDE MEDICAL, INC.
A MINNESOTA CORPORATION
By:_____________________________
Name:
Title:
VELOCIMED, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
By:_____________________________
Name:
Title:
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]