EXHIBIT 2.1
EXECUTION COPY
CONFIDENTIAL
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
ORTHOLOGIC CORP.
AND
DJ ORTHOPEDICS, LLC
OCTOBER 8, 2003
EXECUTION COPY
ARTICLE I DEFINITIONS........................................................................................... 8
ARTICLE II SALE AND PURCHASE OF ASSETS.......................................................................... 16
2.1 Purchased Assets.............................................................................. 16
2.2 Consents of Third Parties..................................................................... 18
2.3 Excluded Assets............................................................................... 18
2.4 Assumed Liabilities........................................................................... 19
2.5 Excluded Liabilities.......................................................................... 19
2.6 Consideration for Purchased Assets............................................................ 20
2.7 The Closing................................................................................... 20
2.8 Net Working Capital Adjustment................................................................ 21
2.9 Allocation of Purchase Price.................................................................. 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................................................ 23
3.1 Organization and Related Matters.............................................................. 23
3.2 Authorization................................................................................. 23
3.3 No Conflicts.................................................................................. 23
3.4 No Other Agreements to Sell Assets or Business................................................ 23
3.5 Legal Proceedings............................................................................. 24
3.6 Approvals and Third Party Consents............................................................ 24
3.7 Financial Information and SEC Reports......................................................... 24
3.8 Tangible Assets............................................................................... 25
3.9 Offices....................................................................................... 25
3.10 Taxes......................................................................................... 25
3.11 Permits....................................................................................... 25
3.12 Intercompany Transactions..................................................................... 26
3.13 Compliance with Law........................................................................... 26
3.14 No Brokers or Finders......................................................................... 26
3.15 No Undisclosed Liabilities.................................................................... 27
3.16 Patents, Trademarks and Proprietary Information............................................... 27
3.17 Material Contracts............................................................................ 29
3.18 Absence of Certain Changes or Events.......................................................... 30
3.19 Inventory..................................................................................... 31
3.20 Accounts Receivable........................................................................... 31
3.21 Customers, Resellers and Suppliers............................................................ 31
3.22 Employee Benefit Plans........................................................................ 31
3.23 Environmental Matters......................................................................... 33
3.24 Insurance..................................................................................... 34
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3.25 Opinion of Financial Advisors................................................................. 34
3.26 Voting Requirements........................................................................... 34
3.27 Product Liability............................................................................. 34
3.28 Anti-Takeover Laws............................................................................ 35
3.29 Information Supplied.......................................................................... 35
3.30 Government Contracts.......................................................................... 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.............................................................. 36
4.1 Organization and Related Matters.............................................................. 36
4.2 Authorization; No Conflicts................................................................... 36
4.3 Legal Proceedings............................................................................. 36
4.4 Approvals and Third Party Consents............................................................ 36
4.5 Funding....................................................................................... 36
4.6 No Brokers or Finders......................................................................... 36
ARTICLE V COVENANTS AND AGREEMENTS.............................................................................. 37
5.1 Maintenance of Insurance...................................................................... 37
5.2 Material Adverse Changes; Conduct of Business................................................. 37
5.3 Access to Information; Notification of Certain Matters........................................ 38
5.4 Approvals and Permits......................................................................... 39
5.5 Government Approvals and Filings.............................................................. 39
5.6 Employees..................................................................................... 40
5.7 Covenants Not to Compete and Not to Solicit................................................... 41
5.8 Stockholder Approval; Preparation of Company Proxy Statement.................................. 42
5.9 Financing..................................................................................... 43
5.10 No Solicitation............................................................................... 43
5.11 Environmental Reports......................................................................... 45
5.12 Stockholder Litigation........................................................................ 45
5.13 Transfer and Assignment....................................................................... 45
5.14 Current Inventory, Marketing, Materials, Etc.................................................. 45
5.15 Payment of Liabilities........................................................................ 46
5.16 Proceeds...................................................................................... 46
5.17 Access to Records............................................................................. 46
5.18 Compliance with HIPAA Privacy Rules........................................................... 47
5.19 Retention Bonuses............................................................................. 47
ARTICLE VI TAX MATTERS.......................................................................................... 47
6.1 Indemnity..................................................................................... 47
6.2 Conveyance Taxes.............................................................................. 48
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6.3 Tax Certificates and Information.............................................................. 48
ARTICLE VII CONDITIONS OF PURCHASE.............................................................................. 48
7.1 General Conditions............................................................................ 48
7.2 Conditions to Obligations of Buyer............................................................ 48
7.3 Conditions to Obligations of Seller........................................................... 50
ARTICLE VIII TERMINATION OF OBLIGATIONS; SURVIVAL............................................................... 50
8.1 Termination of Agreement...................................................................... 50
8.2 Effect of Termination......................................................................... 51
8.3 Survival of Representations and Warranties.................................................... 52
ARTICLE IX INDEMNIFICATION...................................................................................... 52
9.1 Obligations of Seller......................................................................... 52
9.2 Obligations of Buyer.......................................................................... 52
9.3 Collection of Accounts Receivable............................................................. 52
9.4 Procedure..................................................................................... 53
9.5 Indemnification Threshold; Maximum Losses..................................................... 53
9.6 Cooperation; Manner of Payment................................................................ 54
9.7 WARN Act...................................................................................... 54
9.8 Exclusive Remedy.............................................................................. 54
9.9 Damages....................................................................................... 54
ARTICLE X GENERAL............................................................................................... 55
10.1 Amendments; Waivers........................................................................... 55
10.2 Schedules; Exhibits; Integration.............................................................. 55
10.3 Further Assurances............................................................................ 55
10.4 Governing Law................................................................................. 55
10.5 No Assignment................................................................................. 55
10.6 Headings...................................................................................... 55
10.7 Counterparts.................................................................................. 55
10.8 Publicity and Reports......................................................................... 55
10.9 Confidentiality............................................................................... 55
10.10 Parties in Interest........................................................................... 56
10.11 Notices....................................................................................... 56
10.12 Expenses...................................................................................... 57
10.13 Waiver........................................................................................ 57
10.14 Attorney Fees................................................................................. 57
10.15 Representation By Counsel; Interpretation..................................................... 57
10.16 Severability.................................................................................. 57
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10.17 Specific Performance.......................................................................... 57
EXHIBIT A - Form of Escrow Agreement
EXHIBIT B - Form of Billing Services Agreement
EXHIBIT C - Form of Sublease
EXHIBIT D - Form of Transition Services Agreement
EXHIBIT E - Form of Subcontract
EXHIBIT F - Form of Opinion of Seller's Counsel
EXHIBIT G - Form of Opinion of Buyer's Counsel
LIST OF DISCLOSURE SCHEDULES*:
SCHEDULE 1.1(a) - Representatives of Seller
SCHEDULE 1.1(b) - Representatives of Buyer
SCHEDULE 1.2 - Other Permitted Encumbrances
SCHEDULE 2.1(a) - FF&E and Design tools, order management and other management
tools, manufacturing tools and test equipment
SCHEDULE 2.1(c) - Contracts
SUPPLEMENT TO SCHEDULE 2.1(c) - Vendor Sales and Other Additional Agreements
SCHEDULE 2.1(d) - Trademarks and service marks and Other Proprietary Information
and Intellectual Property
SCHEDULE 2.1(i) - Permits
SCHEDULE 2.1(l) - Telephone and facsimile numbers and post office boxes,
lockboxes, internet domain names and URLs
SCHEDULE 2.3(i) - Property and assets not primarily related to the Business
SCHEDULE 2.3(k) - Agreements deemed "Excluded Assets"
SCHEDULE 2.3(l) - Other assets deemed "Excluded Assets"
SCHEDULE 2.4(a) - Trade accounts payable and other accrued liabilities
SCHEDULE 2.5(j) - Excluded Trade Payables
SCHEDULE 2.8(f)(4) - Net Working Capital at August 31, 2003
SCHEDULE 2.9 - Preliminary allocation of Purchase Price among the Purchased
Assets
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SELLER'S DISCLOSURE SCHEDULE (SECTION 3.1) - States in which Seller is qualified
to do business
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.3) - Conflicts
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.5) - Legal proceedings
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.6) - Approvals and Third Party Consents
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.7) - Financial Statements and Business
Financial Statements Reconciliation
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.7(d)) - Excluded Trade Payables
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.8) - Assets
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.9) - Locations at which a sales
representative or other employee operates the Business
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.11) - Material Permits
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.12) - Intercompany transactions
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.13(b)) - Compliance with law (Part I)
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.13(c)) - Compliance with law (Part II)
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.14) - Brokers, finders and others
entitled to fees or commissions
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.15) - Undisclosed liabilities or
obligations relating to the Business
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.17) - Material Contracts
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.18) - Material changes in the business,
operations, properties, condition, or assets or liabilities of the Business
since June 30, 2003
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.19) - Inventory
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.21) - Material customers and resellers
of the Business
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.22(a)) - Identification of Employee
Benefit Plans
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.22(f)) - Effect of Agreement and
Transaction on payments and benefits to Transferred Employees
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.24) - Insurance policies, letters of
credit and surety bonds and the material terms thereof
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.27) - Non-uniform product warranties,
indemnifications or other similar agreements of Seller
SELLER'S DISCLOSURE SCHEDULE (SECTION 3.28) - Rights agreements and other
similar anti-takeover agreements
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SCHEDULE 4.4 - Approval and Third Party Consents; Authorization; No Conflicts
SCHEDULE 4.6 - No Brokers or Finders
SCHEDULE 5.2(c) - Stay bonuses or other similar arrangements for Transferred
Employees and legal proceedings
SCHEDULE 5.6 - Employees of the Business to be employed by Buyer
SCHEDULE 5.6(b) - Severance to persons not accepting a position as a Transferred
Employee
SCHEDULE 5.13 - Third Party Payor Contracts
SCHEDULE 5.19 - Individuals receiving retention bonuses
*OrthoLogic Corp. agrees to furnish supplementally a copy of these omitted
exhibits and the disclosure schedules relating to OrthoLogic Corp.'s exceptions
and disclosure pursuant to its representations and warranties under this Asset
Purchase Agreement to the Securities and Exchange Commission upon request.
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of October 8,
2003 by and among OrthoLogic Corp., a Delaware corporation ("Seller"), and dj
Orthopedics, LLC, a Delaware limited liability company ("Buyer").
RECITALS
WHEREAS, Seller owns and operates a business consisting of the
development, manufacture, marketing, distribution, sales and support of medical
devices used in bone growth stimulation, spinal fusion stimulation and external
fixation (the "Business"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, substantially all of the assets and properties relating to
the Business and in connection therewith Buyer is willing to assume certain
specified liabilities of Seller relating thereto, all upon the terms and subject
to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, and intending to be legally
bound hereby, Buyer and Seller hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement and the Exhibits and Schedules
delivered pursuant to this Agreement, the following definitions will apply:
"Accountants" is defined in Section 2.8(d).
"Accounts Payable" shall mean payables from
operations and other current accruals of the Business, determined in
accordance with GAAP, consistently applied.
"Accounts Receivable" shall mean all gross accounts
receivable in favor of Seller, net of credits, from the sale of
products of the Business.
"Action" means any action, claim, complaint,
petition, investigation, suit or other proceeding, whether
administrative, civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"Acquisition Proposal" means any offer or proposal
from any Person relating to, or that would reasonably be expected to
lead to, any direct or indirect (A) merger, consolidation, business
combination, or similar transaction involving Seller, (B) sale, lease
or other disposition directly or indirectly by merger, consolidation,
business combination, share exchange, tender offer, joint venture, or
otherwise of assets of Seller representing all or substantially all of
the consolidated assets of Seller and its subsidiaries including,
without limitation, a sale, lease or other disposition of the Business
or (C) any combination of the foregoing involving all or substantially
all of the assets or securities of Seller (other than the transactions
contemplated by this Agreement or any Acquisition Proposal made by
Buyer or its Affiliates).
"Administrative Violations" is defined in Section
2.5(l).
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"Affiliate" means a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, a specified Person. The
term "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with") means the possession
of the power to direct the management and policies of the referenced
Person, whether through ownership interests, by contract or otherwise.
"Agreement" means this Asset Purchase Agreement by
and among Seller and Buyer as amended or supplemented from time to
time, together with all Exhibits and Schedules delivered pursuant to
this Agreement.
"Antitrust Laws" is defined in Section 5.5(c).
"Approval" means any approval, authorization,
consent, qualification, registration, Permit, declaration, filing,
application, transfer or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication
required to be filed with or delivered to, any Governmental Entity.
"Assumed Liabilities" is defined in Section 2.4.
"Audited Financial Statements" means the audited
balance sheets of Seller at each of December 31, 2001 and 2002 and the
audited statements of income and retained earnings and cash flows of
Seller for the years ended December 31, 2000, 2001 and 2002, together
with notes thereto, all accompanied by the report of Deloitte & Touche
LLP thereon.
"Billing Services Agreement" means that certain
billing services agreement in substantially the form of Exhibit B
hereto.
"Books and Records" means all of Seller's books,
ledgers, files, records, manuals, and other materials (in any form or
medium, including electronic and computer files) to the extent related
to the Business, whether in tangible or electronic form, including, but
not limited to, all correspondence, payroll records, purchasing
materials and records, patient records, vendor lists, operation and
quality control records and procedures, research and development files,
Intellectual Property disclosures and documentation, sales order files,
purchase order files, advertising materials, catalogs, product
brochures, mailing lists, customer files, customer lists, distribution
lists, sales and promotional materials, and all other records to the
extent utilized by Seller in connection with the Business and all
computer software and data files necessary to access or review or
continue to compile or utilize any of the foregoing, but not including
personnel records.
"Business" is defined in this Agreement's recitals.
"Business Day" means any day other than a Saturday, a
Sunday or a day on which banks in San Diego County, California or
Maricopa County, Arizona are authorized or obligated by Law or
executive order to close.
"Business Financial Statements Reconciliation" means
those adjustments to the balance sheets and statements of operations of
Seller used to prepare the balance sheet of the Business at any given
date and the income statement of the Business for the period ended on
such date.
"Buyer" is defined in this Agreement's opening
paragraph.
"Buyer Board" means the Board of Directors of Buyer.
"Buyer Indemnified Persons" is defined in Section
9.1.
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"Buyer Material Adverse Effect" means any change,
effect or circumstance that would materially impair the validity or
enforceability of this Agreement or materially adversely affect or
delay Buyer's ability to consummate the Closing or perform its
obligations under this Agreement.
"Buyer Personnel Access" is defined in Section
5.3(a).
"Buyer Record Access" is defined in Section 5.3(a).
"Cash Payment" is defined in Section 2.6(b).
"Charter Documents" is defined in Section 3.3.
"Closing" means the consummation of the purchase and
sale of the Purchased Assets and the assumption of the Assumed
Liabilities under this Agreement.
"Closing Date" means the date of the Closing.
"Closing Date Net Working Capital" means Net Working
Capital of the Business as of the Closing Date.
"Closing Date Net Working Capital Schedule" is
defined in Section 2.8(c).
"COBRA" is defined in Section 5.6(d).
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commitment" is defined in Section 4.5.
"Competing Confidentiality Agreement" is defined in
Section 5.10(d).
"Confidential Information" means all information
respecting the business and activities of Seller and/or any Affiliate,
including, without limitation, the clients, customers, suppliers,
employees, consultants, computer or other files, projects, products,
computer disks or other media, computer hardware or computer software
programs, marketing plans, financial information, Trade Secrets,
methodologies, know-how, processes, practices, approaches, projections,
forecasts, formats, systems, data gathering methods and/or strategies
of Seller and/or any Affiliate. Notwithstanding the immediately
preceding sentence, Confidential Information shall not include any
information that is, or becomes, generally available to the public
(unless such availability occurs as a result of Buyer's breach of any
portion of this Agreement or any other obligation Buyer owes to Seller
and/or any Affiliate).
"Confidentiality Agreement" is defined in Section
10.9.
"Contracts" means all contracts, arrangements,
licenses and other agreements to which Seller is subject or a party to
and which are related primarily to the Business, including without
limitation, all sales agreements, service agreements, manufacturing
agreements, support agreements, sales agency agreements,
distributorship agreements, marketing agreements, purchase commitments
with suppliers, and agreements or arrangements relating to Intellectual
Property; and without limiting the generality of the foregoing,
includes all contracts, arrangements, licenses and other agreements to
which Seller is subject or a party set forth on Schedule 2.1(c) and
thereby included in the Purchased Assets hereunder.
"Corporate Integrity Agreement" is defined in Section
3.13(b).
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"Current Assets" is defined in Section 2.8(f)(1).
"Disclosure Schedule" means Seller's Disclosure
Schedule and Buyer's Disclosure Schedule attached to this Agreement.
The sections of each Disclosure Schedule are numbered to correspond to
the applicable sections of this Agreement; provided that any matter
disclosed in any section of each Disclosure Schedule shall be deemed to
be disclosed in all applicable sections of such Disclosure Schedule,
but only to the extent that the relevance of such matter to such other
section or sections of the Disclosure Schedule is readily apparent.
"DGCL" means the Delaware General Corporation Law.
"EBITDA" means net income plus interest expense,
income tax expense, depreciation and amortization (or impairment of
intangible assets), with each item to be computed in accordance with
GAAP.
"Employee Benefit Plan(s)" is defined as (a) any
"employee welfare benefit plan," as defined in Section 3(1) of ERISA or
any "employee pension benefit plan," as defined in Section 3(2) of
ERISA, which Seller sponsors or to which Seller contributes or is
required to contribute, or under which Seller may incur any liability
(whether governed by U.S. Law or the Law of any foreign country in
which Seller has any employees, directors, officers or consultants),
and which applies to or in respect of Seller's employees, former
employees, directors, officers or consultants in connection with the
Business, including each such multiemployer welfare benefit plan; (b)
any "multiemployer plan," as defined in Section 4001(a)(3) of ERISA, to
which Seller has contributed or been obligated to contribute at any
time within the six years prior to the date hereof, or under which
Seller may incur any liability, and which applies to or in respect of
Seller's employees, former employees, directors, officers or
consultants employed by Seller in connection with the Business, and (c)
any material incentive compensation, commission, vacation pay, holiday
pay, sabbatical leave, scholarship or tuition reimbursement, dependent
care assistance, immigration assistance, salary continuation, employee
loan or loan guarantee, split dollar arrangement, deferred compensation
plan, severance pay, bonus plan, profit sharing plan, stock option
plan, employee stock purchase plan, restricted stock, stock
appreciation right, phantom stock, and any other employee benefit plan,
agreement, arrangement or commitment which Seller sponsors or to which
Seller contributes or is required to contribute and which applies to or
in respect of any of Seller's employees, former employees, directors,
officers or consultants within or outside the United States in
connection with the Business (whether governed by U.S. Law or the Law
of any foreign country in which Seller has any employees, former
employees, directors, officers or consultants).
"Encumbrance" means any claim, charge, easement,
encumbrance, lease, covenant, security interest, lien, option, pledge,
rights of others or restriction (whether on voting, sale, transfer,
disposition or otherwise), whether imposed by agreement, understanding,
law, equity or otherwise, except for any restrictions on transfer
generally arising under any applicable federal or state securities law.
"Escrow Agreement" means that certain escrow
agreement in substantially the form of Exhibit A hereto.
"Escrow Amount" is defined in Section 2.6(b).
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, or any successor law, and the related regulations
and published interpretations.
"Excluded Assets" is defined in Section 2.3.
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"Excluded Contracts" is defined in Section 2.4(b).
"Excluded Liabilities" is defined in Section 2.5.
"Excluded Marks" is defined in Section 2.3(e).
"Excluded Medicare Receivables" is defined in Section
2.3(g).
"Excluded Trade Payables" is defined in Section
2.5(j).
"Federal health care program" shall have the same
meaning as that term is defined in 42 U.S.C. Section 1320a-7b(f).
"FF&E" shall mean machinery, equipment, furnishings,
vehicles, tools, dies and molds, and other similar property used
primarily in connection with the Business.
"Financial Statements" is defined in Section 3.7(a).
"Former Superior Proposal" is defined in Section
5.10(e).
"GAAP" means generally accepted accounting principles
in the United States, in effect from time to time.
"Governmental Entity" means any government or any
agency, regulatory authority, bureau, board, commission, court,
department, official, political subdivision, tribunal or other
instrumentality of any government, whether Federal, state or local,
domestic or foreign.
"Government Contract" shall mean any Contract or
subcontract to which Seller is a party in which the ultimate
contracting party is the United States government or any state or local
government or any agency, department, division, instrumentality,
independent establishment or government corporation thereof, which
involves delivery of goods or performance of services by Seller.
Government Contract shall also mean any agreement between the United
States government or any agency, department, division, instrumentality,
independent establishment or government corporation and Seller, which
involves federal financial and nonfinancial assistance and benefits,
including, but not limited to, grants, cooperative agreements,
contracts of assistance, loans, loan guarantees and subsidies.
"HIPAA" means the Health Insurance Portability and
Accountability Act of 1996, as amended.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
"Indemnifiable Claim" is defined in Section 9.4(c).
"Indemnified Party" is defined in Section 9.4(a).
"Indemnifying Party" is defined in Section 9.4(a).
"Intellectual Property" means all of the intellectual
property rights owned or licensed to Seller or in which Seller has any
right or interest, and, in either case, used primarily in connection
with the Business, excluding any Excluded Assets but including, without
limitation, all of Seller's (a) common law, state, provincial, federal,
international and statutory rights in any trademarks, trademark
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registrations and applications, service marks, trade names, copyrights,
copyright registrations, copyright subject matter, patents, patent
applications, utility models, industrial design registrations and
applications, integrated circuit topography applications and
registrations, design rights, inventions, Trade Secrets, technical and
confidential information (including, without limitation, designs,
plans, specifications, formulas, processes, methods, shop rights,
know-how, show-how, and other business or technical confidential
information in each case whether or not such rights are patentable,
copyrightable, or registerable) primarily related to the Business; (b)
computer software and hardware programs and systems, source code,
object code, know-how, show-how, processes, formula, specifications and
designs, data bases, and documentation relating to the foregoing or
used primarily in the Business; and (c) other proprietary information
owned, controlled, created, under development or used by or on behalf
of Seller primarily in connection with the conduct of the Business in
which Seller has any interest whatsoever, whether or not registered,
including rights or obligations under any license agreement or other
agreement with any other person.
"Inter-Party Claim" is defined in Section 9.4(c).
"Inventory" means all inventories of raw material,
purchased parts materials, work in process, finished products, goods,
spare parts, replacement and component parts, and office and other
supplies used or to be distributed, licensed or sold in connection with
the Business consistent with past practices, including without
limitation all documentation included with the Products.
"IRS" means the Internal Revenue Service.
"Knowledge" means the knowledge of the persons set
forth on Schedule 1.1(a), with respect to Seller, and the persons set
forth on Schedule 1.1(b), with respect to Buyer, as the case may be, in
each case assuming reasonable inquiry into the matter, including,
without limitation, reviewing the representations and warranties of
Seller in Article III of this Agreement, along with Seller's Disclosure
Schedule, with ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇.
"Law" means all laws of any nation or political
subdivision thereof, including, without limitation, all federal, state,
provincial, local, or foreign statutes, regulations, ordinances,
orders, decrees, or any other laws, common law theories, or reported
decisions of any state, provincial, federal or other court or tribunal.
"Legal Requirement" means any law, statute, rule or
regulation of any Tribunal or any Order.
"Loss" means, with respect to any Person, any cost,
damage, disbursement, expense, liability, loss, obligation, diminution
in value, penalty or settlement, including interest or other carrying
costs, legal, accounting and other professional fees and expenses
incurred in the investigation, collection, prosecution and defense of
claims (including the reasonable cost of time spent by employees) and
amounts paid in settlement, that may be imposed on or otherwise
incurred or suffered by the referenced Person.
"Material" means any item or circumstance having an
effect on the assets, liabilities, financial condition, properties,
results of operations or prospects of the Business in an amount equal
to or greater than $100,000.
"Material Adverse Effect" means, any item, change,
effect or circumstance that is materially adverse to the business,
assets, liabilities, properties, condition (financial or otherwise)
results of operations or prospects of the Business, taken as a whole,
and without regard to any specific monetary amount, or to the foregoing
definition of "Material".
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"Material Contracts" is defined in Section 3.17(a).
"Minimum Closing Date Net Working Capital" is defined
in Section 2.8(a).
"Net Working Capital" means Current Assets minus
Total Liabilities.
"Objection Notice" is defined in Section 2.8(c).
"Order" means any decree, injunction, judgment,
order, ruling, assessment or writ.
"Permit" means any license, permit, franchise,
certificate of authority, or any waiver of the foregoing, required to
be issued by any Governmental Entity.
"Permitted Encumbrances" means: (i) statutory
Encumbrances for sums not yet delinquent; (ii) Encumbrances, other than
Encumbrances related to bank indebtedness or capital leases, with
respect to the properties or assets of the Business taken as a whole
that do not, individually or in the aggregate, materially impair or
materially interfere with the present use of the properties or assets
or otherwise materially impair present business operations at such
properties; (iii) Encumbrances for Taxes, assessments and other
governmental charges not yet delinquent or the validity of which are
being contested in good faith by appropriate actions; and (iv)
Encumbrances reflected in Schedule 1.2.
"Person" means an association, corporation,
individual, partnership, limited liability company, trust or any other
entity or organization, including a Governmental Entity.
"Potential Acquiror" is defined in Section 5.10(d).
"Potential Customer" means a person or entity that
Buyer and/or Seller, or any of their Affiliates (i) as of the Closing
Date is, soliciting (or has targeted for solicitation), and/or (ii) at
any time or from time to time, with the 24-month period prior to the
Closing Date, Seller has been soliciting for or in respect of any
current, actively pending or contemplated Products.
"Proceeds" is defined in Section 5.16.
"Products" means the OL1000 Bone Growth Stimulator
(both single and dual coil), the SpinaLogic Bone Growth Stimulator and
the Orthoframe/Mayo External Fixator, together with any predecessor
products, and related products developed or under development, and
together with any licensing arrangements, manufacturing arrangements
and/or distribution arrangements related thereto.
"Proprietary Information" means all patent
applications, utility model applications, inventions, ideas,
trademarks, trade names, service marks, copyrights, data, moral rights,
trade secrets, know-how, concepts, computer programs, documentation and
other technical data and information used primarily in the Business.
"Proxy Statement" shall mean the proxy statement
filed by Seller with the SEC relating to any required approval by
Seller's stockholders of this Agreement and the transactions
contemplated hereby.
"Purchase Price" is defined in Section 2.6.
"Purchased Assets" is defined in Section 2.1.
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"Representatives" is defined in the Confidentiality
Agreement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, or any successor law, and the related regulations and
published interpretations.
"Seller" means OrthoLogic Corp. and any of its
subsidiaries which use or possess any of the Purchased Assets or
participate in the Business.
"Seller Advance Payments" means payments with respect
to the Business made by Seller for goods or services prior to the
Closing Date, to the extent such goods or services are not fully used
or received by the Business as of the Closing Date, including without
limitation all credits, prepaid expenses (except for property and
liability insurance), deferred charges, advance payments, security
deposits, prepaid rent (to the extent transferable), prepaid Taxes,
prepaid advertising and prepaid items (except split dollar life
insurance cash surrender values).
"Seller Board" means the Board of Directors of
Seller.
"Seller Board Recommendation" is defined in Section
5.8(a).
"Seller Customer Deposits" means deposits received by
Seller from customers of the Business to the extent related to the
Business prior to the Closing Date, including deposits by customers
whose creditworthiness requires payments in advance.
"Seller Indemnified Persons" is defined in Section
9.2.
"Seller SEC Documents" is defined in Section 3.7(b).
"Seller Stockholder Approval" is defined in Section
5.8(c).
"Seller's Stockholders' Meeting" is defined in
Section 5.8(b).
"Subcontract" is defined in Section 5.13.
"Sublease Agreement" means that certain sublease
agreement in substantially the form of Exhibit C hereto.
"Superior Proposal" means a bona fide written
Acquisition Proposal made by a Person other than Buyer, which is on
terms which the Seller Board in good faith concludes (following
consultation with its financial advisors and outside counsel), taking
into account, among other things, all legal, financial, regulatory and
other aspects of the proposal and the identity and nature of the Person
making the proposal, (i) would, if consummated, result in a transaction
that is more favorable to Seller or Seller's stockholders (in their
capacities as stockholders), from a financial point of view, than the
transactions contemplated by this Agreement (as the same may be
proposed to be amended by Buyer pursuant to Section 5.10(e)), (ii) is
reasonably likely to be completed, (iii) for which the Person making
the proposal has sufficient financial resources available to it and/or
has received and furnished to Seller firm financing commitments on
customary terms from reputable lenders or investment banks which is
reasonably likely to be funded, and (iv) is not subject to any
significant condition or contingency that is not also contained in this
Agreement.
"Superior Proposal Notice" is defined in Section
5.10(d).
15
"Tax" means any foreign, federal, state, county or
local income, sales and use, excise, franchise, real and personal
property, transfer, gross receipt, capital stock, production, business
and occupation, disability, employment, payroll, severance or
withholding tax or charge imposed by any Governmental Entity and any
interest and penalties (civil or criminal) related thereto or to the
nonpayment thereof.
"Tax Return" means a report, return or other
information required to be supplied to a Governmental Entity with
respect to Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes Seller.
"Third Party Claim" is defined in Section 9.4(b).
"Third Party Consent" means any approval, consent or
waiver required to be obtained from, or any notice required to be
delivered to, any Person other than any Governmental Entity.
"Third Party Payor" means an insurance company or
other third party (not including Federal health care programs) that
pays in whole or in part the amount due on account of the sale of
Products by the Business.
"Total Liabilities" is defined in Section 2.8(f)(2).
"Trade Secrets" means the whole or any portion or
phase of any scientific or technical information, design, process,
procedure, computer program, formula, business information or
improvement or Proprietary Information of Seller or any of its
Affiliates that is valuable and not generally known to the competitors
of Seller or any of its Affiliates whether or not in written or
tangible form.
"Transaction" means the sale of the Purchased Assets
and the assumption of the Assumed Liabilities as contemplated by this
Agreement.
"Transferred Employees" is defined in Section 5.6(a).
"Transition Services Agreement" means that certain
transition services agreement in substantially the form of Exhibit D
hereto.
"Tribunal" means any government, any arbitration
panel, any court or any governmental department, commission, board,
bureau, agency or instrumentality of any state or the United States.
"Unaudited Financial Statements" means (i) the
unaudited pro forma balance sheet of the Business as of each of
December 31, 2002 and August 31, 2003 and the unaudited pro forma
statements of operations of the Business for the twelve and eight-month
periods then ended and (ii) the unaudited balance sheet of Seller as of
August 31, 2003 and the unaudited statement of operations of Seller for
the eight-month period then ended.
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Purchased Assets. At the Closing, on the terms and subject to
the conditions of this Agreement, Seller shall sell, transfer, convey, assign
and deliver to Buyer, and Buyer shall purchase and acquire from Seller, free and
clear of all Encumbrances (other than the Permitted Encumbrances), all of
Seller's right, title and interest in and to all of the assets specifically
described in this Section 2.1 and any other assets
16
used primarily in or held for use primarily in the Business, other than the
Excluded Assets (collectively, the "Purchased Assets") including without
limitation:
(a) All FF&E and all design tools, order management and
other management tools, manufacturing tools and test equipment, including
laboratory testing equipment, owned by Seller, whether located at Seller's
facilities or the facilities of a third party, set forth on Schedule 2.1(a);
(b) All of the Inventory as of the Closing Date, whether
located at Seller's facilities or the facilities of a third party;
(c) Subject to Sections 2.2 and 5.13, all Contracts,
listed on Schedule 2.1(c), and any Contracts entered into between the date
hereof and the Closing Date that are identified in a supplement to Schedule
2.1(c) delivered to Buyer at least five (5) days before Closing; provided Buyer
shall have the right on or prior to the Closing Date, by written notice to
Seller, to decline to accept an assignment and assumption of any Contracts
included on such supplemental Schedule 2.1(c), and all rights and claims against
others under such Contracts;
(d) All patents, and all trademarks and service marks
(whether registered or unregistered) and all Proprietary Information and
Intellectual Property set forth on Schedule 2.1(d) hereto;
(e) Accounts Receivable and notes receivable and unbilled
rights to payment in favor of Seller with respect to the Business, as of the
Closing Date, whether current or noncurrent, but excluding the Excluded Medicare
Receivables;
(f) All Seller Advance Payments as of the Closing Date;
(g) All Seller Customer Deposits as of the Closing Date;
(h) All Books and Records of Seller to the extent they
are related to the Business;
(i) All Permits of Seller set forth on Schedule 2.1(i),
but only to the extent that their transfer is permitted by applicable Law;
(j) All guarantees, warranties, indemnities and similar
rights in favor of Seller with respect to the Business or any of the Purchased
Assets, including rights in respect of unemployment accounts and rights to
recovery under insurance policies to the extent the casualty occurred prior to
the Closing;
(k) All claims, causes of action, choses in action,
rights of recovery and rights of set-off of any kind relating to the Purchased
Assets or Assumed Liabilities, against any person, including without limitation
any liens, security interests, pledges or other rights to payment or to enforce
payment in connection with products delivered by Seller on or prior to the
Closing Date, except with respect to the Excluded Medicare Receivables;
(l) All telephone and facsimile numbers and post office
boxes, lockboxes, internet domain names or URLs, used by Seller in connection
with the Business listed on Schedule 2.1(l);
(m) All content primarily related to the Business with
respect to internet websites of Seller, including such content in its electronic
form; and
(n) All other intangible personal property of Seller
primarily related to the Business and all goodwill of the Business.
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2.2 Consents of Third Parties. Notwithstanding anything to the
contrary in this Agreement, this Agreement shall not constitute an assignment or
attempted assignment of any agreement (including, without limitation, the Third
Party Payor Contracts listed on Schedule 5.13), insurance policy, license,
instrument or other assets or property if the attempted assignment thereof,
without the consent, approval or waiver of a third party or entity (including a
Governmental Entity), would constitute a breach thereof or a violation of any
Law, rule or regulation, unless and until such consent, approval or waiver has
been granted. Seller covenants and agrees that in any such case, except with
respect to the Third Party Payor Contracts listed on Schedule 5.13, the
beneficial interests of Seller in and to any such assets or property shall in
any event pass at the Closing to Buyer, and Seller and Buyer covenant and agree
that, from and after the Closing, (a) Seller will hold any and all such assets
or property in trust for the benefit of Buyer, its successors and assigns, (b)
Seller and Buyer will use their respective reasonable efforts, in cooperation
with one another, to obtain and secure all consents that may be necessary to
effect a full and valid transfer or transfers of the same, (c) Seller and Buyer
will use their respective reasonable efforts, in cooperation with one another,
to make or complete such transfer or transfers as soon as reasonably possible,
and (d) Seller will cooperate with Buyer in any assignment, subcontract or other
reasonable arrangement designed to provide for Buyer the benefits of and under
any such assets or property. Buyer agrees to make all payments required to be
made with respect to such assets or property and to assume all liabilities or
other obligations arising from and after the Closing Date with respect thereto
except as a result of Seller's negligence or willful misconduct, regardless of
whether any such consent, approval or waiver has been obtained. With respect to
an unassigned contract, Buyer will not obtain any extension of the current term
of such contracts unless Seller is thereupon released from all obligations under
such contracts.
2.3 Excluded Assets. Notwithstanding the foregoing, Buyer is not
purchasing and Seller is retaining all right, title and interest in and to the
following (collectively, the "Excluded Assets"):
(a) Seller's rights under this Agreement, the Escrow
Agreement, the Sublease, the Transition Services Agreement, the Subcontract, the
Billing Services Agreement or any other document or agreement delivered to or
received by Seller in connection herewith;
(b) All cash on hand and in banks, cash equivalents and
investments;
(c) Seller's bank accounts (except the lockbox accounts
listed on Schedule 2.1(l)), checkbooks and cancelled checks;
(d) The real property lease for Seller's headquarters
facility in Tempe, Arizona;
(e) The corporate name "OrthoLogic" and any related
trademarked or stylized versions thereof (the "Excluded Marks");
(f) Seller's corporate charter, minute and stock record
books, and corporate seal and tax returns;
(g) All Accounts Receivable due from Federal health care
programs, and all rights to ▇▇▇▇ Federal health care program payors for sales
completed prior to the Closing (the "Excluded Medicare Receivables");
(h) Seller's rights to any refunds due with respect to
insurance premium payments and Tax refunds with respect to Taxes heretofore paid
by Seller;
(i) All property, tangible and intangible, real or
personal, and all assets of Seller that are not related primarily to the
Business, including, without limitation, those assets used in the design,
development and marketing of Seller's injectable bone healing products and as
set forth on Schedule 2.3(i);
(j) Any insurance policies held by Seller;
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(k) The agreements set forth on Schedule 2.3(k); and
(l) The assets, if any, described on Schedule 2.3(l).
2.4 Assumed Liabilities. Buyer shall, as of the Closing Date,
expressly assume, and agree to pay, perform or otherwise discharge, as the same
shall become due in accordance with their respective terms, the following
liabilities, obligations and commitments of Seller existing on or arising after
the Closing Date (the "Assumed Liabilities"):
(a) The trade accounts payable and other accrued
liabilities (other than Excluded Trade Payables) described in, and only to the
extent of the amount set forth on, Schedule 2.4(a) together with such additional
accounts payable and accrued liabilities related to the Business which arise
between the date thereof and the Closing Date, but only to the extent such
additional liabilities are accrued for on the Closing Date Net Working Capital
Schedule;
(b) All liabilities, obligations and commitments of
Seller arising after the Closing Date out of the Contracts listed on Schedule
2.1(d), but not including any liability, obligation or commitment of Seller for
any breach thereof by Seller or a predecessor-in-interest occurring prior to or
on or after the Closing Date, or any liability under a Contract that is not
listed on Schedule 2.1(d) as supplemented with Buyer's approval ("Excluded
Contracts"), unless Buyer otherwise agrees;
(c) All liabilities, obligations and commitments arising
after the Closing in Buyer's operation of the Business; and
(d) Seller's liabilities to the Transferred Employees for
vacation pay and for commissions not due and payable on or before the Closing
Date, but only to the extent either (i) accrued for on the Closing Date Net
Working Capital Schedule or (ii) if GAAP does not require such an accrual,
payable pursuant to a policy disclosed to Buyer in Seller's Disclosure Schedule.
2.5 Excluded Liabilities. Notwithstanding anything to the contrary
herein or in any Schedule or Exhibit hereto, except as specified in Section 2.4
above, Buyer shall not assume any liabilities, obligations or commitments of
Seller, whether arising before, on or after the Closing Date, and all such
liabilities, obligations and commitments (the "Excluded Liabilities") shall
remain the exclusive liabilities, obligations and commitments of Seller. Seller
shall pay, perform or otherwise discharge, as the same shall become due in
accordance with their respective terms, all of the Excluded Liabilities. Without
limiting the generality of the foregoing, "Excluded Liabilities" include:
(a) All Taxes and deferred Tax liabilities of Seller
(except for accrued sales and use Taxes in an amount not to exceed that amount
set forth on the Closing Date Net Working Capital Schedule);
(b) All liabilities and obligations arising out of the
Excluded Contracts except to the extent specifically set forth in Sections 2.2
and 5.13 and the Subcontract;
(c) All liabilities and obligations in respect of
benefits under the Employee Benefit Plans;
(d) All liabilities and obligations in respect of
compensation and benefits payable to Seller's employees for services rendered
through the Closing Date, including any retention or change in control bonuses
that may become payable to Transferred Employees as a result of the Closing (but
excluding accrued vacation and commissions);
(e) All liabilities arising in connection with any
Action, pending or threatened, private or public, arising out of conduct of the
Business prior to and including the Closing Date;
19
(f) Any liability arising from any failure to comply with
any applicable bulk sale or transfer Law in connection with the transactions
contemplated by this Agreement;
(g) Any obligation or liability for severance or other
compensation arising as a result of or in connection with the consummation of
the transactions contemplated by this Agreement (either alone or in conjunction
with another event, such as a termination of employment);
(h) Any obligation or liability incurred by Seller or its
Affiliates to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with the transactions contemplated by this
Agreement;
(i) Any obligation or liability arising out of or related
to Seller's ownership or leasehold interest in any real property used in the
Business except to the extent specifically set forth in the Sublease;
(j) Those trade accounts payable and other accrued
liabilities identified on Schedule 2.5(j) (the "Excluded Trade Payables"), the
face amount of which shall equal the aggregate face amount of Excluded Medicare
Receivables (and if such Excluded Trade Payables are not sufficient, the
Purchase Price shall be adjusted downward by the amount of such deficiency, as
provided for in Section 2.6(c));
(k) All liabilities arising, by operation of law or
otherwise, from the operation of the Business by Seller for the periods prior to
and including the Closing Date, including liabilities for defective Products (in
each case other than Assumed Liabilities);
(l) All liabilities and obligations arising out of
violations or alleged violations, whether civil, criminal or administrative,
relating to Seller's participation in Federal health care programs or rights to
reimbursements under Federal health care program regulations ("Administrative
Violations") or Seller's obligations under any Corporate Integrity Agreement;
and
(m) All liabilities constituting indebtedness of Seller
for borrowed money, including capital lease obligations.
2.6 Consideration for Purchased Assets. On the terms and subject
to the conditions of this Agreement, as consideration for the sale, transfer,
assignment and delivery of the Purchased Assets to Buyer (the "Purchase Price"):
(a) Buyer shall assume and pay, perform or otherwise
discharge, as the same shall become due in accordance with their respective
terms, all of the Assumed Liabilities.
(b) Buyer shall pay to Seller or deposit in escrow an
aggregate of Ninety-Three Million Dollars ($93,000,000), as adjusted pursuant to
Section 2.8, as follows: (i) Buyer shall deliver to Seller at Closing cash by
wire transfer to Seller's account in an amount equal to Eighty-Five Million Five
Hundred Thousand Dollars ($85,500,000) (the "Cash Payment"), less the amount by
which the Minimum Closing Date Net Working Capital exceeds the estimated Closing
Date Net Working Capital as provided by Seller pursuant to Section 2.8(b), and
(ii) Buyer shall deposit into escrow Seven Million Five Hundred Thousand Dollars
($7,500,000) (the "Escrow Amount") subject to the terms of the Escrow Agreement
attached hereto as Exhibit A.
(c) At Closing, the Cash Payment shall be reduced by the
amount, if any, by which the amount of estimated Excluded Medicare Receivables
exceeds the amount of estimated Excluded Trade Payables.
2.7 The Closing. The Closing will take place at the offices of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP, Los Angeles, California, or at such other place as the
parties may mutually agree, within three Business Days
20
following the satisfaction or waiver of the conditions precedent set forth in
Article VII, but in any event on or prior to January 31, 2004.
2.8 Net Working Capital Adjustment.
(a) The amount of the Purchase Price set forth in Section
2.6 above was determined, in part, based upon the assumption that the Closing
Date Net Working Capital will equal at least Eight Million Dollars ($8,000,000)
(the "Minimum Closing Date Net Working Capital"). The amount of the Purchase
Price shall be adjusted dollar for dollar downward by the amount by which the
Closing Date Net Working Capital is less than the Minimum Closing Date Net
Working Capital.
(b) Three Business Days prior to Closing, Seller shall
deliver to Buyer an estimated computation of the Closing Date Net Working
Capital, in form and substance reasonably acceptable to Buyer. If the Minimum
Closing Date Net Working Capital exceeds such estimated Closing Date Net Working
Capital, the Cash Payment shall be reduced as provided in Section 2.6(b).
(c) Seller shall prepare and deliver its final
determination of Closing Date Net Working Capital no later than thirty (30) days
after the Closing Date. Buyer shall have the right to review the Books and
Records of Seller on a consolidated basis for a period of sixty (60) days after
the receipt of such determination from Seller to verify and confirm the accuracy
thereof (such period to be extended each day Buyer is not afforded full access
to the Books and Records it may request). If, after such review, Buyer agrees
with Seller's determination of Closing Date Net Working Capital, Buyer shall
promptly notify Seller of its agreement. If, after such review, Buyer objects to
Seller's determination of Closing Date Net Working Capital, Buyer shall promptly
provide Seller with a statement indicating the basis for its objections (the
"Objection Notice"), and Buyer and Seller shall meet and confer in an effort to
resolve such disagreement in good faith. The failure of Buyer to provide an
Objection Notice within sixty (60) days after receipt of Seller's determination
of Closing Date Net Working Capital shall be deemed its agreement that Seller's
determination of Closing Date Net Working Capital is the "Closing Date Net
Working Capital Schedule."
(d) As soon as practicable following the date of delivery
of an Objection Notice, each party shall appoint a knowledgeable, responsible
representative to meet and negotiate in good faith to resolve the Objection
Notice. The parties intend that these negotiations be conducted by experienced
business representatives empowered to decide the issues. The business
representatives will meet and attempt to resolve the Objection Notice within
fifteen (15) calendar days after the date of the Objection Notice. If the
business representatives resolve the dispute, such resolution will be
memorialized in a written settlement and release agreement. If the business
representatives do not resolve the dispute within thirty (30) days following
receipt of the Objection Notice, then the Closing Date Net Working Capital shall
be determined by KPMG LLP or, if such firm is unavailable or unwilling to serve
in such capacity, such other nationally known independent firm of certified
public accountants mutually agreeable to Buyer and Seller (the "Accountants") by
reference to the specific objections set forth in Buyer's Objection Notice. The
determination shall be made as soon as practicable after submission of the
dispute unless Buyer and Seller otherwise agree. If issues in dispute are
submitted to the Accountants for resolution, (i) each party shall furnish to the
Accountants such work papers and other documents and information relating to the
disputed issues as the Accountants may request and are available to that party,
and shall be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants; (ii) the determination by the Accountants of the Closing Date Net
Working Capital, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (iii) the fees
and expenses of the Accountants for such determination shall be awarded to the
prevailing party, as determined by the Accountants (who may also determine there
is no prevailing party, in which case such fees and expenses shall be shared
equally). Each party agrees to execute promptly any engagement letter reasonably
requested by the Accountants.
(e) When the Closing Date Net Working Capital Schedule is
issued by the Accountants or otherwise agreed to, if the amount of Closing Date
Net Working Capital is both less than the Minimum
21
Closing Date Net Working Capital and less than the amount estimated under
subsection (b) above, then, within ten (10) Business Days after such final
determination of the Closing Date Net Working Capital, an amount equal to the
difference between the total shortfall from the Minimum Closing Date Net Working
Capital and the amount actually deducted from the Cash Payment at Closing shall
be paid by Seller to Buyer. If the amount deducted from the Cash Payment at
Closing exceeds the total shortfall from the Minimum Closing Date Net Working
Capital, then within ten (10) Business Days of the final determination of the
Closing Date Net Working Capital Schedule, Buyer shall pay to Seller the amount
required to cause the Cash Payment to be reduced only by the actual shortfall as
finally determined. In no event shall this section be interpreted as requiring
Buyer to pay an amount to Seller that would cause the Cash Payment to exceed the
amount set forth in Section 2.6(b)(i).
(f) As used in Section 2.8, the following terms shall
have the respective meanings assigned to them below:
(1) "Current Assets" mean the following current
assets of the Business, determined as of the Closing Date in accordance with
GAAP consistent with Seller's past practice (but to the extent past practice is
not consistent with GAAP, GAAP shall apply), in each case if included in the
Purchased Assets:
(i) Accounts Receivable (whether billed
or unbilled), other than Excluded Medicare Receivables, net of credit balances,
reserves for discounts, allowances and bad debt, determined in accordance with
GAAP;
(ii) All Inventory, net of inventory
reserves determined in accordance with GAAP; and
(iii) All Seller Advance Payments, to the
extent included in the current assets of the Business.
Current Assets shall not include any cash and cash equivalents.
(2) "Total Liabilities" shall mean the following
Assumed Liabilities, determined as of the Closing Date, in accordance with GAAP
consistent with Seller's past practice (but to the extent Seller's past practice
is not consistent with GAAP, GAAP shall apply):
(i) All Accounts Payable, less the
Excluded Trade Payables;
(ii) All accrued expenses that are
Assumed Liabilities less Excluded Trade Payables, including but not limited to
accrued vacation, commissions, and certain accrued sales and use Taxes as
specified in Section 2.5(a); and
(iii) Accrued warranty costs that are
Assumed Liabilities.
(3) The estimated Closing Date Net Working
Capital schedule delivered pursuant to Section 2.8(b), and the Closing Date Net
Working Capital Schedule as finally determined, shall each contain a line item
showing the Excluded Medicare Receivables and Excluded Trade Payables and the
Seller shall attach supporting detail to the estimated and final schedule
reasonably acceptable to Buyer. The parties intend to balance the value of the
Excluded Medicare Receivables and Excluded Trade Payables, plus the amount of
any the reduction in the Purchase Price pursuant to Section 2.6(c), if any,
before computing Current Assets and Total Liabilities at the Closing Date, and
any reduction under Section 2.6(c) shall be treated as a Current Asset for
purposes of the Closing Date Net Working Capital Schedule, both as estimated and
as finally determined.
22
(4) Schedule 2.8(f)(4) shows Net Working Capital
at August 31, 2003, determined based on the pro forma balance sheet as of that
date and reflecting the adjustments to be used in computing the Closing Date Net
Working Capital.
2.9 Allocation of Purchase Price. Schedule 2.9 attached hereto is
a preliminary allocation of Purchase Price among the Purchased Assets. Promptly
following the Closing, the final Schedule 2.9 will be prepared by Buyer and
Seller in a manner consistent with the Schedule 2.9 attached hereto and in
accordance with Section 1060 of the Code. Seller and Buyer each agree, (a) to
report the sale of the Purchased Assets for Tax purposes in accordance with the
allocations set forth on the final Schedule 2.9 and to follow the allocations
set forth on the final Schedule 2.9 in determining and reporting their
liabilities for any Taxes, (b) without limitation, not to take any position
inconsistent with such allocations on any of its Tax Returns, and (c) to timely
file federal tax Form 8594 with the applicable Tax Return for the year of this
transaction reflecting such Purchase Price allocations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as otherwise indicated on Seller's Disclosure Schedule,
Seller represents, warrants and agrees as follows:
3.1 Organization and Related Matters. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Seller has all necessary corporate power and authority to own its
properties and to carry on its businesses as presently conducted and is duly
qualified or licensed to do business as a foreign corporation in good standing
in all jurisdictions in which the nature of its businesses requires licensing or
qualification, except where the failure to be so qualified or licensed would
not, individually or in the aggregate, have a Material Adverse Effect on the
Business or the ability of the parties to consummate the Transaction. Section
3.1 of Seller's Disclosure Schedule sets forth a list of states in which Seller
is qualified to do business.
3.2 Authorization. Seller has all necessary corporate power and
authority to execute, deliver and perform this Agreement, and Seller has the
necessary corporate power and authority to sell, convey and assign the Purchased
Assets in accordance with the terms hereof. The Seller Board, at meetings duly
called and held, has (a) determined that the transactions contemplated by this
Agreement are fair to, and in the best interests of, the stockholders of Seller,
(b) approved this Agreement and the transactions contemplated hereby and (c)
recommended that the stockholders of Seller adopt this Agreement, and approve
the sale of the Purchased Assets and the other transactions contemplated hereby
and directed that this Agreement and the transactions contemplated hereby be
submitted for consideration by the stockholders of Seller. This Agreement has
been duly executed and delivered by Seller and constitutes Seller's legally
valid and binding obligation, enforceable against Seller in accordance with its
terms except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors' rights generally.
3.3 No Conflicts. Except as set forth in Section 3.3 of Seller's
Disclosure Schedule, neither Seller's execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby nor compliance by
Seller with any provisions hereof will (i) violate or conflict with Seller's
certificate of incorporation or bylaws ("Charter Documents"); (ii) violate,
conflict with, result in a breach of, constitute a default (or an event which,
with the giving of notice or lapse of time or both, would constitute a default)
under, or result in the acceleration of performance under, or termination or
cancellation of, any Material Contract; (iii) violate any Law; or (iv) violate
any Order or, to Seller's Knowledge, Action to which Seller is a party or by
which Seller is affected.
3.4 No Other Agreements to Sell Assets or Business. Seller has no
other obligation, absolute or contingent, to any Person (other than as
contemplated hereby) (i) to sell any of the Purchased Assets (other
23
than inventory in the ordinary course of business), (ii) to issue, sell or
otherwise transfer any capital stock or any security convertible into or
exchangeable for capital stock of Seller that would impede the consummation of
the transactions contemplated hereby, or (iii) to effect any merger,
consolidation or other reorganization of Seller or enter into any agreement with
respect to any of the foregoing.
3.5 Legal Proceedings. Except as set forth in Section 3.5 of
Seller's Disclosure Schedule, there is no Order or Action pending or, to
Seller's Knowledge, threatened against or affecting Seller or the Business that,
in either case, is Material or would materially impair or delay Seller's ability
to consummate the Closing or perform its obligations under this Agreement.
3.6 Approvals and Third Party Consents. Section 3.6 of Seller's
Disclosure Schedule lists all Approvals by any Governmental Entity and Third
Party Consents relating to any Material Contract that are required to be made or
obtained by Seller (i) by virtue of the execution, delivery or performance of
this Agreement; (ii) to avoid the loss of any Material Permit or the breach of
any Material Contract or the creation of an Encumbrance (other than a Permitted
Encumbrance) on any of the Purchased Assets; (iii) to comply with contractual
provisions or Laws requiring the giving of notice to third parties or
Governmental Entities or (iv) to enable Buyer to own the Purchased Assets
following the Closing Date.
3.7 Financial Information and SEC Reports.
(a) Section 3.7 of Seller's Disclosure Schedule sets
forth the Audited Financial Statements and the Unaudited Financial Statements
(collectively, the "Financial Statements") and the Business Financial Statements
Reconciliation. The Financial Statements were prepared from the Books and
Records of Seller and fairly present, in all material respects, the financial
position of Seller and its consolidated subsidiaries as of the dates thereof and
the results of their operations and their cash flows for the periods set forth
therein, in each case in accordance with past practice and GAAP during the
periods involved (except as otherwise disclosed in the notes thereto and
subject, in the case of the Unaudited Financial Statements, to (i) normal
year-end adjustments that would not be Material in amount or effect and (ii) the
absence of notes). The Business Financial Statements Reconciliation was prepared
in good faith, consistent with past practice and fairly represents the best
estimate of the Financial Statements of the Business as derived from the
Financial Statements of Seller.
(b) Seller has filed all forms, reports, schedules,
statements and other documents required to be filed by it with the SEC and has
made available to Buyer true and complete copies of all such forms, reports,
schedules, statements and other documents filed by it since January 1, 2000,
under the Exchange Act or the Securities Act (such forms, reports, schedules,
statements and other documents, including any financial statements or schedules
included therein, are referred to as the "Seller SEC Documents"). Each of the
Seller SEC Documents, at the time filed, (i) did not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by such Seller SEC
Document and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder.
(c) The consolidated financial statements included in the
Seller SEC Documents comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto or, in the case of the unaudited statements of
Seller, as permitted by SEC Forms 10-Q and 8-K) and fairly present in all
material respects (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments) the consolidated financial position, results of
operations and cash flows of Seller for the periods presented in the Seller SEC
Documents.
(d) The trade payables are valid trade accounts payable
and are payable in full to the vendor, without rights of discount, offset or
refund, except as used to compute the aggregate face value of the
24
Excluded Trade Payables in accordance with GAAP, or except as shown in Section
3.7(d) of Seller's Disclosure Schedule.
3.8 Tangible Assets. Section 3.8 of Seller's Disclosure Schedule
sets forth the tangible assets owned or leased by Seller and included in the
Purchased Assets. Seller has good title to, or valid leasehold interest in or
other valid right to use, free and clear of Encumbrances other than Permitted
Encumbrances, all such tangible assets included in the Purchased Assets. Except
as set forth in Section 3.8 of Seller's Disclosure Schedule, the tangible assets
included in the Purchased Assets are in good working condition (reasonable wear
and tear excepted) and adequate for the purposes for which such properties and
assets are currently used or held for use. Except as set forth in Section 3.8 of
Seller's Disclosure Schedule, all of the assets or properties included in the
Purchased Assets that are owned by any Person other than Seller will continue to
be leased or licensed to Buyer, under valid, current leases or licenses
immediately following the Closing. Upon consummation of the transactions
contemplated by this Agreement, Buyer will acquire good, valid and marketable
title to the Purchased Assets to be transferred to Buyer hereunder, except for
those Purchased Assets which constitute leased or licensed personal property,
which Buyer will hold under valid leases or licenses, free and clear of any and
all Encumbrances (other than Permitted Encumbrances). Except as set forth in
Section 3.8 of Seller's Disclosure Schedule, the Purchased Assets (tangible and
intangible) include all the operating assets of Seller used primarily in the
Business and all of the assets necessary for the conduct of the Business.
3.9 Offices. Seller does not maintain any facilities or lease,
license or have occupancy rights for any Real Property, other than the
headquarters facility located in Tempe, Arizona. Section 3.9 of Seller's
Disclosure Schedule sets forth each location at which a sales representative or
other employee of the Business is located.
3.10 Taxes.
(a) Seller has timely filed or will file (or, where
permitted or required, its Affiliates have timely filed or will file) all Tax
Returns regarding the Business and the Purchased Assets required to be filed on
or prior to the Closing Date (taking into account extensions to file). All such
Tax Returns, including amendments to date, have been prepared in good faith and
are complete and accurate in all Material respects, and all Taxes shown thereon
have been paid.
(b) All Taxes that are due and payable with respect to
the operations of the Business have been paid in full and all deposits required
by law to be made with respect to any such Taxes have been duly made. No known
adjustment relating to such Tax Returns has been proposed in writing by any Tax
authority (insofar as such adjustment relates to the activities or income of the
Business or any of the Purchased Assets). There are no pending or, to Seller's
Knowledge, threatened actions for the assessment or collection of Taxes that
relate to the activities or income of the Business or to any of the Purchased
Assets or could result in liability of the Business or with respect to any of
the Purchased Assets. There are no liens for Taxes upon the assets of Seller
other than liens for Taxes not yet due and payable. All Taxes which Seller is
required by law to withhold or to collect for payment have been duly withheld
and collected, and have been paid over to the appropriate Tax authorities and
Seller has complied with all information reporting and backup withholding
requirements with respect thereto.
(c) No employee has been improperly classified as an
independent contractor and all employees classified as exempt employees for
purposes of federal and state overtime laws are appropriately classified.
3.11 Permits. Seller holds all Material Permits that are required
by any Governmental Entity to permit it to conduct the Business as presently
conducted. To Seller's Knowledge, no suspension, cancellation or termination of
any Material Permit is threatened or imminent. Seller and its respective
directors, officers, consultants or employees (in their capacity as such), are
not in default with respect to any order, writ,
25
injunction or decree of any Governmental Entity or regulatory authority with
respect to the Business. Section 3.11 of Seller's Disclosure Schedule contains a
true and complete list of the Material Permits identifying those Permits which
are transferable to Buyer.
3.12 Intercompany Transactions. Except as set forth in Section 3.12
of Seller's Disclosure Schedule, Seller has not engaged in any Material
transaction with any Affiliate for which any liabilities or obligations of the
Business will remain to be satisfied after the Closing. Section 3.12 of Seller's
Disclosure Schedule lists: (a) any Material liabilities or obligations of Seller
to any Affiliate related to the Business; and (b) any Material liabilities or
obligations of an Affiliate to Seller related to the Business, in each case
except for those liabilities or obligations arising as a result of this
Agreement.
3.13 Compliance with Law.
(a) Seller is not in violation of, or has any liability
under any Law, which violation or liability would be, individually or in the
aggregate, Material. Seller has not received any notice from, or otherwise been
advised that, any Governmental Entity or other Person is claiming any violation
or potential violation of any Law with respect to the Business. Seller has
operated the Business in compliance with all Laws. Except as previously
disclosed, Seller has not, during the past three (3) years, conducted any
internal investigation or compliance review requested by the Seller Board, its
executive officers, its Compliance Officer or its Legal Department in connection
with which Seller retained or sought advice from outside legal counsel with
respect to any actual, potential or alleged Material violation of any applicable
Law by Seller or any of Seller's employees.
(b) Without limiting the generality of the foregoing
subsection (a), Seller has not, directly or indirectly, offered, paid, solicited
or received any payment or other remuneration which was not legal to offer, pay,
solicit or receive under applicable federal and state statutes or regulations,
including without limitation "fraud and abuse" or anti-kickback laws, nor has
Seller engaged in any other conduct that would violate these laws or federal or
state False Claims Acts. Seller has not for any reason lost its right or
authorization, or otherwise failed to be eligible, to participate in Medicaid or
Medicare, or other Federal health care programs or to accept assignments or
rights to reimbursements under regulations of a Federal health care program, or
had its right to receive reimbursements under Federal heath care program
regulations suspended. Except as set forth in Section 3.13(b) of the Seller's
Disclosure Schedule, there is no investigation, Order, decree or agreement
("Corporate Integrity Agreement") regarding Seller's sales, marketing,
contracting, pricing, billing or other financial practices with respect to
Federal health care programs, or compliance with applicable Federal health care
program statutes or regulations. Seller has duly performed all of its
obligations under each Corporate Integrity Agreement to which it is a party, and
is in compliance with the terms of each Corporate Integrity Agreement currently
in effect. Seller has not received any notice alleging a violation of any
current Corporate Integrity Agreement and, to Seller's Knowledge, no facts or
circumstances have occurred that could constitute a breach, violation or default
under a Corporate Integrity Agreement or could constitute a breach, violation or
default with notice of the passage of time. All applicable regulatory agencies
have certified Seller's compliance with its Corporate Integrity Agreement
following each such agency's most recent evaluation of compliance. Under the
terms of any current Corporate Integrity Agreement, Seller has not determined
through any means or reported to any Governmental Entity a Material Deficiency,
as that term is defined by the Corporate Integrity Agreement.
(c) Except as set forth in Section 3.13(c) of the
Seller's Disclosure Schedule, Seller, with respect to the Business, is currently
in compliance with all applicable provisions of HIPAA and all regulations
pertinent to HIPAA and is fully prepared to comply with HIPAA regulations and
requirements which become effective from the date hereof to December 31, 2003.
3.14 No Brokers or Finders. Other than as set forth in Section 3.14
of Seller's Disclosure Schedule, no agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of
Seller or any of its Affiliates in connection with the negotiation, execution or
performance
26
of this Agreement or the Transaction, is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement or the
Transaction.
3.15 No Undisclosed Liabilities. Except as disclosed with
specificity as to source and amount in Section 3.15 of Seller's Disclosure
Schedule, Seller has no liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, related to the Business, other than:
(a) Liabilities or obligations disclosed in the Seller's
SEC Documents;
(b) Liabilities or obligations incurred by Seller since
the date of the Unaudited Financial Statements in the ordinary course of
business consistent with past practice and which, if Assumed Liabilities, are
included in the determination of the final Closing Date Net Working Capital
Schedule; and
(c) Other liabilities or obligations that are not
Material in the aggregate.
3.16 Patents, Trademarks and Proprietary Information.
(a) Except as set forth in Section 3.8 of Seller's
Disclosure Schedule, Schedule 2.1(d) contains a complete and correct list of the
following assets and related matters: (i) all patents and applications for
patents, all registered trademarks and applications for registration of
trademarks, and all copyright registrations and applications for copyright
registration, owned or used (pursuant to license agreements or otherwise) by
Seller primarily in connection with the Business, and in the case of any such
Intellectual Property that is so owned, the jurisdictions in or by which such
assets or any of them have been registered, filed or issued and (ii) all
contracts, agreements or understandings pursuant to which Seller has authorized
any Person to use any of the Intellectual Property which is so owned.
(b) The operation of the Business as currently conducted
by Seller does not interfere with, conflict with, infringe upon, misappropriate
or otherwise violate the Intellectual Property rights of any third party, and no
action or claim is pending or, to the Knowledge of Seller, threatened alleging
that the operation of such Business interferes with, conflicts with, infringes
upon, misappropriates or otherwise violates the Intellectual Property rights of
any third party and, to the Knowledge of Seller, there is no basis therefor.
(c) Seller is the sole owner of the entire right, title
and interest in and to, or has a valid license or other legal right under the
Intellectual Property, whether owned or licensed, used in or necessary to the
operation of the Business as presently conducted by Seller, subject to the terms
of the license agreements governing the licensed Intellectual Property.
(d) Except as set forth in Schedule 2.1(d), there are no
outstanding options, licenses, or agreements of any kind relating to the
Intellectual Property, nor is Seller bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property.
(e) Seller has no present Knowledge from which it could
reasonably conclude that the Intellectual Property, including any Intellectual
Property licensed to Seller, is invalid or unenforceable, and the same has not
been adjudged invalid or unenforceable in whole or in part. Seller has timely
paid all maintenance fees and annuities and has filed all necessary papers to
maintain and renew the Intellectual Property. Except as set forth in Section 3.8
of Seller's Disclosure Schedule, the Intellectual Property set forth on Schedule
2.1(d) constitutes all of the Intellectual Property necessary for the operation
of the Business of Seller as currently conducted by Seller. Seller has complied
with all of its obligations of confidentiality in respect of the claimed Trade
Secrets or Proprietary Information of others, and Seller has no Knowledge of a
violation of such obligations of confidentiality as are owed to it.
(f) No claims or actions have been asserted, are pending
or, to the Knowledge of Seller, are threatened against Seller (i) based upon or
challenging or seeking to deny or restrict the ownership by or
27
license rights of Seller of any of the Intellectual Property, or (ii) alleging
that the Intellectual Property licensed to Seller is being licensed or
sublicensed in conflict with the terms of any license or other agreement, and,
to the Knowledge of Seller, there is no basis for such a claim.
(g) As of the Closing Date, to the Knowledge of Seller,
no person is engaging in any activity that infringes or misappropriates the
Intellectual Property. Except as set forth in Schedule 2.1(d), Seller has not
granted any license or other right to any third party with respect to the
Intellectual Property. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this Agreement by
Seller will not breach, violate or conflict with any instrument or agreement
concerning the Intellectual Property, will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any of the
Intellectual Property or materially impair the right of Buyer to license or
dispose of, or to bring any action for the infringement of, any of the
Intellectual Property.
(h) Seller has delivered or made available to Buyer
correct and complete copies of all the licenses of the Intellectual Property
licensed to Seller, other than licenses of commercial off-the-shelf computer
software. With respect to each such license:
(1) Such license is valid and binding and in
full force and effect and represents the entire agreement between the respective
licensor and licensee with respect to the subject matter of such license; and
(2) Seller has not (A) received any notice of
termination or cancellation under such license, (B) received any notice of
breach or default under such license, which breach has not been cured, or (C)
granted to any other third party any rights, adverse or otherwise, under such
license that would constitute a Material breach of such license.
(i) Except as set forth in Schedule 2.1(d), Seller has no
Knowledge that any of its respective employees, officers, directors, agents or
consultants is (i) subject to confidentiality restrictions in favor of any third
person the breach of which could subject Seller to any liability, or (ii)
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
Seller, or that would conflict with Seller's Business as presently conducted or
proposed to be conducted. Each employee and officer of and consultant to Seller
has executed a proprietary information and inventions agreement. No current or
former employee or officer of or consultant to Seller or any of its subsidiaries
has excluded works or inventions made prior to his or her employment or
relationship with Seller from his or her assignment of inventions pursuant to
such employee, officer or consultant's proprietary information and inventions
agreement.
(j) Seller has taken reasonable steps in accordance with
normal industry practice to maintain the confidentiality of its Trade Secrets
and other confidential Intellectual Property. To the Knowledge of Seller, (i)
there has been no misappropriation of any Material Trade Secrets or other
Material confidential Intellectual Property by any person; (ii) no employee,
independent contractor or agent of Seller has misappropriated any Trade Secrets
of any other person in the course of such performance as an employee,
independent contractor or agent; and (iii) no employee, independent contractor
or agent of Seller or any of its subsidiaries is in Material default or breach
of any term of any employment agreement, non-disclosure agreement, assignment of
invention agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of Intellectual Property
owned by Seller.
(k) The conduct of Seller's Business as presently
conducted or as proposed to be conducted, will not, to the Knowledge of Seller,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument related to
Intellectual Property under which Seller or any of its employees or consultants
are now obligated. Except to the extent already assigned to Seller, Seller does
not believe that it is or will be necessary to utilize any Intellectual Property
or
28
Proprietary Information of any of its respective employees (or people it
currently intends to hire) made or developed prior to their employment by
Seller.
3.17 Material Contracts.
(a) Section 3.17 of Seller's Disclosure Schedule sets
forth all of the following contracts related to the Business (the "Material
Contracts"):
(1) Collective bargaining agreements or other
contracts with any labor union, or any contract, whether written or oral
(excluding any oral or written contract that is terminable-at-will under the
laws of the relevant jurisdiction without severance obligations), for the
employment of any Transferred Employee (as defined herein), or any agreement
relating to loans to a Transferred Employee, or any retention, severance, change
of control or similar arrangement with a Transferred Employee which would result
in a payment becoming due as a result of the Closing;
(2) Agreements or indentures relating to the
borrowing of money, equipment leases or financing, or to the mortgaging,
pledging or otherwise placing a lien on any Purchased Asset;
(3) Contracts or agreements (i) prohibiting it
from freely engaging or competing in any business anywhere in the world, or (ii)
entered into restricting Seller's right to use or disclose any information in
its possession;
(4) Partnership, joint venture, or other similar
contract arrangements;
(5) Sales, distributorship, material purchase
orders or other similar contract arrangements relating to the sale of a material
quantity of Products;
(6) The Seller's Contracts with its Third Party
Payors that represent more than $100,000 of revenues on an annualized basis
(excluding government agencies);
(7) Any contract relating to the acquisition or
disposition of any business of Seller (whether by merger, sale of stock, sale of
assets or otherwise);
(8) Contracts related to the licensing of
Intellectual Property or Proprietary Rights, including those listed on Schedule
2.1(d);
(9) Any contracts with a Third Party Payor or
any other third party that has terms which require Seller to be in any kind of
exclusive relationship with, or exclusively deal with, such Third Party Payor or
other third party; or
(10) Any other contract which creates future
payment obligations in excess of $50,000 in the aggregate and which by its terms
does not terminate or is not terminable without penalty by Seller upon notice of
thirty (30) days or less.
(b) Seller has furnished to Buyer true and complete
copies of each of the Material Contracts.
(c) All of the Material Contracts are legal, valid and
binding obligations and in full force and effect. Seller has duly performed all
of its obligations under each Material Contract to the extent those obligations
have accrued and no default, violation, or breach by Seller or, to Seller's
Knowledge, any other party under any Material Contract has occurred which
affects the enforceability of such Material Contract or any parties' rights
thereunder, including without limitation rights of termination, modification and
acceleration, except where any of the foregoing would not, individually or in
the aggregate, be Material.
29
(d) Seller is in compliance with all confidentiality and
privacy provisions of each Material Contract.
3.18 Absence of Certain Changes or Events. Except as set forth in
Section 3.18 of Seller's Disclosure Schedule or in the Unaudited Financial
Statements, since June 30, 2003, there has been no material change in the
business, operations, properties, condition (financial or otherwise), or assets
or liabilities (including, without limitation, contingent liabilities) of the
Business. Without limiting the foregoing, with respect to the Business, since
June 30, 2003:
(a) Seller has not increased the level of benefits under
any Employee Benefit Plan, the salary or other compensation (including
severance) payable or to become payable to any of the Transferred Employees or
obligated itself to pay any bonus or other additional salary or compensation to
any Transferred Employee, other than in the ordinary course of business and
consistent with past practice;
(b) Seller has not entered into any Material transaction
other than in the ordinary course of business consistent with past practice;
(c) Seller has not sold, transferred, disposed of, or
agreed to sell, transfer or dispose of, any assets, properties, Intellectual
Property or rights other than in the ordinary course of business consistent with
past practice;
(d) Seller has not acquired any Material assets, except
in the ordinary course of business, nor acquired or merged with any other
business;
(e) No Encumbrances (other than Permitted Encumbrances)
have been incurred or created on any of the Purchased Assets;
(f) Seller has not made any material change in any
pricing, marketing, purchasing, allowance or tax or accounting practice, policy
or method or any method of calculating any bad debt, contingency or other
reserve for accounting, financial reporting or tax purposes or made any material
tax election or settled or compromised any Material income or sales tax
liability with any Governmental Entity;
(g) There has been no waiver or amendment of any material
right relating to Seller which would reasonably be expected to be Material to
the conduct of the Business;
(h) Seller has not made any capital expenditure (or
series of related capital expenditures) that is either Material or outside the
ordinary course of business;
(i) Seller has not amended, rescinded or terminated (and
not renewed) any existing Material Contract and no such Material Contract has
expired or terminated (and not been renewed) by its terms;
(j) None of the Purchased Assets, individually or in the
aggregate, have been destroyed, damaged or otherwise lost (whether or not
covered by insurance);
(k) Seller has not made any material change in its
accounting methods, principles or practices, except as required by applicable
laws, regulations or accounting pronouncements; provided that each such change
has been disclosed in the Seller's SEC Documents; and
(l) Seller has not entered into any commitment
(contingent or otherwise) to do any of the foregoing, other than pursuant to
this Agreement.
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3.19 Inventory. After considering reserves, all Inventory (a) was
acquired in the ordinary course of business, (b) is of good and merchantable
quality, (c) consists of a quality, quantity and condition useable, leasable or
saleable in the ordinary course of business and (d) has a book value as
reflected on the Unaudited Financial Statements of the lesser of Seller's actual
cost of such item of Inventory and the market price for such item of Inventory
as of the date of the Unaudited Financial Statements. Seller is not under any
liability or obligation with respect to the return of Inventory in the
possession of distributors or other customers in excess of established reserves.
Except as set forth on Section 3.19 of Seller's Disclosure Schedule, Seller
holds no Inventory on consignment, or holds title to or ownership of any
Inventory in the possession of others. Section 3.19 of Seller's Disclosure
Schedule lists all physical locations where the Inventory is located and the
amount of Inventory at each such location.
3.20 Accounts Receivable. All Accounts Receivable, net of reserves,
are good and collectible in full in the ordinary course of business and are, or
will be as of the Closing Date, free and clear of all Encumbrances, except
Permitted Encumbrances. Seller has fully performed all obligations with respect
to such Accounts Receivable that it was obligated to perform to the date hereof.
To the Knowledge of Seller, adequate reserves have been accrued and maintained
in the Audited Financial Statements and Unaudited Financial Statements, to
provide for all doubtful accounts of, valid counterclaims or setoffs by,
rebates, discounts and allowances to, and returns from, any customers of Seller,
and such reserves were established in a manner consistent with Seller's
collection experience in prior periods. Seller has furnished Buyer with a true
and complete copy of its Accounts Receivable aging report, dated August 31,
2003.
3.21 Customers, Resellers and Suppliers. Section 3.21 of Seller's
Disclosure Schedule sets forth a correct and complete list of all of the
Material customers and resellers of the Business. There are no outstanding
disputes with any customers, distributors or suppliers of the Business, other
than disputes which would not be, individually or in the aggregate, Material. No
Material customer, distributor or supplier of the Business has refused to do
business with Seller or has stated to Seller its intention to discontinue or
reduce the level of business with Seller or to change its relationship or
arrangements with the Business in a manner adverse to the Business, whether as a
result of the transactions contemplated hereby or otherwise.
3.22 Employee Benefit Plans.
(a) Identification of Plans. Except as described in
Section 3.22(a) of Seller's Disclosure Schedule, Seller does not now maintain or
contribute to, and has not ever maintained or contributed to, any Employee
Benefit Plan, whether formal or informal, written or oral.
(b) Delivery of Documents. Seller has delivered to Buyer
correct and complete copies of each Employee Benefit Plan, and with respect to
each such Plan (i) any associated trust, custodial, insurance, or service
agreements, (ii) any annual report, actuarial report, or disclosure materials
(including specifically any summary plan descriptions) submitted to any
Governmental Entity or distributed to participants or beneficiaries thereunder
in the current or any of the three (3) preceding calendar years, and (iii) the
most recently received IRS determination letters and any governmental advisory
opinions, rulings, compliance statements, closing agreements, or similar
materials specific to such Employee Benefit Plan.
(c) Compliance with Terms and Law. Each Employee Benefit
Plan is and has heretofore been maintained and operated in compliance with the
terms of such Plan and with the requirements prescribed (whether as a matter of
substantive law or as necessary to secure favorable tax treatment) by any and
all requirements of Law in effect from time to time, including but not limited
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
the Code and applicable to such Plan. Each Employee Benefit Plan that is
intended to qualify under Section 401(a) of the Code and each trust forming part
of an Employee Benefit Plan which is intended to qualify under Section 501(c)(9)
of the Code is specifically so identified in Section 3.22(a) of Seller's
Disclosure Schedule and has been determined by the IRS to be so qualified, and
nothing has occurred to each such Employee Benefit Plan or trust that has
resulted or is likely to
31
result in the revocation of such determination as to such Employee Benefit Plan
or trust or could require action under the compliance resolution programs of the
IRS to preserve such qualification.
(d) Absence of Certain Events and Arrangements. There is
no pending, or to the best of Seller's Knowledge, threatened, Action, other than
routine claims for benefits, concerning any Employee Benefit Plan, or to the
best of Seller's Knowledge, any fiduciary or service provider thereof, and to
the best of Seller's Knowledge, there is no basis for any such Action.
(1) No liability (contingent or otherwise) to
the Pension Benefit Guaranty Corporation ("PBGC") or any multi-employer plan has
been incurred by Seller or any of its ERISA affiliates (other than insurance
premiums satisfied in due course).
(2) No reportable event, or event or condition
that presents a material risk of termination by the PBGC, has occurred with
respect to any Employee Benefit Plan, or any retirement plan of an ERISA
affiliate of Seller, which is subject to Title IV of ERISA.
(3) No Employee Benefit Plan nor any party in
interest with respect thereof, has engaged in a prohibited transaction that
could subject Seller directly or indirectly to liability under Section 409 or
502(i) of ERISA or Section 4975 of the Code.
(4) No communication, report, or disclosure has
been made that, at the time made, did not accurately reflect the terms and
operations of any Employee Benefit Plan.
(5) No Employee Benefit Plan provides welfare
benefits subsequent to termination of employment to employees or their
beneficiaries (except to the extent required by applicable state insurance laws
and Title I, Part 6 of ERISA).
(6) No benefits due under any Employee Benefit
Plan have been forfeited subject to the possibility of reinstatement (which
possibility would still exist at or after the Closing).
(7) Seller has not undertaken to maintain any
Employee Benefit Plan for any period of time and each such Plan is terminable at
the sole discretion of Seller, subject only to such constraints as may be
imposed by applicable law.
(8) Seller has not announced its intention, or
undertaken (whether or not legally bound) to modify or terminate any Employee
Benefit Plan or adopt any arrangement or program which, once established, would
come within the definition of an Employee Benefit Plan.
(e) Funding of Certain Plans. With respect to each
Employee Benefit Plan for which a separate fund of assets is or is required to
be maintained, full payment has been made of all amounts that Seller is
required, under the terms of each such Employee Benefit Plan, to have paid as
contributions to that Employee Benefit Plan as applied through the Closing Date,
and no accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any such
Employee Benefit Plan. The current value of the assets of each such Employee
Benefit Plan, as of the end of the most recently ended plan year of that
Employee Benefit Plan, exceeded the current value of all accrued benefits under
that Plan.
(f) Effect of Transactions. Except as set forth in
Section 3.22(f) of Seller's Disclosure Schedule, the execution of this Agreement
and the consummation of the transactions contemplated hereby will not result in
any payment (in the nature of severance pay or otherwise) becoming payable by
Seller to any Transferred Employee of Seller or result in the vesting,
acceleration of payment, or increases in the amount of any benefit payable to or
in respect of any such Transferred Employee.
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(g) Multi-employer Plans. No Employee Benefit Plan is a
multi-employer plan.
(h) Definitions. For purposes of this Section 3.22,
"multi-employer plan," "party in interest," "current value," "accrued benefit,"
"reportable event," and "benefit liability"" have the same meaning assigned such
terms under Sections 3, 4043(b) or 4001(a) of ERISA, and "ERISA affiliate" means
any entity that under Section 414 of the Code is treated as a single employer
with Seller.
3.23 Environmental Matters.
(a) The following terms, when used in this Section 3.23
shall have the following meanings:
(1) "Seller" for purposes of this Section 3.23
includes (A) Seller, (B) all partnerships, joint ventures and other entities or
organizations in which Seller was at any time or is a partner, joint venturer,
member or participant, and (C) all predecessor or former corporations,
partnerships, joint ventures, organizations, businesses or other entities,
whether in existence as of the date hereof or at any time prior to the date
hereof, the assets or obligations of which have been acquired or assumed by
Seller or to which Seller has succeeded.
(2) "Release" means any release, threatened
release, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing into the environment or the
workplace of any Hazardous Substance, and otherwise as defined in any
Environmental Law.
(3) "Hazardous Substance" means any pollutants,
contaminants, chemicals, waste and any toxic, infectious, carcinogenic,
reactive, corrosive, ignitable or flammable chemical or chemical compound or
hazardous substance, material or waste, whether solid, liquid or gas, including
any quantity of asbestos in any form, urea formaldehyde, PCBs, radon gas, crude
oil or any fraction thereof, all forms of natural gas, petroleum products or
by-products or derivatives, radioactive substance, waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Law.
(4) "Environmental Laws" mean all Laws which
regulate or relate to (A) the protection or clean-up of the environment, (B) the
use, treatment, storage, transportation, generation, manufacture, processing,
distribution, handling, or Release of Hazardous Substances, (C) the preservation
or protection of waterways, groundwater, drinking water, air, wildlife, plants
or other natural resources, or (D) the health and safety of persons or property,
including, without limitation, protection of the health and safety of employees.
Environmental Laws include, without limitation, the Federal Water Pollution
Control Act, Resource Conservation & Recovery Act, Clean Water Act, Safe
Drinking Water Act, Atomic Energy Act, Occupational Safety and Health Act, Toxic
Substances Control Act, Clean Air Act, Comprehensive Environmental Response,
Compensation and Liability Act, Hazardous Materials Transportation Act and all
analogous or related foreign, federal, state or local law.
(5) "Environmental Conditions" mean the Release
or presence of any Hazardous Substance (whether or not such Release or presence
constituted at the time thereof a violation of any Environmental Law) as a
result of which Seller has or may become liable to any Person or by reason of
which the Business or any of the Purchased Assets may suffer or be subjected to
any Encumbrance or liability.
(6) "Site" means any real property now or
previously owned or operated by Seller.
(b) Seller and each Site are in compliance with all, and
Seller has no liability under any, Environmental Laws.
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(c) No Release has occurred at any Site, and there are no
present or past Environmental Conditions in any way relating to Seller, any
Site, or the Business.
(d) Seller has delivered to Buyer copies of all
environmental audits or other studies or reports relating to any Environmental
Condition or relating to the Business.
(e) Seller is not a potentially responsible party with
respect to any foreign, federal, state, or local environmental clean-up site or
with respect to investigations or corrective actions under any Environmental
Law.
(f) Seller has not received notice of any alleged, actual
or potential responsibility, inquiry, investigation or administrative or
judicial proceeding regarding (x) any Release at any Site or other location, or
(y) any violation of or non-compliance by Seller with the conditions of any
Permit required under any Environmental Law or the provisions of any
Environmental Law. Seller has not received any notice of any other claim, demand
or action by any Person alleging any actual or threatened injury or damage to
any Person, property, natural resource or the environment arising from or
relating to any Release, transportation, disposal or presence of any Hazardous
Substances.
(g) There are not now and never has been any underground
or above-ground storage tanks located at any Site.
(h) Seller has given all notices and warnings, made all
reports, obtained all Permits, licenses and approvals, and has kept, maintained
and filed all records required by, and in compliance with, all Environmental
Laws, including, without limitation any notices and consents required under any
Environmental Laws in connection with the consummation of the transaction
contemplated by this Agreement.
3.24 Insurance. Section 3.24 of Seller's Disclosure Schedule sets
forth a list and the material terms of all insurance policies, letters of credit
and surety bonds covering or relating to the Business. There are no pending
claims against such insurance by Seller as to which the insurers have denied
coverage or otherwise reserved rights. Seller has not been refused any insurance
with respect to the Business, nor has its coverage been limited, by any
insurance carrier to which it has applied for any such insurance. Except as
disclosed on Section 3.24 of Seller's Disclosure Schedules, there are no risks
with respect to the Business which Seller has designated as being self-insured.
Section 3.24 of Seller's Disclosure Schedules lists all claims of Seller related
to the Business which are currently pending or which have been made with an
insurance carrier, and all losses incurred with respect to self-insured risks.
3.25 Opinion of Financial Advisors. Seller has received, or is
receiving concurrently upon the execution hereof, the opinions of ▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ & Co. and First Albany Corporation, dated October 8, 2003, to the effect
that, as of that date, the consideration to be received by Seller in connection
with the transactions contemplated by this Agreement is fair from a financial
point of view, and a complete and correct signed copy of such opinion will be
delivered to Buyer promptly upon receipt thereof.
3.26 Voting Requirements. The only votes required of the holders of
Seller's capital stock to adopt this Agreement and to approve the transactions
contemplated hereby are the affirmative vote of a majority of the outstanding
common shares.
3.27 Product Liability. Except as could not reasonably be expected
to be Material, there are not presently pending, or to Seller's Knowledge,
threatened, any Actions relating to any alleged hazard or alleged defect in
design, manufacture, materials or workmanship, including any failure to warn or
alleged breach of express or implied warranty or representation, relating to any
product manufactured, distributed or sold by or on behalf of the Business.
Except as set forth in Section 3.27 of Seller's Disclosure Schedule, Seller has
not extended to any of its customers or distributors in the Business any
material written, non-uniform product warranties, indemnifications or
agreements.
34
3.28 Anti-Takeover Laws. Prior to the date of this Agreement,
Seller has taken all actions necessary to exempt under or make not subject to
(a) the provisions of Section 203 of the DGCL, (b) any other state takeover law
or state law, or (c) Article 11 of Seller's Certificate of Incorporation that
purports to limit or restrict business combinations or the ability to acquire or
vote shares: (i) the execution and delivery of this Agreement to be executed
concurrently herewith and (ii) the transactions contemplated hereby. Except as
disclosed in Section 3.28 of Seller's Disclosure Schedule, Seller does not have
any stockholder or shareholder rights agreement or any similar type of
anti-takeover agreement.
3.29 Information Supplied. The Proxy Statement will not, at the
time the Proxy Statement is mailed to Seller's stockholders or, at the time of
Seller's Stockholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with all applicable Legal Requirements, including the Exchange
Act and the rules and regulations thereunder. No representation or warranty is
made by Seller with respect to statements made or incorporated by reference
therein based on information supplied by Buyer specifically for inclusion or
incorporation by reference therein.
3.30 Government Contracts.
(a) Except as previously disclosed, there is no
government suit or government investigation pending or, to the Knowledge of
Seller, threatened against Seller asserting or alleging the commission of
criminal acts or bribery by Seller with respect to any Government Contract.
Seller or, to the Knowledge of Seller, any of the management of Seller, is not
currently, or at any time within the past three (3) years has been, debarred or
suspended from participating in the award of a Government Contract. Except as
previously disclosed, Seller is in compliance in all material respects with the
terms of all of its Government Contracts and all applicable laws, rules,
regulations, codes and policies relating to any Government Contracts. To the
Knowledge of Seller, there exist no facts or circumstances that would reasonably
be expected to result in the suspension or debarment, or in a finding by the
federal government of nonresponsibility, on the part of Seller, or any
management of Seller. No payment has been made by Seller, or by any Person
acting on Seller's behalf, to any Person in connection with any Government
Contract in violation of applicable procurement laws or regulations or in
violation of (or requiring disclosure pursuant to) the Foreign Corrupt Practices
Act or the False Claims Act. Except as previously disclosed, the procurement
systems maintained by Seller with respect to Government Contracts are in
compliance in all material respects with all applicable federal and state laws,
regulations, and contract terms. With respect to each Government Contract,
except as previously disclosed, no termination for convenience, termination for
default, cure notice or show cause notice is in effect.
(b) With respect to each Government Contract, except as
previously disclosed: (i) all representations and certifications executed,
acknowledged or set forth in or pertaining to such Government Contract were
complete and correct in all material respects as of their respective effective
dates, and Seller has complied in all material respects with all such
representations and certifications; and (ii) Seller has not received any
Inspector General or other governmental audit report that indicates a failure to
comply with the terms of a Government Contract or indicates that Seller is
liable under any Government Contract.
(c) Except as previously disclosed, there has not been
asserted in writing (i) any outstanding Material claim alleging violation of law
or regulation or breach of contract against Seller by any governmental entity or
by any prime contractor, subcontractor, vendor or other third party, arising
under or relating to any Government Contract to which Seller is a party; or (ii)
any contractual disputes that arise under or relate to Seller's Government
Contracts.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as otherwise indicated on Buyer's Disclosure Schedule,
Buyer represents, warrants and agrees as follows:
4.1 Organization and Related Matters. Buyer is a limited liability
company duly organized, validly existing and in good standing under the laws of
Delaware. Buyer has all necessary authority and corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified or licensed to do business as a foreign corporation in good standing
in all jurisdictions where the nature of its business requires licensing or
qualification, except where the failure to be so qualified or licensed would
not, individually or in the aggregate, result in a Buyer Material Adverse
Effect.
4.2 Authorization; No Conflicts. Buyer has all necessary authority
and corporate power to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement by Buyer have been duly
and validly authorized by all necessary limited liability company action on
Buyer's part. This Agreement constitutes Buyer's legally valid and binding
obligation, enforceable against Buyer in accordance with its terms except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors' rights generally. Buyer's execution, delivery and
performance of this Agreement will not violate, or constitute a breach or
default under, Buyer's certificate of formation, or under its limited liability
company agreement. Subject to obtaining the Approvals contemplated in Section
4.4, Buyer's execution, delivery and performance of this Agreement will not
violate any Law except for any violation that would not, individually or in the
aggregate, reasonably be expected to result in a Buyer Material Adverse Effect.
4.3 Legal Proceedings. There is no Order or Action pending or, to
Buyer's Knowledge, threatened against or affecting Buyer that individually or
when aggregated with one or more other Orders or Actions has or if determined
adversely would have a Buyer Material Adverse Effect.
4.4 Approvals and Third Party Consents. Section 4.4 of Buyer's
Disclosure Schedule lists any Approvals by any Governmental Entity and any
material Third Party Consents by any Person not a party to this Agreement
required in connection with the execution or performance of this Agreement by
Buyer.
4.5 Funding. Buyer has received a binding (subject to the terms
and conditions thereof) written commitment from a financially responsible
financial institution to obtain the funds necessary to pay the Purchase Price
under Section 2.6, and to pay related fees and expenses. Buyer has provided
Seller with true and complete copies of its commitment from such financial
institution to provide such financing to Buyer (the "Commitment"). The
Commitment is in full force and effect, and Buyer has no reason to expect that
the conditions included in the Commitment will not be satisfied before the
Closing. Buyer believes that the financing described in this Section is
sufficient to enable Buyer to complete the transactions contemplated by this
Agreement. Buyer shall give Seller prompt notice of any change with respect to
such financing that would adversely affect the ability of Buyer to consummate
the transactions contemplated hereby.
4.6 No Brokers or Finders. Except for the fees and commissions
shown in Section 4.6 of Buyer's Disclosure Schedule, which will be the sole
responsibility of Buyer, no agent, broker, finder, investment or commercial
banker or other Person or firms engaged by or acting on behalf of Buyer or its
Affiliates in connection with the negotiation, execution or performance of this
Agreement or the Transaction, is or will be entitled to any broker's or finder's
or similar fees or other commissions as a result of this Agreement or the
Transaction.
36
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Maintenance of Insurance. Seller hereby agrees to use
commercially reasonable efforts to maintain all existing insurance policies or
substantially comparable insurance policies covering or relating to the Business
from the date of this Agreement through the Closing Date.
5.2 Material Adverse Changes; Conduct of Business.
(a) Seller will promptly notify Buyer if Seller obtains
Knowledge of any fact or event that has had or would reasonably be expected to
have a Material Adverse Effect.
(b) Buyer will promptly notify Seller if Buyer obtains
Knowledge of any fact or event that has had or would reasonably be expected to
have a Buyer Material Adverse Effect.
(c) Except as otherwise provided in or contemplated by
this Agreement, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Closing Date,
Seller agrees (except to the extent that Buyer shall otherwise consent), to
carry on the Business in the usual, regular and ordinary course in substantially
the same manner as previously conducted and use commercially reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, and use commercially reasonable efforts to (i) keep
available the services of the Transferred Employees and (ii) preserve its
relationships with customers, suppliers, distributors, and others having
business dealings with it. During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Closing, Seller shall not, as it pertains to the Business, without the consent
of Buyer:
(1) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any interest in or assets of, or by any
other manner, any business or any corporation, partnership or other business
organization or division, or otherwise acquire or agree to acquire any assets
other than in the ordinary course of business;
(2) Sell, lease, license, mortgage or otherwise
encumber or otherwise dispose of or permit an Encumbrance (other than a
Permitted Encumbrance) to be placed on any Purchased Assets other than sales of
products or provision of services to customers in the ordinary course of
business;
(3) (i) increase or agree to increase the
compensation payable or to become payable to the Transferred Employees excluding
stay bonuses or other similar arrangements set forth on Schedule 5.2(c), (ii)
institute any new or modify any existing severance or termination pay practice
with respect to the Transferred Employees, (iii) grant any additional severance
or termination pay or other additional benefit to, or enter into or amend any
employment, retention, change of control or severance agreements or arrangements
with, any of the Transferred Employees, (iii) enter into any collective
bargaining agreement, (iv) establish, adopt enter into or amend any bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance,
retention, change of control or other plan, trust, fund, policy or arrangement
for the benefit of any Transferred Employees or pay or agree to pay any bonuses,
except for the acceleration of stock options under the Seller's current stock
option plan, or (v) retain any new employee or consultant in the Business or
dismiss or terminate any Transferred Employee;
(4) Incur any Material amount of indebtedness;
(5) Issue any voting security (other than upon
the exercise of any outstanding employee stock options);
37
(6) Amend or propose to amend the Charter
Documents of Seller;
(7) Initiate, compromise, or settle any
litigation or arbitration proceeding related to the Business, except as set
forth on Schedule 5.2(c);
(8) Enter into, or otherwise modify, amend,
violate or terminate any Material Contract or waive, release or assign any
rights or claims;
(9) Make or change any Tax election, settle,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes, or compromise any Tax
liability or claim any Tax refund or file or amend any Tax return, in the case
of any of the foregoing, that would have an effect on the Purchased Assets or
the Assumed Liabilities for periods after December 31, 2002;
(10) Change in any respect its methods of
accounting as in effect at December 31, 2002 except as required by GAAP;
(11) Fail to pay when due in the ordinary course
of business any trade account payable or other accrued liability or contractual
obligation, other than in the event of a good faith dispute, or allow its aging
of trade accounts payable to increase in any Material respect;
(12) Change in any Material respect its policies
and practices related to the collection of accounts receivable, or offer
discounts, concessions or other adjustments other than in the ordinary course of
business consistent with past practice;
(13) Fail to give all notices and other
information required to be given by Seller to the employees of Seller, any
collective bargaining unit representing any group of employees of Seller, and
any applicable government authority under the National Labor Relations Act, the
Internal Revenue Code, the Consolidated Omnibus Budget Reconciliation Act, and
other applicable law in connection with the transactions provided for in this
Agreement, but excluding the WARN Act; or
(14) Take, or agree in writing or otherwise to
take, any of the actions described in subsections (1) through (13) above.
5.3 Access to Information; Notification of Certain Matters.
(a) From the date hereof through the Closing Date, Seller
will afford Buyer and its employees, advisors, attorneys, accountants and
representatives ("Representatives") and Buyer's lenders and financial sources
reasonable access during normal business hours to the personnel of the Business,
and will make available to Buyer (i) the officers and senior staff of the
Business on a regular and ongoing basis for consultation regarding operational
matters, cash flows, business and product development, customer and supplier
relationships, and transitional issues; and (ii) employees of the Business for
general discussion about Buyer and its anticipated ownership of the Business
after the Closing ("Buyer Personnel Access"). From the date hereof through the
Closing Date, Buyer and its Representatives and Buyer's lenders and financial
sources shall have reasonable access during normal business hours to all
properties, Books and Records, Contracts, Permits and other documents of, or
relating to, Seller and the Business in order to make such investigation as they
shall deem desirable. Seller shall furnish or cause to be furnished to Buyer and
its Representatives all data, information and reports concerning the Business
and such Seller's properties as may reasonably be requested ("Buyer Record
Access"). Buyer and its Representatives shall be granted Buyer Personnel Access
and Buyer Record Access, each only by coordinating with and first obtaining
permission from ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ with respect to the time
and the scope of each particular instance. Such Buyer Personnel Access and Buyer
Record Access shall not unreasonably interfere with Seller's business
operations.
38
(b) Seller will give prompt notice to Buyer of any
failure of Seller to comply with or satisfy, in any material respect, any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement. Buyer will give prompt notice to Seller of any failure of Buyer
to comply with or satisfy, in any material respect, any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement. The
giving of such notice, or the discovery by Buyer of any information in the
course of its investigation of the Business, shall not be deemed to modify in
any manner the representations and warranties of Seller hereunder.
(c) No later than fifteen (15) days after the end of each
month beginning September 30, 2003 through the Closing Date, Seller shall
furnish to Buyer (i) a consolidated statement of operations of Seller and a
statement of operations of the Business for the one-month and year-to-date
period then ended, (ii) a consolidated balance sheet of Seller and a balance
sheet of the Business as of such month end and (iii) the Business Financial
Statements Reconciliation with respect thereto. As soon as practicable after the
end of each fiscal quarter beginning September 30, 2003 through the Closing
Date, Seller shall furnish to Buyer, (i) consolidated statements of operations,
retained earnings and cash flows of Seller and a statement of operations of the
Business for the quarter then ended, (ii) a consolidated balance sheet of Seller
and a balance sheet of the Business for the quarter then ended and (iii) the
Business Financial Statements Reconciliation with respect thereto. Upon delivery
of such financial statements and Business Financial Statements Reconciliation to
Buyer pursuant to this Section 5.3(c), Seller will be deemed to make the
representations and warranties set forth in Section 3.7(a) with respect to such
financial statements and Business Financial Statements Reconciliation then
delivered.
5.4 Approvals and Permits. Seller and Buyer each agree to
cooperate and use their reasonable best efforts to obtain, and will promptly
prepare all registrations, filings and applications, requests and notices
preliminary to, all Approvals and Permits that may be necessary to consummate
the Transaction.
5.5 Government Approvals and Filings.
(a) As promptly as practicable, but not later than ten
(10) Business Days after the execution of this Agreement, Buyer and Seller will
file with the appropriate Governmental Entity any Approvals, if any, as required
in connection with consummation of the Transaction, including any such Approvals
required under the HSR Act.
(b) Each of Buyer and Seller shall comply at the earliest
practicable date with any request under the HSR Act for additional information,
documents, or other material received by such party or any of its Affiliates
from the Federal Trade Commission or the Department of Justice or any other
Governmental Entity in respect of such filings, this Agreement or other
transactions contemplated hereby and shall cooperate with the other party in
connection with any such filing and in connection with resolving any
investigation or other inquiry of any such Governmental Entity under any
Antitrust Laws with respect to any such filing, this Agreement or other
transactions. Each party shall promptly inform the other party of any
communication with, and any proposed understanding, undertaking, or agreement
with, any Governmental Entity regarding any such filings, this Agreement or such
other transactions. Neither party shall participate in any meeting with any
Governmental Entity in respect of any such filings, investigation, or other
inquiry without giving the other party notice of the meeting and, to the extent
permitted by such Governmental Entity, the opportunity to attend and
participate.
(c) Each of Buyer and Seller shall use all reasonable
efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to this Agreement or any other transactions
provided for in this Agreement under the HSR Act, the ▇▇▇▇▇▇▇ Act, as amended,
the ▇▇▇▇▇▇▇ Act, as amended, the Federal Trade Commission Act, as amended, and
any other federal, state or foreign statutes, rules, regulations, orders or
decrees that are designed to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"). In connection therewith, if any administrative or judicial
action or proceeding is instituted (or threatened to be instituted) challenging
the
39
purchase of the Purchased Assets or any other transactions provided for in this
Agreement as violative of any Antitrust Law, and, if by mutual agreement, Buyer
and Seller decide that litigation is in their best interests, each of Buyer and
Seller shall cooperate and use all reasonable efforts vigorously to contest and
resist any such action or proceeding and to have vacated, lifted, reversed, or
overturned any Order that is in effect and that prohibits, prevents, or
restricts consummation of the purchase of the Purchased Assets or any such other
transactions. Each of Buyer and Seller shall use all commercially reasonable
efforts to take such action as may be required to cause the expiration of the
notice periods under the HSR Act or other Antitrust Laws with respect to this
Agreement and such other transactions as promptly as possible after the
execution of this Agreement.
(d) Each of the parties agrees to use its commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable under Laws applicable to such party
and otherwise to consummate and make effective, in the most expeditious manner
practicable, the purchase of the Purchased Assets and the other transactions
contemplated by this Agreement, including (i) the obtaining of all other
necessary actions or non-actions, extensions, waivers, Permits, Approvals,
consents of third parties (provided that Seller shall not make any payments or
make any other concessions or amend or waive the provisions of any Material
Contract to obtain a consent) and the making of all other necessary
registrations, notices and filings (including other filings with Government
Entities, if any), (ii) the preservation of the Business' rights under its
Material Contracts (iii) the preparation of the Proxy Statement, and (iv) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(e) Notwithstanding anything to the contrary in this
Section 5.5, in connection with any action requested by any Governmental Entity
applying the Antitrust Laws, (i) neither Buyer nor any of its subsidiaries or
Affiliates shall be required to divest any of their respective businesses,
product lines or assets, (ii) neither Buyer nor any of its subsidiaries or
Affiliates shall be required to take or agree to take any other action or agree
to any limitation that could reasonably be expected to have a Buyer Material
Adverse Effect, (iii) Seller shall not be required to divest any of its
businesses other than the Business, or to take or agree to take any other action
or agree to any limitation that could reasonably be expected to have a Material
Adverse Effect and (iv) neither Buyer nor Seller shall be required to waive any
of the conditions to this Agreement.
5.6 Employees.
(a) Buyer will employ those employees of the Business to
be set forth on Schedule 5.6 (the "Transferred Employees"), which shall be
prepared by Buyer prior to the Closing Date, and be reasonably acceptable to
Seller, with such Transferred Employees to represent at least a majority of the
employees then employed in the Business. Seller shall give notice to each
Transferred Employee that such Transferred Employee's employment relationship
with Seller will terminate immediately prior to the Closing. Except as Buyer may
determine, each Transferred Employee shall be offered employment only on an at
will basis.
(b) Except for Assumed Liabilities related to Transferred
Employees, Seller shall be liable for any costs (including benefits accrued but
unpaid or severance benefits, if payable, and liabilities under the WARN Act, if
any, subject to Section 9.7) arising from the termination of any Employee of
Seller, at or prior to the Closing, and shall pay severance to any employee who
is not a Transferred Employee or otherwise retained by Seller. Except as
otherwise required by law or as set forth on Schedule 5.6(b), Seller shall not
pay severance to any person who is offered a position as a Transferred Employee
on the terms set forth in Section 5.6(c) and does not accept. Except for Assumed
Liabilities related to Transferred Employees, Seller shall in addition be
responsible for all costs associated with employment and with the operation of
the Business through and including the Closing Date, including without
limitation F.I.C.A. tax liability, workers' compensation premiums and claims
made, accrued compensation and benefits payable for services rendered through
the Closing Date, including any retention or change of control bonuses that may
become payable to an employee, and employer contributions to any benefit plan.
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(c) Effective at Closing, Buyer will take all such
actions as are required to cause each of the Transferred Employees to be
provided with, as of such date, benefits, programs, policies and arrangements
maintained by Buyer for similarly situated employees of Buyer and cash
compensation, that is substantially comparable in the aggregate to the cash
compensation provided to such employee as of the date of this Agreement. Nothing
in this Agreement will be deemed a guarantee of employment for any specified
period, and nothing herein will confer upon any employee any right to employment
or any right under any benefit, plan, program, policy or arrangement. Without
limiting the foregoing, Buyer will cooperate with Seller and take reasonable
steps to enable Transferred Employees to "roll over" into Buyer's equivalent
plans the amounts distributed to such employees from Seller's 401(k) and
deferred compensation plans in which such employees participated prior to the
Closing. Transferred Employees will be credited for eligibility and vesting from
the Closing Date under the benefit plans, programs and arrangements of Buyer
with their service to Seller before the Closing Date to the same extent such
service was credited under the comparable plans of Seller. Buyer will give each
Transferred Employee full credit for accrued vacation to the extent accrued on
Seller's Books and Records and shown on the Closing Date Net Working Capital
Schedule.
(d) Seller will be responsible for making continuation
coverage under Code Section 4980B and Sections 601-608 of ERISA ("COBRA")
available to any Seller employee and any eligible spouse or dependent who
experiences a "qualifying event," as defined in Code Section 4980B(f)(3), before
or as of the Closing Date. Buyer will be responsible for making continuation
coverage under COBRA available to any Transferred Employee and any eligible
spouse or dependent who experiences a "qualifying event," as defined in Code
Section 4980B(f)(3), after the Closing Date.
5.7 Covenants Not to Compete and Not to Solicit.
(a) As an inducement for Buyer to enter into the Purchase
Agreement, Seller agrees that for five (5) years following the Closing Date,
Seller shall not, anywhere in the United States or elsewhere in the world,
directly or indirectly (i) engage, without the prior express written consent of
Buyer, in any business or activity, whether as an employee, consultant, partner,
principal, agent, representative, stockholder (except as a holder of less than
5% of the combined voting power of the outstanding stock of a publicly held
company) or in any other individual, corporate or representative capacity, or
render any services or provide any advice to any business, activity, person or
entity, if Seller knows or reasonably should know that such business, activity,
service, person or entity, directly or indirectly, competes in any material
manner with the Business, or (ii) meaningfully assist, help or otherwise
support, without the prior express written consent of Buyer, any person,
business, corporation, partnership, or other entity or activity, whether as an
employee, consultant, partner, principal, agent, representative, stockholder
(other than in the capacity as a stockholder of less than 5% of the combined
voting power of the outstanding shares of stock of a publicly held company) or
in any other individual, corporate or representative capacity, to create,
commence or otherwise initiate, or to develop, enhance or otherwise further, any
business or activity if Seller knows or reasonably should know that such
business or activity, directly or indirectly competes in any material manner
with the Business; provided that the foregoing shall not apply to an acquisition
of substantially all the assets of Seller or a change of control of Seller which
involves a third party buyer so long as neither Seller nor its employees
participate in or use their knowledge of, or expertise with respect to, the
Business to compete with or enable such acquirer of Seller to compete with the
Business. For purposes of this Agreement, a chemical or biochemical product or
process that performs substantially the same healing function as a Product is
not "competitive" with the Business, but a device (whether or not implantable)
or mechanical or electromechanical process would be competitive with the
Business if performing substantially the same healing function as a Product.
(b) As an inducement for Buyer to enter into the Purchase
Agreement, Seller agrees that for two years following the date hereof, Seller
shall not, directly or indirectly (i) with respect to the Business, take any
action to solicit or divert any business or distributors or customers (or
potential distributors or Potential Customers) away from Buyer or any of its
Affiliates, (ii) induce customers, Potential Customers, distributors, potential
distributors, suppliers, agents or other persons under contract or otherwise
associated or
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doing business with respect to the Business with Buyer, or any of its
Affiliates, to terminate, reduce or alter any such association or business with
respect to the Business with or from Buyer or any of its Affiliates.
(c) For the period beginning on the Closing Date and
ending two (2) years thereafter, Seller shall not induce any person in the
employment of Buyer or any of its Affiliates, and Buyer shall not induce any
person who remains in the employ of Seller on the Closing Date, to (i) terminate
such employment, (ii) accept employment, or enter into any consulting
arrangement, with anyone other than Buyer or any of its Affiliates, or Seller
and its Affiliates, as the case may be; provided, however, that Buyer and Seller
shall have the right to enter into consulting arrangements with certain
employees of the Business or Seller, as the case may be, pursuant to Section
5.17(b) and/or (iii) with respect to the Business or Seller's businesses
retained after consummation of the Transaction, interfere with the customers,
suppliers, or distributors of the other party or any of its Affiliates.
(d) To the extent they are assignable, Seller hereby
irrevocably assigns, transfers and puts over to Buyer, all of Seller's rights
under and in the Business and to the extent related to the Business, which
restrict the rights of, and impose duties on, other Persons having a
relationship with the Business, including rights under agreements regarding
competition with and/or interference with the Business in any way whatsoever
and/or the solicitation of employees of Buyer, as successor to Seller, related
to the Business in any way whatsoever. This assignment shall be only the
assignment of the benefits of these rights and shall be free and clear of any
Encumbrance or any of the duties of any other party under such agreements, or
any other duties or obligations of Seller.
(e) The parties to this Agreement agree that (i) if
Seller breaches any provision of this Section 5.7, the damage to Buyer will be
substantial, although difficult to ascertain, and money damage will not afford
Buyer an adequate remedy, and (ii) if Seller is in breach of any provision of
this Section 5.7, or threatens a breach of any provision of this Section 5.7,
Buyer shall be entitled, in addition to all other rights and remedies as may be
provided by law, to specific performance and injunctive and other equitable
relief to prevent or restrain a breach of any provision of this Section 5.7. The
rights and remedies provided herein are cumulative and are not exclusive of any
rights or remedies that either party may otherwise have at law or in equity.
(f) The rights of Buyer under this Section 5.7 are
assignable, in whole or in part, to any Person who is a successor to the
Business or any portion thereof. The provisions of this Section 5.7 shall bind
Seller and its subsidiaries, its controlled affiliates, and successors and
assigns, including successors or assigns by operation of law or by acquisition
of substantially all of the assets of Seller. Seller may, upon written notice to
Buyer, assign its rights under Section 5.7(c) to a successor in interest to its
retained business.
5.8 Stockholder Approval; Preparation of Company Proxy Statement.
(a) Seller shall, as promptly as practicable following
the date hereof, prepare and file with the SEC the Proxy Statement. Seller,
acting through the Seller Board shall include in the Proxy Statement, the
recommendation of the Seller Board that the stockholders of Seller approve the
sale of the Purchased Assets in the Transaction (the "Seller Board
Recommendation"). Subject to Section 5.10(f), the Seller Board shall not change
or withdraw such recommendation without the prior written consent of Buyer. No
filing of, or amendment or supplement to, or correspondence to the SEC will be
made by Seller without providing Buyer with an opportunity to review and comment
thereon. Seller will advise Buyer, promptly after it receives notice thereof, of
any request by the SEC for the amendment of the Proxy Statement or comments
thereon and responses thereto or requests by the SEC for additional information.
If at any time prior to Seller's Stockholders' Meeting any information relating
to Seller or Buyer, or any of their respective Affiliates, officers or
directors, should be discovered by Seller or Buyer which should be set forth in
an amendment or supplement to the Proxy Statement, so that it would not include
any misstatement of a material fact or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other parties
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hereto and an appropriate amendment or supplement describing such information
shall be promptly filed with the SEC and, to the extent required by law,
disseminated to the stockholders of Seller.
(b) Seller shall, as promptly as practicable following
the execution of this Agreement, duly call, give notice of, convene and hold a
meeting of its stockholders for the purpose of approving the sale of the
Purchased Assets in the Transaction (the "Seller's Stockholders' Meeting").
Subject to Section 5.10(f), Seller shall (i) use its best efforts to solicit
from stockholders of Seller proxies in favor of adoption of this Agreement and
approval of the sale of the Purchased Assets for the Seller's Stockholders'
Meeting and (ii) recommend to its stockholders the approval of the sale of the
Purchased Assets in the Transaction, and not modify or withdraw such
recommendation.
(c) Buyer will furnish to Seller such data and
information relating to it as Seller may reasonably request for the purpose of
including such data and information in the Proxy Statement and any amendments or
supplements thereto used by Seller to obtain the necessary stockholder approval
of the sale of the Purchased Assets (the "Seller Stockholder Approval").
5.9 Financing. Buyer hereby agrees to work diligently and in good
faith to complete the financing on the terms set forth in the Commitment as
further described in Section 4.5. Buyer will duly pay any and all commitment and
other fees required by, or contemplated in connection with, the Commitment that
become due after the date hereof and prior to the Closing. Buyer will keep
Seller informed on a reasonably current basis in reasonable detail of the status
of their efforts to arrange the financing and shall not permit any material
adverse amendment or modification to be made to, or any waiver of provisions
governing the principal amount of financing or the conditions to consummation
under the Commitment without the prior written consent of Seller, which consent
shall not be unreasonably withheld. In the event that Buyer is unable to obtain
the financing on the terms set forth in the Commitment, Buyer shall use
commercially reasonable efforts to obtain alternative financing with overall
pricing, cost, timing and maturity terms that are no less favorable, and other
terms that are no less favorable in any material respect, to Buyer than those
contained in the Commitment. On the terms set forth in Section 5.3(a), Seller
hereby agrees to use reasonable efforts to cooperate with Buyer in its efforts
to arrange and obtain the financing on the terms set forth in the Commitment, or
the alternative financing referenced above, if applicable by making its Books
and Records and personnel and its auditors and advisors available to Buyer and
its lenders upon Buyer's or such lenders' reasonable request, including by way
of participation in meetings with prospective lenders and rating agencies at
Buyers or such lender's reasonable request in connection with the syndication of
the financing contemplated by the Commitment or any alternative financing, if
applicable.
5.10 No Solicitation.
(a) Subject to Section 5.10(d), from the date hereof
until the Closing, Seller shall immediately cease and desist and discontinue and
cause to be terminated any and all existing activities with respect to any of
the following and shall not, (i) directly or indirectly, through any officer,
director, affiliate, employee, attorney, accountant, financial advisor,
subsidiary, independent representative or independent agent or any other advisor
or representative of Seller solicit, initiate, encourage or take any action to
facilitate (including by way of furnishing information or engaging in
discussions or negotiations) any inquiries, proposals or offers that constitute,
or could reasonably be expected to lead to or relate to, a proposal or offer to
acquire all or any part of the Purchased Assets or Business, whether by merger,
share purchase or exchange, reorganization, recapitalization, liquidation,
dissolution, consolidation, business combination, purchase of assets, tender
offer, exchange offer or similar transaction, whether for cash, securities or
any other consideration or combination thereof other than the transactions
contemplated by this Agreement.
(b) Subject to Section 5.10(d) and 5.10(f) neither the
Seller Board, nor any committee thereof, shall withdraw, modify or qualify (or
propose to withdraw, modify or qualify) the recommendation in favor of the sale
of the Purchased Assets to Buyer in any manner adverse to Buyer, or take any
action or make any statement in connection with the Seller's Stockholder Meeting
inconsistent with such recommendation.
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(c) Seller shall notify Buyer promptly of any unsolicited
inquiries or proposals received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with,
Seller or any of Seller's representatives indicating, in connection with such
notice, the name of such Person and the material terms and conditions of any
inquiries, proposals or offers.
(d) Notwithstanding the provisions of Section 5.10(a) or
5.10(b), prior to the receipt of Seller Stockholder Approval, Seller may, in
response to an unsolicited, bona fide written Acquisition Proposal from a Person
(the "Potential Acquiror") which (i) the Seller Board determines in good faith,
after consultation with its financial advisor and its outside legal counsel,
constitutes a Superior Proposal (and continues to constitute a Superior Proposal
after taking into account any modifications proposed by Buyer during any seven
(7) Business Day period referenced below), or (ii) proposes greater value to
Seller in financial terms and the Seller Board in good faith concludes that such
Acquisition Proposal could reasonably be expected to result in a Superior
Proposal, take the following actions (but only if and to the extent that the
Seller Board concludes in good faith, following consultation with its outside
legal counsel, that such actions are necessary in order to comply with its
fiduciary obligations under applicable Law); provided, that Seller has first
given Buyer written notice (including a copy of such Acquisition Proposal) that
states that Seller has received such Acquisition Proposal and otherwise includes
the information required by Section 5.10(c) (the "Superior Proposal Notice"):
(1) furnish nonpublic information to the
Potential Acquiror; provided, that, (A) (1) at least one (1) Business Day prior
to furnishing any such nonpublic information to the Potential Acquiror, Seller
gives Buyer written notice of its intention to furnish nonpublic information and
(2) Seller receives from the Potential Acquiror an executed confidentiality
agreement (in each case, the "Competing Confidentiality Agreement") containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to the Potential Acquiror on its behalf, the material
terms of which are no less favorable to the other party than the terms contained
in the Confidentiality Agreement and (B) contemporaneously with furnishing any
such nonpublic information to the Potential Acquiror, Seller furnishes such
nonpublic information to Buyer (to the extent such nonpublic information has not
previously been provided to Buyer); and
(2) engage in negotiations with the Potential
Acquiror with respect to the Acquisition Proposal.
(e) For a period of not less than seven (7) Business Days
after Buyer's receipt of each Superior Proposal Notice, Seller shall, if
requested by Buyer, negotiate in good faith with Buyer to amend this Agreement
so that the Acquisition Proposal that constituted a Superior Proposal no longer
constitutes a Superior Proposal (a "Former Superior Proposal"); provided that in
the event the Acquisition Proposal as originally received by Seller indicates
that the indicated transaction value is subject to the Potential Acquiror's
review of nonpublic information to be provided by Seller as contemplated by
Section 5.10(d)(i), such seven (7) Business Day negotiation period with Buyer
shall not commence until the Potential Acquiror has provided a definitive
proposed purchase price following its review of such nonpublic information. Upon
such amendment of this Agreement, the terms and conditions of this Section 5.10
shall again apply to any inquiry or proposal made by any Person who withdraws a
Superior Proposal or who made a Former Superior Proposal (after withdrawal or
after such time as their proposal is a Former Superior Proposal).
(f) In response to the receipt of a Superior Proposal
that has not been withdrawn and continues to constitute a Superior Proposal
after Seller's compliance with Sections 5.10(c) and 5.10(e), the Seller Board
may withhold or withdraw the Seller Board Recommendation and, in the case of a
Superior Proposal that is a tender or exchange offer made directly to Seller's
stockholders, may recommend that its stockholders accept the tender or exchange
offer (any of the foregoing actions, whether by the board of directors of Seller
or a committee thereof, a "Change of Recommendation"), if both of the following
conditions are met:
(1) the Seller Stockholder Approval shall not
have been obtained; and
44
(2) the Seller Board has concluded in good
faith, following consultation with its outside legal counsel, that, in light of
such Superior Proposal, that such action is necessary in order to comply with
its fiduciary obligations under applicable Law.
(g) Nothing contained in this Agreement shall prohibit
Seller from taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act.
5.11 Environmental Reports. Seller shall no later than November 14,
2003, obtain and deliver to Buyer a "Phase I" evaluation of its Tempe, Arizona
location, prepared by a firm, and in form and substance, reasonably acceptable
to Buyer.
5.12 Stockholder Litigation. From the date hereof and through and
including January 31, 2004, Seller and its directors shall use reasonable
commercial efforts to contest and resist any action, including any
administrative or judicial action, initiated by or in the name of Seller or its
stockholders related to the Transaction and to have vacated, lifted, reversed or
overturned any Order that restricts, prevents or prohibits the consummation of
the sale of the Purchased Assets or any other transactions contemplated by this
Agreement arising therefrom. Seller shall give Buyer the opportunity to
participate in the defense or settlement of any stockholder litigation against
Seller or its directors relating to any of the transactions contemplated by this
Agreement. No settlement of any such stockholder litigation that would have an
adverse effect on the Purchased Assets or materially delay or prevent the
consummation of the transactions contemplated hereby shall be agreed to without
Buyer's consent.
5.13 Transfer and Assignment.
(a) With respect to the Third Party Payor Contracts
listed in Schedule 5.13 attached hereto, Buyer and Seller hereby agree to a
sub-contract or other similar arrangement substantially in the form attached
hereto as Exhibit E (the "Subcontract") whereby Buyer at its expense shall
fulfill all of the obligations of Seller under the Third Party Payor Contracts.
To the extent a third party Payor Contract cannot be subcontracted, the parties
will use commercially reasonable efforts to obtain the novation or replacement
of the Contract, and operate pursuant to Section 2.2 in the interim period prior
thereto. Notwithstanding anything to the contrary herein, Seller shall have the
right to give notice to terminate such Third Party Payor Contracts and terminate
such Third Party Payor Contracts, but shall not give any such notice that would
cause a Third Party Payor Contract to terminate prior to the date that is the
earlier of 180 days after the Closing Date or the date Buyer has notified Seller
it has obtained the novation of the Third Party Payor Contract or a replacement
Third Party Payor Contract. Buyer shall use commercially reasonable efforts to
obtain novations of the Third Party Payor Contracts to the Buyer or to enter
into new contracts or agreements which replace the Third Party Payor Contracts
as soon as possible. Buyer shall, not later than twenty (20) Business Days after
the Closing Date, send to each party to a Third Party Payor Contract (other than
Seller) a request for novation of such Third Party Payor Contract or, in the
alternative, for a new contract or agreement to replace such Third Party Payor
Contract. Upon the obtaining of a novation of a Third Party Payor Contract to
Buyer or upon Buyer entering into a new contract or agreement to replace a Third
Party Payor Contract, Seller may terminate such Third Party Payor Contract.
5.14 Current Inventory, Marketing, Materials, Etc.. Notwithstanding
anything herein to the contrary, the Buyer may, and may permit Buyer's sales
representatives and distributors to, in the ordinary course of business,
continue to sell the finished inventory of the Products existing on the Closing
Date bearing the Excluded Marks and to sell the Products produced from work in
process inventory, raw materials existing on the Closing Date bearing the
Excluded Marks, and raw materials which Seller has committed to buy as of the
Closing Date or new materials that Buyer purchases within the three (3) months
following the Closing Date which will bear the Excluded Marks, until the earlier
of (i) exhaustion of such inventory or (ii) one year after the Closing Date (at
which time the Buyer shall either destroy all remaining inventory and ancillary
materials used in connection therewith -- such as product manuals, package
inserts, etc. -- bearing the Excluded Marks or re-label such inventory and
ancillary materials so that they no longer bear the Excluded Marks). The Buyer
45
shall, as soon as is commercially practicable, but not later than one year after
the Closing Date, ensure that inventory and ancillary materials, including work
in process inventory and raw materials, produced after the Closing Date do not
bear the Excluded Marks including, to the extent practicable, by re-labeling
such inventory and ancillary materials. Promptly following the Closing, but no
later than forty-five (45) days after Closing, the Buyer shall also ensure that
promotional materials of the Business (other than the ancillary materials used
in connection with the sell-off of finished inventory of the Products as
described above) existing on the Closing Date bearing the Excluded Marks are
either (i) destroyed; (ii) re-labeled such that they do not bear the Excluded
Marks; or (iii) labeled on the first page or outside front cover of such
promotional materials with a label bearing substantially the following words "As
of [insert Closing Date], dj Orthopedics has purchased the electromagnetic bone
growth stimulation device business formerly conducted by OrthoLogic Corp. and
this business is now conducted by dj Orthopedics under the dj Orthopedics name.
These promotional materials are being used temporarily by dj Orthopedics pending
the production of revised promotional materials. Where appropriate, references
to OrthoLogic Corp. shall be deemed to be references to dj Orthopedics." Buyer
may also use the Excluded Marks to the extent necessary and only to the extent
necessary to collect the Accounts Receivable included in the Purchased Assets by
identifying itself as successor to the Business and Purchased Assets formerly
operated and owned by Seller; provided, however, that Buyer may not hold itself
out as Seller or create any confusion that Buyer is Seller or that Buyer
acquired the Excluded Marks. Nothing contained herein shall exclude Buyer from
using all trade names and brand names being transferred to Buyer pursuant to
Section 2.1 hereof.
5.15 Payment of Liabilities. Seller shall promptly pay when due all
of its liabilities and obligations related to the Business, including, without
limitation, the Excluded Trade Payables and other Excluded Liabilities. If a
creditor of Seller compromises an Excluded Trade Payable, such compromise shall
be for Buyer's benefit. To that end, Seller shall promptly report to Buyer the
compromise of an Excluded Trade Payable and Seller shall pay to Buyer the
difference between the amount paid to the vendor and the invoice amount (or
other amount to used to determine whether an adjustment is required under
Section 2.6(c) hereof), with such payment to be received within three (3)
Business Days of the compromise.
5.16 Proceeds. In the event that after the Closing, Seller receives
any cash proceeds or other distributions ("Proceeds") constituting or relating
to the Purchased Assets it will promptly remit such Proceeds to Buyer, provided
that with respect to Proceeds that are received on the first day of the month
through and including the fifteenth day of the month, such transfer shall occur
on or before the twentieth day of the month, and with respect to Proceeds that
are received on the sixteenth day of the month through and including the last
day of the month, such transfer shall occur on or before the fifth day of the
following month. Seller will use reasonable best efforts to ensure its employees
deliver checks received in respect of the Business to Buyer so that Seller does
not receive Proceeds. In the event Buyer receives any Proceeds constituting or
relating to an Excluded Asset, Buyer will promptly remit such proceeds to Seller
provided that with respect to Proceeds that are received on the first day of the
month through and including the fifteenth day of the month, such transfer shall
occur on or before the twentieth day of the month, and with respect to Proceeds
that are received on the sixteenth day of the month through and including the
last day of the month, such transfer shall occur on or before the fifth day of
the following month. Buyer will use reasonable best efforts to ensure its
employees deliver checks received in respect of the Excluded Assets so that
Buyer does not receive Proceeds. During the two-year period following the
Closing Date, each party shall have the right once every six (6) months during
such period to review the records of the other party (including lockbox records)
with respect to the Business in order to ensure compliance with this Section.
5.17 Access to Records and Personnel.
(a) Buyer and Seller shall each make their respective
books and records (including work papers in the possession of their respective
accountants) available for inspection by the other party, or by its duly
accredited representatives, for reasonable business purposes at all reasonable
times during normal business hours, for a seven (7) year period after the
Closing Date, with respect to all transactions of the Business occurring prior
to and those relating to the Closing, the historical financial condition,
results of
46
operations and cash flows of the Business, the Assumed Liabilities (including
patient records), the Purchased Assets or Transferred Employees. In addition,
Buyer shall give reasonable assistance to Seller (for reasonable periods of
time), through Buyer's employees, to obtain such access in order for Seller to
record entries relating to the closing of Seller's books relating to the
Business, to prepare and file Tax returns related to the Business, and to
prepare the Closing Balance Sheet. Each party shall provide the other party at
least ten (10) days prior written notice before transferring, destroying or
discarding any such books and records, during which period the party receiving
such notice can elect to take possession, at its own expense, of such books and
records. In the case of records owned by Seller, such records shall be made
available at Seller's executive office, and in the case of records owned by
Buyer, such records shall be made available at Buyer's executive office. Upon
the request of a party, such records shall be provided electronically at the
requesting party's expense, to the extent such records can be provided
electronically. As used in this Section 5.17(a), the right of inspection
includes the right to make extracts or copies. The representatives of a party
inspecting the records of the other party shall be reasonably satisfactory to
the other party. In addition, in connection with lawsuits or other proceedings,
Seller or Buyer, as the case may be, shall use reasonable efforts to make
available at the requesting party's expense, including the per diem employment
costs for services so provided, personnel (for reasonable periods of time) of
Seller or Buyer, as the case may be, for purposes of depositions and testimony.
(b) Each party (the "Employing Party") shall allow
certain employees of the Business or Seller to enter into consulting
arrangements with the other party (the "Contracting Party") at the reasonable
request of the Contracting Party on terms to be negotiated by the Contracting
Party and such employees; provided, however that such consulting arrangements
shall be subject to the consent of the Employing Party, which shall not be
unreasonably withheld; and, provided, further that such consent shall not be
deemed unreasonably withheld if such consulting arrangement impedes such
employees from fulfilling his or her duties. The responsibility for any
obligations or liabilities arising under the consulting arrangements will be the
sole responsibility of the Contracting Party and such employees and the
Employing Party will have no liability resulting from, or arising under, any
consulting arrangement.
5.18 Compliance with HIPAA Privacy Rules. Compliance with HIPAA
Privacy Rules. As a part of the Transaction, Seller will transfer ownership of
certain medical records to Buyer. These medical records contain Protected Health
Information ("PHI"), as defined in 45 C.F.R. 160.103. Seller is permitted to
disclose these medical records to Buyer pursuant to 45 C.F.R. 164.501. Buyer
understands and acknowledges that these medical records contain PHI and that,
upon the completion of the Transaction, Buyer will be the owner of the medical
records and will be considered to be a Covered Entity under 45 C.F.R. Part 160
and Part 164, subparts A and E (the "HIPAA Privacy Rule"), and therefore will
comply with the HIPAA Privacy Rule.
5.19 Retention Bonuses On the date that is one year after the
Closing Date, Buyer shall pay to the employees listed on Schedule 5.19 who are
then employees in good standing of Buyer or any of its subsidiaries a bonus in
the amount set forth opposite such persons name on Schedule 5.19, all as more
fully set forth in an agreement between Buyer and such employee which has been
made available to Seller for review, and less applicable withholding and other
employee taxes. On the business day following the first anniversary of the
Closing Date, Seller shall pay Buyer by wire transfer of immediately available
funds 75% of the cost of such bonuses (including the employer share of payroll
taxes) as set forth by Buyer in an invoice provided to Seller, without deduction
or offset of any kind. Seller may pay all or any portion of this obligation by
releasing funds held in the Escrow to Buyer from a separate account established
in the Escrow for this purpose. If any portion of the amount shown on Schedule
5.19 is not required to pay the cost of the bonuses, then Buyer will cause the
escrow agent to release from Escrow Seller's 75% share of the applicable cost of
the bonus amount within ten (10) Business Days of the event eliminating the
bonus obligation.
ARTICLE VI
TAX MATTERS
6.1 Indemnity. Except for sales and use taxes in an aggregate
amount not to exceed that set forth on the Closing Date Net Working Capital
Schedule, Seller agrees to indemnify and hold harmless Buyer
47
against the following Taxes and against any Losses incurred in contesting or
otherwise in connection with any such Taxes: (i) Taxes imposed on the Business
or Taxes imposed with respect to any of the Purchased Assets with respect to
taxable periods ending on or before the Closing Date including, but not limited
to, Taxes that constitute Excluded Liabilities; (ii) with respect to taxable
periods beginning before the Closing Date and ending after the Closing Date,
Taxes imposed on the Business or Taxes imposed with respect to any of the
Purchased Assets which are allocable to the portion of such period ending on the
Closing Date; and (iii) Taxes imposed on Buyer as a result of any breach of
warranty or misrepresentation under Section 3.10 of this Agreement. Buyer shall
be responsible for Taxes of the Business for periods after the Closing Date. For
purposes of this Article VI, "Buyer" and "Seller," respectively, shall include
each member of the affiliated group of corporations of which it is or becomes a
member.
6.2 Conveyance Taxes. Seller shall be responsible for any real
property transfer or gains, sales, use, transfer, value added, stock transfer,
and stamp taxes, any transfer, recording, registration, and other fees, and any
similar Taxes which become payable in connection with the transactions
contemplated by this Agreement.
6.3 Tax Certificates and Information. On or prior to the Closing
Date, Seller will provide Buyer, at Buyer's request, with all tax clearance
certificates or similar documents that may be required by any state, local or
other Taxing authority in order to relieve Buyer of any obligation to withhold
any portion of the Purchase Price. On or prior to the Closing Date, Seller will
furnish to Buyer an affidavit stating, under penalty of perjury, Seller's United
States taxpayer identification number and that Seller is not a foreign person,
pursuant to Section 1445(b)(2) of the Code.
ARTICLE VII
CONDITIONS OF PURCHASE
7.1 General Conditions. The obligations of the parties to effect
the Closing will be subject to the following conditions, unless waived in
writing by both parties:
(a) No Law or Order will have been enacted, entered,
issued, promulgated or enforced by any Governmental Entity at what would
otherwise be the Closing Date that prohibits or materially restricts the
Transaction;
(b) All Approvals required to be obtained from any
Governmental Entity will have been received or obtained on or before the Closing
Date, and the waiting period under the HSR Act shall have expired or been
earlier terminated;
(c) The Stockholders of Seller shall have approved the
sale of the Purchased Assets as provided for in Section 5.8; and
(d) The escrow agent shall have entered into the Escrow
Agreement with Buyer and Seller.
7.2 Conditions to Obligations of Buyer. The obligations of Buyer
to effect the Closing will be subject to the following conditions, unless waived
in writing by Buyer:
(a) The representations and warranties of Seller in this
Agreement will be true at the Closing Date with the same effect as though made
at such time except for any failure that, individually or in the aggregate, has
not resulted in or would not result in a Material Adverse Effect.
(b) Seller will have performed in all material respects
all obligations and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by it at
or before the Closing Date.
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(c) Seller will have delivered to Buyer certificates of
Seller in form and substance satisfactory to Buyer, dated the Closing Date and
signed by an executive officer of Seller to the effect set forth in paragraphs
(a) and (b) of this Section 7.2.
(d) Seller will have delivered to Buyer (i) a duly
executed counterpart of the Sublease in the form of Exhibit C hereto, (ii) a
duly executed counterpart of the Transition Services Agreement in the form of
Exhibit D hereto, (iii) a duly executed copy of the Escrow Agreement in the form
of Exhibit A hereto, (iv) a duly executed copy of the Subcontract in the form of
Exhibit E hereto and (v) a duly executed copy of the Billing Services Agreement
in the form of Exhibit B hereto.
(e) No Material Adverse Change. There shall not have
occurred any event or change in circumstance which could reasonably be expected
to have a Material Adverse Effect, including, but not limited to, (i) any
adverse changes in Law relating to reimbursements for purchases of medical
devices of the type manufactured and sold by the Business, or (ii) the failure
by the Business to meet the minimum financial performance targets set forth on
Schedule 7.2(e). Neither Seller nor Buyer shall have received notice of the
occurrence of any event which, with the passage of time, would constitute a
Material Adverse Effect.
(f) Suppliers, etc. The material customers, distributors
or suppliers of the Business listed on Schedule 7.2(f) shall not have
terminated, or given notice of their intent to terminate their relationship with
the Business.
(g) Financing. Buyer shall have obtained financing for
the transactions contemplated by this Agreement on the terms specified in the
Commitment or alternative financing on the terms contemplated by Section 5.9.
(h) Encumbrances. Any and all Encumbrances on the
Purchased Assets shall have been terminated effective as of the Closing Date,
other than Permitted Encumbrances.
(i) Consents and Regulatory Approvals. All material
licenses, Permits, authorizations, consents and approvals of and filings with
any third party required to be obtained or made by Seller in connection with the
consummation of the transactions contemplated by this Agreement shall have been
duly obtained or made by or on behalf of Seller.
(j) Secretary's Certificate. Buyer shall have received a
secretary's certificate in form and substance reasonably satisfactory to Buyer
evidencing that this Agreement and the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Seller and
that the parties signing this Agreement on behalf of Seller are authorized to do
so, and certificates of good standing in Delaware and Arizona.
(k) Opinion of Counsel. Buyer shall have received from
▇▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, counsel for Seller, an opinion dated the
Closing Date substantially in the form of Exhibit F hereto, and a reliance
letter in customary form in favor of Buyer's lenders.
(l) Approval of Actions and Documents. All actions to be
taken by Seller in connection with the consummation of the transactions
contemplated hereby and the form and substance of all certificates, instruments,
environmental reports and other documents delivered to Buyer under this
Agreement shall be reasonably satisfactory in all respects to Buyer and its
counsel.
(m) Documents Transferring Title. Seller shall have
delivered to Buyer a general conveyance document and contract, patent, copyright
and trademark assignments dated the Closing Date transferring title to the
Purchased Assets in such form as Buyer reasonably requests.
49
7.3 Conditions to Obligations of Seller. The obligations of Seller
to effect the Closing will be subject to the following conditions, unless waived
in writing by Seller:
(a) The representations and warranties of Buyer in this
Agreement will be true at the Closing Date with the same effect as though made
at such time except for any failure that, individually, or in the aggregate, has
not resulted in or would not result in a Buyer Material Adverse Effect;
(b) Buyer will have performed in all material respects
all obligations and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by it at
or before the Closing Date;
(c) Buyer will have delivered to Seller certificates of
Buyer in form and substance satisfactory to Seller, dated the Closing Date and
signed by an executive officer of Buyer to the effect set forth in paragraphs
(a) and (b) of this Section 7.3;
(d) Buyer will have delivered to Seller (i) a duly
executed counterpart of the Sublease in the form of Exhibit C hereto; (ii) a
duly executed counterpart of the Transition Services Agreement in the form of
Exhibit D hereto; (iii) a duly executed counterpart of the Escrow Agreement in
the form of Exhibit A hereto and (iv) a duly executed copy of the Subcontract in
the form of Exhibit E hereto; and (v) a duly executed copy of the Billing
Services Agreement in the form of Exhibit B hereto;
(e) Buyer shall have delivered an instrument of
assumption and assumed the Assumed Liabilities;
(f) Buyer shall have delivered the cash portion of the
Purchase Price, in immediately available funds, less the amount deposited in
escrow under the terms of the Escrow Agreement; and
(g) Buyer shall have delivered a secretary's certificate
in form and substance reasonably satisfactory to Seller evidencing that this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Buyer and that the party signing
this Agreement on behalf of Buyer is authorized to do so, and a certificate of
good standing in Delaware.
(h) Opinion of Counsel. Seller shall have received from
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, general counsel of Buyer, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP, counsel
for Buyer, an opinion dated the Closing Date substantially in the form of
Exhibit G hereto.
(i) Approval of Actions and Documents. All actions to be
taken by Buyer in connection with the consummation of the transactions
contemplated hereby and the form of substance of all certificates, instruments,
and other documents delivered to Seller under this Agreement shall be reasonably
satisfactory in all respects to Seller and its counsel.
ARTICLE VIII
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 Termination of Agreement. Anything herein to the contrary
notwithstanding, this Agreement may be terminated at any time before the Closing
as follows and in no other manner:
(a) by mutual consent in writing of Buyer and Seller;
(b) by either Seller or Buyer if any Governmental Entity
has issued an Order or taken any other actions (which the parties will use their
commercially reasonable efforts to lift), in either case permanently
restraining, enjoining or otherwise prohibiting the Transaction, and such Order
or other action becomes final and nonappealable;
50
(c) by either Buyer or Seller if the Closing shall not
have occurred on or prior to January 31, 2004 (provided, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available to any
party whose breach of or failure to fulfill any of its obligations under this
Agreement has been the primary cause of, or resulted in, the failure of the
Closing to occur on or before such date, and shall not be available to Buyer, if
all conditions to Closing in Section 7.1 and Section 7.2 (other than the
condition set forth in Section 7.2(g)) have been satisfied, or waived by Buyer;
(d) by either Buyer or Seller, if at the Seller's
Stockholder Meeting (including any adjournment or postponement), the requisite
stockholder approval shall not have been obtained (provided, that the right to
terminate this Agreement under this Section 8.1(d) shall not be available to any
party seeking termination who at the time is in breach of or has failed to
fulfill any of its obligations under this Agreement);
(e) by either Buyer or Seller, if there has been a
material breach of any representation, warranty, covenant or agreement set forth
in this Agreement on the part of Seller (in the case of termination by Buyer) or
on the part of Buyer (in the case of termination by Seller), which breach (i)
causes the conditions set forth in Section 7.2(a) or (b) (in the case of
termination by Buyer) or Section 7.3(a) or (b) (in the case of termination by
Seller) not to be satisfied, and (ii) shall not have been cured (if capable of
being cured) within thirty (30) days following receipt by Seller from Buyer of
written notice of Seller's breach or by Buyer from Seller of written notice of
Buyer's breach, as the case may be;
(f) by Seller, if Seller Board determines to accept a
Superior Proposal; or.
(g) (i) by Buyer, if Buyer does not obtain either (x) the
financing contemplated by Section 5.9, or (y) the alternative financing on the
terms contemplated by Section 5.9, or (ii) after January 31, 2004, by Seller, if
all conditions to Closing set forth in Section 7.1 and Section 7.2 have been
satisfied or waived, other than the condition set forth in Section 7.2(g).
8.2 Effect of Termination.
(a) If this Agreement is terminated pursuant to Section
8.1, except pursuant to Section 8.1(d), 8.1(f) or 8.1(g), all further
obligations of the parties under this Agreement will terminate without further
liability of any party to another; provided, however, that the obligations of
the parties contained in Section 10.9 (Confidentiality) and Section 10.12
(Expenses) will survive any such termination. A termination under Section 8.1
will not relieve any party of any liability for a breach of, or for any
misrepresentation under, this Agreement, or be deemed to constitute a waiver of
any available remedy, including specific performance if available, for any such
breach or misrepresentation.
(b) If this Agreement is terminated pursuant to Section
8.1(d), in order to compensate Buyer for the effort and expense incurred in
pursuing a Transaction and to induce Buyer to enter into this Agreement, Seller
agrees to pay Buyer $2,000,000 and, effective upon receipt of such payment,
Seller shall be released from any claim for breach of this Agreement related to
the failure to obtain stockholder approval.
(c) If this Agreement is terminated pursuant to Section
8.1(f), in order to compensate Buyer for the effort and expense incurred in
pursuing a Transaction and to induce Buyer to enter into this Agreement, Seller
agrees to pay Buyer $2,000,000 and also reimburse Buyer for all of its expenses
incurred in connection with the transactions contemplated hereby up to an amount
equal to $2,000,000 and, effective upon receipt of such payment, Seller shall be
released from any claim for breach of this Agreement related to Seller's
acceptance of the Superior Proposal to the extent it was unsolicited under the
terms of Section 5.10 hereof.
(d) If Buyer or Seller terminates this Agreement pursuant
to Section 8.1(g) and such failure to obtain financing or satisfy the condition
set forth in Section 7.2(g) is attributable solely to Buyer's financial
performance or any change in or status of the assets, properties, condition
(financial or otherwise),
51
results of operations or prospects of Buyer, including, without limitation, the
failure resulting solely therefrom to obtain or maintain a rating of Buyer's
senior secured debt by Standard & Poor's of B+ with a positive outlook or by
▇▇▇▇▇'▇ Investors Service of B2 with a stable outlook, in order to compensate
Seller for the effort and expense incurred in pursuing a Transaction and induce
Seller to enter into this Agreement, Buyer agrees to pay Seller $2,000,000, and,
effective upon receipt of such payment, Buyer shall be released from any claim
for breach of this Agreement related to the failure to obtain financing.
8.3 Survival of Representations and Warranties. The
representations and warranties contained in or made pursuant to this Agreement
will expire on the second anniversary of the Closing except that: (a) the
representations and warranties contained in Sections 3.1 (Organization and
Related Matters), 3.2 (Authorization), 3.14 (No Brokers or Finders), 4.1
(Organization and Related Matters), 4.2 (Authorization) (other than the last two
sentences) and 4.6 (No Brokers or Finders) will survive the Closing and remain
in full force and effect indefinitely; (b) the representations and warranties
contained in Sections 3.10 (Taxes), 3.13 (Compliance with Law), 3.22 (Employee
Benefit Plans), 3.23 (Environmental Matters) and 3.30 (Government Contracts)
will continue through 120 days after the expiration of the applicable statute of
limitations as the same may be extended; (c) the agreements made in this Section
8.3 and all covenants made in this Agreement will be continuing; and (d) if a
claim or notice is given under Article IX (Indemnification) with respect to any
representation or warranty before the applicable expiration date, such
representation or warranty will continue indefinitely until such claim is
finally resolved.
ARTICLE IX
INDEMNIFICATION
9.1 Obligations of Seller. Seller agrees to indemnify and hold
harmless Buyer, and its directors, officers, employees, stockholders,
Affiliates, agents, representatives, successors and assigns (collectively,
"Buyer Indemnified Persons") from and against any and all Losses directly or
indirectly, as a result of, or based upon or arising from (a) any inaccuracy in
or breach or nonperformance of any of the representations or warranties made by
Seller in this Agreement; (b) the violation or non-performance of any covenant
or obligation to be performed by Seller under this Agreement; (c) any
liabilities or obligations of Seller that are not Assumed Liabilities; (d) the
Excluded Assets; (e) any Administrative Violation or product liability claim
arising out of the conduct of the Business prior to the date of the Closing; (f)
Taxes, as set forth in Section 6.1, and any interest or penalties thereon, or
(g) the failure of Seller to comply with any bulk sales or bulk transfer laws.
9.2 Obligations of Buyer. Buyer agrees to indemnify and hold
harmless Seller and its directors, officers, employees, stockholders,
Affiliates, agents, representatives, successors and assigns (collectively,
"Seller Indemnified Persons") from and against any and all Losses, directly or
indirectly, as a result of, or based upon or arising from: (a) any inaccuracy in
or breach or nonperformance of any of the representations, warranties, covenants
or agreements made by Buyer in or pursuant to this Agreement, (b) Buyer's
conduct and operation of the Business after the Closing or (c) Buyer's failure
to pay, perform or otherwise discharge the Assumed Liabilities when they come
due.
9.3 Collection of Accounts Receivable. Buyer shall use its
commercially reasonable efforts consistent with Seller's current practices to
collect all Accounts Receivable included in the Purchased Assets. If any
Accounts Receivable (except for Excluded Medicare Receivables) included in the
Closing Date Net Working Capital Schedule have not been collected within
eighteen (18) months of the Closing Date, Seller shall indemnify Buyer and pay
to Buyer the face amount of all such uncollected Accounts Receivable, net of the
reserves for discounts, allowances and bad debt reflected on the Closing Date
Net Working Capital Schedule, and subject in any event to the limitations set
forth in Sections 9.5(a) and (b). Beginning ninety (90) days after the Closing
Date, as long as any Accounts Receivable remain uncollected, Buyer shall provide
Seller, within thirty (30) days of the end of each calendar quarter, with a
report, in a form customarily provided to auditors in connection with an audit,
listing the status of the Accounts Receivable included in the Purchased Assets,
including aging. Seller shall have the right, exercisable one time prior to the
expiration of the 18
52
month period, upon reasonable notice to Buyer and during business hours, to have
its personnel or outside auditors conduct an audit of Buyer's records with
respect to the Accounts Receivable. This Section 9.3 shall represent Buyer's
sole remedy for Seller's breach of the representation and warranty set forth in
Section 3.20.
9.4 Procedure.
(a) Any party seeking indemnification with respect to any
Loss (the "Indemnified Party") will promptly notify the party required to
provide indemnity hereunder (the "Indemnifying Party") in accordance with
Section 10.11, provided, that the failure to give such notice shall not affect
the right of the Indemnified Party to indemnification except to the extent the
failure to give notice prejudices the Indemnifying Party's ability to defend any
claim.
(b) If any claim, demand or liability is asserted by any
third party against any Indemnified Party (a "Third Party Claim"), the
Indemnified Party will, upon notice of the claim or demand, promptly notify the
Indemnifying Party, subject to the proviso of Section 9.4(a), and the
Indemnifying Party will defend and/or settle any actions or proceedings brought
against the Indemnified Party in respect of matters embraced by the indemnity
with counsel reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party does not promptly defend or settle any such claims, the
Indemnified Party will have the right to control any defense or settlement, at
the expense of the Indemnifying Party. No claim will be settled or compromised
without the prior written consent of each party to be affected, with such
consent not being unreasonably withheld. The Indemnified Party will at all times
also have the right to participate fully in the defense at its own expense
unless there is, under applicable law, a conflict on any significant issue
between Indemnifying Party and Indemnified Party, in which case the fees and
expenses of one counsel in respect of such claim incurred by the Indemnified
Party will be paid by Indemnifying Party. The parties will cooperate in the
defense of all Third-Party Claims that may give rise to Indemnifiable Claims
hereunder. In connection with the defense of any claim, each party will make
available to the party controlling such defense, any books, records or other
documents within its control that are reasonably requested in the course of such
defense.
(c) If the Indemnified Party has a claim against the
Indemnifying Party that does not involve a Third Party Claim (an "Inter-Party
Claim"; and together with a Third Party Claim, an "Indemnifiable Claim"), the
Indemnified Party will notify the Indemnifying Party with reasonable promptness
of the claim, and, to the extent known, specifying the nature, estimated amount
and the specific basis for the claim. The Indemnifying Party will respond within
thirty (30) days of receipt of the notice of an Inter-Party Claim. If the
Indemnifying Party fails to respond, the claim specified by the Indemnified
Party will be conclusively deemed a liability of the Indemnifying Party, subject
only to proof of the amount of Loss. If the Indemnifying Party timely disputes
the claim, the Indemnified and the Indemnifying Party will negotiate in good
faith to resolve the dispute, and if not resolved, either party may pursue
whatever remedies it may have.
(d) If any Loss is covered by insurance, Indemnified
Party will file claims against the applicable policies, but need not appeal the
denial of any claim nor assign any rights to Indemnifying Party under the
policy. The provisions of this Article IX are subject to the rights of any
Indemnified Party's insurer that may be defending any such claim. If the
Indemnifying Party makes any payment hereunder of a Loss, the Indemnifying Party
will be subrogated, to the extent of the payment and permitted by the applicable
policies, to the rights of the Indemnified Party against any insurer or third
party with respect to the Loss.
(e) All payments made pursuant to this Article IX (other
than a payment based on an obligation arising under Section 5.7 [Non-Compete])
shall be treated as adjustments to the purchase price for the Purchased Assets.
9.5 Indemnification Threshold; Maximum Losses.
(a) Seller will have no liability for Losses incurred by
Buyer Indemnified Persons arising out of or related to the inaccuracy or breach
of a representation or warranty (other than representations and
53
warranties set forth in Sections 3.1 (Organization and Related Matters), 3.2
(Authorization), 3.3 (No Conflicts), 3.7(d) (Trade Payables), 3.10 (Taxes), 3.14
(No Brokers or Finders), and 3.26 (Voting Requirements)), unless and until the
aggregate of all Losses incurred by Buyer Indemnified Persons exceeds $250,000,
at which ▇▇▇▇ ▇▇▇▇▇▇ will be obligated to indemnify Buyer Indemnified Persons
for all Losses in excess of $250,000 in the aggregate.
(b) Seller will have no liability arising out of the
breach or inaccuracy of a representation or warranty by Seller for Losses
incurred by Buyer Indemnified Persons and Buyer will have no liability arising
out of the breach or inaccuracy of a representation or warranty by Buyer for
Losses incurred by Seller Indemnified Persons, whether resulting from an action
for indemnification or otherwise, to the extent the aggregate Losses incurred by
Buyer Indemnified Persons or Seller Indemnified Persons, as applicable,
including any Losses previously recovered, exceed the Purchase Price; provided,
however, that the limitation on liability provided in this Section 9.5(b) shall
not apply to any claims for indemnification in connection with (i) the breach or
inaccuracy of a representation or warranty set forth in Sections 3.1
(Organization and Related Matters), 3.2 (Authorization), 3.10 (Taxes), 3.13
(Compliance with Law), 3.14 (No Brokers or Finders), and 3.30 (Government
Contracts); (ii) the breach of any covenant set forth in Article V; (iii)
Seller's responsibility for all obligations related to the Excluded Liabilities;
or (iv) Buyer's responsibility for all obligations related to the Assumed
Liabilities.
9.6 Cooperation; Manner of Payment. In connection with any
Indemnifiable Claim, the Indemnified Party will cooperate in all reasonable
requests of the Indemnifying Party. All claims against Seller shall be also made
under and pursuant to the Escrow Agreement, and at such time as Seller becomes
obligated to a Buyer Indemnified Party pursuant to this Article IX Seller shall
cause the amount required to satisfy the claim to be disbursed from the Escrow.
If at any time the Escrow is exhausted, or the entirety of the funds therein are
being held subject to a dispute under this Article IX, Seller shall pay the
Losses incurred directly to the Buyer Indemnified Party entitled to be
indemnified hereunder.
9.7 WARN Act. If, following the Closing and during the period
ending 60 days after the Closing, Buyer takes any action (including failing to
hire the requisite number of employees of Seller in the Business) that in and of
itself has the effect of causing Seller to incur Losses payable to terminated
employees under the Federal Worker Adjustment and Retraining Notification Act
("WARN"), then Buyer shall indemnify Seller and hold it harmless from such
Losses, and upon receipt form Seller of notice of a Third Party Claim under the
WARN Act arising out of an action by Buyer taken following the Closing,
including the failure by Buyer to hire the requisite number of employees of the
Business, Buyer shall promptly assume the defense of such claim and pay the
Losses incurred in such defense.
9.8 Exclusive Remedy. Except in the case of fraud, or where a
party may be entitled to injunctive relief or other equitable remedies, after
the Closing, the indemnification provided in this Article IX will constitute the
exclusive remedy of the parties and each of their respective directors,
officers, employees, Affiliates, agents and assigns from and against any and all
Losses asserted against, resulting to, imposed upon or incurred or suffered by,
any of them, directly or indirectly, as a result of, or based upon or arising
from the breach of any representation or warranty or the nonfulfillment of any
agreement or covenant in or pursuant to this Agreement or any other agreement,
document, or instrument required hereunder.
9.9 Damages. Notwithstanding anything to the contrary elsewhere in
this Agreement, no party, or its Affiliates, will be liable to the other party
or its Affiliates for any damages other than compensatory damages. Each party
agrees that it will not seek consequential or punitive damages as to any matter
under, relating to or arising out of the Agreement or the Transaction.
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ARTICLE X
GENERAL
10.1 Amendments; Waivers. Except as expressly provided herein, this
Agreement and any attached Schedule or Exhibit may be amended only by the
agreement in writing of all parties. No waiver of any provision nor consent to
any exception to the terms of this Agreement or any agreement contemplated
hereby will be effective unless in writing and signed by the party to be bound
and then only to the specific purpose, extent and instance so provided.
10.2 Schedules; Exhibits; Integration. Each Schedule and Exhibit
delivered pursuant to the terms of this Agreement must be in writing and will
constitute a part of this Agreement, although schedules need not be attached to
each copy of this Agreement. This Agreement, together with such Schedules and
Exhibits, and the other agreements and instruments delivered at Closing,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties in connection therewith.
10.3 Further Assurances. Each party will execute and deliver, both
before and after the Closing, such further certificates, agreements and other
documents and take such other actions as the other party may reasonably request
or as may be necessary or appropriate to consummate or implement the Transaction
or to evidence such events or matters. Seller shall execute and deliver any
forms required to transfer foreign Intellectual Property to Buyer.
10.4 Governing Law. This Agreement and the legal relations between
the parties will be governed by and construed in accordance with the laws of the
State of Delaware applicable to contracts made and performed in such State and
without regard to conflicts of law doctrines unless certain matters are
preempted by federal law.
10.5 No Assignment. Neither this Agreement nor any rights or
obligations under it are assignable by one party without the prior written
consent of the other party, except as set forth in Section 5.7 and except that
(i) Buyer may pledge any rights hereunder to financing sources or lenders,
without Seller's consent and (ii) each of Buyer and Seller may, without the
other parties consent, assign all such rights and obligations to a successor in
interest (whether by merger, purchase of substantially all assets or otherwise)
so long as such successor shall assume all such rights and obligations under
this Agreement.
10.6 Headings. The descriptive headings of the Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
10.7 Counterparts. This Agreement and any amendment hereto or any
other agreement delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All counterparts
will constitute one and the same agreement and will become effective when one or
more counterparts have been signed by each party and delivered to the other
party.
10.8 Publicity and Reports. Until 90 days after the Closing Date,
the content of all public announcements relating to the Transaction shall be
mutually agreed upon in advance by Seller and Buyer; provided, that each party
hereto may make any such announcement without the prior consent of the other
party which it in good faith believes is necessary or advisable in connection
with any requirement of any applicable law, regulation or stock exchange rules
(it being understood and agreed that each party shall promptly provide the other
party with copies of any such announcement and shall use best efforts to inform
the other party prior to making any such announcement).
10.9 Confidentiality. Each of Seller and Buyer agrees that all non
public, confidential information so received from the other party is deemed
received pursuant to the confidentiality agreement, dated as of July 3, 2003
between Seller and Buyer (the "Confidentiality Agreement") and each party will,
and will cause its
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Representatives (as defined in the Confidentiality Agreement) to, comply with
the provisions of the Confidentiality Agreement with respect to such
information, and the provisions of the Confidentiality Agreement are hereby
incorporated by reference with the same effect as if fully set forth herein. For
the avoidance of doubt, non-public, confidential or proprietary information or
copies thereof retained by Seller regarding the Business is governed by the
Confidentiality Agreement.
10.10 Parties in Interest. This Agreement is binding upon and will
inure to the benefit of each party and their respective successors or assigns,
and nothing in this Agreement, express or implied, is intended to confer upon
any other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
10.11 Notices. Any notice or other communication hereunder must be
given in writing and: (a) delivered in person; (b) transmitted by facsimile; (c)
delivered via an overnight courier service of national reputation; or (d) mailed
by certified or registered mail, postage prepaid, receipt requested as follows:
If to Buyer, addressed to:
dj Orthopedics, LLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Seller, addressed to:
OrthoLogic Corp.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ LLP
Two ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to such other Person as either party has last
designated by such notice to the other party. Each such notice or other
communication will be effective: (i) if given by facsimile, when transmitted to
the applicable number so specified in this Section 10.11 and an appropriate
electronic confirmation is received; (ii) if given by mail, three days after
such communication is deposited in the mails with first class postage prepaid,
addressed as above; (iii) if given by overnight courier service of national
reputation, one day
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after such communication is deposited with such courier service; or (iv) if
given by any other means, when actually received at such address.
10.12 Expenses. Except as set forth in Section 8.2, Seller and Buyer
will each pay their own expenses incident to the negotiation, preparation and
performance of this Agreement and the Transaction, including, the fees, expenses
and disbursements of their respective investment bankers, accountants and
counsel.
10.13 Waiver. No failure on the part of any party to exercise or
delay in exercising any right hereunder will be deemed a waiver thereof, nor
will any single or partial exercise preclude any further or other exercise of
such or any other right.
10.14 Attorney Fees. If there is any Action for the breach of this
Agreement or for misrepresentation by any party, the prevailing party will be
entitled to reasonable attorney's fees, costs and expenses incurred in such
Action. Attorneys fees incurred in enforcing any judgment in respect of this
Agreement are recoverable as a separate item. The preceding sentence is intended
to be severable from the other provisions of this Agreement and to survive any
judgment and, to the maximum extent permitted by law, will not be deemed merged
into any such judgment.
10.15 Representation By Counsel; Interpretation. Seller and Buyer
each acknowledge that each has been represented by counsel in connection with
this Agreement and the Transaction. Accordingly, any rule of Law or any legal
decision that would require interpretation of any claimed ambiguities in this
Agreement against the party that drafted it has no application and is expressly
waived. The provisions of this Agreement will be interpreted in a reasonable
manner to effect the intent of Buyer and Seller.
10.16 Severability. If any provision of this Agreement is held to be
unenforceable for any reason, it will be adjusted rather than voided, if
possible, to achieve the intent of the parties. All other provisions of this
Agreement will be deemed valid and enforceable to the extent possible.
10.17 Specific Performance. Seller and Buyer each acknowledge that,
in view of the uniqueness of the Business and the transactions contemplated by
this Agreement, the other Party would not have an adequate remedy at law for
money damages in the event that this Agreement has not been performed in
accordance with its terms. Each Party therefore agrees that the other Party
shall be entitled to specific enforcement of the terms hereof in addition to any
other remedy to which it may be entitled, at law or in equity.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
"BUYER"
DJ ORTHOPEDICS, LLC
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: President, CEO
"SELLER"
ORTHOLOGIC CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: President/CEO
[Signature Page to Asset Purchase Agreement]
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