STOCK PURCHASE AGREEMENT dated as of April 30, 2006 by and among LASERSCOPE, INNOVAQUARTZ INCORPORATED and THE STOCKHOLDERS OF INNOVAQUARTZ INCORPORATED
EXECUTION COPY
dated as of
April 30, 2006
by and among
LASERSCOPE,
INNOVAQUARTZ INCORPORATED
and
THE STOCKHOLDERS OF INNOVAQUARTZ INCORPORATED
THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of the
30th day of April 2006, by and among Laserscope, a California corporation (the
“Purchaser”), InnovaQuartz Incorporated, an Arizona corporation (the “Company”),
The ▇▇▇▇▇▇▇ Family Revocable Trust (the “▇▇▇▇▇▇▇ Trust”), ▇▇▇▇▇ ▇▇▇▇▇▇▇ (“▇▇.
▇▇▇▇▇▇▇”) and ▇▇▇▇▇ ▇▇▇▇ (“▇▇. ▇▇▇▇”). The ▇▇▇▇▇▇▇ Trust and ▇▇. ▇▇▇▇ as sometimes
referred to herein individually as a “Stockholder” and collectively as the
“Stockholders.” ▇▇. ▇▇▇▇▇▇▇ and ▇▇. ▇▇▇▇ as sometimes referred to herein individually as a
“Company Principal” and collectively as the “Company Principals.”
RECITALS
A. The Board of Directors of Purchaser believes it is in the best interests of Purchaser and
its stockholders to acquire all of the issued and outstanding capital stock of the Company, all of
which capital stock is owned or held of record by the Stockholders, all upon the terms and subject
to the conditions set forth herein (the “Acquisition”), such that upon consummation of the
Acquisition Purchaser will own all of the issued and outstanding capital stock of the Company.
B. As an inducement for Purchaser to consummate the Acquisition, the Company, the Stockholders
and the Company Principals have agreed to make certain representations, warranties, covenants and
other agreements in connection with the Acquisition, all as set forth herein.
C. As a further inducement for Purchaser to consummate the Acquisition, each of the Company
Principals has agreed to enter into an Employment Agreement (collectively, the “Employment
Agreements”), which shall be effective only upon the closing of the Acquisition and shall be
substantially in the form of Exhibit A hereto, in the case of ▇▇. ▇▇▇▇▇▇▇, and
substantially in the form of Exhibit B hereto, in the case of ▇▇. ▇▇▇▇.
AGREEMENT
In consideration of the mutual promises, agreements, warranties and provisions contained in
this Agreement, the parties hereto, intending to be legally bound, hereby agree as follows:
SECTION 1
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. Subject to the terms and conditions of this
Agreement, Purchaser hereby agrees to purchase at the Closing (as defined below) and the
Stockholders agree to sell, convey, transfer, assign and deliver to Purchaser at the Closing, free
and clear of all liens, encumbrances or other defects of title, all of the issued and outstanding
shares of capital stock of the Company and/or any rights to acquire shares of the capital stock of
the Company, beneficially owned or held of record and to be beneficially owned or held of record
by the Stockholders, in each case as set forth adjacent the Stockholders’ names in Section
1.1 of the Company Disclosure Schedule, such that on the Closing Date (as defined
below) Purchaser shall be the sole record and beneficial owner of all outstanding shares and rights
to acquire shares of the Company’s capital stock (the “Shares”).
1.2 Consideration.
(a) The total consideration to be paid by Purchaser for the Shares shall be an aggregate of
Seven Million Five Hundred Twenty Six Thousand One Hundred Twenty Two Dollars ($7,526,122) (the
“Total Initial Payment”), plus the Earnout Amounts, if any, as determined in accordance
with Sections 1.3 and 1.4 below (such amount, the “Purchase Price”). At the Closing, Purchaser
shall pay to the ▇▇▇▇▇▇▇ Trust $5,017,414.67 of the Total Initial Payment and shall pay to ▇▇.
▇▇▇▇ $2,508,707.33 of the Total Initial Payment, in each case either by check or wire transfer of
immediately available funds pursuant to wire transfer instructions delivered by each Stockholder to
Purchaser at least two (2) Business Days prior to the Closing Date.
(b) As additional consideration for the obligations of the Stockholders, the Company
Principals and the Company hereunder, Purchaser shall, as of the Closing: (i) assume the capital
equipment financing obligation of the Company as set forth in Section 1.2 of the Company
Disclosure Schedule (so as to terminate any further obligation of the Stockholders with respect
thereto); and (ii) fully pay all principal and accrued interest owing to the holders of the
promissory notes, having an aggregate principal amount of $310,217, set forth in Section
1.2 of the Company Disclosure Schedule (the “▇▇▇▇ Note Payments”).
1.3 Earnout Payments.
(a) Earnout Payment Schedule. Subject to Purchaser’s rights of set-off set forth in
Section 8.3 hereof, the Stockholders shall be entitled to receive the Earnout Amounts (as
defined in Section 1.4 below) as follows:
(i) 50% of the Total First Earnout Amount will be paid to the Stockholders within 30 days of
the final determination of the Total First Earnout Amount in accordance with Section
1.3(f), and the balance of the Total First Earnout Amount will be paid to the Stockholders
within 30 days of completion of Purchaser’s audited financials for calendar year 2007;
(ii) 50% of the Total Second Earnout Amount will be paid to the Stockholders within 30 days of
the final determination of the Total Second Earnout Amount in accordance with Section
1.3(f), and the balance of the Total Second Earnout Amount will be paid to the Stockholders
within 30 days of completion of Purchaser’s audited financials for calendar year 2008; and
(iii) 50% of the Total Third Earnout Amount will be paid to the Stockholders within 30 days of
the final determination of the Total Third Earnout Amount in accordance with Section
1.3(f), and the balance of the Total Third Earnout Amount will be paid to the Stockholders
within 30 days of completion of Purchaser’s audited financials for calendar year 2009.
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(b) Earnout Payment Allocations. Subject to Section 1.3(c), Section
1.3(g)(ii) and Purchaser’s rights of set-off set forth in Section 8.3 hereof,
two-thirds of each of the Earnout Amounts shall be payable in cash to ▇▇. ▇▇▇▇▇▇▇ and one-third of
each of the Earnout Amounts shall be payable in cash to ▇▇. ▇▇▇▇, in each case by wire transfer of
immediately available funds pursuant to wire transfer instructions promptly delivered by each
Stockholder to Purchaser upon Purchaser’s request.
(c) Compliance with Agreements.
(i) Each Stockholder’s right to receive his or its portion of each of the Earnout Amounts is
contingent upon such Stockholder (or, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇) being in
material compliance with the non-competition and non-solicitation sections of his Employment
Agreement at all times prior to the payment of such Earnout Amount; provided,
however, if any material non-compliance is inadvertent or unintentional, is curable
(whether through the payment of damages or losses sustained by Purchaser or otherwise), and the
non-complying party has given Purchaser written notice promptly (but no later than 5 business days)
after first becoming aware of the facts, events or actions that caused, or could reasonably be
expected to cause, such material non-compliance, the non-complying party shall have 10 business
days to cure such non-compliance, whereupon such Stockholder’s rights to any Earnout Amounts paid
or payable after the date of the non-complying party’s notice to Purchaser shall be reinstated;
provided, further, if Purchaser has any basis (other than receipt of the notice
referenced in the first proviso above) to allege any material non-compliance with the
non-competition and non-solicitation sections of the Employment Agreement, then Purchaser, as a
condition precedent to invoking its rights pursuant to this Section 1.3(c)(i), shall have
given such Stockholder (and, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇) written notice of the
alleged breach of such non-competition and non-solicitation sections within 30 days of Purchaser
first becoming aware of the facts, events or actions that form the basis for such allegation
(ii) Each Stockholder’s right to receive his or its portion of each of the Earnout Amounts is
also contingent upon such Stockholder (and, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇) being in
material compliance with the post-Closing operational covenants of the Company set forth in
Section 6.10(a) and (d) of this Agreement; provided, that Purchaser, as a
condition precedent to invoking its rights pursuant to this Section 1.3(c)(ii), has given
such Stockholder (and, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇) notice of any determination
by Purchaser of such Stockholder’s (or, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇) material
non-compliance with the terms of Section 6.10(a) or (d) of this Agreement, and, to
the extent such non-compliance is curable (whether through the payment of damages or losses
sustained by Purchaser or otherwise), such Stockholder (and, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇) has
been afforded a reasonable opportunity (not to exceed 30 days) to cure such non-compliance,
whereupon such Stockholder’s rights to any Earnout Amounts paid or payable after the date of
Purchaser’s notice shall be reinstated).
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(d) Change of Control Transaction. In the event a Change of Control Transaction is
completed at any time during the period beginning on the date hereof and ending on the earlier of
(i) the satisfaction or termination of Purchaser’s payment obligations to the Stockholders with
respect to the Earnout Amounts or (ii) the third anniversary of the Closing Date (the “Restricted
Period”), either (A) Purchaser shall require the successor entity to expressly agree in writing to
assume all such payment obligations as specified in Sections 1.3 and 1.4 hereof and
Purchaser’s operational covenants specified in Section 6.10 hereof; or (B) in lieu thereof,
Purchaser or the successor entity shall, at or prior to the closing of the Change of Control
Transaction and as a condition thereof, pay to the Stockholders, in full satisfaction of such
payment obligations, the following percentages of the maximum buyout amount of $15,000,000 (the
“Maximum Buyout Amount”): (I) 50% of the Maximum Buyout Amount less the aggregate amount of
all Earnout Amounts paid, or which would have been payable but for a Stockholder’s (or, in the case
of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇) noncompliance with Section 1.3(c) or Purchaser’s
exercise of its rights of set-off set forth in Section 8.3, prior to the date of the Change
of Control Transaction, in the event the Change of Control Transaction occurs on or prior to the
first anniversary of the Closing Date; (II) 73% of the Maximum Buyout Amount less the
aggregate amount of all Earnout Amounts paid, or which would have been payable but for a
Stockholder’s (or, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇)noncompliance with Section
1.3(c) or Purchaser’s exercise of its rights of set-off set forth in Section 8.3, prior
to the date of the Change of Control Transaction, in the event the Change of Control Transaction
occurs after the first anniversary of the Closing Date but on or prior to the second anniversary of
the Closing Date; and (III) 100% of the Maximum Buyout Amount less the aggregate amount of
all Earnout Amounts paid, or which would have been payable but for a Stockholder’s (or, in the case
of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇) noncompliance with Section 1.3(c) or Purchaser’s
exercise of its rights of set-off set forth in Section 8.3, prior to the date of the Change
of Control Transaction, in the event the Change of Control Transaction occurs after the second
anniversary of the Closing Date but on or prior to the third anniversary of the Closing Date.
(e) Product Sales Limitations. Prior to the expiration of the Restricted Period and
except as contemplated and permitted by Section 6.10(d), Purchaser shall not (i) impose any
sales prohibitions or take other actions to exclude any of the Company Developed Products included
in the Baseline Budget from its sales efforts (unless it shall permit the Company to sell any such
Company Developed Products exclusively), including, without limitation, but only in the event
Purchaser elects to sell any Company Developed Products, the implementation of any commission or
compensation structure that provides for compensation to Purchaser’s salespersons, representatives,
distributors or other persons responsible for the sale by Purchaser of Company Developed Products
after the Closing that is less favorable to such persons than the commission or compensation structure applicable to their sales of Purchaser’s
like products of comparable quality in the same markets, (ii) impose any material restriction
during any calendar year in the Restricted Period on the Company’s expenditure or application of
its financial, capital and other resources during such calendar year or the Company’s employee
staffing levels during such calendar year, in each case, subject to the amounts and other
limitations applicable to such calendar year as set forth in the Baseline Budget, or (iii)
otherwise restrict the Company’s sales of the Company Developed Products included in the Baseline
Budget in a manner that results in a reduction in sales of such Company Developed Products (a
“Product Sales Limitation”); provided, however, a Product Sales Limitation shall
exclude, and not result from Purchaser’s imposition of, (A) any sales prohibitions or the taking of
other actions required to address a quality assurance or
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regulatory
compliance problem, (B) any requirement that the purchase price of the Company’s products be comparable to the purchase price
of like products of comparable quality in the same market, (C) any requirement that the gross
margin on sales of the Company’s products be at least equal to the combined gross margin on sales
by Purchaser of comparable products (currently 75%) less an allowance for reasonable selling and/or
distribution expenses not to exceed 10% of the applicable per unit sales price, or (D) any other
restriction or requirement as is reasonably necessary to prevent a violation of any law, regulation
or other legal obligation applicable to Purchaser, the Company or any of their respective
affiliates or subsidiaries. In the event Purchaser or its successor (as applicable) elects to take
any action during the Restricted Period that constitutes a Product Sales Limitation, Purchaser or
its successor (as applicable) shall be obligated to pay to the Stockholders, at or prior to the
imposition of the Product Sales Limitation, as a condition thereof, and in full satisfaction of all
payment obligations of Purchaser or its successor (as applicable) under this Agreement, the
following percentages of the Maximum Buyout Amount: (I) 50% of the Maximum Buyout Amount
less the aggregate amount of all Earnout Amounts paid, or which would have been payable but
for a Stockholder’s (or, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇) noncompliance with
Section 1.3(c) or Purchaser’s exercise of its rights of set-off set forth in Section
8.3, prior to the date of the Product Sales Limitation, in the event the Product Sales
Limitation occurs on or prior to the first anniversary of the Closing Date; (II) 73% of the Maximum
Buyout Amount less the aggregate amount of all Earnout Amounts paid, or which would have
been payable but for a Stockholder’s (or, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇)
noncompliance with Section 1.3(c) or Purchaser’s exercise of its rights of set-off set
forth in Section 8.3, prior to the date of the Product Sales Limitation, in the event the
Product Sales Limitation occurs after the first anniversary of the Closing Date but on or prior to
the second anniversary of the Closing Date; and (III) 100% of the Maximum Buyout Amount
less the aggregate amount of all Earnout Amounts paid, or which would have been payable but
for a Stockholder’s (or, in the case of the ▇▇▇▇▇▇▇ Trust, ▇▇. ▇▇▇▇▇▇▇’▇) noncompliance with
Section 1.3(c) or Purchaser’s exercise of its rights of set-off set forth in Section
8.3, prior to the date of the Product Sales Limitation, in the event the Product Sales
Limitation occurs after the second anniversary of the Closing Date but on or prior to the third
anniversary of the Closing Date. Notwithstanding anything in this Section 1.3(e) to the
contrary, if the Stockholders have any basis to allege that a Product Sales Limitation has
occurred, then the Stockholders, as a condition precedent to invoking their rights pursuant to this Section 1.3(e), shall have given Purchaser written notice of the basis for such
allegation within 30 days of first becoming aware of the facts, events or actions that form the
basis for such allegation, and, to the extent such allegation is valid, Purchaser shall have 30
days to cure the Product Sales Limitation.
(f) Calculation of Gross Revenue and Pre-Tax Profits. The amount of gross revenue and
pre-tax profits of the Company for any calendar year during the Restricted Period shall be
calculated in accordance with generally accepted accounting principles of the United States
(“GAAP”), applied in a manner consistent with that which the Purchaser’s financials have
been prepared and subject to the following:
(i) Purchaser and each of the Stockholders and the Company Principals agrees and acknowledges
that the gross revenue and pre-tax profits targets set forth in the initial Baseline Budget were
established based on the fact that revenue generated under the Boston Scientifics Supply Agreement
(as defined in Section 1.4(a) below) cannot be recognized under GAAP until expiration of the 180-day final inspection and
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acceptance or rejection period specified therein; however,
Purchaser and each of the Stockholders and the Company Principals further agrees and acknowledges
that if the Boston Scientifics Supply Agreement is amended post-Closing in a manner that enables
the recognition of any revenue generated thereunder in an earlier calendar year than is
contemplated in the initial Baseline Budget, then the gross revenue and pre-tax profits targets set
forth in the initial Baseline Budget will be revised to appropriately reflect such earlier revenue
recognition;
(ii) subject to the Company Principals’ compliance with Section 6.10(b) hereof, any
and all sales of Company Developed Products completed during any calendar year ending within the
Restricted Period, whether by the Company or the Purchaser, shall be deemed made 100% by the
Company and included in the Company’s gross revenue for such calendar year at the sale price paid
by the customer;
(iii) subject to the Company Principals’ compliance with Section 6.10(c) hereof, the
percentage of any and all sales of Jointly Developed Products completed during any calendar year
ending within the Restricted Period allocable to the Company as mutually agreed by the parties
pursuant to Section 6.10(c), whether by the Company or the Purchaser, shall be deemed made
by the Company and the same percentage of the gross revenue generated from such sales, based on the
sale price paid by the customer, shall be included in the Company’s gross revenue for such calendar
year;
(iv) except for the types and amounts of charges or expenses attributable to the Company
pursuant to the Baseline Budget, no one-time charges or expenses attributable to any Subsidiary of
Purchaser other than the Company shall be allocated to the Company in calculating the Company’s
pre-tax profit;
(v) for calendar year 2006, any fees and expenses incurred or reasonably expected to be
incurred by the Company, the Stockholders or the Company Principals in connection with the
negotiation of the terms and conditions of this Agreement and the completion of the Acquisition,
including all legal, accounting, financial advisory, consulting and other fees and expenses of
third parties, shall, subject to such parties’ compliance with Section 6.1 hereof, be
excluded for the purpose of calculating Company pre-tax profit; and
(vi) Purchaser’s payment of any Earnout Amount shall not be deemed an expense of the Company
for the purpose of calculating any Earnout Amount.
(g) Baseline Cap Production and Reinvestment Requirement. Notwithstanding any other
term of this Section 1.3 or Section 1.4 below, Purchaser acknowledges and agrees
that: (i) the Company’s attainment of the Baseline Cap Production Requirement shall be excused as
a condition to the accrual of any Earnout Amount to the extent that Purchaser does not submit
orders for (or otherwise directs the Company not to produce) a number of caps equal to or greater
than the Baseline Cap Production Requirement; and (ii) to the extent the amount, if any, comprising
the Reinvestment Requirement for each calendar year ending within the Restricted Period is not
reinvested by the Company in approved research and development or product marketing activities
during such calendar year after expending commercially reasonable efforts to effect such
reinvestments, then the Earnout Amount, if any, for such calendar year shall be reduced
dollar-for-dollar by the amount of such reinvestment shortfall, but in no event shall exceed 10% of
such Earnout Amount, and such reduction shall be the sole effect from the Company’s failure to
fully reinvest the amount comprising the Reinvestment Requirement for that calendar year.
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(h) Determination of Earnout Amounts. Within 30 days after Purchaser’s completion of
its audited financials for the applicable calendar year (namely, calendar year 2006 in the case of
the Total First Earnout Amount, calendar year 2007 in the case of the Total Second Earnout Amount,
and calendar year 2008 in the case of the Total Third Earnout Amount), Purchaser shall submit to
the Stockholders a calculation, with reasonable detail, of the applicable Earnout Amount and the
Stockholders shall have 15 days thereafter to dispute such calculation by submitting a written
dispute notice to Purchaser. Purchaser shall make the books and records of account of the Company
fully available to the Stockholders and the Stockholders’ representatives until such time as all
Earnout Amounts due and payable hereunder have been finally determined solely for use in verifying
and calculating the applicable Earnout Amount. Subject to the full availability of the books and
records of account of the Company, the Stockholders’ failure to provide Purchaser written notice of
dispute within such 15 days shall be deemed acceptance by the Stockholders of Purchaser’s
calculation. If the Stockholders do not timely dispute Purchaser’s calculation or the Stockholders
earlier accept Purchaser’s calculation in writing, then Purchaser shall promptly remit the
applicable Earnout Amount to the Stockholders. If the Stockholders timely dispute Purchaser’s
calculation, then Purchaser and the Stockholders shall have 20 days to negotiate in good faith to
resolve the dispute. If such parties do not reach a mutually acceptable resolution from such
negotiations, then the dispute shall be submitted to a nationally recognized public accounting firm agreeable to each such party and
with whom neither such party (or any of its Affiliates) has had a relationship within the past 24
months. Such accounting firm and the Stockholders shall be given reasonable access to all relevant
records of the Company to calculate the applicable Earnout Amount, which calculation shall be
submitted by the accounting firm to Purchaser and the Stockholders within 45 days. Each of
Purchaser and the Stockholders shall have 20 days thereafter to submit to each other and the
accounting firm written comments on such calculation and
an additional 20 days to similarly submit
to each other and the accounting firm written rebuttal comments to each other’s initial comments.
Within 15 days after the rebuttal comment period, the accounting firm shall submit its final
calculation to each of Purchaser and the Stockholders, which shall be final and binding on the
parties hereto, and after which Purchaser shall promptly remit the applicable Earnout Amount (if
any) as so calculated to the Stockholders. Purchaser and the Stockholders shall share equally the
fees and expenses of such accounting firm, provided if the applicable Earnout Amount as finally
determined by the accounting firm is more than twenty-five percent (25%) greater than Purchaser’s
original calculation of such Earnout Amount, all of such fees and expenses shall be paid by
Purchaser. Interest shall accrue on any unpaid portion of the applicable Earnout Amount commencing
on the date the Stockholders give notice of dispute of Purchaser’s calculation of such Earnout
Amount; provided, however, that Purchaser may remit to the Stockholders such amount
as Purchaser deems not in dispute and interest shall thereupon accrue only on the difference, if
any, ultimately determined in accordance with this Section 1.3(f). The rate of interest
shall be the rate of interest then published by Bank of America, San Francisco, California, as its
“prime” lending rate for commercial borrowers.
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1.4 Earnout Amounts.
(a) Certain Definitions.
(i) “Baseline Budget” means the budget for calendar years 2006, 2007 and 2008 as set forth in
Exhibit C attached hereto, which sets forth the gross revenue and pre-tax profit targets
for each of these calendar years, as amended and updated from time to time in accordance with
Section 6.10(e). The Baseline Budget will provide for continued manufacture of at least
125,000 caps per year by the Company for Purchaser on a cost basis with the same level of quality
and timing of delivery as is currently being provided to Purchaser by the Company (the “Baseline
Cap Production Requirement”); provided, however, if Purchaser funds the capital
expenditures necessary to double the Company’s cap production capacity (which are not expected to
exceed $100,000 plus incremental labor costs), the Baseline Cap Production Requirements shall be
increased to 250,000 caps per year. In addition, the Baseline Budget for each of calendar years
2006, 2007 and 2008 shall, at the direction of Purchaser in its sole discretion, require and
reflect the Company’s reinvestment of up to 7% or $250,000 of its revenue, whichever is greater
(the “Reinvestment Requirement”), towards research and development activities, which amounts shall
be fully reflected as expenses for purposes of determining the pre-tax profit targets for each of
these calendar years. The Reinvestment Requirement will also include, at the direction of Purchaser in its sole discretion, up to
certain levels of investment in product marketing to be identified in the Baseline Budget.
(ii) “Boston Scientific Supply Agreement” means the Supply Agreement dated as of February 11,
2005 by and between Boston Scientific Corporation and the Company.
(iii) “Change of Control Transaction” means (1) a sale of all or substantially all of
Purchaser’s assets, or (2) any merger, consolidation or other business combination transaction of
Purchaser with or into another corporation, entity or person, other than a transaction in which the
holders of at least a majority of the shares of voting capital stock of Purchaser outstanding
immediately prior to such transaction continue to hold (either by such shares remaining outstanding
or by their being converted into shares of voting capital stock of the surviving entity) a majority
of the total voting power represented by the shares of voting capital stock of Purchaser (or the
surviving entity) outstanding immediately after such transaction, or (3) the direct or indirect
acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a
group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a
majority of the voting power of the then outstanding shares of capital stock of Purchaser.
(iv) “Company Developed Products” means the Company’s existing products and products in
development as of the Closing Date as identified in the Baseline Budget and any new products
independently developed by the Company after the Closing Date without any development contribution
from Purchaser or any of its subsidiaries or affiliates other than the Company, including without
limitation concept generation, design, prototyping, manufacturing, testing and validation services.
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(v) “Earnout Amounts” shall mean the Total First Earnout Amount, the Total Second Earnout
Amount, and the Total Third Earnout Amount.
(vi) “First Earnout Shortfall Payment” means the amount obtained by multiplying (x) the unpaid
Maximum First Earnout Amount divided by 20, by (y) the lesser of (1) the number equal to the
difference between 80% and the percentage of the revenue target set forth in the Baseline Budget
actually achieved for 2006 or (2) the number equal to the difference between 80% and the percentage
of the pre-tax profit target set forth in the Baseline Budget actually achieved for 2006.
(vii) “Jointly Developed Products” means new products or product improvement projects that
are jointly developed by the Company and Purchaser or any of Purchaser’s other subsidiaries or
affiliates as a result of any development contribution from Purchaser or such other subsidiaries or
affiliates, including without limitation concept generation, design, prototyping, manufacturing,
testing and validation services. For the purposes of determining the status of any new product as
a Company Developed Product or a Jointly
Developed Product, Purchaser and the Stockholders shall mutually identify in writing, prior to
the commencement of development of such new product, any development contribution by Purchaser that
shall cause such new product to be a Jointly Developed Product, and, in the absence of any
identified development contribution by Purchaser, such new product shall be deemed a Company
Developed Product.
(viii) “Second Earnout Shortfall Payment” means the amount obtained by multiplying (x) the
Maximum Second Earnout Amount (reduced by the amount of the First Earnout Shortfall Carryover)
divided by 20, by (y) the lesser of (1) the number equal to the difference between 80% and the
percentage of the revenue target set forth in the Baseline Budget actually achieved for 2007 or (2)
the number equal to the difference between 80% and the percentage of the pre-tax profit target set
forth in the Baseline Budget actually achieved for 2007.
(ix) “Sub-Baseline Budget” means for each calendar year reflected in the Baseline Budget, a
gross revenue target equal to 80% of the gross revenue target set forth in the Baseline Budget for
that calendar year and 80% of the pre-tax profit target set forth in the Baseline Budget for that
calendar year.
(x) “Third Earnout Shortfall Payment” means the amount obtained by multiplying (x) the Maximum
Third Earnout Amount (reduced by the amount of the Second Earnout Shortfall Carryover) divided by
20, by (y) the lesser of (1) the number equal to the difference between 80% and the percentage of
the revenue target set forth in the Baseline Budget actually achieved for 2008 or (2) the number
equal to the difference between 80% and the percentage of the pre-tax profit target set forth in
the Baseline Budget actually achieved for 2008.
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(b) Total First Earnout Amount.
(i) Actual First Earnout Amount. The Stockholders shall be entitled to receive,
subject to Section 1.3(c) and Purchaser’s rights of set-off set forth in Section
8.3 hereof, up to $1,500,000 of additional consideration (the “Maximum First Earnout Amount”)
as follows: (A) if the Company’s 100W Holmium side-firing fiber is completely validated by
Purchaser for use with the 100W Holmium lasers currently available for the treatment of BPH using
laser vaporization in accordance with cost and technical validation criteria set forth on
Exhibit D hereto, and ready to ship by the start of the 2006 Annual Meeting of the American
Urological Association (May 20, 2006), the Stockholders shall be entitled to receive $1,000,000 of
the Maximum First Earnout Amount (the “H100 Payment”); (B) if the Company’s revenues and pre-tax
profits in calendar year 2006 equal or exceed the 2006 target amounts set forth in the Baseline
Budget and, subject to Section 1.3(g) hereof, the Baseline Cap Production Requirement is
satisfied for such year, the Stockholders shall be entitled to receive 100% of the then remaining
portion of the Maximum First Earnout Amount; and (C) if the Company’s revenues and/or pre-tax
profits in calendar year 2006 are less than the 2006 target amounts in the Baseline Budget but both
revenues and pre-tax profits exceed the 2006 target amounts in the Sub-Baseline Budget and, subject
to Section 1.3(g) hereof, the Baseline Cap Production Requirement is satisfied for such year, the Stockholders shall be entitled to
receive a portion of the Maximum First Earnout Amount equal to the First Earnout Shortfall Payment
(the total amount that becomes due and payable to the Stockholders pursuant to clauses (A), (B)
and/or (C) above being, the “Actual First Earnout Amount”). For purposes hereof, the “First
Earnout Shortfall Carryover” means the Maximum First Earnout Amount less the Actual First
Earnout Amount.
(ii) Actual First Profit-Sharing Amount. In addition to the Actual First Earnout
Amount, if the Company’s revenues and pre-tax profits in calendar year 2006 exceed the 2006 revenue
and pre-tax profit target amounts set forth in the Baseline Budget and, subject to Section 1.3(g)
hereof, the Baseline Cap Production Requirement is satisfied for such year, the Stockholders shall
be entitled to receive, subject to Section 1.3(c) and Purchaser’s rights of set-off set
forth in Section 8.3 hereof, an amount equal to the sum of (I) 40% of the pre-tax profits
in excess of the pre-tax profit target in the Baseline Budget attributable to sales of Company
Developed Products in calendar year 2006 plus (II) 20% of the pre-tax profits in excess of
the pre-tax profit target in the Baseline Budget attributable to sales or cost reductions of
Jointly Developed Products in calendar year 2006 (such sum, the “Actual First Profit-Sharing
Amount” and together with the Actual First Earnout Amount, the “Total First Earnout Amount”).
(c) Total Second Earnout Amount.
(i) Actual Second Earnout Amount. The Stockholders shall be entitled to receive,
subject to Section 1.3(c) and Purchaser’s rights of set-off set forth in Section
8.3 hereof, additional consideration up to the sum of $1,000,000 plus the First Earnout
Shortfall Carryover (such sum, the “Maximum Second Earnout Amount”) as follows: (A) if the
Company’s revenues and pre-tax profits in calendar year 2007 exceed the 2007 target amounts set
forth in the Baseline Budget and, subject to Section 1.3(g) hereof, the Baseline Cap
Production Requirement is satisfied for such year, the Stockholders shall be entitled to receive
100% of the Maximum Second Earnout Amount; or (B) if the Company’s revenues and/or pre-tax profits
in calendar year 2007 are less than the 2007 target amounts in the Baseline Budget but both
revenues and pre-
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tax
profits meet or exceed the 2007 target amounts in the Sub-Baseline Budget and, subject to Section 1.3(g) hereof, the Baseline Cap Production Requirement is satisfied for
such year, the Stockholders shall be entitled to receive an amount equal to the First Earnout
Shortfall Carryover plus a portion of the Maximum Second Earnout Amount equal to the Second
Earnout Shortfall Payment (the total amount that becomes due and payable to the Stockholders
pursuant to clause (A) or (B) above being, the “Actual Second Earnout Amount”). For purposes
hereof, the “Second Earnout Shortfall Carryover” means: (i) $0, in the event the Actual Second
Earnout Amount is determined pursuant to clause (A) above, (ii) $1,000,000 minus the Second
Earnout Shortfall Payment, in the event the Actual Second Earnout Amount is determined pursuant to
clause (B) above; or (iii) $1,000,000, in the event the Actual Second Earnout Amount is $0.
(ii) Actual Second Profit-Sharing Amount. In addition to the Actual Second Earnout
Amount, if the Company’s revenues and pre-tax profits in calendar year 2007 exceed the 2007 target
revenue and pre-tax profit amounts set forth in the Baseline Budget and, subject to Section
1.3(g) hereof, the Baseline Cap Production Requirement is satisfied for such year, the
Stockholders shall be entitled to receive, subject to Section 1.3(c) and Purchaser’s rights
of set-off set forth in Section 8.3 hereof, an amount equal to the sum of (I) 40% of the
pre-tax profits in excess of pre-tax profit target in the Baseline Budget attributable to sales of
Company Developed Products in calendar year 2007, plus (II) 20% of the pre-tax profits in excess of
the pre-tax profit target in the Baseline Budget attributable to sales or cost reductions of
Jointly Developed Products in calendar year 2007 (such sum, the “Actual Second Profit-Sharing
Amount” and together with the Actual Second Earnout Amount, the “Total Second Earnout Amount”).
(d) Total Third Earnout Amount.
(i) Actual Third Earnout Amount. The Stockholders shall be entitled to receive
additional consideration up to the sum of $1,000,000 plus the Second Earnout Shortfall
Carryover (such sum, the “Maximum Third Earnout Amount”) as follows: (A) if the Company’s revenues
and pre-tax profits in calendar year 2008 exceed the 2008 target amounts set forth in the Baseline
Budget and, subject to Section 1.3(g) hereof, the Baseline Cap Production Requirement is
satisfied for such year, the Stockholders shall be entitled to receive, subject to Section
1.3(c) and Purchaser’s rights of set-off set forth in Section 8.3 hereof, 100% of the
Maximum Third Earnout Amount; or (B) if the Company’s revenues and/or pre-tax profits in calendar
year 2008 are less than the 2008 target amounts in the Baseline Budget but both revenues and
pre-tax profits meet or exceed the 2008 target amounts in the Sub-Baseline Budget and, subject to
Section 1.3(g), the Baseline Cap Production Requirement is satisfied for such year, the
Stockholders shall be entitled to receive an amount equal to the Second Earnout Shortfall Carryover
plus a portion of the Maximum Third Earnout Amount equal to the Third Earnout Shortfall
Payment (the total amount that becomes due and payable to the Stockholders pursuant to clause (A)
or (B) above being, the “Actual Third Earnout Amount”).
(ii) Actual Third Profit-Sharing Amount. In addition to the Actual Third Earnout
Amount, if the Company’s revenues and pre-tax profits in calendar year 2008 exceed the 2008 target
revenue and pre-tax profit amounts set forth in the Baseline Budget
and, subject to Section
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1.3(g)
hereof, the Baseline Cap Production Requirement is satisfied for such year, the Stockholders shall be entitled to receive, subject to Section 1.3(c) and Purchaser’s rights
of set-off set forth in Section 8.3 hereof, an amount equal to the sum of (I) 40% of the
pre-tax profits in excess of the pre-tax profit target in the Baseline Budget attributable to sales
of Company Developed Products in calendar year 2008 plus (II) 20% of the pre-tax profits in excess
of pre-tax profit target in the Baseline Budget attributable to sales or cost reductions of Jointly
Developed Products in calendar year 2008 (such sum, the “Actual Third Profit-Sharing
Amount” and together with the Actual Third Earnout Amount, the “Total Third Earnout Amount”).
(e) Allocation of Costs. The Company will be integrated into Purchaser’s internal
financial reporting system and accounted for as an independent profit center for purposes of
allocation of expenses. Expenses will be allocated in accordance with the following principles as
well as the procedures set forth in the notes to the Baseline Budget: (i) general and
administrative expenses such as finance, legal, human resources, and information technology shall
be allocated on a percentage of total revenues basis; (ii) research and development costs shall be
allocated directly on a cost incurred basis; (iii) marketing costs shall either be combined and
allocated on a percentage of total revenues basis or on a percentage of unit sales basis or
allocated directly on a cost incurred basis as set forth in the Baseline Budget; (iv) direct sales
expenses such as commissions, spiffs, and the like shall be allocated directly to the Company.
SECTION 2
CLOSING
2.1 Closing Date. The closing of the Acquisition (the “Closing”) shall be
held at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ at
5:00 p.m. California time on the date hereof (the “Closing Date”), unless another date,
time or place is agreed to in writing by Purchaser and the Stockholders.
2.2 Actions at the Closing. At the Closing, the Company, the Stockholders and
Purchaser shall take such actions and execute and deliver such agreements and other instruments and
documents as necessary or appropriate to effect the transactions contemplated by this Agreement in
accordance with its terms, including without limitation the following:
(a) At the Closing, the Stockholders and/or the Company shall deliver or cause to be delivered
to Purchaser the following:
(i) a certificate or certificates representing all of the Shares, together with stock powers
duly endorsed in blank for transfer of the Shares to Purchaser, with any required transfer stamps
affixed thereto;
(ii) the Employment Agreements executed by the Stockholders;
(iii) duly and validly executed copies of all agreements, instruments, certificates and other
documents, in form and substance reasonably satisfactory to Purchaser, that are necessary or
appropriate to evidence the release of any and all liens (other than Permitted Liens as specified
in Section 3.13(a)) and other encumbrances on the Shares or the assets of the Company
arising out of, resulting from or in connection with any loans, guarantees or other similar arrangements between or among the Company, the Stockholders, the Company Principals or
any third party creditors of the Company;
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(iv) a copy of the properly executed certificate regarding the Foreign Investment and Real
Property Tax Act of 1980 for the purpose of satisfying Purchaser’s obligations under Treasury
Regulation Section 1.1445-2(c)(3);
(v) duly and validly executed copies of all consents, waivers, approvals or authorizations, in
form and substance reasonably satisfactory to Purchaser, from third parties whose consent or
approval are required to consummate the transactions contemplated by this Agreement; and
(vi) all other documents, certificates, instruments or writings required to be delivered by
the Stockholders pursuant to this Agreement, including without limitation those documents set forth
in Section 7.3 hereof.
(b) At the Closing, Purchaser shall deliver or cause to be delivered to the Stockholders the
following:
(i) the Initial Payment Amount;
(ii) the ▇▇▇▇ Note Payments; and
(iii) all other documents, certificates or writings required to be delivered by Purchaser
pursuant to this Agreement, including without limitation those documents set forth in Section
7.2 hereof.
(c) All deliveries, payments and other transactions and documents relating to the Closing (i)
shall be independent and none shall be effective unless and until all are effective (except to the
extent that the party entitled to the benefit thereof has waived satisfaction or performance
thereof as a condition precedent to Closing), and (ii) shall be deemed to be consummated
simultaneously.
2.3 No Further Ownership Rights in Shares. All cash paid in respect of the surrender
for exchange of the Shares in accordance with the terms of this Agreement shall be deemed to be
full satisfaction of the Stockholders’ rights pertaining to such Shares.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
In this Agreement, any reference to any event, change, condition or effect being
“material” with respect to any entity or group of entities means any material event,
change, condition or effect related to the condition (financial or otherwise), properties, assets
(including intangible
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assets), liabilities, business, operations or results of operations of such
entity or group of entities that is the subject matter of the applicable representation or warranty. In this Agreement, any reference to a “Material Adverse Effect” with respect to any
entity or group of entities means any event, change or effect that, when taken individually or
together with all other adverse changes and effects, is or is reasonably likely to be materially
adverse to the condition (financial or otherwise), properties, assets, liabilities, business or
results of operations of such entity and its subsidiaries, taken as a whole, or to prevent or
materially delay consummation of the transactions contemplated under this Agreement or otherwise to
prevent such entity and its subsidiaries from performing their obligations under this Agreement
other than any such event, change or effect, directly or indirectly, (a) resulting from or arising
in connection with (i) general political, economic, financial, capital market or industry-wide
conditions which do not have a disproportionate impact on the business of the Company taken as a
whole, (ii) this Agreement, the transactions contemplated hereby or the authorized announcement or
other disclosure of this Agreement or the transactions contemplated hereby, (iii) any failure by
the Company to meet any projections or forecasts provided to Purchaser unless fraudulently derived
(but not the underlying material adverse change, event, circumstance or development giving rise
thereto), or (b) attributable to the fact that the prospective owner of the Company is the
Purchaser or any affiliate of the Purchaser.
In this Agreement, any reference to a party’s “knowledge” means such party’s actual
knowledge, in the case of the Stockholders (which shall, in the case of the ▇▇▇▇▇▇▇ Trust, be
deemed to include the actual knowledge of ▇▇. ▇▇▇▇▇▇▇), and such party’s actual knowledge after
reasonable inquiry of the officers, directors and other employees of such party reasonably believed
to have knowledge of such matters, in the case of Purchaser and the Company.
Each of the Company, the Stockholders and the Company Principals hereby, jointly and
severally, represents and warrants to Purchaser that the statements contained in this Section 3 are
true and correct, except as expressly set forth in the disclosure schedule delivered by the
Company, the Stockholders and the Company Principals to Purchaser on or before the date of this
Agreement (the “Company Disclosure Schedule”). The Company Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this
Section 3 to which the disclosure relates, provided, that any information disclosed under any
paragraph of the Company Disclosure Schedule shall be deemed disclosed and incorporated into any
other paragraph of this Section 3 where it is reasonably apparent that such disclosure, without
reference to extrinsic documentation, is relevant to such other paragraph. Except for the
representations and warranties set forth in this Section 3 and Section 4 below, the Company and
Stockholders make no other representation or warranty (either express or implied) herein or with
respect to the transactions contemplated hereby.
3.1 Organization, Standing and Power; Subsidiaries. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its jurisdiction of
organization. The Company has the requisite corporate power and authority and
all necessary government approvals to own, lease and operate its properties and to carry on
its business as now being conducted and as proposed to be conducted, except where the failure to
have such power, authority and governmental approvals would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The Company is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in
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each
jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. Schedule 3.1 of the Company Disclosure Schedule contains a true and
complete listing of the locations of all sales office, manufacturing facilities, and any other
office or facilities of the Company, a true and complete list of all jurisdictions in which the
Company maintains any employees, and a true and complete list of all jurisdictions in which the
Company is duly qualified and licensed to transact business as a foreign corporation. The Company
does not directly or indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business association or entity. The
Company does not have any subsidiaries.
3.2 Articles of Incorporation and Bylaws. The Company has delivered a true and
correct copy of the Articles of Incorporation and Bylaws or other charter documents, as applicable,
of the Company, each as amended to date, to Purchaser, and no amendments have been made thereto or
have been authorized since the date thereof. The Company is not in violation of any of the
provisions of its Articles of Incorporation or Bylaws or equivalent organizational documents.
3.3 Capital Structure.
(a) The authorized capital stock of the Company consists of 70,000 shares of Common Stock, par
value $1.00 per share, of which 15,000 shares are issued and outstanding as of the date hereof (the
“Company Common Stock”). Other than the Company Common Stock, the Company has no other
capital stock authorized, issued or outstanding and no outstanding commitments to issue any shares
of capital stock. The Stockholders are the sole owners of all outstanding shares of Company Common
Stock. All outstanding shares of Company Common Stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holder thereof, and are not subject to preemptive
rights or rights of first refusal created by statute, the Articles of Incorporation or Bylaws of
the Company or any agreement to which the Company is a party or by which it is bound. All
outstanding shares of Company Common Stock were issued in compliance with all applicable federal
and state securities laws. There are no options, warrants, calls, rights, commitments, agreements
or arrangements of any character to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound relating to the issued or unissued capital stock of the Company
or any Subsidiary or obligating the Company or any Subsidiary to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any shares of capital stock of the Company or any Subsidiary or
obligating the Company or any Subsidiary to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or
agreement.
(b) Immediately following the Closing, Purchaser will own one hundred percent (100%) of the
issued and outstanding capital stock of the Company, free and clear of all liens, encumbrances or
other defects of title.
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3.4 Authorization. The Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the Company, an no further
action is required on the part of the Company to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the Company, and,
assuming the due authorization, execution and delivery by the other parties hereto, constitutes a
valid and legally binding obligation of the Company, enforceable against the Company in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application affecting enforcement of
creditors’ rights generally, or (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.5 No Conflict. Except as disclosed in Schedule 3.5 of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or both), or give rise to
a right of termination, cancellation or acceleration of any obligation or loss of any benefit under
(any such event, a “Conflict”) (i) any provision of the Articles of Incorporation or Bylaws
of the Company or any of its Subsidiaries, as amended, or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or license to which the
Company or any of its properties or assets is subject, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets.
3.6 Consents. Except as disclosed in Schedule 3.6 of the Company Disclosure Schedule,
no consent, waiver, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any court, administrative agency or commission or other
federal, state, county, local or other foreign governmental authority, instrumentality, agency or
commission (“Governmental Entity”) or any third party, including a party to any agreement
with the Company, the Stockholders or the Company Principals (so as not to trigger any Conflict),
is required by or with respect to the Company, the Stockholders or the Company Principals in
connection with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
3.7 Company Financial Statements. The Company Principals have delivered to Purchaser
true and complete copies of the Company’s unaudited balance sheet as of the Company’s last
accounting day in fiscal years 2003, 2004 and 2005 and unaudited income statement for the financial
years then ended, as well as the Company’s unaudited balance sheet as of March 31, 2006 and the
related unaudited statement of income for the period then ended (collectively, the “Company
Financials”). Except as disclosed in Section 3.7 of the Company Disclosure Schedule
and except for the absence of statements of stockholders’ equity and cash flows, footnotes and
year-end adjustments, the Company Financials have been prepared in accordance with GAAP,
consistently applied, and present fairly in all material respects the financial condition and
results of operations of the Company as at their respective dates and for the period then ended.
The Company Financials conform to the books and records of the Company, and have been prepared in
the ordinary course of business, consistent with past practice. The Company’s unaudited balance sheet as of March 31, 2006 shall be referred to
herein as the “Company Current Balance Sheet.”
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3.8 Accounts Receivable. All accounts receivable shown on the Company Current Balance
Sheet (net of reserves indicated on the Company Current Balance Sheet) or thereafter acquired until
the date hereof (net of reserves accrued in the normal course of business and consistent with past
practice), other than accounts receivable owing to the Company by the Purchaser, are valid and
enforceable obligations of the applicable account debtor and arose and are collectible prior to the
first anniversary of the date of this Agreement. The values at which accounts receivable are
carried reflect the accounts receivable valuation policy of the Company, which is consistent with
its past practice and in accordance with GAAP applied on a consistent basis. Subject to any
reserves indicated on the Company Balance Sheet and any right of return provided in the ordinary
course of business consistent with past practices, none of the receivables of the Company is
subject to any claim of offset, recoupment, set off, or counterclaim (other than as implied under
applicable law), and, to the knowledge of the Company and the Stockholders, there are no facts or
circumstances (whether asserted or unasserted) that would give rise to any such claim (other than
as implied under applicable law). No receivables are contingent upon the performance by the
Company or the Stockholders of any obligation or contract. No person or entity has any lien,
charge, pledge, security interest, or other encumbrance on any such receivables, and no agreement
for deduction or discount has been made with respect to any of such receivables, except as fully
reflected in the Company Balance Sheet.
3.9 No Undisclosed Liabilities. The Company has no material liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or of any other nature, which individually or in the
aggregate is required to be reflected as a liability on the Company Balance Sheet in accordance
with GAAP, that is not reflected or reserved against in the Company Current Balance Sheet, except
for those which may have been incurred after the date of the Company Current Balance Sheet. All
liabilities, indebtedness, obligations, expenses, claims, deficiencies, guaranties or endorsements
of any type of the Company incurred after the date of the Company Current Balance Sheet were
incurred in the ordinary course of business consistent with past practices and are not material
both individually and in the aggregate to the Company or its business.
3.10 No Changes. Since March 31, 2006, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business and consistent with
past practices;
(b) amendment or change to the Articles of Incorporation or the Bylaws of the Company;
(c) capital expenditure or capital commitment by the Company, other than purchase orders for
raw materials entered into in the ordinary course of business consistent with past practices and
not exceeding $20,000 individually or $100,000 in the aggregate;
-17-
(d) destruction of, damage to or loss of any material assets, material business or material
customer of the Company (whether or not covered by insurance);
(e) work stoppage, labor strike or other labor trouble, or any action, suit, claim, labor
dispute or grievance relating to any labor, safety or discrimination matter involving the Company,
including, without limitation, charges of wrongful discharge or other unlawful labor practices or
actions;
(f) change in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company other than as required by GAAP;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other distribution with respect to
Company Common Stock or any direct or indirect redemption, purchase or other acquisition by the
Company of its capital stock;
(i) increase in the salary or other compensation payable or to become payable by the Company
to any of its officers, directors, employees or advisors, or the declaration, payment or commitment
or obligation of any other kind for the payment, by the Company, of a bonus or other additional
salary or compensation to any such person;
(j) agreement, contract, covenant, instrument, lease, or commitment to which the Company is a
party or by which it or any of its assets is bound and which is material to the Company’s business
or any termination, extension, amendment or modification of the terms of any such agreement,
contract, covenant, instrument, lease, or commitment to which the Company is a party or by which it
or any of its assets is bound, other than licenses of the Company Intellectual Property which are
governed by subsection (q) below and other than agreements entered into in connection with the
Acquisition;
(k) sale, lease, license or other disposition of any of the material assets or properties of
the Company or any creation of any security interest in such assets or properties, in each case
other than in the ordinary course of the Company’s business;
(l) loan by the Company to any person or entity, incurring by the Company of any indebtedness,
guaranteeing by the Company of any indebtedness, issuance or sale of any debt securities of the
Company or guaranteeing of any debt securities of others;
(m) waiver or release of any right or claim of the Company material to the Company business,
including any write-off or other compromise of any account receivable of the Company;
(n) commencement or notice or, to the Company’s or the Stockholders’ knowledge, threat
therefor, of any lawsuit or, to the Company’s or the Stockholders’ knowledge, proceeding, audit or
investigation against the Company or its affairs;
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(o) notice of any claim or potential claim of ownership by any person other than the Company
of any of the Company Intellectual Property (as defined in Section 3.14 hereof) owned by or
developed or created by the Company or of infringement by the Company of any other person’s
Intellectual Property (as defined in Section 3.14 hereof);
(p) issuance or sale, or contract to issue or sell, by the Company of any shares of the
Company Common Stock or securities exchangeable, convertible or exercisable therefor, or any
securities, warrants, options or rights to purchase any of the foregoing;
(q) sale by the Company of any Company Intellectual Property or the entering into of any
license agreement, security agreement, assignment or other conveyance or option, with respect to
Company Intellectual Property with any person or entity (other than standard customer license
agreements entered into in the ordinary course of business consistent with past practice), or (ii)
the purchase or other acquisition of any Intellectual Property or the entering into of any license
agreement, security agreement, assignment or other conveyance or option with respect to the
Intellectual Property of any person or entity (other than standard supplier license agreements for
readily commercially available off-the-shelf software), or (iii) the change in pricing or royalties
set or charged by the Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property to the Company;
(r) any event or condition of any character that has had or is reasonably likely to have a
Company Material Adverse Effect; or
(s) negotiation or agreement by the Company or any officer or employees thereof to do any of
the things described in the preceding clauses (a) through (r) (other than negotiations with
Purchaser and its representatives regarding the transactions contemplated by this Agreement).
3.11 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, “Tax” or,
collectively, “Taxes”, means (i) any and all federal, state, local and foreign taxes,
assessments and other similar governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise
and property taxes, together with all interest, penalties and additions imposed with respect to such
amounts; (ii) any liability for the payment of any amounts of the type described in clause (i) as a
result of being a member of an affiliated, consolidated, combined or unitary group for any period;
and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii)
as a result of any express or implied obligation to indemnify any other person or as a result of
any obligations under any agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company as of the Closing Date will have prepared and timely filed all federal, state,
local and foreign returns, estimates, information statements and reports (“Returns”)
required to be filed prior to the Closing Date relating to any and all material Taxes of the
Company or its operations, and such Returns are and will be true and correct in all material
respects and have been and will be completed in all material respects in accordance with applicable
law.
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(ii) The Company as of the Closing Date will have paid all Taxes it is required to pay and
withheld with respect to its employees all federal and state income taxes, Federal Insurance
Contribution Act (“FICA”), Federal Unemployment Tax Act (“FUTA”) and other Taxes
required to be withheld.
(iii) There any Tax deficiency outstanding, assessed or proposed against the Company, nor has
the Company executed any waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax, which waiver or extension remains in effect.
(iv) No audit or other examination of any Return of the Company (or any member of the
consolidated, combined or unitary group of which is a member) is presently in progress, nor has the
Company (or any other member of such group) been notified of any request for such an audit or other
examination.
(v) The Company has no liabilities for unpaid federal, state, local and foreign Taxes incurred
prior to the date of the Company Current Balance Sheet (including without limitation any
liabilities for Taxes as a result of being a member of a consolidated, combined or unitary group)
which have not been accrued or reserved on the Company Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any such liability for Taxes
since the date of the Company Current Balance Sheet other than in the ordinary course of business.
(vi) The Company has made available to Purchaser or its legal counsel, copies of all foreign,
federal, state and local income and all state and local sales and use Returns for or including the
Company filed for all periods since its inception.
(vii) None of the Company’s assets is treated as “tax-exempt use property,” within the meaning
of Section 168(h) of the Code.
(viii) The Company duly elected to be treated as an S corporation for federal and all
pertinent state and local tax purposes as of the formation of the Company on December 20, 1993.
The Company has at all times met the requirements for treatment as an S corporation and will
continue to meet such requirements through the Closing Date.
(ix) The Company is not a party to any tax sharing, indemnification or allocation agreement
nor does the Company owe any amount under any such agreement.
(x) The Company’s tax basis in its assets for purposes of determining its future amortization,
depreciation and other federal income Tax deductions is accurately reflected in all material
respects on the Company’s tax books and records.
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(xi) The Company is not, and has not been at any time, a “United States Real Property Holding
Corporation” within the meaning of Section 897(c)(2) of the Code.
(xii) There is no contract, agreement, plan or arrangement to which the Company is a party as
of the date hereof, including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company, which, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Section 404 of the Code.
(xiii) Neither the Company nor any corporation that is or was a member of a consolidated group
with the Company has been a distributing corporation or a controlled corporation in a transaction
described in Section 355 of the Code during the past two years.
3.12 Restrictions on Business Activities. There is no agreement (non-compete or
otherwise), commitment, judgment, injunction, order or decree to which the Company, the
Stockholders or the Company Principals is a party or otherwise binding upon the Company, the
Stockholders or the Company Principals which has or may reasonably be expected to have the effect
of prohibiting or impairing in any material respect any business practice of the Company, any
acquisition of property (tangible or intangible) by the Company or the conduct of business by the
Company. Without limiting the foregoing, the Company has not entered into any agreement under
which the Company is, and neither the Stockholders nor the Company Principals have entered any
agreement pursuant to which the Company reasonably could be, restricted from selling, licensing or
otherwise distributing any of its technology or products to or providing services to, customers or
potential customers or any class of customers, in any geographic area, during any period of time or
in any segment of the market.
3.13 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment.
(a) The Company and each Subsidiary has good and marketable title to all of its respective
properties and assets, real, personal and mixed, reflected in the Company Current Balance Sheet or
acquired after the date of the Company Current Balance Sheet (except properties, interests in
properties and assets sold or otherwise disposed of since the date of the Company Current Balance
Sheet in the ordinary course of business), or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges, charges or encumbrances of
any kind or character, except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens securing debt which
is reflected on the Company Current Balance Sheet (such liens referenced in subsections (i)-(iii)
herein referred to as “Permitted Liens”). The plants, property and equipment of the Company and
Subsidiaries that are used in the operations of their businesses are in good operating condition
and repair. All properties used in the operations of the Company and its Subsidiaries are
reflected in the Company Current Balance Sheet to the extent GAAP requires the same to be
reflected. Section 3.13(a) of the Company Disclosure Schedule sets forth a true, correct
and complete list of all real property owned or leased by the Company and by each Subsidiary, the
name of the lessor, the date of the lease and each amendment thereto and the aggregate annual
rental and other fees payable under such lease. Such leases are in good standing, are valid and
effective in accordance with their respective terms, and there is not under any such leases any
existing default or event of default (or event which with notice or lapse of time, or both, would
constitute a default).
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(b) Section 3.13(b) of the Company Disclosure Schedule lists all items of equipment
(the “Equipment”) owned or leased by Company and its Subsidiaries, and such Equipment is,
taken as a whole, (i) adequate for the conduct of the business of the Company as currently
conducted, and (ii) in good operating condition, regularly and properly maintained, subject to
normal wear and tear.
(c) None of the Company, the Stockholders or the Company Principals has sold or otherwise
released for distribution any of the Company’s customer files and other customer information
relating to the Company’s current and former customers (the “Customer Information”). No
person other than Company possesses any claims or rights with respect to use of the Customer
Information.
3.14 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the following definitions:
(i) “Intellectual Property” shall mean any or all of the following and all rights in,
arising out of, or associated therewith: (i) all United States and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals, continuations and continuations-in-part thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know how, technology, technical
data and customer lists, and all documentation relating to any of the foregoing; (iii) all
copyrights, copyright registrations and applications therefor and all other rights corresponding
thereto throughout the world; (iv) all mask works, mask work registrations and applications
therefor; (v) all industrial designs and any registrations and applications therefor throughout the
world; (vi) all trade names, logos, common law trademarks and service marks; trademark and service
▇▇▇▇ registrations and applications therefor and all goodwill associated therewith throughout the
world; (vii) all databases and data collections and all rights therein throughout the world; (viii)
all computer software including all source code, object code, firmware, development tools, test
suites, files, records and data, all media on which any of the foregoing is recorded, all Web
addresses, sites and domain names; and (ix) all documentation related to any of the foregoing
irrespective of the media on which it is recorded.
(ii) “Company Intellectual Property” shall mean any Intellectual Property that is
owned by or exclusively licensed to the Company.
(iii) “Registered Intellectual Property” shall mean all United States, international
and foreign: (i) patents and patent applications (including provisional applications); (ii)
registered trademarks, applications to register trademarks, intent-to-use applications, or other
registrations or applications related to trademarks; (iii) registered copyrights and applications
for copyright registration; (iv) any mask work registrations and applications to register mask
works; and (v) any other Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by, any state, government
or other public legal authority.
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(b) Section 3.14(b) of the Company Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the “Company Registered
Intellectual Property”) and lists any commencement or notice or to the knowledge of the
Stockholders, threat of any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the “PTO”) or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property.
(c) Each item of the Company Intellectual Property, including all Company Registered
Intellectual Property listed in Section 3.14(b) of the Company Disclosure Schedule and all
Intellectual Property licensed to Company, is free and clear of any Liens. The Company (i) is the
exclusive owner of all trademarks and trade names used in connection with the operation or conduct
of the business of the Company, including the sale of any products or technology or the provision
of any services by the Company, and (ii) owns exclusively, and has good title to, all copyrighted
works that are Company products or other works of authorship that the Company otherwise purports to
own.
(d) To the extent that any Intellectual Property has been developed or created by any person
other than the Company for which the Company has, directly or indirectly, paid, the Company has a
written agreement with such person with respect thereto and the Company thereby has obtained
ownership of, and is the exclusive owner of, all such Intellectual Property by operation of law or
by valid assignment.
(e) The Company has not transferred ownership of or, except pursuant to the contracts,
licenses and agreements listed in Section 3.14(g) of the Company Disclosure Schedule
granted any exclusive license of or exclusive right to use or authorized the retention of any
rights to use any Intellectual Property that is or was Company Intellectual Property, to any other
person.
(f) The Company owns, or has the right to use, all the Intellectual Property necessary to the
conduct of its business as it currently is conducted or is reasonably contemplated to be conducted
by the Company, including, without limitation, the design, development, manufacture, marketing,
use, import and sale of the products, technology and services of the Company (including products,
technology or services currently under development). For the avoidance of doubt, none of the
Company, the Stockholders or the Company Principals makes any representation regarding the
ownership or right to use any Intellectual Property of the Purchaser made available to the Company
in connection with the development of any Jointly Developed Products approved in accordance with
the terms of this Agreement.
(g) Other than (i) “shrink-wrap” and similar widely available commercial end-user licenses or
(ii) other third party shareware that is generally available to the public and does not impose any
monetary obligations on the Company, the contracts, licenses and agreements listed in Section
3.14(g) of the Company Disclosure Schedule include all contracts, licenses and agreements to
which the Company is a party with respect to any Intellectual Property. No person who has licensed
Intellectual Property to the Company has ownership rights or license rights to improvements made by
the Company in such Intellectual Property which has been licensed to the Company.
-23-
(h) Other than Company customer sales contracts and licenses entered into in the ordinary
course of business in form substantially similar to the Company’s standard from customer sales
contracts and standard form license appended to Section 3.14(h) of the Company Disclosure
Schedule, Section 3.14(h) of the Company Disclosure Schedule lists all contracts, licenses
and agreements between the Company and any other person wherein or whereby Company has agreed to,
or assumed, any obligation or duty to warrant, indemnify, reimburse, defend, hold harmless,
guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission
with respect to the infringement or misappropriation by the Company or such other person of the
Intellectual Property of any person other than the Company.
(i) To the knowledge of the Company and the Stockholders, the operation of the business of the
Company as it currently is conducted, or as is currently contemplated to be conducted by the
Company, including but not limited to Company’s design, development, use, import, manufacture and sale of the products, technology or services (including products,
technology or services currently under development) of the Company does not infringe upon or
misappropriate the Intellectual Property of any person, violate the rights of any person (including
rights to privacy or publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction, and the Company has not received notice or threat in writing thereof from any
person claiming that such operation or any act, product, technology or service (including products,
technology or services currently under development) of the Company infringes or misappropriates the
Intellectual Property of any person or constitutes unfair competition or trade practices under the
laws of any jurisdiction (nor is the Company, the Stockholders or the Company Principals aware of
any valid basis therefor). For the avoidance of doubt, none of the Company, the Stockholders or
the Company Principals makes any non-infringement or non-misappropriation representation with
respect to any Intellectual Property of the Purchaser made available to the Company in connection
with the development of any Jointly Developed Products approved in accordance with the terms of
this Agreement.
(j) Each item of Company Registered Intellectual Property is valid and subsisting, all
necessary registration, maintenance and renewal fees due as of the date hereof in connection with
such Registered Intellectual Property have been paid and all necessary documents and certificates
in connection with such Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States, as the case may be, for the
purposes of maintaining such Registered Intellectual Property. Except as set forth in Section
3.14(j) of the Company Disclosure Schedule, there are no actions that have not been taken by
the Company as of the date hereof nor any actions that must be taken by the Company within sixty
(60) days of the date hereof (including the payment of any registration, maintenance or renewal
fees or the filing of any documents, applications or certificates for the purpose of maintaining,
perfecting or preserving or renewing any Company Registered Intellectual Property. In each case in
which the Company has acquired any Intellectual Property rights from any person, the Company has
obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such
Intellectual Property (including the right to seek past and future damages with respect to such
Intellectual Property) to the Company.
-24-
(k) There are no contracts, licenses or agreements between the Company and any other person
with respect to Company Intellectual Property under which there is any dispute known to the
Company, the Stockholders or the Company Principals regarding the scope of such agreement, or
performance under such agreement, including with respect to any payments to be made or received by
the Company thereunder.
(l) To the knowledge of the Company and the Stockholders, no person is infringing or
misappropriating any Company Intellectual Property.
(m) The Company has taken reasonable steps to protect the Company’s rights in confidential
information and trade secrets of the Company or provided by any other person to the Company.
Except as set forth in Section 3.14(m) of the Company Disclosure Schedule, all employees of the Company and all consultants and contractors of the Company that had any
involvement in the development of Company Intellectual Property have signed the Company’s standard
form of Confidential Information and Invention Assignment Agreement, which is appended to
Section 3.14(m) of the Company Disclosure Schedule, pursuant to which all Intellectual
Property Rights developed by such employees, consultants and contractors within the scope of their
employment or other relationships with the Company are assigned to the Company.
(n) No Company Intellectual Property or product, technology or service of the Company is
subject to any proceeding or outstanding decree, order, judgment, agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the Company or may affect the
validity, use or enforceability of the Company Intellectual Property.
(o) The Company does not have any escrow agreement or arrangement between the Company and a
licensee that would permit such licensee or any other party to obtain a copy of the Company’s
source code and program documentation upon the liquidation, dissolution or winding up of the
Stockholders.
3.15 Agreements, Contracts and Commitments.
(a) The Company is not a party to nor is it bound by:
(i) any employment or consulting agreement, contract or commitment with an employee or
individual consultant or salesperson or consulting or sales agreement, contract or commitment with
a firm or other organization, other than standard offer letters provided to employees (who are not
officers of the Company) in the ordinary course of business consistent with past practice, all of
which offer letters create “at will” relationships and none of which create any contractual
obligation of the Company to the other party thereto upon termination of such relationship (whether
in the form of severance or benefit obligation or otherwise);
-25-
(ii) any agreement or plan, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property that involves a remaining obligation in excess of $10,000;
(v) any agreement, contract or commitment containing any covenant limiting the freedom of the
Company to engage in any line of business or to compete with any person,
(vi) any agreement, contract or commitment relating to capital expenditures and involving
future payments that involves a remaining obligation in excess of $10,000;
(vii) any agreement, contract or commitment relating to the leasing, licensing, disposition or
acquisition of assets or any interest in any business enterprise outside the ordinary course of the
Company’s business;
(viii) any mortgage, indenture, loan or credit agreement, security agreement or other
agreement or instrument relating to the borrowing of money or extension of credit;
(ix) any purchase order or contract for the purchase of materials that involves a remaining
obligation in excess of $20,000;
(x) any construction contracts;
(xi) any dealer, distribution, joint marketing or development agreement;
(xii) any sales representative, original equipment manufacturer, value added, remarketer or
other agreement for distribution of the Company’s products or services, or the products or services
of any person; or
(xiii) any other material agreement, contract or commitment.
(b) The Company is in compliance in all material respects with and has not breached, violated
or defaulted under, in each case in any material respect, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement, contract, covenant,
instrument, lease, license or commitment listed in Section 3.15(a) of the Company
Disclosure Schedule to which the Company is a party or by which it is bound (each, a “Company
Contract”), nor is the Company, the Stockholders or the Company Principals
-26-
aware of any event that would constitute such a breach, violation or default with the lapse of time, giving of notice
or both. Each Company Contract is in full force and effect and, to the knowledge of the
Stockholders, is not subject to any default thereunder by any party obligated to the Company
pursuant thereto. The Company has obtained or will obtain prior to the Closing all necessary
consents, waivers and approvals of parties to any Company Contract as are required thereunder in
connection with the Acquisition for such Company Contracts to remain in effect without modification
after the date hereof. The Company Contracts requiring such consents, waivers and approvals are
described in Section 3.15(b) of the Company Disclosure Schedule. Following the date hereof and subject to the fulfillment of all obligations of the Company thereunder, the
Company will be permitted to exercise all of the Company’s rights under the Company Contracts
without the payment of any additional amounts or consideration other than ongoing fees, royalties
or payments which Company would otherwise be required to pay had the transactions contemplated by
this Agreement not occurred.
3.16 Governmental Authorization. Section 3.16 of the Company Disclosure
Schedule accurately lists each consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity presently held by the Company in connection with the conduct of
its business (herein collectively called “Company Authorizations”). The Company
Authorizations are in full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business as presently conducted or hold any interest
in its properties or assets.
3.17 Litigation. There is no action, suit or proceeding of any nature pending, or, to
the Company’s or the Stockholders’ knowledge, threatened, before any court or administrative agency
against the Company its properties or any of its officers or directors, nor, to the knowledge of
the Company or the Stockholders, is there any reasonable basis therefor. There is no investigation
pending or, to the Company’s or the Stockholders’ knowledge, threatened against the Company, its
properties or any of its officers or directors in their capacities as such (nor, to the knowledge
of the Company or the Stockholders, is there any reasonable valid basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or questioned the legal
right of the Company to conduct its operations as presently or previously conducted.
3.18 Minute Books. The minutes of the Company made available to counsel for Purchaser
are the only minutes of the board of directors and stockholders of the Company and contain true and
accurate copies of all resolutions adopted by the Board of Directors (or committees thereof) of the
Company and its stockholders since the time of incorporation of the Company.
3.19 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any underground storage
tanks at any property that the Company has at any time owned, operated, occupied or leased; or (ii)
illegally released any material amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, and urea-formaldehyde and all substances listed as hazardous
-27-
substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as
amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws (a
“Hazardous Material”), but excluding office and janitorial supplies properly and safely maintained. No Hazardous Materials are present, as a result of the
deliberate actions of the Company, or, to the knowledge of the Stockholders, as a result of any
actions of third parties or otherwise, in, on or under any property in a manner that would violate
applicable law in effect on or before the date hereof, including the land and the improvements,
ground water and surface water thereof, that the Company has at any time owned, operated, occupied
or leased.
(b) Hazardous Materials Activities. The Company has not transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the date hereof, nor has the Company disposed of,
transported, sold, or manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as “Hazardous Materials Activities”) in violation
of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior
to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(c) Permits. The Company currently holds all environmental approvals, permits,
licenses, clearances and consents (the “Environmental Permits”) necessary for the conduct
of the Company’s Hazardous Material Activities, respectively, and other businesses of the Company
as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending, or to the Company’s or the Stockholders’
knowledge, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activity of the Company. None of the Company, the Stockholders or the Company Principals
is aware of any fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
3.20 Brokers’ and Finders’ Fees; Third Party Expenses. The Company has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’
commissions or any similar charges in connection with the Agreement or any transaction contemplated
hereby.
3.21 Employee and Employee Benefit Matters. All past and current employees of the
Company (the “Company Employees”) are listed in Section 3.21 of the Company
Disclosure Schedule. Except for unpaid but earned salaries, bonuses and commissions since the last
regularly scheduled payroll date prior to the Closing Date that will be paid in full on the first
regularly scheduled payroll date following the Closing Date, none of the Company, the Stockholders
or the Company Principals owe any amounts to the Company Employees including, without limitation,
any back wages or other unpaid salaries. There are no claims from or on behalf of the Company
Employees threatened or pending against the Company, the Stockholders or the Company Principals.
Except for the Company’s SIMPLE ▇▇▇ Retirement
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Plan (the “Company Plan”), the Company has no employee benefit plans, programs, policies or agreements, including but not limited to any pension plans, multiemployer plans or 401(k)
plans. The Company has performed all obligations required to be performed by it under, is not in
default or violation of, and neither the Company nor the Stockholders have any knowledge of any
default or violation by any other party to, the Company Plan, and the Company Plan has been
established and maintained in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including the Employee Retirement Income Security Act of
1974, as amended, and the Code. The Company Plan can be amended, terminated or otherwise
discontinued after the Closing Date in accordance with its terms, without liability to Purchaser or
the Company.
3.22 Insurance. Section 3.22 of the Company Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors of the Company. There is no claim by the Company
pending under any of such policies or bonds as to which coverage has been denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar insurance
coverage). Neither the Company nor the Stockholders has knowledge of any threatened termination
of, or premium increase with respect to, any of such policies.
3.23 Certain Advances; Guaranties. There are no receivables of the Company owing by
any director, officer, employee, consultant of the Company (including, without limitation, the
Company Principals) or by the Stockholders or owing by any affiliated person or entity of any
director, officer, employee, consultant of the Company (including, without limitation, the Company
Principals) or the Stockholders. Neither the Stockholders nor the Company Principals have agreed
to, or assumed, any obligation or duty to guaranty or otherwise assume or incur any obligation or
liability of the Company. The Company has not agreed to, or assumed, any obligation or duty to
guaranty or otherwise assume or incur any obligation or liability of the Stockholders or the
Company Principals.
3.24 FDA and Regulatory Matters.
(a) (i) With respect to all of the Company’s existing products and, to the extent applicable,
products currently under development by the Company (collectively, the “Products”), (A) the Company
and each of its Subsidiaries has obtained all necessary and applicable approvals, clearances,
authorizations, licenses and registrations required by United States or foreign governments or
government agencies, to permit the design, development and pre-clinical testing of its Products in
jurisdictions where it currently conducts such activities or contemplated conducting such
activities (the “Activities To Date”) with respect to each Product (collectively, the “Regulatory
Licenses”); (B) the Company and each of its Subsidiaries, as the case may be, is in compliance with
all terms and conditions of each Regulatory License and with all applicable Laws pertaining to
Activities To Date with respect to each Product which is not required to be the subject of a
Regulatory License; (C) the Company and each of its Subsidiaries, as the case may be, is in compliance with all applicable Laws regarding registration, license,
and certification for each site at which a Product is manufactured or
used; (D) to the extent any Product has been exported from the United States,
-29-
the Company or, as applicable, a Subsidiary of
the Company exporting such Product, has exported such Product in compliance in all material
respects with applicable Law; and (E) the Company is licensed to export its Products in the
respective jurisdictions set forth in the Company Disclosure Schedule; (ii) all manufacturing
operations performed by or on behalf of the Company or its Subsidiaries have been and are being
conducted in all material respects in compliance with the applicable regulations of the U.S. Food
and Drug Administration (the “FDA”) and, to the extent applicable to the Company or any of its
Subsidiaries, counterpart regulations in all other countries where compliance is required; and
(iii) the Company and each of its Subsidiaries is in compliance with all applicable reporting
requirements for all Regulatory Licenses or plant registrations describe in clause (i) above,
including, but not limited to, applicable adverse event reporting requirements in the United States
and outside the United States under applicable Law.
(b) Neither the Company nor any of its Subsidiaries has received any written notice or other
written communication from the FDA or any other Governmental Authority (i) contesting the
pre-market clearance or approval of, the uses of or the labeling and promotion of any of the
Products or (ii) otherwise alleging any violation of any Laws by the Company or any of its
Subsidiaries with respect to the research, development, testing, manufacturing or use of the
Products.
(c) All filings with and submissions to the FDA and any corollary entity in any other
jurisdiction made by the Company or any of its Subsidiaries with regard to the Products, whether
oral, written or electronically delivered, were true, accurate and complete as of the date made,
and, to the extent required to be updated, as so updated remain true, accurate and complete as of
the date hereof, and do not materially misstate any of the statements or information included
therein, or omit to state a material fact necessary to make the statements therein not misleading.
3.25 Warranties; Indemnities. Except for the warranties and indemnities set forth in
the Company’s standard form customer sales contracts and form license as appended to Section
3.14(h) of the Company Disclosure Schedule, the Company has not given any warranties or indemnities
relating to products or technology sold or services rendered by the Company.
3.26 Product Development. Section 3.26 of the Company Disclosure Schedule set
forth certain representations of the Company, the Stockholders and the Company Principals regarding
the stage of, or prior progress on, the development of the Company’s products.
3.27 Complete Copies of Materials. The Company has delivered or made available true
and complete copies of each document (or summaries of same) that has been requested by Purchaser or
its counsel.
3.28 Disclosure. No representation or warranty or other statement made by the Company
or any of the Stockholders or Company Principals in this Agreement, the Company Disclosure Schedule
or the certificates delivered pursuant to Section 7.3(c) contains any untrue statement or
omits to state a material fact necessary to make any of them, in light of the circumstances in
which it was made, not misleading.
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SECTION 4
FURTHER REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder (which, in the case of the ▇▇▇▇▇▇▇ Trust, shall include ▇▇. ▇▇▇▇▇▇▇ for
purposes of this Section 4) further represents and warrants to Purchaser, subject to such
exceptions as are specifically disclosed in the Company Disclosure Schedule, as follows:
4.1 Ownership of Shares. Such Stockholder is the sole record and beneficial owner of
the Shares set forth adjacent his or its name in Section 1.1 of the Company Disclosure
Schedule, and such Shares are to be sold pursuant to this Agreement. Such Shares are not subject
to any Liens or to any rights of first refusal of any kind, and such Stockholder has not granted
any rights to purchase such Shares to any other person or entity. The Stockholder has the sole
right to transfer the Shares set forth adjacent his or its name in Section 1.1 of the
Company Disclosure Schedule to Purchaser. Such Shares constitute all of the Company Common Stock
owned, beneficially or of record by such Stockholder, and such Stockholder has no options, warrants
or other rights to acquire Company Common Stock. On the Closing Date, Purchaser will receive good
title to such Shares, subject to no Liens retained, granted or permitted by the Stockholders or the
Company. Such Stockholder has not engaged in any sale or other transfer of any Company Common
Stock in contemplation of the Acquisition.
4.2 Tax Matters. Such Stockholder has had an opportunity to review with its own tax
advisors the tax consequences to the Stockholder of the Acquisition and the other transactions
contemplated by this Agreement. Such Stockholder understands that he or it must rely solely on his
or its advisors and not on any statements or representations by Purchaser, the Company or any of
their agents. Such Stockholder understands that he or it (and not Purchaser or the Company) shall
be responsible for his or its own tax liability that may arise as a result of the Acquisition or
the other transactions contemplated by this Agreement.
4.3 Absence of Claims by the Stockholders. Such Stockholder does not have any claim
against the Company, contingent or unconditional, fixed or variable under any contract or on any
other basis whatsoever, whether in equity or at law (other than for accrued compensation and other
employee benefits and other than with respect to any rights to indemnification that such
Stockholder may now or hereafter be entitled to under the Company’s Articles of Incorporation or
Bylaws).
4.4 Authority. Such Stockholder has all requisite power and authority to enter into
this Agreement and any Related Agreements (as hereinafter defined) to which he or it is a party and
to consummate the transactions contemplated hereby. This Agreement and the Related Agreements have
been duly executed and delivered by such Stockholder, and, assuming the due authorization,
execution and delivery by the other parties hereto, constitute a valid and binding obligation of
such Stockholder, enforceable in accordance with their respective terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other
laws of general application affecting enforcement of creditors’ rights generally or (ii) as limited
by laws relating to the availability of specific performance, injunctive relief, or other equitable
remedies. The “Related Agreements” shall mean all ancillary agreements required in this Agreement to be executed and delivered in connection with the
transactions contemplated hereby, including, without limitation, the Employment Agreements.
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4.5 No Conflict. The execution and delivery by such Stockholder of this Agreement and
any Related Agreement to which he is a party does not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with (i) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or license to which such
Stockholder or any of his properties or assets is subject, or (ii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to such Stockholder or his or its properties
or assets.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser represents and warrants to the Company, the Stockholders and the Company Principals
that the statements contained in this Section 5 are true and correct.
5.1 Organization, Good Standing and Qualification. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business and to carry out the
transactions contemplated in the Agreement. Purchaser is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure so to qualify would have a Material
Adverse Effect on its business or properties.
5.2 Authorization. All corporate action on the part of Purchaser, its officers,
directors and stockholders necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of Purchaser hereunder has been taken or will be
taken prior to the Closing, and the Agreement, when executed and delivered by Purchaser, shall
constitute the valid and legally binding obligation of Purchaser, enforceable against Purchaser in
accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general application affecting
enforcement of creditors’ rights generally, or (ii) as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies.
5.3 Governmental Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any Governmental Entity,
foreign or domestic, authority on the part of Purchaser is required in connection with the
consummation of the transactions contemplated by this Agreement.
5.4 No Violation. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will violate any provisions of the Certificate
of Incorporation or Bylaws of Purchaser; violate, or be in conflict with, or constitute a default under or cause or permit the acceleration of the maturity of any debt or obligation
pursuant to, any agreement or commitment to which Purchaser is a party or by which Purchaser is
bound, or violate any statute or law or any judgment, decree, order, regulation, or rule of any
court or Governmental Entity.
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SECTION 6
ADDITIONAL AGREEMENTS
6.1 Expenses. Whether or not the Acquisition is consummated, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated hereby (including,
without limitation, all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties) shall be borne by the party incurring such expense (which party, in the
case of such fees and expenses incurred by the Company, shall be deemed to be fees and expenses of
the Stockholders if the Closing occurs); provided, however, if the Closing occurs
on or prior to April 30, 2006, Purchaser shall pay up to $40,000 of the legal fees and expenses of
the Company’s and/or the Stockholders’ local California counsel incurred in connection with the
transactions contemplated hereby.
6.2 [Intentionally Omitted].
6.3 No Solicitation. None of the Company, the Stockholders, the Company Principals,
or the officers, directors, employees or other agents of the Company and the Stockholders will,
directly or indirectly, (i) take any action to solicit, initiate or encourage any Takeover Proposal
(defined below) or (ii) subject to the terms of the immediately following sentence, engage in
negotiations with, continue negotiations with or disclose any nonpublic information relating to the
Company, the Stockholders or the Company Principals to, or afford access to the properties, books
or records of the Company, the Stockholders or the Company Principals to, any person that has
advised the Company, the Stockholders or the Company Principals that it may be considering making,
or that has made, a Takeover Proposal. The Company, the Stockholders or the Company Principals
will promptly notify Purchaser after receipt of any Takeover Proposal or any notice that any person
is considering making a Takeover Proposal or any request for nonpublic information relating to the
Company, the Stockholders or the Company Principals or for access to the properties, books or
records of the Company, the Stockholders or the Company Principals by any person that has advised
the Company or the Stockholders that it may be considering making, or that has made, a Takeover
Proposal and will keep Purchaser fully informed of the status and details of any such Takeover
Proposal notice or request. For purposes of this Agreement, “Takeover Proposal” means any
offer or proposal for, or any indication of interest in, a purchase or other business combination
involving the Company or the Stockholders or the acquisition of any significant equity interest in,
or a significant portion of the assets of, the Company, other than the transactions contemplated by
this Agreement.
6.4 Access; Confidentiality. Each party agrees to make available all books, records,
facilities, employees, non-employee agents (such as patent and regulatory counsel) and information
reasonably necessary for the other party to evaluate the respective businesses, operations,
properties and financial condition. Each party shall keep confidential and shall not make use of
any information treated by the other party as confidential (including, without limitation, the
existence of this Agreement or the consummation of the Acquisition or the failure of such a
consummation), obtained from the other party concerning the assets, properties, business or
operations of the other party other than to legal counsel, consultants, financial advisors, key
employees, lenders and investment bankers where such disclosure is related to the
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performance of obligations under this Agreement or the consummation of the transactions contemplated under this
Agreement (all of whom shall be similarly bound by the provisions of this Section 6.4),
except as may be required to be disclosed by applicable law or as may be required to obtain the
consents, waivers or releases from any Governmental Entity or other third party. Notwithstanding
the foregoing, the foregoing confidentiality restrictions shall not apply to any information which
(a) becomes generally available to the public through no fault of the receiving party or its
employees, agents or representatives; (b) is independently developed by the receiving party without
benefit of the above-described information (and such independent development is substantiated in
writing), or rightfully received from another source on a non-confidential basis; (c) when such
disclosure is required by a court or governmental authority or is otherwise required by law or is
necessary to establish rights under this Agreement or any agreement contemplated hereby(and the
disclosing party has taken all reasonable efforts to limit the scope of such disclosure and to
protect the confidential nature of the information disclosed).
6.5 Public Announcements. No party hereto shall without the prior written consent of
the other parties (which consent shall not be unreasonably withheld) disclose to any third party
(other than to legal counsel, consultants, financial advisors, key employees, lenders and
investment bankers where such disclosure is related to the performance of obligations under this
Agreement or the consummation of the transactions contemplated hereunder) the existence of this
Agreement, the identity of the other parties hereto or the transactions contemplated hereby except
(i) as required by law, (ii) as reasonably necessary to obtain any consents, waivers or releases
from any Governmental Entity or other third party, or (iii) as reasonably requested by any
Governmental Entity.
6.6 Cooperation. Each party hereto will fully cooperate with the other parties, their
counsel and accountants in connection with any steps required to be taken as part of its
obligations under this Agreement. Each party will use reasonable efforts to cause all conditions
to this Agreement to be satisfied as promptly as possible and to obtain all consents and approvals
necessary for the due and timely performance of this Agreement and for the satisfaction of the
conditions hereof. No party will undertake any course of action inconsistent with this Agreement
or which would make any representations, warranties or agreements made by such party in this
Agreement untrue or any conditions precedent to this Agreement unable to be satisfied at or prior
to the Closing.
6.7 Employees of the Company’s Business. Between the date of this Agreement and the
Closing Date, the Company Principals shall allow Purchaser to have reasonable access to the
mutually agreed to key employees of the Company for discussions regarding employment with Purchaser
contingent upon the Closing of the Closing Date. The Company and the Company Principals will use
their respective commercially reasonable efforts to cooperate with Purchaser to offer employees of
the Company selected by Purchaser employment with Purchaser.
6.8 Notification of Claims. From the date of this Agreement to and including the
Closing Date, the Company, the Stockholders and the Company Principals shall promptly notify
Purchaser in writing of the commencement or threat of any claims, litigation or proceedings against
or affecting the Company, the Stockholders or the Company Principals.
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6.9 Section 338(h)(10) Election.
(a) Upon the request of Purchaser made no later than 90 days after the Closing Date, the
Stockholders shall join with Purchaser in making an election under Section 338(h)(10) of the Code
and any corresponding or similar elections under state or local law (collectively, the “Section
338(h)(10) Election”) with respect to the purchase and sale of the stock of the Company. In
the event Purchaser does not request that the Stockholders join in making the Section 338(h)(10)
Election, the remainder of the provisions of this Section 6.9 shall not apply.
(b) Purchaser shall determine and allocate the “aggregate deemed sales price” (“ADSP”)
with respect to the assets of the Company in accordance with Section 338 of the Code and the
applicable Treasury Regulations promulgated thereunder or comparable provisions of state or local
law (the “ADSP Allocation”). Purchaser shall forward a draft of the ADSP Allocation to the
Stockholders for their consent, which consent shall not be unreasonably withheld or delayed.
Purchaser and the Stockholders shall be bound by the ADSP Allocation for all Tax purposes.
Purchaser and the Stockholders shall file all Tax Returns in a manner consistent with the Section
338(h)(10) Election and the ADSP Allocation and shall take no position contrary thereto unless
required to do so by applicable Tax laws.
(c) Purchaser shall not have any obligation to the Stockholders to pay any additional
consideration for the purchase of their Shares, over and above the Initial Payment Amount, as an
off-set to any marginal Taxes resulting to such Stockholders from the Section 338(h)(10) Election.
6.10 Operational Covenants of the Company Following the Closing.
(a) General. During the Restricted Period, Purchaser shall cause the Company to be
operated as a separate subsidiary or division of Purchaser. From and after the Closing Date, none
of the Stockholders or the Company Principals, without the Purchaser’s prior written consent, shall
take any action that would cause the Company (or otherwise intentionally permit the Company) to do any of the actions described below, except as otherwise expressly permitted
by, but subject to the limitations set forth in, the Baseline Budget:
(i) Charter Documents. Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(ii) Issuance of Securities. Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such shares or other
convertible securities.
(iii) Dividends; Changes in Capital Stock. Declare or pay any dividends on or make
any other distributions (whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for shares of its capital
stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service to it or its subsidiaries;
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(iv) Material Contracts. Enter into any material contract or commitment, or violate,
amend or otherwise modify or waive any of the terms of any of its material contracts, other than in
the ordinary course of business consistent with past practice;
(v) Intellectual Property. Transfer to any person or entity any rights to its
Intellectual Property other than in the ordinary course of business consistent with past practice;
(vi) Exclusive Rights. Enter into or amend any agreements pursuant to which any other
party is granted exclusive marketing or other exclusive rights of any type or scope with respect to
any of its products or technology;
(vii) Dispositions. Sell, lease, license or otherwise dispose of or encumber any of
its properties or assets which are material, individually or in the aggregate, to its and its
Subsidiaries’ business, taken as a whole, except in the ordinary course of business consistent with
past practice;
(viii) Indebtedness. Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt securities of others;
(ix) Leases. Enter into operating leases;
(x) Payment of Obligations. Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) arising other than
in the ordinary course of business, other than the payment, discharge or satisfaction of
liabilities reflected or reserved against in the Company Financial Statements;
(xi) Capital Expenditures. Make any capital expenditures, capital additions or
capital improvements except in the ordinary course of business and consistent with past practice;
(xii) Insurance. Materially reduce the amount of any material insurance coverage
provided by existing insurance policies;
(xiii) Termination or Waiver. Terminate or waive any right of substantial value,
other than in the ordinary course of business;
(xiv) Employee Benefit Plans; New Hires; Pay Increases. Except as required by law,
adopt or amend any employee benefit or stock purchase or option plan, or hire or fire any director
level or officer level employee, pay any special bonus or special remuneration to any employee or
director, or increase the salaries or wage rates of its employees;
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(xv) Severance Arrangement. Grant any severance or termination pay (i) to any
director or officer or (ii) to any other employee except (A) payments made pursuant to standard
written agreements outstanding on the date hereof or (B) payments made in the ordinary course of
business in accordance with its standard past practice;
(xvi) Lawsuits. Commence a lawsuit other than (i) for the routine collection of
bills, (ii) in such cases where it in good faith determines that failure to commence suit would
result in the material impairment of a valuable aspect of its business, provided that it consults
with Purchaser prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(xvii) Acquisitions. Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries’ business, taken as a whole;
(xviii) Taxes. Other than in the ordinary course of business, make or change any
material election in respect of Taxes, adopt or change any accounting method in respect of Taxes,
file any material Tax Return or any amendment to a material Tax Return, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect of Taxes;
(xix) Notices. Fail to give any notices or other information required to be given to
the employees of the Company or the Stockholders, any collective bargaining unit representing any
group of employees of the Company or the Stockholders, and any applicable government authority
under the National Labor Relations Act, the Code, the Consolidated Omnibus Budget Reconciliation
Act, and other applicable law in connection with the transactions provided for in this Agreement;
(xx) Revaluation. Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other than in the ordinary
course of business; or
(xxi) Other. Take, or agree in writing or otherwise to take, any of the actions
described in clause (i) through (xx) above.
(b) Company Developed Products. None of the Stockholders or the Company Principals
shall independently pursue, or cause or permit the Company to independently pursue, any new product
development activities unless Purchaser has authorized such activities in writing and Purchaser and
the Company Principals (if then employed by the Company) have mutually agreed upon the development
parameters (including an acknowledgement from Purchaser that any new product resulting from
development activities conducted within such parameters will not require any development
contribution from Purchaser that would cause such new product to become a Jointly Developed
Product), timing and responsibilities as well as the revenue, cost structure and pre-tax profit
targets applicable to such new products. For purposes of this Agreement, the Company’s 100W
Holmium side-firing fiber described in Exhibit D hereto and the products currently
manufactured and sold by the Company shall be deemed Company Developed Products.
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(c) Jointly Developed Products. Prior to pursuing any new product development
activities or product improvement projects pertaining to any Jointly Developed Product, the Company
shall first obtain Purchaser’s written consent and Purchaser and the Company Principals (if then
employed by the Company) shall have mutually agreed in writing upon the development parameters
(including an acknowledgement from the Company Principals that such activities or projects include
the development contributions of Purchaser specified in such parameters and, accordingly, any new
products or product improvements resulting from such activities or projects shall be Jointly
Developed Products subject to the percentage allocations of revenue from sales specified in such
parameters), timing and responsibilities as well as the revenue, cost structure and pre-tax profit
targets applicable to such new products or product improvement projects. It is anticipated that
Jointly Developed Products will not be included in the Baseline Budget. Jointly Developed Products
may only be included in the Baseline Budget with the prior written consent of Purchaser.
(d) Purchaser Sales Activities. It is anticipated that Company Developed Products
will be sold to current customers of Purchaser by Purchaser’s sales representatives and that the Company’s sales director will train Purchaser’s sales representatives and coordinate
sales activities related to Company Developed Products. The Company’s sales representatives will
not sell directly to Purchaser’s customers without Purchaser’s prior consent, provided that the
Company may sell Company Developed Products directly to Purchaser’s customers if Purchaser fails to
make its sales force available to the Company for such sales.
(e) Baseline Budget Updates. Purchaser, on the one hand, and the Stockholders and
Company Principals (if then employed by the Company), on the other hand, agree to cooperate in good
faith to determine, from time to time during the Restricted Period, mutually agreeable and
appropriate modifications to the Baseline Budget based on facts, circumstances or events that
warrant revisions to the assumptions and methodology employed in the initial Baseline Budget or
other relevant considerations. Subject to the foregoing, the Baseline Budget shall continue in
effect for all purposes of this Agreement unless and until all parties agree in writing to any
proposed revisions to the Baseline Budget. Each party hereto acknowledges and agrees that nothing
in this Section 6.10(e) shall be construed to limit or otherwise effect the agreements of
the parties set forth in Section 1.3(f)(i).
6.11 Further Acts. After the Closing Date, each party hereto, at the request of and
without any further cost or expense to the other parties, will take any further actions necessary
or desirable to carry out the purposes of this Agreement and to vest in Purchaser full title to all
properties, assets and rights of the Company transferred pursuant to this Agreement. In addition,
without in any way limiting the generality of the foregoing, the Company and, to the extent
required, the Stockholders and the Company Principals hereby agree to take any and all further
actions necessary or desirable to carry out the assignment to Purchaser of all Company Intellectual
Property.
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SECTION 7
CLOSING ACTIONS; DELIVERABLES
7.1 Actions Being Taken at or Prior to Closing. The following documents and such
other items are being delivered at or prior to the Closing and the following actions are being
taken at or prior to the Closing:
(a) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the consummation of the transactions
contemplated hereby shall be in effect, nor shall any proceeding brought by any Governmental
Entity, foreign or domestic, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to
the transactions contemplated hereby, which makes the consummation of such transactions illegal.
(b) Governmental Approval. Purchaser, the Company and their respective subsidiaries
shall have timely obtained from each Governmental Entity all approvals, waivers and consents, if
any, necessary for consummation of or in connection with the transactions contemplated hereby.
7.2 Deliverables to the Company and the Stockholders; Actions Taken by Purchaser. The
following documents and such other items are being delivered to the Company and the Stockholders at
or prior to the Closing and the following actions are being taken at or prior to the Closing:
(a) Representations, Warranties and Covenants (i) Each of the representations and
warranties of Purchaser in this Agreement that is expressly qualified by a reference to materiality
shall be true in all respects as so qualified, and each of the representations and warranties of
Purchaser in this Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Closing as though such representation or warranty had been made on and
as of the Closing (except that those representations and warranties which address matters only as
of a particular date shall remain true and correct as of such date), and (ii) Purchaser shall have
performed and complied in all material respects with all covenants, obligations and conditions of
this Agreement required to be performed and complied with by Purchaser as of the Closing.
(b) Certificates of Purchaser.
(i) Compliance Certificate of Purchaser. The Company shall have been provided with a
certificate executed on behalf of Purchaser by its President, Chief Executive Officer or Chief
Financial Officer to the effect that, as of the Closing, each of the conditions set forth in
Section 7.2(a) above has been satisfied with respect to Purchaser.
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(ii) Certificate of Secretary of Purchaser. The Company shall have been provided with
a certificate executed by the Secretary or Assistant Secretary of Purchaser certifying:
(A) resolutions duly adopted by the Board of Directors of Purchaser authorizing the execution
of this Agreement and the execution, performance and delivery of all agreements, documents and
transactions contemplated hereby; and
(B) the incumbency of the officers of Purchaser executing this Agreement and all agreements
and documents contemplated hereby.
7.3 Deliverables to Purchaser; Actions Taken by the Company and the Stockholders. The
following documents and such other items are being delivered to Purchaser at or prior to the
Closing and the following actions are being taken at or prior to the Closing:
(a) Representations, Warranties and Covenants. (i) Each of the representations and
warranties of the Company, the Stockholders and the Company Principals in this Agreement that is
expressly qualified by a reference to materiality shall be true in all respects as so qualified,
and each of the representations and warranties of the Company, the Stockholders and the Company
Principals in this Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Closing as though such representation or warranty had been made on and
as of the Closing (except that those representations and warranties which address matters only as
of a particular date shall remain true and correct as of such date), and (ii) the Company, the
Stockholders and the Company Principals shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement required to be performed and
complied with by them as of the Closing.
(b) No Material Adverse Changes. The Company shall not have suffered any Material
Adverse Effect since the date of the Company Current Balance Sheet.
(c) Certificates of the Company and the Stockholders.
(i) Compliance Certificate of the Company. Purchaser shall have been provided with a
certificate executed on behalf of the Company by its President and its Chief Financial Officer to
the effect that, as of the Closing, each of the conditions set forth in Sections 7.3(a) and
(b) above has been satisfied.
(ii) Compliance Certificate of the Stockholders. Purchaser shall have been provided
with a certificate executed by the Stockholders and the Company Principals to the effect that, as
of the Closing, each of the conditions set forth in Sections 7.3(a) and (b) above
has been satisfied.
(iii) Certificate of Secretary of the Company. Purchaser shall have been provided
with a certificate executed by the Secretary of the Company certifying:
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(A) resolutions duly adopted by the Board of Directors of the Company authorizing the
execution of this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;
(B) the Articles of Incorporation and Bylaws of the Company, as in effect immediately prior to
the Closing, including all amendments thereto; and
(C) the incumbency of the officers of the Company executing this Agreement and all agreements
and documents contemplated hereby.
(d) Third Party Consents. Purchaser shall have been furnished with evidence
satisfactory to it that the Company has obtained those consents, waivers, approvals or authorizations of those Governmental Entities and third parties disclosed on Sections
3.5 and 3.6 of the Company Disclosure Schedule.
(e) Injunctions or Restraints; Conduct of Business. No proceeding brought by any
Governmental Entity, foreign or domestic, seeking to prevent the consummation of the transactions
contemplated by this Agreement shall be pending. In addition, no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint provision limiting or restricting Purchaser’s conduct or
operation of the business of the Company and its subsidiaries, following the Closing shall be in
effect, nor shall any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(f) Resignation of Directors and Officers. Purchaser shall have received letters of
resignation from each of the directors and officers of the Company in office immediately prior to
the Closing, which resignations in each case shall be effective as of the Closing.
(g) Employment Agreements; Consulting Agreement. Each of the Company Principals shall
have executed and delivered to Purchaser his Employment Agreement. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall have
executed and delivered to Purchaser a consulting agreement in the form attached hereto as
Exhibit E.
(h) CIIAs. Each of the individuals set forth in Section 3.14(m) of the
Company Disclosure Schedule shall have executed and delivered to Purchaser and the Company an
confidential information and invention assignment agreement in the form attached hereto as
Exhibit G.
(i) FIRPTA Certificate. The Stockholders shall, prior to the Closing Date, provide
Purchaser with a properly executed FIRPTA Notification Letter and a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2)
along with written authorization to Purchaser to deliver such notice form to the Internal Revenue
Service on behalf of the Company upon the Closing.
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(j) Waiver of Community Property Rights. Each of the Stockholders, if married, shall
deliver to Purchaser a written waiver executed by his spouse, in such form as is reasonably
acceptable to Purchaser, pursuant to which such spouse waives any and all community property rights
or other claims of interest in and to any of the Shares or any of the consideration payable in
exchange therefor under this Agreement.
SECTION 8
INDEMNIFICATION
8.1 Survival of Representations and Warranties. The Company’s, the Stockholders’ and
the Company Principals’ representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall terminate on the third anniversary of the Closing Date
(the “Indemnification Termination Date”); provided, however, if any claims
for indemnification have been asserted with respect to any such representations and warranties
prior to the Indemnification Termination Date, the representations and warranties on which any such
claims are based shall continue in effect until final resolution of any claims. Purchaser’s
representations and warranties contained herein or in any instrument delivered pursuant to this
Agreement shall terminate as of the Closing.
8.2 Indemnification.
(a) Indemnification of Purchaser. Subject to the limitations set forth in Section
8.2(b) below, the Stockholders shall, severally but not jointly in proportion to their respective
Shares sold pursuant hereto, indemnify and hold Purchaser and its officers, directors and
affiliates (including the Company after the Closing Date) harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable attorneys’ fees and
expenses of investigation and defense (hereinafter individually, a “Loss” and collectively
“Losses”) incurred by Purchaser or its officers, directors or affiliates, directly or
indirectly, as a result of (i) any inaccuracy or breach of any representation or warranty made by
the Company or the Stockholders in this Agreement, including any exhibit or schedule attached
hereto, (ii) the breach of any covenant in Section 6 hereof or any agreement made by the
Company or the Stockholders and Company Principals in this Agreement, or (iii) any personal
liabilities or obligations of the Stockholders or the Company Principals.
(b) Limitation on Liability. The maximum aggregate liability of the Stockholders
under this Section 8.2 shall be limited to 20% of the sum of all Earnout Amounts as they
are earned and become payable pursuant to Section 1.3 hereof but without giving effect to
any reduction in the payment of such Earnout Amounts pursuant to Section 1.3(c) or
Section 8.3 hereof; provided, however, that nothing herein shall limit the
liability of the Stockholders in connection with a claim based, in whole or in part, on fraud or
intentional or misrepresentation (a “Fraud Claim”). The Stockholders shall not have any right of
contribution from the Company with respect to any Loss claimed by Purchaser and its officers,
directors and affiliates. Notwithstanding the foregoing, the Stockholders shall not have any
liability for the Company’s failure to meet any projections so long as such projections were
fraudulently derived. Notwithstanding anything to the contrary set forth herein, except for Fraud
Claims and breaches of Section 6.1 hereof, the Stockholders shall not have any liability under
Section 8 unless the aggregate of all Losses hereunder exceeds $50,000 (the “Loss Threshold”), in
which case the Parent Indemnified Persons shall be entitled to recover all Losses, including the amount equal
to the Loss Threshold.
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(c) Indemnification Procedure. Upon receipt by the Stockholders of a certificate
signed by any officer of Purchaser (an “Officer’s Certificate”) on or prior to the
Indemnification Termination Date: (i) stating that Purchaser has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue Losses and (ii) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the date each such item was
paid or properly accrued, or the basis for such anticipated liability, and the nature of the
inaccuracy or breach of warranty or covenant to which such item is related, the Stockholders shall
have thirty (30) days to object in a written statement to the claim made in the Officer’s
Certificate, and such statement shall have been delivered to Purchaser prior to the expiration of
such thirty (30) day period.
(d) Resolution of Conflicts; Arbitration.
(i) In the event that the Stockholders shall object in writing to any claim or claims made in
any Officer’s Certificate within thirty (30) days after delivery of such Officer’s Certificate, the
parties shall attempt in good faith to agree upon the rights of the respective parties with respect
to each of such claims.
(ii) If no such agreement can be reached after good faith negotiation, either party may demand
arbitration of the matter unless the amount of Loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration, and in either such event the matter shall be settled by arbitration
conducted by one arbitrator mutually agreeable to both parties. In the event that within thirty
(30) days after submission of any dispute to arbitration, the parties cannot mutually agree on one
arbitrator, the Stockholders and Purchaser shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or arbitrators, as the
case may be, shall set a limited time period and establish procedures designed to reduce the cost
and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of
the arbitrator or majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute. The arbitrator or a
majority of the three arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys’ fees and costs, to
the extent as a competent court of law or equity, should the arbitrators or a majority of the three
arbitrators, as the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case may be, as to the
validity and amount of any claim in such Officer’s Certificate shall be binding and conclusive upon
the parties to this Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s).
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(iii) Judgment upon any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. Any such arbitration shall be held in Santa ▇▇▇▇▇ County, California under the rules
then in effect of the American Arbitration Association for commercial disputes. The fees and
expenses incurred in connection with an arbitration, including without limitation the fees of each
arbitrator, the administrative costs of the arbitration and the expenses, including, without
limitation, the reasonable attorneys’ fees and costs, incurred by the parties to the arbitration,
shall be apportioned between the parties to the arbitration as determined by the arbitrator or a
majority of the three arbitrators, as the case may be.
(e) Third-Party Claims.
(i) If any third party shall notify Purchaser with respect to any matter (hereinafter referred
to as a “Third Party Claim”), which may result in Losses, then Purchaser shall give prompt
notice to the Stockholders (and in any event within thirty (30) days) of Purchaser becoming aware
of any such Third Party Claim or of facts upon which any such Third Party Claim will be based
setting forth such material information with respect to the Third Party Claim as is reasonably
available to Purchaser; provided, however, that no delay or failure on the part of
Purchaser in notifying the Stockholders shall relieve the Stockholders from any obligation
hereunder unless the Stockholders are thereby materially prejudiced (and then solely to the extent
of such prejudice). The Stockholders shall not be liable for any attorneys fees or expenses
incurred by Purchaser prior to Purchaser and its officers, directors and affiliates giving notice
to the Stockholders of a Third Party Claim.
(ii) In case any Third Party Claim is asserted against Purchaser, and Purchaser notifies the
Stockholders thereof pursuant to Section 8.2(e)(i) above, the Stockholders will be
entitled, if they so elect by written notice delivered to Purchaser within thirty (30) days after
receiving Purchaser’s notice, to assume the defense thereof, at the expense of the Stockholders;
provided, that (A) prior to the expiration of such thirty-day period one or more of the
Earnout Amounts has become due and payable in accordance with the terms of this Agreement,
Purchaser has withheld from such Earnout Amounts the Maximum Set-Off Amount then available, and
Purchaser has reasonably determined that Losses which may be incurred as a result of the Third
Party Claim and any other claims then pending do not exceed either individually, or when aggregated
with all other Third Party Claims and other pending claims, the then remaining portion of the
Maximum Set-Off Amount not previously used to offset claims for indemnification determined to be
valid in accordance with this Agreement, (B) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (C) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the good faith judgment of Purchaser, likely to
establish a precedential custom or practice adverse to the continuing business interests of
Purchaser which could have a material adverse effect on the business or operations of Purchaser,
(D) the Third Party Claim does not involve any customers of the Company, and (E) counsel selected
by the Stockholders is reasonably acceptable to Purchaser. If the Stockholders so assume any such
defense, the Stockholders shall conduct the defense of the Third Party Claim actively and
diligently. The Stockholders shall not compromise or settle such Third Party Claim or consent to entry of any judgment in respect thereof
without the prior written consent of Purchaser, which consent shall not be unreasonably
conditioned, withheld or delayed.
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(iii) In the event that the Stockholders assume the defense of the Third Party Claim in
accordance with Section 8.2(e)(ii) above, Purchaser may retain separate outside legal
counsel and participate in the defense of the Third Party Claim, but the fees and expenses of such
outside legal counsel shall be at the expense of Purchaser unless Purchaser shall have been advised
in writing by counsel for the Purchaser that there is a material legal conflict of interest between
or among Purchaser and the Stockholders with respect to such Third Party Claim, in which case the
reasonable fees and expenses of such outside legal counsel will be borne by the Stockholders. The
Indemnified Party will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the Stockholders, which
consent shall not be unreasonably conditioned, withheld or delayed. The Indemnified Party will
cooperate in the defense of the Third Party Claim and will provide full access to documents,
assets, properties, books and records reasonably requested by the Stockholders and material to the
claim and will make available all officers, directors and employees reasonably requested by the
Stockholders for investigation, depositions and trial.
(iv) In the event that the Stockholders fail or elect not to assume the defense of Purchaser
against such Third Party Claim, which the Stockholders had the right to assume under Section
8.2(e)(ii) above, (a) Purchaser shall have the right to undertake the defense and (b) Purchaser
shall not compromise or settle such Third Party Claim or consent to entry of any judgment in
respect thereof without the prior written consent of the Stockholders, which consent shall not be
unreasonably conditioned, withheld or delayed. In the event that the Stockholders are not entitled
to assume the defense of Purchaser or its affiliates against such Third Party Claim pursuant to
Section 8.2(e)(ii) above, Purchaser or its affiliates shall have the right to undertake the
defense, consent to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim in any manner it may deem appropriate; provided, however, that no
settlement of any such claim or consent to the entry of any judgment with respect to such Third
Party Claim shall be accepted by Purchaser without the consent of the Stockholders (which consent
shall not be unreasonably conditioned, withheld or delayed). In each case, Purchaser shall conduct
the defense of the Third Party Claim actively and diligently, and the Stockholders will cooperate
with Purchaser or its affiliates in the defense of that claim and will provide full access to
documents, assets, properties, books and records reasonably requested by Purchaser and material to
the claim and will make available all individuals reasonably requested by Purchaser for
investigation, depositions and trial.
(f) Materiality. Any qualifications in the representations, warranties and covenants
with respect to a Material Adverse Effect, materiality, material or similar terms will not have any
effect with respect to the calculation of the amount of any Losses pursuant to this Section 8.
However, such qualifications will have their full effect in determining whether a breach has
occurred.
8.3 Set-Off Rights; Sole and Exclusive Remedy.
(a) Set-Off Rights. Subject to the limitations set forth in Section 8.2(b),
Purchaser shall be entitled to set-off the amount of any Losses from indemnification claims
submitted on or prior to the Indemnification Expiration Date and determined to be valid in
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accordance with this Section 8 against the Earnout Amounts due or to become due to the
Stockholders pursuant to this Agreement. If at any time prior to the Indemnification Earnout
Date (i) Purchaser becomes obligated to pay any Earnout Amount under this Agreement and (ii) at
such time the final determination of the validity of any previously submitted claim for
indemnification remains pending, Purchaser shall be entitled to withhold from such Earnout Amount
the Maximum Set-Off Amount. If at any time prior to the Indemnification Earnout Date (x) Purchaser
becomes obligated to pay any Earnout Amount under this Agreement and (y) at such time the amount of
all previously submitted claims, if any, has been finally determined in accordance with the terms
of this Agreement but any portion of the Losses incurred in connection with such claims has not
been set-off against prior Earnout Amounts, Purchaser shall be entitled to withhold from such
Earnout Amount the remaining portion of such Losses. The parties acknowledge and agree that the
rights of recoupment and set-off set forth in this Section 8.3 are a condition to Purchaser
agreeing to enter into and perform this Agreement and that the rights of the Stockholders under
this Agreement are subject to such rights. For purposes of this Agreement, the “Maximum Set-Off
Amount” shall be an amount, determined as of each time Purchaser otherwise becomes obligated to pay
any Earnout Amount under this Agreement, equal to the lesser of (A) 100% of such Earnout
Amount, without giving effect to any reduction in the payment thereof pursuant to Section
1.3(c) or this Section 8.3(a), or (B) 20% of the sum of all Earnout Amounts
then or previously due and payable, in each case without giving effect to any reduction in the
payment thereof pursuant to Section 1.3(c) or this Section 8.3(a).
(b) Sole and Exclusive Remedy. Except for Fraud Claims, any claim or cause of action
(whether such claim sounds in tort, contract or otherwise and including statutory rights and
remedies) based upon, relating to or arising out of this Agreement or the transactions contemplated
hereby or otherwise in respect of the status, operations, condition or ownership of the Company and
its business or properties on or prior to the Closing Date must be brought by Purchaser in
accordance with the provisions and applicable limitations of this Section 8 (including without
limitation the set-off rights set forth in Section 8.3(a)), which, other than in the case
of Fraud Claims, shall constitute the sole and exclusive remedy of Purchaser, its Affiliates,
successors and assigns and all Persons who may claim any rights through them, for any such claim or
cause of action.
SECTION 9
MISCELLANEOUS
9.1 Notices. Any notice required or permitted by this Agreement shall be in writing
and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight
delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the
regular mail as certified or registered mail (airmail if sent internationally) with postage
prepaid, if such notice is addressed to the party to be notified at such party’s address or
facsimile number as set forth below, or as subsequently modified by written notice,
(a) if to Purchaser, to:
Laserscope
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-▇▇-
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to:
InnovaQuartz Incorporated
▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Stockholders or the Company Principals, to the address set forth on the
signature pages hereto, with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 Interpretation. When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated. The words
“include,” “includes” and “including” when used herein shall be deemed in
each case to be followed by the
-47-
words “without limitation.” The phrase “made
available” in this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made available. The phrases
“the date of this Agreement”, “the date hereof,” and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to April 30, 2006. The table of
contents and headings contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in two or more counterparts
(including by facsimile), each of which shall be deemed an original and all of which together shall
constitute one instrument.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the
documents and the instruments referred to herein) (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) are not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
9.5 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such provision in good faith,
in order to maintain the economic position enjoyed by each party as close as possible to that under
the provision rendered unenforceable. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded
from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
9.6 Remedies Cumulative. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of
conflicts of law.
9.8 Rules of Construction. The parties hereto agree that they have been represented
by counsel during the negotiation, preparation and execution of this Agreement and, therefore,
waive the application of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the party drafting such
agreement or document.
9.9 Amendments and Waivers. Any term of this Agreement may be amended or waived only
with the written consent of the parties or their respective successors and assigns. Any amendment
or waiver effected in accordance with this Section 9.9 shall be binding upon the parties
and their respective successors and assigns.
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[Signature Page Follows]
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The parties have duly executed this Stock Purchase Agreement as of the date first above
written.
| “THE PURCHASER” | LASERSCOPE |
|||
| By: | ||||
| Name: | ▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
| Title: | President and CEO | |||
| “COMPANY” | INNOVAQUARTZ INCORPORATED |
|||
| By: | ||||
| Name: | ▇▇▇▇▇ ▇▇▇▇ | |||
| Title: | President and CEO | |||
| “STOCKHOLDERS / COMPANY PRINCIPALS” | THE ▇▇▇▇▇▇▇ FAMILY REVOCABLE TRUST |
|||
| By: | ||||
| Name: | ▇▇▇▇▇ ▇▇▇▇▇▇▇ | |||
| Title: | Trustee | |||
| By: | ||||
| Name: | ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ | |||
| Title: | Trustee | |||
| ▇▇▇▇▇ ▇▇▇▇▇▇▇ | ||||
| ▇▇▇▇▇ ▇▇▇▇ | ||||
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
COMPANY DISCLOSURE SCHEDULE
EXHIBIT A
Employment Agreement
(▇▇▇▇▇ ▇▇▇▇▇▇▇)
EXHIBIT B
Employment Agreement
(▇▇▇▇▇ ▇▇▇▇)
EXHIBIT C
Baseline Budget
EXHIBIT D
H100 Cost and Technical Validation Criteria
EXHIBIT E
Consulting Agreement
(▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇)
EXHIBIT F
Confidential Information and Invention Assignment Agreement
SECTION 1 |
PURCHASE AND SALE OF SHARES | 1 | ||||
1.1 |
Purchase and Sale of Shares | 1 | ||||
1.2 |
Consideration | 2 | ||||
1.3 |
Earnout Payments | 2 | ||||
1.4 |
Earnout Amounts | 8 | ||||
SECTION 2 |
CLOSING | 12 | ||||
2.1 |
Closing Date | 12 | ||||
2.2 |
Actions at the Closing | 12 | ||||
2.3 |
No Further Ownership Rights in Shares | 13 | ||||
SECTION 3 |
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS | 14 | ||||
3.1 |
Organization, Standing and Power; Subsidiaries | 15 | ||||
3.2 |
Articles of Incorporation and Bylaws | 15 | ||||
3.3 |
Capital Structure | 15 | ||||
3.4 |
Authorization | 16 | ||||
3.5 |
No Conflict | 16 | ||||
3.6 |
Consents | 16 | ||||
3.7 |
Company Financial Statements | 16 | ||||
3.8 |
Accounts Receivable | 17 | ||||
3.9 |
No Undisclosed Liabilities | 17 | ||||
3.10 |
No Changes | 17 | ||||
3.11 |
Tax Matters | 19 | ||||
3.12 |
Restrictions on Business Activities | 21 | ||||
3.13 |
Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment | 21 | ||||
3.14 |
Intellectual Property | 22 | ||||
3.15 |
Agreements, Contracts and Commitments | 25 | ||||
3.16 |
Governmental Authorization | 27 | ||||
3.17 |
Litigation | 27 | ||||
3.18 |
Minute Books | 27 | ||||
3.19 |
Environmental Matters | 28 | ||||
3.20 |
Brokers’ and Finders’ Fees; Third Party Expenses | 28 | ||||
3.21 |
Employee and Employee Benefit Matters | 29 | ||||
3.22 |
Insurance | 29 | ||||
3.23 |
Certain Advances; Guaranties | 29 | ||||
3.24 |
FDA and Regulatory Matters | 29 | ||||
3.25 |
Warranties; Indemnities | 30 | ||||
3.26 |
Product Development | 30 | ||||
3.27 |
Complete Copies of Materials | 31 | ||||
3.28 |
Disclosure | 31 | ||||
SECTION 4 |
FURTHER REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS | 31 | ||||
4.1 |
Ownership of Shares | 31 |
-i-
TABLE
OF CONTENTS
(continued)
(continued)
| Page | ||||||
4.2 |
Tax Matters | 31 | ||||
4.3 |
Absence of Claims by the Stockholders | 31 | ||||
4.4 |
Authority | 32 | ||||
4.5 |
No Conflict | 32 | ||||
SECTION 5 |
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER | 32 | ||||
5.1 |
Organization, Good Standing and Qualification | 32 | ||||
5.2 |
Authorization | 32 | ||||
5.3 |
Governmental Consents | 33 | ||||
5.4 |
No Violation | 33 | ||||
SECTION 6 |
ADDITIONAL AGREEMENTS | 33 | ||||
6.1 |
Expenses | 33 | ||||
6.2 |
[Intentionally Omitted] | 33 | ||||
6.3 |
No Solicitation | 33 | ||||
6.4 |
Access; Confidentiality | 34 | ||||
6.5 |
Public Announcements | 34 | ||||
6.6 |
Cooperation | 34 | ||||
6.7 |
Employees of the Company’s Business | 35 | ||||
6.8 |
Notification of Claims | 35 | ||||
6.9 |
Section 338(h)(10) Election | 35 | ||||
6.10 |
Operational Covenants of the Company Following the Closing | 35 | ||||
6.11 |
Further Acts | 39 | ||||
SECTION 7 |
CLOSING ACTIONS; DELIVERABLES | 39 | ||||
7.1 |
Actions Being Taken at or Prior to Closing | 39 | ||||
7.2 |
Deliverables to the Company and the Stockholders; Actions Taken by Purchaser | 39 | ||||
7.3 |
Deliverables to Purchaser; Actions Taken by the Company and the Stockholders | 40 | ||||
SECTION 8 |
INDEMNIFICATION | 42 | ||||
8.1 |
Survival of Representations and Warranties | 42 | ||||
8.2 |
Indemnification | 42 | ||||
8.3 |
Set-Off Rights; Sole and Exclusive Remedy | 46 | ||||
SECTION 9 |
MISCELLANEOUS | 47 | ||||
9.1 |
Notices | 47 | ||||
9.2 |
Interpretation | 48 | ||||
9.3 |
Counterparts | 48 | ||||
9.4 |
Entire Agreement; No Third Party Beneficiaries | 48 | ||||
9.5 |
Severability | 49 | ||||
9.6 |
Remedies Cumulative | 49 | ||||
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TABLE
OF CONTENTS
(continued)
(continued)
| Page | ||||||
9.7 |
Governing Law | 49 | ||||
9.8 |
Rules of Construction | 49 | ||||
9.9 |
Amendments and Waivers | 49 | ||||
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