UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 30, 2014

 

 

 

WRIGHT MEDICAL GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-35823   13-4088127

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification Number)

1023 Cherry Road, Memphis, Tennessee     38117
(Address of principal executive offices)     (Zip Code)

Registrant’s telephone number, including area code: (901) 867-9971

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01 Entry into a Material Definitive Agreement.

On January 30, 2014, Wright Medical Group, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with WMMS, LLC, a Utah limited liability company and direct wholly-owned subsidiary of the Company (“Merger Sub”), OrthoPro, L.L.C., a Utah limited liability company (“OrthoPro”), and OP CHA, Inc., solely in its capacity as agent for the OrthoPro security holders, pursuant to which Merger Sub will merge with and into OrthoPro, with OrthoPro continuing as the surviving entity and a wholly-owned subsidiary of the Company. The merger is expected to be completed in the first quarter of 2014.

The initial purchase price for the transaction is $32.5 million payable in cash, subject to certain adjustments set forth in the Merger Agreement. In addition, the Company will also pay up to $3.5 million upon the achievement of certain revenue milestones. The Merger Agreement contains customary representations, warranties, covenants and indemnities. The closing of the merger is subject to various customary conditions.

Also on January 30, 2014, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with Solana Surgical, LLC (“Solana”), a California limited liability company and Winter Solstice LLC, an direct wholly-owned subsidiary of the Company, pursuant to which Winter Solstice LLC merged with and into Solana with Solana continuing as the surviving entity and a wholly-owned subsidiary of the Company.

The initial purchase price for the transaction is an aggregate of $90 million, comprised of approximately $42.4 million in common stock and $47.6 million in cash. The closing occurred on January 30, 2014.

The foregoing descriptions of the Merger Agreement and the Agreement do not purport to be complete and are qualified in their entirety by reference to the Merger Agreement and the Agreement, which are filed as Exhibit 2.1 and Exhibit 2.2, respectively, hereto and incorporated herein by reference.

 

Item 2.01 Completion of Acquisition.

The information disclosed under Item 1.01 pertaining to the acquisition by the Company of Solana Surgical, Inc. is incorporated herein by reference.

 

Item 3.02 Unregistered Sales of Equity Securities

On January 30, 2014, in connection with the closing of the Company’s acquisition of Solana, the Company issued 1,365,864 shares of common stock to members of Solana in reliance on Section 4(a)(2) of the Securities Act of 1933.

 

Item 7.01 Regulation FD Disclosure.

On January 30, 2014, the Company issued a press release. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information included in this Current Report on Form 8-K under this Item 7.01 (including Exhibit 99.1 hereto) is being “furnished” and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of Section 18, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly set forth by specific reference in such filing. The information included in this Current Report on Form 8-K under this Item 7.01 (including Exhibit 99.1 hereto) will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.


Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit

Number

  

Description

  2.1    Agreement and Plan of Merger, dated as of January 30, 2014, by and among Wright Medical Group, Inc., WMMS, LLC, OrthoPro, L.L.C. and OP CHA, Inc., as Company Holders’ Agent.†
  2.2    Agreement and Plan of Merger, dated as of January 30, 2014, by and among Wright Medical Group, Inc., Winter Solstice LLC, Solana Surgical, LLC, and Alan Taylor, as Members’ Representative. †
99.1    Press Release of Wright Medical Group, Inc. dated January 30, 2014.

 

Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules and attachments upon request by the United States Securities and Exchange Commission.


SIGNATURE

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

Date: January 31, 2014

 

WRIGHT MEDICAL GROUP, INC.
By:  

/s/ Lance A. Berry

  Lance A. Berry
  Chief Financial Officer


EXHIBIT INDEX

 

Exhibit

Number

 

Description

  2.1   Agreement and Plan of Merger, dated as of January 30, 2014, by and among Wright Medical Group, Inc., WMMS, LLC, OrthoPro, L.L.C. and OP CHA, Inc., as Company Holders’ Agent.†
  2.2   Agreement and Plan of Merger, dated as of January 30, 2014, by and among Wright Medical Group, Inc., Winter Solstice LLC, Solana Surgical, LLC, and Alan Taylor, as Members’ Representative. †
99.1   Press Release of Wright Medical Group, Inc. dated January 30, 2014.

 

Schedules and other similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules and attachments upon request by the United States Securities and Exchange Commission.

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

WRIGHT MEDICAL GROUP, INC.,

WMMS, LLC

ORTHOPRO, L.L.C.

AND

OP CHA, INC., AS COMPANY HOLDERS’ AGENT

DATED AS OF JANUARY 30, 2014


TABLE OF CONTENTS

 

ARTICLE I. THE MERGER

     1  

1.1.

  Certain Definitions      1  

1.2.

  The Merger      9  

1.3.

  Closing      9  

1.4.

  Closing Deliveries      9  

1.5.

  Effective Time      11  

1.6.

  Effect of the Merger      11  

1.7.

  Articles of Organization and Operating Agreement      11  

1.8.

  Managers and Officers      11  

1.9.

  Effect on Membership Units and Series A Preferred Units      12  

1.10.

  Funding of Escrow; Surrender of Membership Units and Series A Preferred Units in Exchange for Payments      13  

1.11.

  No Further Ownership Rights in the Membership Units or Series A Preferred Units      14  

1.12.

  Taking of Necessary Action; Further Action      14  

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     14  

2.1.

  Organization, Standing and Power; Books and Records      14  

2.2.

  Subsidiaries      15  

2.3.

  Authority; Non-Contravention; Governmental Consents      15  

2.4.

  Compliance with Laws and Permits      16  

2.5.

  Material Contracts      19  

2.6.

  Capital Structure      21  

2.7.

  Financial Statements      23  

2.8.

  Absence of Certain Changes      23  

2.9.

  No Undisclosed Liabilities      25  

2.10.

  Title to Property; Encumbrances      25  

2.11.

  Litigation; Investigations; Judgments      26  

2.12.

  Intellectual Property      26  

2.13.

  Environmental Matters      28  

2.14.

  Taxes      29  

2.15.

  Employee Benefit Plans and Employee Matters      30  

2.16.

  Interested Party Transactions      35  

2.17.

  Insurance      35  

2.18.

  Data Protection      35  

2.19.

  Suppliers; Customers and Distributors      36  

2.20.

  Bank Accounts; Powers of Attorney      36  

2.21.

  Finders’ Fees      36  

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB

     37  

3.1.

  Organization and Standing      37  

3.2.

  Authority and Enforceability      37  

3.3.

  Non-Contravention      37  

3.4.

  Government Consent      37  

3.5.

  Financing      37  

3.6.

  No Prior Sub Operations      37  

 

i


ARTICLE IV. CONDUCT PRIOR TO THE CLOSING

     38  

4.1.

  Conduct of Business of the Company      38  

4.2.

  Restrictions on Conduct of Business of the Company      38  

ARTICLE V. ADDITIONAL AGREEMENTS

     40  

5.1.

  Member Approval      40  

5.2.

  No Solicitation      40  

5.3.

  Confidentiality; Public Disclosure      41  

5.4.

  Regulatory Approvals      41  

5.5.

  Reasonable Efforts      42  

5.6.

  Third Party Consents; Notices      42  

5.7.

  Litigation      42  

5.8.

  Access to Information      42  

5.9.

  Consideration Spreadsheet      43  

5.10.

  Expenses      43  

5.11.

  Employees      43  

5.12.

  Certain Closing Certificates and Documents      44  

5.13.

  Transfer Taxes      44  

5.14.

  Member Information      44  

5.15.

  Tax Matters      44  

5.16.

  Updates to the Disclosure Letter      45  

5.17.

  Baseline Revenue      45  

ARTICLE VI. CONDITIONS TO THE MERGER

     46  

6.1.

  Conditions to Obligations of Each Party to Effect the Merger      46  

6.2.

  Additional Conditions to Obligations of the Company      46  

6.3.

  Additional Conditions to the Obligations of Acquiror      47  

ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER

     47  

7.1.

  Termination      47  

7.2.

  Effect of Termination      48  

7.3.

  Amendment      48  

7.4.

  Extension; Waiver      49  

ARTICLE VIII. ESCROW FUND AND INDEMNIFICATION

     49  

8.1.

  Survival of Representations, Warranties, Covenants and Agreements      49  

8.2.

  Indemnification      49  

8.3.

  Escrow Funds      51  

8.4.

  Claims      51  

8.5.

  Resolution of Objections to Claims      52  

8.6.

  Company Holders’ Agent      52  

8.7.

  Third Party Claims      54  

8.8.

  Treatment of Indemnification Payments      54   

 

ii


ARTICLE IX. GENERAL PROVISIONS      54  

9.1.

  Notices      54  

9.2.

  Interpretation      55  

9.3.

  Counterparts      56  

9.4.

  Entire Agreement; Parties in Interest      56  

9.5.

  Assignment      56  

9.6.

  Severability      56  

9.7.

  Remedies Cumulative      56  

9.8.

  Governing Law; Submission to Jurisdiction      57  

9.9.

  Rules of Construction      57  

9.10.

  WAIVER OF JURY TRIAL      57  

 

Exhibits      
Exhibit A    -    Form of Articles of Merger
Exhibit B    -    Form of Voting Agreement
Exhibit C    -    Form of Paying Agent Agreement
Exhibit D    -    Form of Escrow Agreement
Exhibit E    -    Form of Letter of Transmittal
Exhibit F    -    Form of Release Agreement
Exhibit G    -    Form of Consideration Spreadsheet
Exhibit H    -    Form of Surviving Entity Articles of Organization
Exhibit I    -    Form of Surviving Entity Operating Agreement

Schedules

Company Schedules

Acquiror Schedules

 

iii


THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) is made and entered into as of January 30, 2014 (the “ Agreement Date ”), by and among Wright Medical Group, Inc., a Delaware corporation (“ Acquiror ”), WMMS, LLC, a Utah limited liability company and wholly-owned subsidiary of Acquiror (“ Sub ”), OrthoPro, L.L.C., a Utah limited liability company (the “ Company ”), and OP CHA, Inc., solely in its capacity as Company Holders’ Agent.

R ECITALS

A. The Company, Sub and Acquiror have determined that it would be advisable and in the best interests of the equityholders of their respective companies that Sub merge with and into the Company (the “ Merger ”), with the Company to survive the Merger and to become a wholly-owned subsidiary of Acquiror, on the terms and subject to the conditions set forth in this Agreement.

B. Pursuant to the Merger, among other things, the issued and outstanding units of membership interests of the Company shall be converted into the right to receive cash in the manner set forth herein.

C. The Company, Sub and Acquiror desire to make certain representations, warranties, covenants and other agreements in connection with the Merger as set forth herein.

D. Concurrently with the execution of this Agreement and as a material inducement to the willingness of Acquiror and Sub to enter into this Agreement, certain Company Holders representing, in the aggregate, the Company Member Approval have entered into voting agreements, dated as of the date hereof, in the form attached hereto as Exhibit B (the “ Voting Agreement ”), pursuant to which certain Company Holders have agreed, among other matters, to vote in favor of the Merger and the other transactions contemplated by this Agreement.

E. Following the execution of this Agreement, Acquiror, Company Holders’ Agent and the Paying Agent will enter into a Paying Agent Agreement, in the form attached as Exhibit C (the “ Paying Agent Agreement ”), to be effective as of the Closing Date.

F. Following the execution of this Agreement and as a material inducement to the parties’ willingness to enter into this Agreement, the Acquiror, Escrow Agent and Company Holders’ Agent will enter into an escrow agreement in the form attached hereto as Exhibit D (the “ Escrow Agreement ”), to be effective as of the Closing Date.

Now, therefore, in consideration of the representations, warranties, covenants and other agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I.

THE MERGER

1.1. Certain Definitions.

(a) As used in this Agreement, the following terms shall have the meanings indicated below.

Acquisition Proposal ” means any agreement, offer, proposal or bona fide indication of interest (other than this Agreement or any other offer, proposal or indication of interest by Acquiror or an Affiliate of Acquiror), or any public announcement of intention to enter into any such agreement (or of intention to make) any offer, proposal or bona fide indication of interest, relating to, or that contemplates: (A) any acquisition or purchase from the Company, or from the members of the Company, by any Person

 

1


or Group of more than a 10% interest in the total outstanding Membership Units (or other voting securities) of the Company or any tender offer or exchange offer that if consummated would result in any Person or Group beneficially owning 10% or more of the total outstanding Membership Units (or other voting securities) of the Company or any merger, consolidation, business combination or similar transaction involving the Company; (B) any sale, lease, mortgage, pledge, exchange, transfer, license (other than in the ordinary course of business consistent with past practice), acquisition, or disposition of more than 10% of the assets of the Company in any single transaction or series of related transactions; or (C) any liquidation, dissolution, recapitalization or other significant reorganization of the Company, or any extraordinary dividend, whether of cash or other property.

Affiliate ” has the meaning set forth in Rule 144 promulgated under the Securities Act.

Approval ” means any notice, report, filing, approval, order, authorization, consent, license, Permit, qualification or registration, or qualification, registration or application for new approval, order, authorization, consent, license, permit, qualification or registration, or waiver of any of the foregoing, required to be obtained from or made with, or any notice, statement or other communications required to be filed with or delivered to, any Governmental Entity or any other Person.

Baseline Revenue ” means, for the calendar years ending December 31, 2014 and December 31, 2015, respectively, Acquiror’s current projected revenue (determined by Acquiror in good faith in accordance with Acquiror’s standard accounting practices and GAAP and excluding any revenue associated with the Company Products) from sales of foot and ankle product during such calendar year (excluding all Acquiror and Affiliate biologic products); provided , further , that such Baseline Revenue for a calendar year is subject to increase, in Acquiror’s good faith and reasonable discretion, following any acquisition(s), merger(s) or other similar transactions by Acquiror or an Affiliate in such calendar year to reflect any additional revenue expectations resulting directly from such acquisition(s), merger(s) or other similar transactions (other than the transactions contemplated by this Agreement).

Business Day ” means a day (A) other than Saturday or Sunday, and (B) on which commercial banks are open for business in the State of New York.

Cap ” means an amount of cash equal to $8,000,000.

Cash ” means, with respect to the Company, the aggregate amount as at the Closing Date of (i) available cash and other cash equivalent, including marketable securities, (ii) credit balances with banks, financial or other similar institutions, including interest accrued thereon, and (iii) the amount of accounts receivable of the Company less than 180 days past due as of Closing, net of any respective reserves, each as determined in accordance with GAAP applied in a manner consistent with that used in the preparation of the Financial Statements.

Code ” means the Internal Revenue Code of 1986, as amended.

Company Board ” means the board of directors of the Company.

Company Holders ” means the Company Members as of immediately prior to the Effective Time and the Series A Preferred Member.

Company Intellectual Property Assets ” means an Intellectual Property Asset owned or purported to be owned by the Company.

Company Member ” means a holder of Membership Units of the Company.

 

2


Company Member Approval ” means the affirmative vote or consent of the holders of more than two-thirds (2/3rds) of the Percentage Interest and the Series A Preferred Member approving the Merger and the consummation of the transactions contemplated by this Agreement.

Company’s Operating Agreement ” means the Amended and Restated Operating Agreement of Company, dated as of April 14, 2010, as amended on August 25, 2010, as further amended on February 22, 2011, as further amended on May 19, 2011, as further amended on May 9, 2012, as further amended on December 1, 2012, as further amended on March 29, 2013, and as further amended on April 25, 2013.

Company Products ” means all products and services marketed, licensed, sold, performed, offered, distributed or otherwise made available by the Company to third parties on or prior to the Closing Date.

Contract ” means any written or oral legally binding contract, agreement, instrument, commitment or undertaking of any nature (including leases, licenses, mortgages, notes, guarantees, sublicenses, subcontracts and purchase orders) as of the Agreement Date or as may hereafter be in effect on or prior to the Effective Time.

Damages ” means all damages (including incidental and consequential damages), losses (including any diminution in value), Liabilities, Taxes, payments, amounts paid in settlement, obligations, fines, penalties, costs, and expenses (including reasonable fees and expenses of outside attorneys, accountants and other professional advisors and of expert witnesses and other costs of investigation, preparation, litigation or settlement in connection with any claim for indemnification under this Agreement, including, but not limited to, any Proceeding or threatened Proceeding) of any kind or nature whatsoever; provided , however , that in no event shall “ Damages ” include any special, exemplary, consequential, incidental or punitive damages, except in connection with any Third-Party Claim.

Encumbrance ” means, with respect to any asset, any mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, hypothecation, option, rights of first refusal, rights of first offer, conditional sale or other security arrangement, collateral assignment, claim, charge, adverse claim of title, ownership or right to use, restriction or other encumbrance of any kind in respect of such asset (including any restriction on (A) the voting of any security or membership interest or the transfer of any security or membership interest or other asset, (B) the receipt of any income derived from any asset, (C) the use of any asset, and (D) the possession, exercise or transfer of any other attribute of ownership of any asset).

Environmental and Safety Laws ” means any federal, state or local laws, ordinances, codes, regulations, rules, policies and orders that are intended to assure the protection of the environment, or that classify, regulate, call for the remediation of, require reporting with respect to, or list or define air, water, groundwater, solid waste, hazardous or toxic substances, materials, wastes, pollutants or contaminants, or which are intended to assure the safety of employees, workers or other persons, including the public.

Escrow Pro Rata Share ” means, with respect to a particular Company Holder, the amount set forth in the Consideration Spreadsheet next to such Company Holder’s name in the column entitled “Escrow Pro Rata Share.”

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

Facilities ” means all buildings and improvements on the Property.

 

3


FDA ” means the U.S. Food and Drug Administration.

Foot & Ankle Revenue ” means, for a calendar year, the amount of revenue (determined by Acquiror in good faith in accordance with Acquiror’s standard accounting practices and GAAP) recognized by Acquiror from sales of foot and ankle product during such calendar year (including all Company Products but excluding all Acquiror and Affiliate biologic products).

Fully Diluted Interests Number ” means the total number of Membership Units outstanding immediately prior to the Closing.

GAAP ” means United States generally accepted accounting principles, consistently applied.

Governmental Entity ” means any supranational, national, state, municipal, local or foreign government, any court, tribunal, arbitrator, administrative agency, commission or other governmental official, authority or instrumentality, in each case whether domestic or foreign, any stock exchange or any similar self-regulatory organization exercising any regulatory, taxing or other governmental or quasi-governmental authority.

Group ” shall have the definition ascribed to such term under Section 13(d) of the Exchange Act, the rules and regulations thereunder and related case law.

Hazardous Materials ” means any toxic or hazardous substance, material or waste or any pollutant or contaminant, or infectious or radioactive substance, material or waste defined in or regulated under any Environmental and Safety Laws, but excludes office and janitorial supplies properly and safely maintained.

Indebtedness ” means, without duplication, as of the Closing Date (i) the principal value and accrued and unpaid interest and other obligations of the Company in respect of indebtedness for borrowed money or indebtedness evidenced by notes, debentures, bonds or similar instruments, including, all amounts due under the promissory notes listed as Items 2 through 7 on Schedule 2.5(a)(xiii) hereof, and (ii) accounts payable, trade payables, Taxes or other accrued expenses or Liabilities, all as determined in accordance with GAAP applied in a manner consistent with that used in the preparation of the Financial Statements; provided, however, that “Indebtedness” does not include any purchase order for inventory or prototypes, with respect to which payment is not past due as of the Closing (collectively “ Purchase Orders ”), provided further that the amount of such Purchase Orders does not exceed $822,000, and any amount in excess thereof shall be included in the calculation of Indebtedness.

Indemnification Escrow Amount ” means an amount of cash equal to $4,000,000.

Initial Consideration ” means (A) $32,500,000 less (B) the amount of any Indebtedness of the Company, plus (C) the amount of Cash.

Initial Per Unit Amount ” means the quotient obtained by dividing (1) the Initial Consideration by (2) the Fully Diluted Interests Number.

Intellectual Property Assets ” includes: (i) the Company’s name, all fictional business names, trading names, registered and unregistered trademarks, service marks, and applications (collectively, “ Marks ”); (ii) all patents, patent applications, and inventions and discoveries that may be patentable (collectively, “ Patents ”); (iii) all copyrights in both published works and unpublished works (collectively, “ Copyrights ”); (iv) all rights in mask works (collectively, “ Rights in Mask Works ”); and (v)

 

4


all know-how, trade secrets, confidential information, customer lists, Software, technical information, data, process technology, plans, drawings, and blue prints (collectively, “ Trade Secrets ”); owned, used, or licensed by the Company as licensee or licensor.

Key Employees ” means Dustin Leavitt, Craig Schiling, Brock Johnson, and Wes Harris.

Knowledge ” means, with respect to any fact, circumstance, event or other matter in question, the actual knowledge of Dustin Leavitt, Craig Schiling and Phillip Rosbach after reasonable inquiry.

Legal Requirements ” means any federal, state, foreign, local, municipal, international, multinational or other law, statute, treaty, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Entity and any orders, writs, injunctions, awards, judgments and decrees applicable to the respective Person or to any of its assets, properties or businesses.

Liabilities ” means, with respect to any Person, any liability or obligation of such Person, whether known or unknown, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executor, determined, determinable or otherwise and whether or not the same is required under GAAP to be accrued on the financial statements of such Person.

Managers ” has the meaning set forth in Section 1.1 of the Company’s Operating Agreement.

Material Adverse Effect ” means any event, circumstance, occurrence, change, effect or fact (each, an “ Effect ”), or group of any of the foregoing, and regardless of whether or not such Effect constitutes a breach of the representations or warranties made by such Person in this Agreement, that (a) would, or would be reasonably likely to, prevent or materially delay the consummation of the transactions contemplated by this Agreement or (b) results in, or would reasonably be expected to result in, a material adverse effect on, or a material adverse change in the business, prospects, operations, assets, Liabilities, condition (financial or otherwise) or results of operations of the Company, except to the extent that any such event, circumstance, occurrence, change, effect or fact, or group of any of the foregoing, directly results from (i) compliance with any written request of Acquiror, (ii) changes in general economic conditions (provided that such changes do not have a materially disproportionate effect on the Company as compared to the Company’s competitors), (iii) changes generally affecting the industry in which the Company operates (provided that such changes do not have a materially disproportionate effect on the Company as compared to the Company’s competitors), (iv) any acts of terrorism, military action or war (provided that such acts do not have a materially disproportionate effect on the Company as compared to the Company’s competitors), (v) changes in Legal Requirements or GAAP generally affecting the industry in which the Company operates (provided that such changes do not have a materially disproportionate effect on the Company as compared to the Company’s competitors), (vi) natural disasters or acts of God (provided that such changes do not have a materially disproportionate effect on the Company as compared to the Company’s competitors), (vii) changes primarily resulting from the announcement of the execution of this Agreement or the transactions contemplated hereunder or the expectation, pendency or consummation of such transactions, including any cessation or reduction in business with the Company by any of their customers or suppliers or the loss of any employees or officers, in each case, to the extent primarily attributable to the disclosure of the identity of the Acquiror, or (viii) the taking of any action expressly required by this Agreement and the other agreements contemplated hereby. “ Membership Units ” means the Common Units of the Company, as such terms is defined in Section 1.1 of the Company’s Operating Agreement.

 

5


Milestone Per Unit Amount ” means the quotient obtained by dividing (1) the Milestone Payments by (2) the Fully Diluted Interests Number.

Organizational Documents ” means the Articles of Organization of the Company and the Company’s Operating Agreement (each as amended through the Agreement Date).

Paying Agent ” means U.S. Bank National Association.

Percentage Interest ” has the meaning set forth in 1.1 of the Company’s Operating Agreement, as amended through the Agreement Date.

Permitted Encumbrances ” means: (A) statutory liens for current Taxes that are not yet due and payable; (B) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements; (C) deposits or pledges made in connection with, or to secure payment of, workers’ compensation, unemployment insurance or similar programs mandated by applicable Legal Requirements; and (D) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies and other like liens.

Person ” means any natural person, company, corporation, limited liability company, general partnership, limited partnership, trust, proprietorship, joint venture, other business organization or Governmental Entity.

Pre-Closing Tax Period ” means any Tax period ending on or before the Closing Date and, with respect to any Tax period that includes the Closing Date and ends thereafter (a “ Straddle Period ”), the portion of such Tax period that ends on and includes the Closing Date. With respect to Taxes for a Straddle Period, the portion of such Taxes that relates to the Pre-Closing Tax Period shall be prorated based on the number of days in such Straddle Period in the Pre-Closing Tax Period relative to the number of days in the entire Straddle Period in the case of real property, personal property and similar ad valorem Taxes, and, in the case of other Taxes, shall be determined on a closing-of-the-books basis.

Proceedings ” means any action, audit, hearing, suit, proceeding, complaint, charge, inquiry, investigation, arbitration or mediation (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted or heard by or before, or otherwise involving any Governmental Entity or any arbitrator or arbitration panel or any mediator or mediation panel.

Property ” means all real property leased or owned by the Company.

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

Series A Preferred Member ” means Squadron Capital, LLC.

Series A Preferred Unit ” has the meaning set forth in the Company’s Operating Agreement.

Software ” means any computer program, operating system, applications system, firmware or software code of any nature, whether operational, under development or inactive, including all object code, source code, data files, rules, definitions or methodology derived from the foregoing and any derivations, updates, enhancements and customization of any of the foregoing, processes, know-how, operating procedures, methods and all other Intellectual Property Assets embodied with the foregoing,

 

6


technical manuals, user manuals and other documentation thereof, whether in machine-readable form, programming language or any other language or symbols and whether stored, encoded, recorded or written on disk, tape, film, memory device, paper or other media of any nature.

Subsidiary ” means, as of the applicable point in time, each corporation, partnership, limited liability company or other entity of which a Person owns, directly or indirectly, more than 50% of the outstanding voting securities or voting equity interests or of which a Person has the power, directly or indirectly, whether through ownership of equity securities, by contract or otherwise, to direct or manage its business or affairs.

Tax ” (and, with correlative meaning, “ Taxable ”) means (A) any net income, alternative or add-on minimum tax, gross income, estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital stock, profits, license, registration, withholding, payroll, social security (or equivalent), employment, unemployment, disability, excise, severance, stamp, occupation, premium, escheat, property (real, tangible or intangible), environmental or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount, imposed by any Governmental Entity responsible for the imposition of any such tax (domestic or foreign) (each, a “ Tax Authority ”), whether disputed or not, (B) any Liability for the payment of any amounts of the type described in clause (A) of this sentence as a result of being a member of an affiliated, consolidated, combined, unitary or aggregate group for any Taxable period, and (C) any Liability for the payment of any amounts of the type described in clause (A) or (B) of this sentence as a result of being a transferee of or successor to any Person, as a result of any express or implied obligation to assume such Taxes or to indemnify any other Person, or otherwise.

Tax Return ” means any return, statement, declaration, report or form (including estimated Tax returns and reports, withholding Tax returns and reports, refund claims, and information returns and reports) filed or required to be filed with respect to Taxes, and including any schedules or attachments thereto and any amendments thereof.

Third Party Intellectual Property Asset ” means an Intellectual Property Asset owned by a third party that is either (A) licensed, offered or provided to customers of the Company as part of or in conjunction with any Company Product, or (B) otherwise used by the Company in the conduct of its business.

Total Consideration ” means (A) the Initial Consideration, plus (B) the Milestone Payments, if earned, in a maximum amount of $3,500,000;

Treasury Regulations ” means the regulations promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Code. All references herein to Sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar, substitute proposed or final Treasury Regulations.

URLLCA ” means the Utah Revised Limited Liability Company Act, as amended.

Withdrawing Member ” means a former holder of Membership Units which has provided the Company with written notice indicating such former holder’s express will to withdraw from the Company or who has withdrawn from the Company pursuant to any other provision of Section 48-3-601 et seq. of the URLLCA.

 

7


(b) Other Defined Terms . The following terms used in this Agreement shall have the meanings set forth in the corresponding Recitals, Articles, Sections or subsections of this Agreement:

 

  Acquiror    Preamble
  Acquiror Closing Certificate    Section 1.4(a)(iii)
  Alternative Arrangement    Section 8.2(e)
  Agreement    Preamble
  Agreement Date    Preamble
  Anticorruption Laws    Section 2.4(k)
  Articles of Merger    Section 1.2
  Balance Sheet    Section 2.9
  Balance Sheet Date    Section 2.9
  Baseline Period    Section 5.17
  Basket    Section 8.4(a)
  Cause    Section 5.11(a)
  CFO Certificate    Section 1.4(b)(iii)
  Closing    Section 1.3
  Closing Date    Section 1.3
  COBRA    Section 2.15(c)
  Company    Preamble
  Company Partner    Section 2.4(c)
  Company Closing Certificate    Section 1.4(b)(i)
  Company Debt    Section 2.5(a)(iv)
  Company Employee Plans    Section 2.15(a)
  Company Holders’ Agent    Section 8.6(a)
  Company Representatives    Section 5.2(a)
  Company Secretary’s Certificate    Section 1.4(b)(ii)
  Consideration Spreadsheet    Section 5.9
  Continuing Employees    Section 5.11(a)
  Copyrights    Definition of Intellectual Property Assets
  Customers    Section 2.19(b)
  Disclosure Letter    Article II
  Dispute Notice    Section 8.4(b)
  Distributors    Section 2.19(c)
  Effective Time    Section 1.5
  ERISA    Section 2.15(a)
  ERISA Affiliate    Section 2.15(a)
  Escrow Agent    Section 8.3
  Escrow Agreement    Recital F
  FCPA    Section 2.4(k)
  FDCA    Section 2.4(g)
  Financial Statements    Section 2.7(a)
  First Period    Section 1.9(a)(iii)(A)
  Fundamental Representations    Section 8.1
  Indemnification Escrow Fund    Section 8.3
  Indemnification Escrow Period    Section 8.1
  Indemnified Person(s)    Section 8.2(a)
  Information Statement    Section 5.1
  Letter of Transmittal    Section 1.10(b)(i)
  Marks    Definition of Intellectual Property Assets
  Material Contract    Section 2.5(a)

 

8


  Merger    Recital A
  Milestone Payments    Section 1.9(a)(iii)
  New Litigation Claim    Section 5.7
  Nondisclosure Agreement    Section 5.3(a)
  Officer’s Certificate    Section 8.4(a)
  Patents    Definition of Intellectual Property Assets
  Paying Agent Agreement    Recital E
  Permits    Section 2.4(a)
  Pre-Closing Period    Section 4.1
  Program    Section 2.4(j)
  Purchase Orders    Definition of Indebtedness
  Release Agreement    Section 1.4(b)(ix)
  Rights in Mask Works    Definition of Intellectual Property Assets
  Second Period    Section 1.9(a)(iii)(B)
  Schedule Update    Section 5.16
  Straddle Period    Definition of Pre-Closing Tax Period
  Sub    Preamble
  Suppliers    Section 2.19(a)
  Surviving Entity    Section 1.2
  Tax Authority    Definition of Tax
  Termination Date    Section 7.1(b)
  Third Party Claim    Section 8.7
  Trade Secrets    Definition of Intellectual Property Assets
  Transfer Taxes    Section 5.13
  Voting Agreement    Recital D
  WARN Act    Section 2.15(o)

1.2. The Merger . At the Effective Time, on the terms and subject to the conditions set forth in this Agreement, the Articles of Merger in substantially the form attached as Exhibit A (the “ Articles of Merger ”), and the applicable provisions of the URLLCA, Sub shall merge with and into the Company, the separate existence of Sub shall cease and the Company shall continue as the surviving entity and shall become a wholly-owned Subsidiary of Acquiror. The Company, as the surviving entity after the Merger, is hereinafter sometimes referred to as the “ Surviving Entity .”

1.3. Closing . Unless this Agreement is earlier terminated in accordance with Section 7.1 , the closing of the transactions contemplated hereby (the “ Closing ”) shall take place no later than the third (3 rd ) Business Day after the satisfaction or waiver of all of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing), or on such other date as the parties hereto agree in writing. The Closing shall take place at the offices of Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, 165 Madison, Suite 2000, Memphis, Tennessee 38103, or at such other location as the parties hereto agree. The date on which the Closing occurs is herein referred to as the “ Closing Date .”

1.4. Closing Deliveries .

(a) Acquiror Deliveries . Acquiror shall deliver to the Company or other party as listed below, at or prior to the Closing, each of the following:

(i) payment to the Paying Agent by wire transfer of immediately available funds an amount equal to the Initial Consideration payable pursuant to the terms of this Agreement in exchange for all the Membership Units pursuant to Section 1.9(a)(i) and Section 1.9(a)(ii) less the Indemnification Escrow Amount;

 

9


(ii) payment to the Escrow Agent by wire transfer of immediately available funds the Indemnification Escrow Amount in accordance with the provisions of the Escrow Agreement;

(iii) a certificate, dated as of the Closing Date, executed on behalf of Acquiror by a duly authorized officer of Acquiror, to the effect that each of the conditions set forth in Section 6.2(a) has been satisfied (the “ Acquiror Closing Certificate ”);

(iv) the Escrow Agreement, dated as of the Closing Date and executed by Acquiror and the Escrow Agent; and

(v) the Paying Agreement, dated as of the Closing Date and executed by Acquiror and the Paying Agent.

(b) Company Deliveries . The Company shall deliver to Acquiror, at or prior to the Closing, each of the following:

(i) a certificate, dated as of the Closing Date, executed on behalf of the Company by its Chief Executive Officer, to the effect that each of the conditions set forth in Sections 6.1(a)-(c)  and Section 6.3(a)-(b)  have been satisfied (the “ Company Closing Certificate ”);

(ii) a certificate, dated as of the Closing Date and executed on behalf of the Company by its Secretary, certifying the (A) Company’s Articles of Organization, as amended, (B) Company’s Operating Agreement, as amended, (C) Joint Company Board and Manager resolutions approving the Merger and adopting this Agreement and the Articles of Merger, and (D) the written consent or resolutions evidencing the Company Member Approval (the “ Company Secretary’s Certificate ”);

(iii) a certificate, dated as of the Closing Date, executed on behalf of the Company by its Chief Financial Officer, certifying the amount of Indebtedness, Purchase Orders and Cash as of the Closing Date (the “ CFO Certificate ”);

(iv) the Escrow Agreement, dated as of the Closing Date and executed by the Company Holders’ Agent;

(v) the Paying Agreement, dated as of the Closing Date and executed by the Company Holders’ Agent;

(vi) evidence satisfactory to Acquiror of the resignation of each advisory board member, director, manager and officer of the Company serving in such capacities immediately prior to the Closing, effective as of the Effective Time;

(vii) a certificate from the Secretary of State of the State of Utah and from an appropriate officer or governmental authority of each other State or other jurisdiction in which the Company is qualified to do business dated within five Business Days prior to the Closing Date certifying that the Company is in good standing (to the extent that the laws of such jurisdictions contemplate the issuance of a certificate or other evidence of such good standing);

 

10


(viii) the Consideration Spreadsheet completed to include all of the information specified in Section 5.9 in the form specified by Acquiror and a certificate executed by the Chief Executive Officer and President of the Company, dated as of the Closing Date, certifying on behalf of the Company that such Consideration Spreadsheet is true, correct and complete;

(ix) a release agreement, in substantially the form attached as Exhibit F (the “ Release Agreement ”), executed by each Company Holder set forth on Schedule 1.4(b)(ix) ;

(x) evidence satisfactory to Acquiror of (A) the consent of any Person whose consent may be required in connection with the Merger or any other transaction contemplated by this Agreement under the Contracts listed or described on Schedule 1.4(b)(x)-1 , and (B) the termination of each of the Contracts of the Company listed or described on Schedule 1.4(b)(x)-2 ; and

(xi) Confidentiality, Non-Competition and Non-Solicitation Agreement, dated as of the Closing Date and executed by each of the Key Employees.

1.5. Effective Time . At the Closing, after the satisfaction or waiver of each of the conditions set forth in Article VI , Acquiror, Sub and the Company shall cause the Articles of Merger to be filed with the Secretary of State of the State of Utah, in accordance with the relevant provisions of the URLLCA (the time of filing with the Secretary of State of the State of Utah of such filing or such later time as may be agreed to by Acquiror and the Company in writing (and set forth in the Articles of Merger) being referred to herein as the “ Effective Time ”).

1.6. Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Articles of Merger and the applicable provisions of the URLLCA. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and Sub shall vest in, and be the property of, the Surviving Entity, and all debts, Liabilities and duties of the Company and Sub shall attach to the Surviving Entity.

1.7. Articles of Organization and Operating Agreement.

(a) At the Effective Time, the articles of organization of the Company shall be amended and restated in its entirety to read in substantially the form attached as Exhibit H , and as so amended, shall be the articles of organization of the Surviving Entity until thereafter amended in accordance with the URLLCA, the articles of organization of the Surviving Entity and the Surviving Entity’s operating agreement in effect at that time.

(b) At the Effective Time, the operating agreement of the Company shall be amended and restated in its entirety to read in substantially the form attached as Exhibit I , and as so amended, shall be the operating agreement of the Surviving Entity until thereafter amended in accordance with the URLLCA, the articles of organization of the Surviving Entity and such operating agreement.

1.8. Managers and Officers . At the Effective Time, the manager of Sub immediately prior to the Effective Time shall be appointed as manager of the Surviving Entity immediately after the Effective Time until their respective successors are duly elected or appointed and qualified. At the Effective Time, the officers of Sub immediately prior to the Effective Time shall be appointed as the officers of the Surviving Entity immediately after the Effective Time until their respective successors are duly appointed.

 

11


1.9. Effect on Membership Units and Series A Preferred Units .

(a) Treatment of Membership Units Owned by Company Members; Treatment of Membership Units of Sub . On the terms and subject to the conditions set forth in this Agreement, by virtue of the Merger and without any action on the part of Acquiror, Sub, the Company, or any holder of the Membership Units or Series A Preferred Units, as applicable:

(i) Membership Units . At the Effective Time, each Membership Unit issued and outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive, subject to and in accordance with Section 1.10(a) , an amount of cash (without interest) equal to the product of (a) the Fully Diluted Interests Number set forth on the Consideration Spreadsheet opposite such Company Holder’s name and (b) the Initial Per Unit Amount, and the holder of such Membership Unit shall no longer be a Company Member. The amount of cash each Company Holder is entitled to receive for Membership Units held by such Company Holder shall be rounded to the nearest cent and computed after aggregating cash amounts for all Membership Units held by such Company Holder.

(ii) Series A Preferred Units . At the Effective Time, each Series A Preferred Unit issued and outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive, an amount of cash (without interest) equal to $30,001.71438 per Series A Preferred Unit, and the holder of such Series A Preferred Unit shall no longer be a Company Holder. The amount of cash the Series A Preferred Member is entitled to receive for Series A Preferred Units shall be rounded to the nearest cent and computed after aggregating cash amounts for all Series A Preferred Units held by the Series A Preferred Member.

(iii) Milestone Payments . In addition to the Initial Consideration and subject to the terms and conditions set forth in this Section 1.9(a)(iii) and the rights provided for in Section 8.2(c) , Acquiror shall make an additional cash payment in an amount not to exceed $3,500,000 (the total of said potential additional cash payment being referred to as the “ Milestone Payment ”). The Milestone Payment, to the extent achieved, shall be paid by wire transfer in immediately available funds to the Paying Agent, who shall promptly distribute such funds to the Company Members in accordance with the Consideration Spreadsheet. The amount of cash each Company Member is entitled to receive as a Milestone Payment shall be rounded to the nearest cent and computed after aggregating cash amounts for all Milestone Payments to such Company Member.

(A) Milestone 1 . In the event that Foot & Ankle Revenue for the period between January 1, 2014 and December 31, 2014 (the “ First Period ”) exceeds Baseline Revenue in the First Period by an amount equal to or greater than $12,000,000, Acquiror shall pay to the Paying Agent, within 30 Business Days of such determination and in no event later than three months following the end of the First Period, a payment in the amount of $1,500,000.

(B) Milestone 2 . In the event that Foot & Ankle Revenue for the period between January 1, 2015 and December 31, 2015 (the “ Second Period ”) exceeds Baseline Revenue in the Second Period by an amount equal to or greater than $14,000,000, Acquiror shall pay to the Paying Agent, within 30 Business Days of such determination and in no event later than three months following the end of the Second Period, a payment in the amount of $2,000,000.

(C) Catch Up Payment . In the event that (i) the Milestone Payment provided for in Section 1.9(a)(iii)(A) was neither earned nor paid and (ii) the sum of the Foot & Ankle Revenue for the First Period and Second Period exceeds the sum of the Baseline Revenue in the First Period and Second Period by an amount equal to or greater than $26,000,000, Acquiror shall pay to the Paying Agent, concurrently with the Milestone Payment provided for in Section 1.9(a)(iii)(B) , a payment in the amount of $1,500,000.

 

12


(iv) Total Consideration . Notwithstanding anything to the contrary contained in this Agreement, in no event shall the aggregate consideration paid by Acquiror pursuant to this Agreement exceed the Total Consideration.

(v) Membership Interests of Sub . Each unit of membership interest of Sub that is issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without further action on the part of Acquiror, Sub, the Company or the sole member of Sub, be converted into and become one unit of membership interest of the Surviving Entity (and the units of membership interest of the Surviving Entity into which the Sub units of membership interest are so converted shall be the only units of membership interest of the Surviving Entity that are issued and outstanding immediately after the Effective Time).

(b) Rights Not Transferable . The rights of the Company Holders as of immediately prior to the Effective Time are personal to each such Company Holder and shall not be transferable for any reason other than by operation of law, will or the laws of descent and distribution or with the prior written consent of Acquiror. Any attempted transfer of such right by any holder thereof (otherwise than as permitted by the immediately preceding sentence) shall be null and void.

1.10. Funding of Escrow; Surrender of Membership Units and Series A Preferred Units in Exchange for Payments .

(a) Funding of Escrow . At the Closing, Acquiror shall transfer directly to the Escrow Agent in immediately available funds the Indemnification Escrow Amount. The Indemnification Escrow Amount shall be withheld from the cash payable pursuant to Sections 1.9 as provided for herein. The Indemnification Escrow Amount shall constitute security solely for the indemnification obligations of the Company Members pursuant to Article VIII , and shall be held and distributed in accordance with the provisions of this Agreement and the Escrow Agreement.

(b) Exchange Procedures for Membership Units and Series A Preferred Units .

(i) Promptly following the Effective Time, the Company Holders’ Agent shall cause the Paying Agent to mail to each Company Holder as of immediately prior to the Effective Time at the address specified for such Company Holder on the Consideration Spreadsheet a letter of transmittal in substantially the form attached as Exhibit E (the “ Letter of Transmittal ”). The Letter of Transmittal shall be in such form and have such other provisions as Acquiror may reasonably specify, including that the Company Holder agrees to be bound by the provisions of this Agreement.

(ii) As soon as reasonably practicable after the date of delivery to the Paying Agent of a properly completed and duly executed Letter of Transmittal and any other documentation required thereby, the holder of record of the Membership Units or the Series A Preferred Units, as applicable, set forth opposite such holder’s name on the Consideration Spreadsheet and subject to such Letter of Transmittal shall receive, at the Company Holder’s election, either a check or wire transfer, to an account designated by such Company Holder pursuant to the Letter of Transmittal, representing the cash amount that such Company Holder has the right to receive pursuant to this Agreement.

(c) No Interest; U.S. Funds . No interest shall accumulate on any cash payable in connection with the Merger, including the Initial Consideration and the Milestone Payments (other than pursuant to the Escrow Agreement). All amounts paid by Acquiror hereunder shall be made in U.S. Dollars.

 

13


(d) Transfers of Ownership . If any cash amount payable pursuant to this Agreement is to be paid to a Person other than the Person to which the Membership Units or the Series A Preferred Units, as applicable, surrendered in exchange therefor are registered, it shall be a condition of the payment thereof that the Membership Units so surrendered shall be properly endorsed and otherwise in proper form for transfer and that the Person requesting such exchange shall have paid to Acquiror or any agent designated by it any Transfer Taxes or other Taxes required by reason of the payment of cash in any name other than that of the registered holder of the Membership Units or the Series A Preferred Units, as applicable, surrendered, or established to the satisfaction of Acquiror or any agent designated by it that such Tax has been paid or is not payable.

(e) No Liability . Notwithstanding anything to the contrary in this Section 1.10 , none of Acquiror, Sub, the Surviving Entity or any party hereto shall be liable to any Person for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar Legal Requirements.

1.11. No Further Ownership Rights in the Membership Units or Series A Preferred Units . All cash paid or payable following the surrender for exchange of all Membership Units or the Series A Preferred Units, as applicable, in accordance with the terms hereof shall be so paid or payable in full satisfaction of all rights pertaining to all Membership Units or the Series A Preferred Units, as applicable, including any rights to declared but unpaid dividends or distributions, and there shall be no further registration of transfers on the records of the Surviving Entity of Membership Units or the Series A Preferred Units, as applicable, which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, any Membership Units or the Series A Preferred Units, as applicable, are presented to the Surviving Entity for any reason, such Membership Units shall be canceled and exchanged as provided in this Article I .

1.12. Taking of Necessary Action; Further Action . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Entity with full right, title and interest in, to and under, and/or possession of, all assets, property, rights, privileges, powers and franchises of the Company, the officers and directors of the Surviving Entity are fully authorized in the name and on behalf of the Company or otherwise, to take all lawful action necessary or desirable to accomplish such purpose or acts, so long as such action is not inconsistent with this Agreement.

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Subject to the disclosures set forth in the disclosure letter of the Company delivered to Acquiror concurrently with the parties’ execution of this Agreement (the “ Disclosure Letter ”), the Company represents and warrants to Acquiror as follows:

2.1. Organization, Standing and Power; Books and Records . The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Utah, and has the requisite limited liability company power and authority, and possesses all permits necessary to enable it to occupy, own, lease or otherwise hold its properties and to conduct its business as now being conducted. Schedule 2.1 to the Disclosure Letter sets forth each jurisdiction in which the Company is duly licensed or qualified to do business as a foreign limited liability company and the Company is duly licensed or qualified to do business and is in good standing (to the extent such concept or a comparable status is recognized) in each jurisdiction in which the failure to be so qualified or in good standing could reasonably be expected to have a Material Adverse Effect. The Company has provided or made available to Acquiror or its counsel true, correct and complete copies of (a) all documents identified

 

14


on the Disclosure Letter, (b) the Organizational Documents, (c) all Company Approvals and (d) the minute books and equity ownership records of the Company. The minute books of the Company previously furnished or made available to Acquiror correctly and completely reflect all Company actions taken at all meetings of, or by written consents of, directors, managers and members of the Company.

2.2. Subsidiaries . The Company does not have any Subsidiaries. The Company has never been the Subsidiary of another Person. The Company is not a successor, whether by merger, consolidation or otherwise, to any other Person.

2.3. Authority; Non-Contravention; Governmental Consents .

(a) Authority . The Company has all requisite power and authority to enter into and to perform its obligations under this Agreement and, subject to, in the case of the consummation of the Merger, adoption of this Agreement by the Company Member Approval, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby has been duly authorized by all necessary action on the part of the Company and no other Proceedings on the part of the Company are necessary to authorize the execution and delivery of this Agreement or to consummate the Merger and the other transactions contemplated hereby, subject only, in the case of consummation of the Merger, to the receipt of the Company Member Approval. The Company Member Approval is the only vote or consent of the holders of any equity or other interest in the Company necessary to approve and adopt this Agreement, approve the Merger and consummate the Merger and the other transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and, assuming due execution and delivery by Acquiror and Sub, constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar Legal Requirements relating to or affecting the rights or remedies of creditors, or (ii) general principles of equity, whether considered in a Proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief).

(b) Non-Contravention . The execution and delivery of this Agreement by the Company, the execution and delivery of each of the other agreements contemplated hereby to which the Company is or will be a party, the consummation of the transactions contemplated hereby and thereby, and the performance by the Company of its obligations hereunder and thereunder, does not and will not: (i) contravene or conflict with, or result in any violation or breach of, the Organizational Documents; (ii) conflict with or violate any Legal Requirement applicable to the Company, or any of its respective properties or assets; (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or alter the rights or obligations of any third Person under, or give to others any rights of termination, amendment, acceleration or cancellation, or require any Approval under, any Contract to which the Company is a party or otherwise bound as of the date hereof; or (iv) result in the creation of an Encumbrance (other than a Permitted Encumbrance) on any of the properties or assets of the Company, except, in the case of each of clauses (ii), (iii) and (iv), for any conflicts, violations, breaches, defaults, alterations, terminations, amendments, accelerations, cancellations or Encumbrances, or where the failure to obtain any Approval, in each case, would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(c) Governmental Consents . No approval of any Governmental Entity is required to be obtained or made by the Company in connection with the execution, delivery and performance by the Company of this Agreement or the consummation by the Company of the Merger and other transactions contemplated hereby, except for the filing of the Articles of Merger with the Secretary of State of the State of Utah.

 

15


(d) Board and Manager Approval . The Company Board and Managers, by joint resolutions duly adopted by vote at a meeting of all directors of the Company and the Managers of the Company duly called and held on or about the date hereof, not subsequently rescinded or modified in any way, has (i) determined that this Agreement and the transactions contemplated hereby, are in the best interests of the Company, the Company Members and the Series A Preferred Member, (ii) approved this Agreement and the transactions contemplated by this Agreement, (iii) directed that this Agreement be submitted for Company Member Approval, and (iv) resolved to recommend that the Company Members and Series A Preferred Member approve of this Agreement and directed that such matter be submitted for consideration of the Company Members and the Series A Preferred Member.

(e) Takeover Statutes; Dissenter Rights . No “fair price,” “moratorium,” “control share acquisition,” “business combination” or other similar anti-takeover statute or regulation enacted under any federal, state, or local laws applicable to the Company is applicable to this Agreement, the Merger or any of the other transactions contemplated by this Agreement. No Company Members have received, or will receive, “dissenter” or “appraisal” rights under any federal, state, local or foreign laws applicable to the Company or as a result of this Agreement, the Merger or any of the other transactions contemplated by this Agreement.

2.4. Compliance with Laws and Permits .

(a) The Company has been since July 28, 2003 and is in material compliance with all Legal Requirements applicable to the Company or by which the Company or any of its respective businesses or properties are bound and with the permits, licenses, authorizations, consents, approvals and franchises from Governmental Entities required to conduct their businesses as currently conducted (“ Permits ”).

(b) The Company has no Knowledge of any actual or threatened claim or Proceeding or investigation by any Governmental Entity that has jurisdiction over the operations of the Company. The Company does not have any Knowledge that the FDA or any other Governmental Entity is considering such action.

(c) All Approvals required to be filed with, maintained for or furnished to the FDA or any other Governmental Entity by the Company, and, to the Knowledge of the Company, any Person that manufactures, develops, packages, processes, labels, markets, tests or distributes Company Products pursuant to a development, distribution, commercialization, manufacturing, supply, testing or other arrangement with the Company (each, a “ Company Partner ”) have been so filed, maintained or furnished by the Company, and, to the Knowledge of the Company, the Company Partners, as applicable, except where the failure to file, maintain or furnish such Approvals would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. All such Approvals were complete, not misleading and accurate in all material respects on the date filed or furnished and remain complete and accurate in all material respects. Neither the Company, nor any employee of the Company, nor to the Knowledge of the Company, any Person retained by the Company, has made on behalf of the Company any material false statements or material omissions in any application or other submission relating to the Company Products to the FDA or any other Governmental Entity.

(d) Neither the Company nor to the Knowledge of the Company, any Company Partner, has, since July 28, 2003, received any FDA Form 483, notice of adverse finding, warning letters, untitled letters or other correspondence or notice from the FDA or other Governmental Entity (i) alleging or asserting noncompliance with any applicable Legal Requirements or Approvals, and the Company has no Knowledge that the FDA or any other Governmental Entity is considering such action, or (ii) contesting the investigational device exemption, premarket clearance or approval of, the uses of or the labeling or promotion of any Company Products.

 

16


(e) No Permit issued to the Company, or, to the Knowledge of the Company, any Company Partner, by the FDA or any other Governmental Entity has, since July 28, 2003, been limited, suspended, materially modified or revoked and the Company has no Knowledge that the FDA or any other Governmental Entity is considering such action.

(f) All preclinical animal testing and clinical trials, tests and studies being funded or conducted by, at the request of or on behalf of the Company, or a Company Partner are, to the Knowledge of the Company, being conducted with reasonable care and in compliance with experimental protocols, procedures and controls, accepted professional scientific standards and applicable Legal Requirements, and have been conducted using clinical practices sufficient to allow the resulting data to be included in the Company’s regulatory filings. The Company has no Knowledge of any studies, tests or trials, the results of which the Company believes reasonably call into question the study, test or trial results, the efficacy or safety of the Company Products or the Company’s filings with any Governmental Entity. The Company has not received any written notices, correspondence or other communication from the FDA or any other Governmental Entity since July 28, 2003 requiring the termination, suspension or modification of any clinical trials conducted by, or on behalf of, the Company, or in which the Company has participated, and the Company has no Knowledge that the FDA or any other Governmental Entity is considering such action.

(g) Each product or product candidate subject to the Federal Food, Drug and Cosmetic Act (including the rules and regulations of the FDA promulgated thereunder, the “ FDCA ”) or comparable Legal Requirements in any non-U.S. jurisdiction that is being or has been since July 28, 2003, manufactured, tested, distributed, promoted or marketed by or on behalf of the Company is being or has been since July 28, 2003, developed, manufactured, tested, distributed, promoted and marketed in compliance with all applicable requirements under the FDCA and comparable Legal Requirements in any non-U.S. jurisdiction, including those relating to investigational use, premarket clearance or approval, registration and listing, good manufacturing practices, good clinical practices, good laboratory practices, labeling, advertising, data protection and data transfer, record keeping and filing of required reports. The Company maintains accurate and complete documentation showing that components supplied to and accepted by the Company are manufactured in accordance with the Company’s specifications therefor. The processes used to produce the Company Products are described in documents maintained by the Company in a complete and accurate manner, and such documents have been made available to Acquiror. To the Knowledge of the Company, such processes are adequate to ensure that commercial quantities of the Company Products currently conform to the specifications established therefor and will be: (i) of merchantable quality, (ii) salable in the ordinary course of business at prevailing market prices, (iii) materially free from defects in design, material and workmanship, (iv) suitable for their intended purposes and efficacy levels, and (v) not adulterated or misbranded under the FDCA.

(h) The Company has not either voluntarily or involuntarily initiated, conducted or issued, or caused to be initiated, conducted or issued, any recall, field notifications, field corrections, market withdrawal or replacement, safety alert, warning, “dear doctor” letter, investigator notice, safety alert or other notice or action relating to an alleged lack of safety, efficacy or regulatory compliance of any product. The Company has no Knowledge of any facts which are reasonably likely to cause: (i) the recall, market withdrawal or replacement of any product sold or intended to be sold by the Company; (ii) a change in the marketing classification or a material change in the labeling of any such products; or (iii) a termination or suspension of the marketing of such products.

(i) The Company has not received any written notice that the FDA or any other Governmental Entity has commenced, or threatened to initiate, any action to (i) withdraw its

 

17


investigational device exemption, premarket clearance or premarket approval or request the recall of any Company Product, (ii) enjoin manufacture or distribution of any Company Product, or restrict the promotion of any Company Product in the manner currently conducted by the Company, (iii) enjoin the manufacture or distribution of any Company Product produced at any Facility where any Company Product is manufactured, tested, processed, packaged or held for sale, or (iv) investigate the Company or Company products or its practices related thereto.

(j) The Company is and at all times since July 28, 2003 has been in compliance with federal or state criminal or civil Legal Requirements (including the federal Anti-Kickback Statute (42 U.S.C. §1320a-7b), Stark Law (42 U.S.C. §1395nn), Federal False Claims Act (31 U.S.C. §3729 et. seq.), Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. §1320d et seq., 42 U.S.C. §300jj et seq.; §17901 et seq., and any comparable state or local Legal Requirements), and the regulations promulgated pursuant to such Legal Requirements, or which are cause for civil or criminal penalties or mandatory or permissive exclusion from Medicare (Title XVIII of the Social Security Act), Medicaid (Title XIX of the Social Security Act) or any other state or federal health care program (each, a “ Program ”). There is no claim or civil, criminal, administrative or other claim or Proceeding, pending or, to the Knowledge of the Company, threatened, in each case against the Company that would reasonably be expected to result in its exclusion from participation in any Program or other third-party payment programs in which the Company participates. With respect to interactions with healthcare professionals, the Company has a corporate compliance program, which it follows, both in the United States and, as applicable, in foreign countries, which complies with applicable Legal Requirements and the Company believes is the substantial equivalent of the AdvaMed Code of Ethics on Interactions with Health Care Professionals and/or MEDEC’s Code on Interactions with Healthcare Professionals and international equivalents in the respective countries to which those codes apply.

(k) The Company is and at all times since July 28, 2003 has been in compliance with the Foreign Corrupt Practices Act of 1977, as amended (the “ FCPA ”), and other applicable antibribery, fraud, kickback, and other anticorruption laws, rules, and regulations of any other country (together with the FCPA, the “ Anticorruption Laws ”). To the Knowledge of the Company, neither the Company, nor any director (or Person in a similar position), officer, agent, employee or Member of the Company has made, directly or indirectly, any payment or promise to pay, or gift or promise to give or authorized such a promise or gift, of any money or anything of value, directly or indirectly, to: (i) any foreign official (as such term is defined in the FCPA) for the purpose of influencing any official act or decision of such official or inducing him or her to use his or her influence to affect any act or decision of a Governmental Entity; or (ii) any foreign political party or official thereof or candidate for foreign political office for the purpose of influencing any official act or decision of such party, official or candidate or inducing such party, official or candidate to use his, her or its influence to affect any act or decision of a foreign Governmental Entity, in the case of both (i) and (ii) above in order to assist the Company to obtain or retain business for, or direct business to the Company and under circumstances which would subject the Company to any liability under the FCPA or any of the Anticorruption Laws. The prohibition on indirect payments or commitments includes any situation where the Person making the payment knows, believes, or is aware of the possibility that the Person receiving the payment will pass the payment through, in whole or in part, directly or indirectly, to a foreign official in the circumstances set forth above.

(l) The Company further represents and warrants that: (i) it has not been found by a Governmental Entity or court to have violated the Anticorruption Laws and is not under investigation for any potential violation of the Anticorruption Laws; (ii) it has not violated, and has no Knowledge of any potential violations of, any of the Anticorruption Laws; (iii) it has not committed any act that would constitute a violation of the Anticorruption Laws; (iv) to its Knowledge, no consultant, agent, intermediary, or other Person retained by the Company has violated, or caused it to violate, the requirements of the Anticorruption Laws; (v) none of their officers, directors or, to its Knowledge, their

 

18


members, beneficial owners, employees, or agents is a foreign official, and if the Company has Knowledge that any such person becomes a foreign official, then the Company agrees to notify Parent promptly in writing; and (vi) to its Knowledge, neither the Company nor any officer, director, member, beneficial owners, employee, or agent has received any notice or other communication, in writing or otherwise, from a Governmental Entity regarding any actual, alleged, or potential violation of, or failure to comply with, the Anticorruption Laws.

(m) The Company is not or has never been a “covered entity” or a “business associate” as defined in the Health Insurance Portability and Accountability Act of 1996 or the regulations promulgated pursuant thereto.

2.5. Material Contracts .

(a) Except as set forth on Schedules 2.5(a)(i) through 2.5(a)(xxiv) to the Disclosure Letter and except for this Agreement, the Company is not a party to or bound by any of the following continuing Contracts as of the Agreement Date (each a “ Material Contract ”):

(i) any agreement of indemnification, warranty or guaranty or any Contract containing any support, maintenance or service obligation on the part of the Company;

(ii) any consulting, royalty, distributor, original equipment manufacturer, reseller, value added reseller, sales, advertising, joint marketing, agency or manufacturer’s representative Contract;

(iii) any Contract for the purchase, sale or license of materials, supplies, equipment, services, Software, Intellectual Property Assets or other assets involving in the case of any such individual Contract more than $5,000 by or to the Company over the remaining life of such Contract;

(iv) any Contract relating to any indebtedness of the Company for money borrowed, extensions of credit, purchase money indebtedness, payment of a deferred purchase price for property, capital leases, guarantees of third party indebtedness or any other form of indebtedness (“ Company Debt ”);

(v) any Contract that purports to limit the freedom of the Company to engage or participate, or compete with any other Person, in any line of business, market or geographic area, to hire or solicit for hire any Person in any manner, to make use of or enforce any Company Intellectual Property Assets, or otherwise purports to limit the right of the Company to sell, distribute or manufacture any Company Products or to purchase or otherwise obtain any Software, components, parts, subassemblies or services;

(vi) any Contract granting most favored nation pricing or similar provisions, or that obligates the Company to conduct business on an exclusive or preferential basis with any Person or upon the consummation of the Merger, will obligate Acquiror, or any of its respective Subsidiaries, to conduct business on an exclusive or preferential basis with any Person;

(vii) any Contract pursuant to which the Company is a lessor or lessee of any real property or any machinery, equipment, motor vehicles, office furniture, fixtures or other tangible personal property involving in excess of $15,000 per annum;

 

19


(viii) any license, sublicense or other Contract as to which the Company is a party and pursuant to which any Person is authorized to use any Company Intellectual Property Assets or Company Product, including any Contract pursuant to which the Company covenants not to sue any Person with respect to, or otherwise covenants not to enforce, any Company Intellectual Property Assets;

(ix) any license, sublicense or other Contract to which the Company is a party and pursuant to which the Company acquired or is authorized to use any Third Party Intellectual Property Assets, excluding Contracts for generally commercially available “off-the-shelf”, “click-wrapped” or “shrink-wrapped” Software or services that are not redistributed by the Company or incorporated into any Company Product and that involve payments or expenditures by the Company of $5,000 or less over the life of the applicable Contract;

(x) any Contract pursuant to which the Company has agreed to transfer ownership of any Company Intellectual Property Assets or has agreed to jointly develop any intellectual property that will not be owned solely by the Company;

(xi) any Contract providing for the development of any Software, content, technology or Intellectual Property Assets, independently or jointly, by or for the Company;

(xii)(A) any joint venture Contract, (B) any Contract that involves a sharing of revenues, profits, Taxes, cash flows, expenses or losses with other Persons, (C) any Contract that involves the payment of royalties to any Person, or (D) any material development or outsourcing arrangements (including material Contracts to assemble, manufacture and package any Company Product);

(xiii) any Contract for the employment or engagement of any director, officer, employee, consultant or independent contractor of the Company or any other type of Contract with any director, officer, employee, consultant or independent contractor of the Company that (i) is not immediately terminable by the Company without cost or Liability (other than the obligation to provide access to continuation coverage under COBRA or similar state Legal Requirement), (ii) provides for the payment of cash or other compensation or benefits upon the consummation of the transactions contemplated by this Agreement, or (iii) provides for compensation in excess of $75,000 per annum;

(xiv) any collective bargaining agreement or other Contract with any labor union or labor organization, or severance agreement, program, policy or arrangement;

(xv) any Contract or plan (including any profits interest, option, merger and/or equity incentive bonus plan) relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any Membership Units or any other securities of the Company (whether debt or equity) or any options, warrants, convertible notes or other rights to purchase or otherwise acquire any Membership Units, other securities or options, warrants or other rights therefor;

(xvi) any Contract relating to the acquisition or disposition of any business or entity (whether by merger, sale of membership interests, sale of assets or otherwise) other than the non-binding letter, dated November 6, 2013, with Acquiror;

(xvii) any Contract with any Governmental Entity or healthcare professional;

 

20


(xviii) any confidentiality, secrecy or non-disclosure Contract other than any such Contract entered into in the ordinary course of business consistent with past practice which are substantially on the Company’s standard forms and that have been provided or made available to the Acquiror by the Company;

(xix) any settlement or waiver agreement;

(xx) any Contract that contains any provision that requires the purchase of all of the Company’s requirements for a given product or services from a Person;

(xxi) any Contract relating to capital expenditures by the Company in excess of $100,000;

(xxii) any Contract with any related party or affiliate of the Company;

(xxiii) any other Contract under which the Company is obligated to make payment or incur costs in excess of $50,000; and

(xxiv) any other oral or written Contract or obligation not listed in clauses (i)  through (xxiii)  above not made in the ordinary course of business consistent with past practice or otherwise material to the Company.

(b) The Company has performed in all material respects the obligations required to be performed by it and is entitled to all benefits under, and is not alleged to be in default in respect of, any Material Contract. There exists no default or event of default or event, occurrence, condition or act, with respect to the Company, or to the Knowledge of the Company, any other contracting party, which, with the giving of notice, the lapse of time or the consummation of the Merger and the transactions contemplated thereby, would reasonably be expected to (i) become a default or event of default under any Material Contract, or (ii) give any third party (A) the right to declare a default or exercise any remedy under any Material Contract, (B) the right to a rebate, chargeback, refund, credit, penalty or change in delivery schedule under any Material Contract, (C) the right to accelerate the maturity or performance of any obligation of the Company under any Material Contract, or (D) the right to cancel, terminate or modify any Material Contract. The Company has not received any written notice or other communication regarding any actual or possible violation or breach of, default under, or intention to cancel or modify any Material Contract.

(c) Each of the Material Contracts is in full force and effect and constitutes a legal, valid and binding agreement of the Company and the Company has no Knowledge that any Material Contract is not a legal, valid and binding agreement of any other party thereto, subject only to the effect, if any, of (i) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar Legal Requirements relating to or affecting the rights or remedies of creditors, or (ii) general principles of equity, whether considered in a Proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief).

(d) True and complete copies of each Material Contract, together with all amendments and supplements thereto and all waivers of any terms thereof, have been provided or made available to Acquiror prior to the Agreement Date.

2.6. Capital Structure .

(a) The authorized membership units, including all Common Units, Series A

 

21


Preferred Units and any other class of units created pursuant to the Company’s Operating Agreement, consist of 10,000,000 membership units. As of the Agreement Date, a total of 2,86,196 Membership Units are issued and outstanding and a total of 116.66 Series A Preferred Units are issued and outstanding as of the Agreement Date, and such Membership Units and Series A Preferred Units constitute one hundred percent (100%) of the issued and outstanding membership interests in the Company. There are no disassociated or withdrawn Company Members.

(b) Schedule 2.6(a) to the Disclosure Letter accurately sets forth, as of the Agreement Date, the name and domicile address of each Person that is the registered owner as reflected in the records of the Company of any Membership Units, Series A Preferred Units, and the number and type of such Membership Units and Series A Preferred Units so owned by such Person. The number of such Membership Units and Series A Preferred Units set forth as being so owned by such Person constitutes the entire interest of such Person in the issued and outstanding securities of the Company. All issued and outstanding Membership Units and Series A Preferred Units are duly authorized and validly issued and are to the Company’s Knowledge, free of any Encumbrances, preemptive rights, rights of first refusal or “put” or “call” rights created by statute, the Organizational Documents or any Contract to which the Company is a party or by which the Company is bound, except as otherwise provided in the Organizational Documents. All issued and outstanding Membership Units and Series A Preferred Units, as of the Agreement Date, are held by the Persons set forth on Schedule 2.6(a) to the Disclosure Letter. There is no Liability for dividends or distributions accrued and unpaid by the Company. The Company is not under any obligation to register under the Securities Act any Membership Units, Series A Preferred Units or any other securities of the Company, whether currently outstanding or that may subsequently be issued.

(c) The Membership Units Series and A Preferred Membership Units were issued in compliance with all applicable federal and state securities laws, all other applicable Legal Requirements and all requirements set forth in applicable Contracts.

(d) Other than as set forth on Schedule 2.6(d) to the Disclosure Letter, as of the Agreement Date, no Person has any right to acquire any Membership Units or any options, warrants or other rights to purchase Membership Units, Series A Preferred Units or other securities of the Company, from the Company or to the Knowledge of the Company, any Company Holder.

(e) Other than as set forth on Schedule 2.6(e) to the Disclosure Letter, no bonds, debentures, notes or other indebtedness of the Company having the right to vote on any matters on which Company Members may vote (or which is convertible into, or exchangeable for, securities having such right), or the value of which is in any way based upon or derived from the voting equity interests of the Company, are issued or outstanding as of the Agreement Date.

(f) There are no Contracts relating to voting, purchase or sale of any Membership Units or Series A Preferred Units between or among the Company, on the one hand, and any Company Holders, on the other hand.

(g) The Consideration Spreadsheet when delivered will be true and accurate in all respects. The number of such Membership Units and Series A Preferred Units set forth as being so owned by such Person will constitute the entire interest of such Person in the issued and outstanding Membership Units and Series A Preferred Units. As of the Closing, no other Person not disclosed in the Consideration Spreadsheet will have any, or a right to equity interests any, Membership Units, Series A Preferred Units or other securities of the Company.

 

22


2.7. Financial Statements .

(a) The Company has delivered or made available to Acquiror the (i) audited financial statements of the Company for the years-ended December 31, 2011 and December 31, 2012 and (ii) unaudited financial statements of the Company for the twelve (12) months ended December 31, 2013 (including, in each case, balance sheets, statements of operations and statements of cash flows (collectively, the “ Financial Statements ”)).

(b) The Financial Statements (i) have been prepared from the books and records of the Company and (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated and consistent with each other, and (iii) fairly present in all material respects the financial condition of the Company at the dates therein indicated and the results of operations and cash flows of the Company for the periods therein specified (subject, in the case of unaudited financial statements, to the exclusion of footnotes and other presentation items, and to normal recurring year-end audit adjustments, none of which individually or in the aggregate will be material in amount). Except as set forth on Schedule 2.7(b) of the Disclosure Letter, the Company has no off balance sheet Liability of any nature to, or any financial interest in, any third Person, the purpose or effect of which is to defer, postpone, reduce or otherwise avoid or adjust the recording of debt incurred by the Company.

(c) All Company Debt may be prepaid at the Closing without penalty under the terms of the Contracts governing such Company Debt.

2.8. Absence of Certain Changes . Since the Balance Sheet Date, and except as set forth in Schedule 2.8 to the Disclosure Letter, there has not been any Material Adverse Effect, and the Company has conducted its business only in the ordinary course consistent with past practice, and, without limiting the generality of the foregoing:

(a) other than this Agreement, the Company has not entered into any Contract or letter of intent with respect to any acquisition, sale or transfer of any asset of the Company (other than to its customers in the ordinary course of its business consistent with its past practice);

(b) there has not occurred any declaration, setting aside, or payment of a dividend or other distribution (whether in cash, Membership Units or property) with respect to any securities of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of any of its securities, or any change in any rights, preferences, privileges or restrictions of any of its outstanding securities, and the Company has not effected or approved any split, combination or reclassification of the Membership Units of the Company;

(c) the Company has not entered into, amended, terminated, breached, or waived any of its rights, benefits or claims under any Material Contract, and there has not occurred any default under any Material Contract to which the Company is a party or by which it is, or any of its assets and properties are, bound;

(d) there has not occurred any amendment or change to the Organizational Documents of the Company;

(e) there has not occurred (i) any hiring of any officers or other employees, or any consultants or independent contracts, (ii) any termination of the employment of any officer of the Company, (iii) any grant or establishment of, increase in or modification of any form of compensation or benefits (including any severance or equity or equity-linked awards) payable or to become payable by the Company to any of its directors, officers, employees, consultants or other service providers (other than increases in the base salaries of employees who are not officers in an amount that does not exceed 5% of such base salaries), including any increase or change pursuant to any Company Employee Plan, (iv) any

 

23


advances, capital contributions to, or investments in, new loans or extension of existing loans to any Persons by the Company, (v) any entry into, adoption, termination or modification of any Company Employee Plan, or (vi) any acceleration of vesting of any equity or equity-linked awards or other similar benefits to any Person;

(f) the Company has not made any payment to, or entered into any Contract with, any director, officer, member, partner, employee or holder of any Membership Units or any Affiliate of the Company, except regular compensation and usual benefit payments made in the ordinary course of business consistent with past practice;

(g) the Company has not incurred, created or assumed any Encumbrance (other than a Permitted Encumbrance) on any of its assets or properties, any Liability for borrowed money or any Liability as guaranty or surety with respect to the obligations of any other Person;

(h) the Company has not paid, discharged, cancelled or waived any Encumbrance or Liability which was not shown on the Balance Sheet or incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date;

(i) the Company has not incurred any Liability to its directors, officers or members (other than Liabilities to pay compensation or benefits in connection with services rendered in the ordinary course of business consistent with past practice);

(j) the Company has not deferred or failed to pay or otherwise satisfy any Liability in excess of $5,000 of the Company which is presently due and payable;

(k) the Company has not given any discount, accommodation or other concession to customers, in each case, outside the ordinary course of business consistent with past practice;

(l) the Company has not made any change in the manner in which it extends discounts, credits or warranties to customers or otherwise deals with its customers;

(m) there has been no damage, destruction or loss, whether or not covered by insurance, materially affecting the assets, properties or business of the Company;

(n) the Company has not sold, disposed of, transferred or licensed to any Person any rights to any Company Intellectual Property Assets other than in the ordinary course of business consistent with past practice, has not acquired or licensed from any Person any Intellectual Property Assets other than in the ordinary course of business consistent with past practice, and has not sold, disposed of, transferred or provided a copy of or access to the source code for the Software of the Company to any Person;

(o) the Company has not issued (or made any commitments to issue) additional securities;

(p) the Company has not incurred any Liability, other than an individual Liability incurred in the ordinary course of business consistent with past practice that does not exceed $50,000;

(q) the Company has not (i) made, changed or revoked any election in respect of Taxes, (ii) adopted or changed any accounting method in respect of Taxes, (iii) filed any amended Tax Return, (iv) entered into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement, closing agreement, or settlement or compromise of any claim or assessment in respect of Taxes, (v) consented to the extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes with any Governmental Entity, or (vi) surrendered any right to claim a refund of Taxes;

 

24


(r) the Company has not failed to renew, canceled, or amended, any insurance policy;

(s) there has not been any change by the Company in accounting principles, practices or methods, which was not required by GAAP;

(t) there has not been any damage, destruction, or other casualty loss (whether or not covered by insurance) with respect to any assets of the Company;

(u) the Company has not agreed to any material changes, alterations or modifications to a premarket approval, clinical trial or other application or request pending with the FDA or any other Governmental Entity;

(v) the Company has not settled, released or forgiven any material claim or litigation (or waived any right thereto);

(w) the Company has not incurred any capital expenditures or any obligations or Liabilities in respect of capital expenditures in excess of $100,000 in the aggregate; and

(x) the Company has not taken any action reasonably likely to result in any of the foregoing.

2.9. No Undisclosed Liabilities . There are no Liabilities or obligations of the Company of any kind whatsoever, whether accrued, contingent, absolute, known or unknown, determined, determinable or otherwise, required by GAAP to be set forth in the Financial Statements, and there is no existing condition, situation or set of circumstances that would be reasonably expected to result in such a Liability or obligation, other than (a) those set forth or adequately provided for in the Balance Sheet included in the Financial Statements as of December 31, 2013 (the “ Balance Sheet ”), (b) those incurred in the conduct of the Company’s business since December 31, 2013 (the “ Balance Sheet Date ”) in the ordinary course, consistent with past practice and in amounts that are not material to the Company, and (c) as set forth on Schedule 2.7(b) of the Disclosure Letter.

2.10. Title to Property; Encumbrances .

(a) The Company has good and valid title to all of its tangible personal properties, and interests in tangible personal properties and tangible personal assets reflected on the Balance Sheet or acquired after the Balance Sheet Date (except properties and assets, or interests in properties and assets, sold or otherwise disposed of since the Balance Sheet Date in the ordinary course of business consistent with past practice), or, with respect to leased tangible properties and tangible assets, valid leasehold interests in such properties and assets which afford the Company valid leasehold possession of the properties and tangible assets that are the subject of such leases, in each case, free and clear of all Encumbrances, except (i) Permitted Encumbrances, and (ii) the rights of landlords or lessors under such leasehold interests.

(b) There are no events affecting any such property or assets pending or, to the Knowledge of the Company, threatened, which would reasonably be expected to materially detract from the value of, materially interfere with any present or intended use of or materially affect the marketability of any such property or assets.

 

25


(c) All leases of such real property and personal property are in good standing and are valid, binding and enforceable in accordance with their respective terms and there does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default.

(d) The Company owns no plants, buildings or structures and has never owned any real property, nor is the Company party to any agreement to purchase or sell any real property. The equipment owned by the Company is in good operating condition and repair and has been maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted) and are adequate and suitable for their present uses. There are no Persons occupying, or with a right to occupy any Facilities used by the Company other than the Company.

(e) The tangible property and tangible assets owned or leased by the Company, or which it otherwise has the right to use, constitute all of the tangible property and tangible assets used or held for use in connection with the business of the Company and is adequate to conduct such business as currently conducted.

2.11. Litigation; Investigations; Judgments . There are no claims or civil, criminal or administrative Proceedings pending or, to the Knowledge of the Company, threatened by or against the Company that would reasonably be expected, individually or in the aggregate, to be material to the Company. There are no ongoing material inquiries or investigations, material internal investigations pending, or to the Knowledge of the Company, threatened, in each case, by any Government Entity. There is no judgment, order or decree outstanding against the Company. There is no Contract, judgment, injunction, order or decree binding upon the Company which has or would reasonably be expected to have, whether before or after consummation of the Merger, the effect of prohibiting or impairing any current business practice of the Company, or the conduct of business by the Company as currently conducted.

2.12. Intellectual Property .

(a) Agreements . Schedule 2.12(a) of the Disclosure Letter contains a complete and accurate list and summary description, including any royalties paid or received by the Company, of all Contracts relating to the Intellectual Property Assets to which the Company is a party or by which the Company is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available Software with a value of less than $5,000 under which the Company is the licensee. There are no outstanding disputes or disagreements and, to the Knowledge of the Company, no disputes or disagreements are threatened with respect to any such agreement.

(b) Know-How Necessary for the Business . The Intellectual Property Assets are all those materially necessary for the operation of the Company’s business as they are currently operated. The Company is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all Encumbrances, and has the right to use without payment to a third party all of the Intellectual Property Assets. Except as set forth in Schedule 2.12(b) of the Disclosure Letter, all former and current employees of the Company have executed written Contracts with the Company that assign to the Company all rights to any inventions, improvements, discoveries, or information relating to the Company’s business. No employee of the Company has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than to the Company.

 

26


(c) Patents .

(i) Schedule 2.12(c)(i) of the Disclosure Letter contains a complete and accurate list and summary description of all Patents. The Company is the owner of all right, title, and interest in and to each of the Patents, free and clear of all Encumbrances.

(ii) All of the issued Patents are currently in compliance with all Legal Requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), are valid and enforceable, and are not subject to any maintenance fees or Taxes or actions falling due within ninety days after the Closing Date.

(iii) No Patent has been or is now involved in any interference, reissue, reexamination, or opposition Proceeding. To the Knowledge of the Company, there is no potentially interfering patent or patent application of any Person.

(iv) Except as set forth on Schedule 2.12(c)(iv) of the Disclosure Letter and to the Knowledge of the Company, no Patent is infringed or, to the Knowledge of the Company, has been challenged or threatened in any way. None of the Company Products manufactured and sold, nor any process or know-how used, by the Company or, to the Knowledge of the Company, any manufacturer of Company Products infringes or is alleged to infringe any patent or other proprietary right of any other Person.

(v) All products made, used, or sold under the Patents have been marked with the proper patent notice.

(d) Trademarks .

(i) Schedule 2.12(d)(i) of Disclosure Letter contains a complete and accurate list and summary description of all Marks. The Company is the owner of all right, title, and interest in and to each of the Marks, free and clear of all Encumbrances.

(ii) All Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all Legal Requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), are valid and enforceable, and are not subject to any maintenance fees or Taxes or actions falling due within ninety days after the Closing Date.

(iii) No Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Knowledge of the Company, no such action is threatened with the respect to any of the Marks.

(iv) To the Knowledge of the Company, there is no potentially interfering trademark or trademark application of any Person.

(v) To the Knowledge of the Company, no Mark is infringed or, to the Knowledge of the Company, has been challenged or threatened in any way. None of the Marks used by the Company infringes or is alleged to infringe any trade name, trademark, or service mark of any Person.

(vi) All products and materials containing a Mark bear the proper federal registration notice where permitted by Legal Requirement.

 

27


(e) Copyrights .

(i) Schedule 2.12(e)(i) of the Disclosure Letter contains a complete and accurate list and summary description of all Copyrights. The Company is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all Encumbrances.

(ii) All the Copyrights have been registered and are currently in compliance with all Legal Requirements, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the date of Closing.

(iii) To the Knowledge of the Company, no Copyright is infringed or, to the Knowledge of the Company, has been challenged or threatened in any way. None of the subject matter of any of the Copyrights infringes or is alleged to infringe any copyright of any third party or is a derivative work based on the work of a third Person.

(iv) All works encompassed by the Copyrights have been marked with the proper copyright notice.

(f) Trade Secrets .

(i) With respect to each Trade Secret, the documentation relating to such Trade Secret is materially current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual.

(ii) The Company has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets.

(iii) The Company has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Knowledge of the Company, have not been used, divulged, or appropriated either for the benefit of any Person (other than the Company) or to the detriment of the Company. No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

(g) Sufficiency of Intellectual Property Assets . The Company Intellectual Property Assets together with any Third Party Intellectual Property Asset licensed to the Company constitute all of the Intellectual Property Assets necessary to operate the Company’s business as currently conducted. The Company has all rights in and to the Intellectual Property Assets necessary to operate the Company’s business as currently conducted. All use, distribution and provision of Company Products by or through the Company is in material compliance with all licenses applicable thereto. No Company Intellectual Property Asset will terminate or cease to be a valid right of the Company by reason of the execution and delivery of this Agreement by the Company, the performance of the Company of its obligations hereunder, or the consummation by the Company of the transactions contemplated by this Agreement.

2.13. Environmental Matters . (a) All Hazardous Materials and wastes of the Company have been disposed of in accordance in all material respects with all Environmental and Safety Laws; (b) the Company has not received any written notice of any noncompliance of the Facilities or its past or present operations with Environmental and Safety Laws; (c) no claims or Proceedings are pending or, to the Knowledge of the Company, threatened relating to an actual or alleged violation of any applicable Environmental and Safety Laws by the Company; (d) there have not been in the past, and are not now, any Hazardous Materials on, under or migrating to or from any of the Facilities or any Property; (e) there have not been in the past, and are not now, any underground tanks or underground improvements at, on or under any Property, including treatment or storage tanks, sumps, or water, gas or oil wells; (f) the Company is and has been in material compliance with all applicable Environmental and Safety Laws; (g)

 

28


the Company has not entered into any agreement that may require it to guarantee, reimburse, pledge, defend, hold harmless or indemnify any other Person with respect to liabilities arising under Environmental and Safety Laws; (h) the Company has made available to Acquiror all environmental assessments and audits in the Company’s possession relating to any real property owned, operated, controlled or leased by the Company at any time; and (i) there have not been in the past, and are not now, any events, conditions, circumstances, activities, practices, incidents, actions or plans which would reasonably be expected to give rise to any Liability, or otherwise form a reasonable and valid basis for any claim or Proceeding against the Company based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any Hazardous Material.

2.14. Taxes .

(a) The Company has timely filed all Tax Returns required to be filed by it and has timely paid all Taxes that were due and payable by it (whether or not shown as due on any Tax Returns). All such Tax Returns were complete and accurate in all material respects and have been prepared in material compliance with all applicable Legal Requirements. The Company has delivered or made available to Acquiror correct and complete copies of all Tax Returns and all examination reports and statements of deficiencies assessed against or agreed to by the Company.

(b) The unpaid Taxes of the Company did not, as of the Balance Sheet Date, exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between acquired value and current accumulated depreciation and Tax income) set forth on the face of the Balance Sheet. Since the Balance Sheet Date, the Company has not incurred any Liability for Taxes outside the ordinary course of business or otherwise inconsistent with the past custom and practice of the Company.

(c) No deficiencies for Taxes with respect to the Company have been claimed, proposed or assessed by any Governmental Entity. There are no pending or, to the Knowledge of the Company, threatened audits, assessments or other actions for or relating to any Liability in respect of Taxes of the Company. There are no matters under discussion with any Governmental Entity, or to the Knowledge of the Company, with respect to Taxes that are likely to result in an additional Liability for Taxes with respect to the Company. No issues relating to Taxes of the Company were raised by the relevant Governmental Entity in any completed audit or examination that would reasonably be expected to result in a material amount of Taxes in a later Taxable period. The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, nor has any request been made in writing for any such extension or waiver. No power of attorney with respect to any Taxes has been executed or filed with any Governmental Entity. No claim has ever been made by a Governmental Entity in a jurisdiction where the Company does not file a Tax Return that the Company is or may be subject to taxation by that jurisdiction in respect of Taxes that would be covered by or the subject of such Tax Return. There are no Encumbrances for Taxes upon any property or asset of the Company (other than statutory Encumbrances for current Taxes not yet due and payable). The Company has not agreed to any extension of time for filing any Tax Return which has not been filed. The Company is not subject to any written ruling related to Taxes or any written agreement with a Governmental Entity relating to Taxes.

(d) The Company is not, and has never been, a party to or bound by any Tax sharing, Tax indemnity or Tax allocation agreement and the Company has no Liability or potential Liability to another Person under any such agreement, whether as a transferee or successor or otherwise.

 

29


(e) The Company has not participated in, and is not currently participating in, a “listed transaction” or a “reportable transaction” within the meaning of Section 6707A(c) of the Code or Treasury Regulation Section 1.6011-4(b), or any transaction requiring disclosure under a corresponding or similar provision of federal, state, local or foreign Tax law. If the Company has entered into any transaction such that, if the treatment claimed by it were to be disallowed, the transaction would constitute a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code, then the Company believes that it has either (x) substantial authority for the Tax treatment of such transaction or (y) disclosed on its Tax Return the relevant facts affecting the Tax treatment of such transaction. The Company has not participated or does not plan to participate in any Tax amnesty program.

(f) The Company is not and has never been a member of any consolidated, affiliated, unitary or aggregate group for Tax. The Company has no Liability under Treasury Regulation Section 1.1502-6 (or any corresponding or similar provision of federal, state, local or foreign Tax law), as a transferee or successor, pursuant to any contractual obligation, as a result of any express or implied obligation to assume Liability for Taxes from, or indemnify, another Person, or otherwise for any Taxes of any Person or entity other than the Company.

(g) The Company has provided or made available to Acquiror all documentation relating to any Tax holidays or incentives applicable to the Company. The Company is in compliance with the requirements for any applicable Tax holidays or incentives and none of the Tax holidays or incentives will be jeopardized by the transaction contemplated in this Agreement.

(h) None of the assets of the Company constitutes a United States real property interest (as defined in Section 897(c) of the Code).

(i) The Company is and has always been treated as a partnership for United States federal and state income tax purposes. No entity classification election pursuant to Treasury Regulations Section 301.7701-3 has ever been filed with respect to the Company. Schedule 2.14(i) of the Disclosure Letter lists all Tax Returns required to be filed for the Company for the Pre-Closing Tax Period that are required to be filed after the Closing Date other than the Tax Returns addressed in Section 5.15(b)(ii) .

(j) The Company has complied with all applicable Legal Requirements relating to the payment, reporting and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code or any corresponding or similar provision of federal, state, local or foreign Tax law), and have, within the time and in the manner prescribed by applicable Legal Requirements, withheld from amounts owed to any employee, consultant, independent contractor, unitholder or other third party and paid over to the proper Governmental Entities (or are properly holding for such timely payment) all amounts required to be so withheld and paid over under all applicable Legal Requirements.

(k) The Company is not a party to any joint venture, partnership, Contract or other arrangement that is treated as a partnership for federal, state, local or foreign Tax purposes.

(l) The Company has not engaged in a trade or business, had a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise become subject to Tax jurisdiction in a country other than the United States.

2.15. Employee Benefit Plans and Employee Matters .

(a) Schedule 2.15(a) to the Disclosure Letter lists (i) all “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as

 

30


amended (“ ERISA ”), (ii) each outstanding loan to an employee or other service provider, (iii) all option, phantom equity, equity appreciation right and other equity-linked benefits or rights, vacation or paid-time-off, sabbatical, medical, dental, vision care, death, disability, employee relocation, employee assistance, cafeteria benefit (Section 125 of the Code), dependent care (Section 129 of the Code), life or accident insurance plans, policies, agreements, programs or arrangements, (iv) all bonus, commission, pension, profit sharing, savings, severance, salary continuation, retirement, termination, post-employment, retention, transaction, change in control, deferred compensation or incentive plans, policies, agreements, programs or arrangements, (v) all other fringe or employee benefit or employee compensation plans, policies, agreements, programs or arrangements, and (vi) all employment, change in control, executive compensation or severance plans, policies, agreements, programs or arrangements, in each case, written or otherwise, which is maintained, administered or contributed to by the Company, or any trade or business (whether or not incorporated) which is treated as a single employer with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code (each, an “ ERISA Affiliate ”) and covers any current or former employee, consultant, independent contractor or director of the Company, with respect to which the Company has or may have any Liability (actual or contingent), or as to which unsatisfied obligations of the Company remain (all of the foregoing described in clauses (i) through (vi), collectively, the “ Company Employee Plans ”).

(b) With respect to each Company Employee Plan, the Company has provided or made available to Acquiror a true, correct and complete copy, as applicable, of (i) the Company Employee Plan document (and written descriptions of all material terms of any plan that is not in writing), including all amendments thereto and all related documents (including trust documents, insurance policies or Contracts), (ii) the most recent summary plan description together with each summary of material modifications, (iii) the three most recent annual reports (Form 5500 and all schedules and financial statements attached thereto), (iv) the most recent financial statements, (v) all material correspondence from the past three years to or from any Governmental Entity relating thereto, and (vi) any material employee communications relating thereto. Except as provided in Schedule 2.15(b), no Company Employee Plan is subject to ERISA reporting requirements and no Company Employee Plan is intended to be qualified under Section 401(a) of the Code.

(c) The Company has no obligation to provide, and none of the Company Employee Plans promises or provides, retiree medical or other retiree health or welfare benefits to any Person other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) or similar state Legal Requirement. There has been no “prohibited transaction” (within the meaning of Section 406 of ERISA or Section 4975 of the Code and not exempt under Section 408 of ERISA and regulatory guidance thereunder) with respect to any Company Employee Plan. Each Company Employee Plan has been administered in all material respects in accordance with its terms and in material compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code), and the Company and each ERISA Affiliate has performed all obligations required to be performed by it under, is not in default under or in violation of, and the Company has no Knowledge of any default or violation by any other party to, any of the Company Employee Plans. The Company and all ERISA Affiliates are not subject to any Liability or penalty under Sections 4976 through 4980 of the Code or Title I or title IV of ERISA with respect to any of the Company Employee Plans. All contributions required to be made by the Company or any ERISA Affiliate to any Company Employee Plan have been made on or before their due dates or, to the extent not yet due, have been adequately accrued on the Company Balance Sheet. Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Closing without advance notice to employees, former employees or other participants in accordance with its terms and applicable Legal Requirements, without the Company incurring Liability (other than ordinary administrative expenses typically incurred in a termination event). No claim or Proceeding has been brought or is pending or, to the Knowledge of the Company, threatened, against or with respect to any such Company Employee Plan or the assets, fiduciaries or administrators

 

31


thereof, including any audit, investigation or inquiry by the Internal Revenue Service, the Pension Benefit Guaranty Corporation or United States Department of Labor. With respect to each Company Employee Plan, to the Knowledge of the Company (i) no breaches of fiduciary duty or other failures to act or comply in connection with the administration or investment of the assets of such Company Employee Plan have occurred, and (ii) no Encumbrances have been imposed under the Code, ERISA or any other applicable Legal Requirement and no circumstance exists which would result in the imposition of any such Encumbrance. No excise tax would reasonably be expected to be imposed upon the Company under Chapter 43 of the Code. The Company has not made any filing in respect of any Company Employee Plan under the Employee Plans Compliance Resolution System or the Department of Labor Delinquent Filer Program and to the Knowledge of the Company no circumstance exists which would make any such filing advisable.

(d) With respect to each Company Employee Plan, the Company and each of its ERISA Affiliates are in compliance with (i) the applicable health care continuation and notice provisions of COBRA and the regulations (including proposed regulations) thereunder, (ii) the applicable requirements of the Family Medical and Leave Act of 1993 and the regulations (including proposed regulations) thereunder, (iii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996 and the regulations (including proposed regulations) thereunder, (iv) the applicable requirements of the Americans with Disabilities Act of 1990, as amended and the regulations (including proposed regulations) thereunder, (v) the Age Discrimination in Employment Act of 1967, as amended, (vi) the applicable requirements of the Women’s Health and Cancer Rights Act of 1998 and the regulations (including proposed regulations) thereunder, (vii) the applicable requirements of the Patient Protection and Affordable Care Act of 2010, as amended, and (viii) all other Legal Requirements. No Company Employee Plan is a voluntary employee benefit association under Section 501(a)(9) of the Code. The obligations of all Company Employee Plans that provide health, welfare or similar insurance are fully insured by bona fide third-party insurers. No Company Employee Plan is maintained through a human resources and benefits outsourcing entity, professional employer organization, or other similar vendor or provider.

(e) No Company Employee Plan is, and neither the Company or any current or former ERISA Affiliate maintains, sponsors, participates in, has Liability (whether contingent or actual) under, or contributes to, or has ever maintained, established, sponsored, participated in, had Liability (whether contingent or actual) under, or contributed to, (i) a pension plan (within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, (ii) a multiple employer welfare arrangement (within the meaning of Section 3(40) of ERISA, (iii) a “multiemployer plan” as such term is defined in Section 3(37) of ERISA or (iv) an “multiple employer plan” as such term is defined in Section 413(c) of the Code.

(f) No Company Employee Plan or other compensation and benefit plan that is maintained or contributed to by the Company is subject to the Legal Requirements of any jurisdiction outside of the United States.

(g) Except as set forth on Schedule 2.15(g) to the Disclosure Letter, none of the execution and delivery of this Agreement, the consummation of the Merger or any other transaction contemplated hereby, either alone or in combination with any other event, whether contingent or otherwise (including any termination of employment or service as a consequence thereof), will (i) result in any payment (including severance, bonus or otherwise) becoming due to any Person, (ii) increase or otherwise enhance any benefits payable by the Company, (iii) result in the acceleration of the time of payment or vesting of any such compensation or benefits, (iv) increase the amount of compensation due to any Person, or (v) result in the forgiveness in whole or in part of any outstanding loans made by the Company to any Person.

 

32


(h) The Company is, and has at all times been, in compliance with all applicable Legal Requirements respecting employment, discrimination in employment, terms and conditions of employment, worker classification (including the proper classification of workers as employees, independent contractors and consultants), wages, hours and occupational safety and health and employment practices, including the Immigration Reform and Control Act, and is not engaged in any unfair labor practice. The Company is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Entity relating to employees or employment practices. The Company and has made, and is current, with all employment, payroll and similar Tax filing requirements. The Company has withheld or caused to be withheld all amounts required by Legal Requirement or by agreement to be withheld from the wages, salaries, and other payments to employees and other service providers; and is not liable for any arrears of wages, compensation, Taxes, penalties or other sums for failure to comply with any of the foregoing. Except as set forth on Schedule 2.15(h) to the Disclosure Letter, the Company has paid in full to all employees, independent contractors and consultants, or adequately accrued, all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to or on behalf of such employees, independent contractors and consultants. There is no claim or investigation with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or, to the Knowledge of the Company, threatened before any Governmental Entity with respect to any Persons currently or formerly employed by the Company. The Company is not liable for any payment to any trust or other fund or to any Governmental Entity, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistently with past practice). There are no pending claims against or material Liabilities, whether contingent or absolute, of the Company under any workers compensation plan or policy or for long term disability. The Company has no obligations under COBRA with respect to any former employees or qualifying beneficiaries thereunder. There are no controversies pending or, to the Knowledge of the Company, threatened between the Company and any of their respective employees, which controversies have or would reasonably be expected to result in a claim or Proceeding before or by any Governmental Entity.

(i) The Company has no obligation to pay any amount or provide any benefit to any former employee or other former service provider, other than such obligations for which the Company has established a reserve for such amount on the Balance Sheet.

(j) The Company is not and has not ever been a party to or bound by any collective bargaining agreement or other labor union Contract, no collective bargaining agreement is being negotiated by the Company and the Company has no duty to bargain with any labor organization. There is no pending demand for recognition or any other written request or demand from a labor organization for representative status with respect to any Person employed by the Company. The Company has no Knowledge of any activities or Proceedings of any labor union or to organize its employees. There is no labor dispute, strike or work stoppage against the Company pending or, to the Knowledge of the Company, threatened, nor have any such labor disputes, strikes or work stoppages occurred during the three years prior to the Agreement Date. Neither the Company nor any of their respective representatives or employees have committed any unfair labor practice in connection with the operation of the business of the Company, and there is no unfair labor practice charge or any complaint, grievance, claim or judicial or administrative Proceeding against the Company by the National Labor Relations Board or any comparable Governmental Entity pending or, to the Knowledge of the Company, threatened by or on behalf of any employees. No employee of the Company has been dismissed in the last 12 month period.

(k) To the Knowledge of the Company, no employee of the Company is in violation of any term of any employment agreement, patent disclosure agreement, non-competition agreement, or any restrictive covenant to a former employer relating to the right of any such employee to be employed by the Company because of the nature of the business conducted by the Company or to the use of trade

 

33


secrets or proprietary information of others. No employee of the Company has notified the Company, orally or in writing, nor does the Company otherwise have Knowledge, that any such employee intends to terminate his or her employment with the Company. The employment of each of the employees of the Company is “at will” and the Company does not have any obligation to provide any particular form or period of notice prior to terminating the employment of any of its employees. As of the Agreement Date, the Company has not, and no other Person has, other than offers of employment or representations made by Acquiror or Acquiror’s representatives, (i) entered into any Contract that obligates or purports to obligate Acquiror to make an offer of employment to any present or former employee or other service provider of the Company, and/or (ii) promised or otherwise provided any assurances (contingent or otherwise) to any present or former employee or other service provider of the Company of any terms or conditions of employment with Acquiror following the Closing.

(l) Schedule 2.15(l) of the Disclosure Letter contains a true, correct and complete list of the names, positions, hire dates, current annual salary or hourly wage rate, as applicable, bonus opportunity for the prior and current fiscal year and the most recently completed fiscal year, fringe benefits, severance rights and other compensation, status as exempt/non-exempt, accrued vacation and paid-time-off, and leave status of all officers, directors, and employees of the Company. The Company, and its ERISA Affiliates do not employ any individual outside of the United States.

(m) Schedule 2.15(m) of the Disclosure Letter contains a true, correct and complete list of all of its current consultants and board members and for each the initial date of the engagement, and whether the engagement has been terminated by written notice by either party. The Company has properly classified all of its service providers as either employees or independent contractors and as exempt or non-exempt for all purposes and has made all appropriate filings in connection with services provided by, and compensation paid to, such service providers.

(n) There are no performance improvement or disciplinary actions contemplated or pending against any of the Company’s current employees.

(o) The Company is in compliance in all respects with the Worker Adjustment Retraining Notification Act of 1988, as amended (“ WARN Act ”), and any similar state or local Legal Requirement. In the three years preceding the date of this Agreement, (i) the Company has not effectuated a “plant closing” (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of its business; (ii) there has not occurred a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of the Company; and (iii) the Company has not been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar applicable Legal Requirement. The Company has not caused any of its employees to suffer an “employment loss” (as defined in the WARN Act) during the 90 day period prior to the Agreement Date.

(p) There is no agreement, plan, arrangement or other Contract covering any current or former employee or other service provider of the Company, or ERISA Affiliate to which the Company is a party or by which the Company is bound that, considered individually or considered collectively with any other such agreements, plans, arrangements or other Contracts, will, or would reasonably be expected to, as a result of the transactions contemplated hereby (whether alone or in connection with any additional or subsequent event, contingent or otherwise), give rise directly or indirectly to the payment of any amount that would be non-deductible under Section 162 of the Code (or any corresponding or similar provision of state, local or foreign Tax law) or that would be characterized as a “parachute payment” within the meaning of Section 280G of the Code (or any corresponding or similar provision of state, local or foreign Tax law).

 

34


(q) Schedule 2.15(q) to the Disclosure Letter lists all “nonqualified deferred compensation plans” (within the meaning of Section 409A of the Code) maintained or sponsored by the Company or to which the Company is a party. Each such nonqualified deferred compensation plan has complied and continues to comply in form and operation with the requirements of Section 409A of the Code and the guidance thereunder. No compensation from the Company has been or would reasonably be expected to be includable in the gross income of any Person pursuant to Section 409A of the Code as a result of the operation of Section 409A of the Code.

2.16. Interested Party Transactions . Except as set forth on Schedule 2.16 to the Disclosure Letter, none of the officers, directors, employees or members of the Company, nor any immediate family member of an officer, director, employee or member of the Company has or has previously had any direct or indirect ownership, participation, royalty or other interest in, or is an officer, director, employee, members of or consultant or contractor for any firm, partnership, entity or corporation that competes with, or does business with, or has any contractual arrangement with, the Company. Except as set forth on Schedule 2.16 to the Disclosure Letter, none of the officers, directors, employees or members of the Company, nor any immediate family member of an officer, director, employee or member of the Company (a) is or previously was a party to or otherwise interested in, any Material Contract to which the Company is or previously was a party or by which the Company or any of its assets or properties are or were bound or affected, except for normal compensation for services as an officer, director, member or employee thereof and indemnification agreements for directors, (b) has or previously has had any material claim, charge, action or cause of action against the Company, except for claims for reasonable unreimbursed travel or entertainment expenses, accrued vacation pay or accrued salary and bonus or accrued benefits under the Company Employee Plans existing on the Agreement Date or (c) owes or previously owed any money to the Company.

2.17. Insurance .

(a) The Company maintains insurance policies covering the assets, business, equipment, properties, operations, employees, directors and officers, and product warranty and liability claims, and such other forms of insurance in such amounts, with such deductibles and against such risks and losses as are reasonable for the business and assets of the Company. Schedule 2.17 to the Disclosure Letter contains a true and complete list of all Company insurance policies and bonds currently in effect. The Company has provided or made available to Acquiror true, correct and complete copies of all such policies of insurance and bonds set forth on Schedule 2.17 to the Disclosure Letter.

(b) There is no claim pending as of the Agreement Date under any of such policies or bonds. All premiums due and payable under all such policies and bonds have been timely paid and the Company is otherwise in compliance with the terms of such policies and bonds. All such policies and bonds remain in full force and effect, and the Company has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. The insurance coverage provided by the policies and bonds described in Schedule 2.17 to the Disclosure Letter will not terminate or lapse by reason of any of the consummation of the transactions contemplated by this Agreement. Such policies are sufficient for the compliance with all Legal Requirements in all material respects and all Material Contracts relating to the Company.

2.18. Data Protection . The Company has taken commercially reasonable administrative, technical and physical measures to ensure that personally identifiable information is protected against loss, damage, and unauthorized access, use, modification, or other misuse. There has been no material loss, damage, or unauthorized access, use, modification, or other misuse of any personally identifiable information maintained by or on behalf of the Company, and no Person (including any Governmental Entity) has made any claim or commenced any Proceeding with respect to loss, damage, or unauthorized access, use, modification, or other misuse of any such information, and there is no reasonable basis for any such claim or Proceeding.

 

35


2.19. Suppliers; Customers and Distributors .

(a) Suppliers . Schedule 2.19(a) of the Disclosure Letter sets forth a complete and correct list of the ten largest suppliers to the Company for the fiscal year of the Company ended December 31, 2012, as measured by dollar amounts purchased from such suppliers (the “ Suppliers ”).

(b) Customers . Schedule 2.19(b) of the Disclosure Letter sets forth a complete and correct list of the twenty largest customers (including hospitals and group purchasing organizations) to whom the Company has sold Company Products for the fiscal year of Company ended December 31, 2012, as measured by net revenues to the Company (the “ Customers ”).

(c) Distributors . Schedule 2.19(c) of the Disclosure Letter sets forth a complete and correct list of the twenty largest distributors and sales representatives through which the Company distributed Company Products during the fiscal year of the Company ended December 31, 2012, as measured by net revenues to the Company (the “ Distributors ”).

(d) As of the date hereof, the Company has not received any written notice, letter, written complaint or other written communication from any Supplier, Customer or Distributor to the effect that it (i) has changed, modified, amended or reduced, or is reasonably likely to change, modify, amend, terminate or reduce, its business relationship with the Company, or (ii) will fail to perform, or is reasonably likely to fail to perform, its obligations under any Contract with the Company.

(e) The Company has not entered into any Contract under which the Company is restricted from selling, licensing or otherwise distributing any Company Products to any class of customers, in any geographic area, during any period of time or in any segment of the market other than commercially customary territorial grants granted to distributors.

(f) There is no purchase commitment that provides that any supplier shall be the exclusive supplier of the Company. There is no purchase commitment requiring the Company to purchase the entire output of any supplier.

2.20. Bank Accounts; Powers of Attorney . Schedule 2.20 to the Disclosure Letter sets forth a true and complete list showing: (a) the name and location of each bank in which the Company has an account, credit line or safety deposit box and the names of all Persons authorized to draw thereon or, with respect to safety deposit boxes, that have access thereto; or (b) the names of all Persons, if any, holding powers of attorney from the Company and a summary statement of the terms thereof.

2.21. Finders’ Fees . Except as set forth in Schedule 2.21 to the Disclosure Letter, the Company is not obligated for the payment of any fees or expenses of any investment banker, broker, financial advisor, finder or similar party in connection with the origin, negotiation or execution of this Agreement, any of the other agreements contemplated hereby to which the Company is or will be a party, or in connection with the Merger or any other transaction contemplated by this Agreement by reason of any act taken on behalf of the Company.

 

36


ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB

Acquiror and Sub represent and warrant to the Company as follows:

3.1. Organization and Standing . Acquiror is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Sub is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Utah.

3.2. Authority and Enforceability . Each of Acquiror and Sub has all requisite corporate or limited liability company power, as applicable, and authority to enter into this Agreement, each of the other agreements contemplated hereby to which Acquiror or Sub is or will be a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement, each of the other agreements contemplated hereby to which Acquiror or Sub is or will be a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate or limited liability company action, as applicable, on the part of Acquiror and Sub. This Agreement has been duly executed and delivered by each of Acquiror and Sub and constitutes the valid and binding obligation of Acquiror and Sub enforceable against Acquiror and Sub, respectively, in accordance with its terms, and each other agreement contemplated hereby to which Acquiror or Sub is or will be a party, after being duly executed and delivered by Acquiror or Sub, as applicable, will constitute a valid and binding obligation of Acquiror or Sub, as applicable, enforceable against Acquiror or Sub in accordance with its terms, in each case subject only to the effect, if any, of (a) bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar Legal Requirements relating to or affecting the rights or remedies of creditors, or (b) general principles of equity, whether considered in a Proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief).

3.3. Non-Contravention . The execution and delivery of this Agreement by Acquiror and Sub does not, the execution and delivery of each of the other agreements contemplated hereby to which Acquiror or Sub is or will be a party does not, the consummation of the transactions contemplated hereby and thereby will not, and the performance by Acquiror and Sub of their respective obligations hereunder and thereunder does not and will not conflict with, or result in any violation of or default under any provision of the Certificate of Incorporation or Bylaws of Acquiror or Articles of Organization or Operating Agreement of Sub, in each case as amended to date, or any material Legal Requirements applicable to Acquiror or Sub or to any of their respective material properties or assets, as applicable.

3.4. Government Consent . No Approval of any Governmental Entity is required by or with respect to Acquiror or Sub in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for: (a) the filing of the Articles of Merger, as provided in Section 1.5 ; and (b) such other consents, authorizations, filings, Approvals, notices and registrations which, if not obtained or made, would not be material to Acquiror’s or Sub’s ability to consummate the Merger or to perform their respective obligations under this Agreement.

3.5. Financing . Acquiror has, or has available to it, sufficient funds to consummate the Merger and the other transactions contemplated by this Agreement.

3.6. No Prior Sub Operations . Sub was formed solely for the purpose of effecting the Merger and the other transactions contemplated by this Agreement and has not engaged in any business activities or conducted any operations other than in connection with the transactions contemplated hereby.

 

37


ARTICLE IV.

CONDUCT PRIOR TO THE CLOSING

4.1. Conduct of Business of the Company . During the period from the Agreement Date and continuing until the earlier of the termination of this Agreement or the Effective Time (the “ Pre-Closing Period ”):

(a) the Company shall conduct its business in the ordinary course in substantially the same manner as conducted prior to the Agreement Date (except to the extent expressly provided otherwise in this Agreement) or as otherwise approved by Acquiror in writing and in compliance with all applicable Legal Requirements;

(b) the Company shall (i) pay all its debt and Taxes when due, (ii) pay or perform its other obligations when due, (iii) use commercially reasonable efforts consistent with past practice and policies to collect accounts receivable when due and not extend credit, (iv) sell Company Products consistent with past practices, and (v) use commercially reasonable efforts consistent with past practice and policies to preserve intact its present business organizations, keep available the services of its present officers and key employees and preserve its relationships with customers, consultants, advisors, manufacturers, suppliers, distributors, licensors, licensees and other Persons having business relationships with the Company; and

(c) the Company shall promptly notify Acquiror of any change, occurrence or event not in the ordinary course of its business, or of any change, occurrence or event which, individually or in the aggregate, would reasonably be expected to cause any of the conditions to Closing set forth in Article VI not to be satisfied.

4.2. Restrictions on Conduct of Business of the Company . Without limiting the generality or effect of the provisions of Section 4.1 , and except as set forth on Schedule 4.2 , during the Pre-Closing Period, the Company shall not do or cause any of the following (except to the extent expressly provided otherwise in this Agreement):

(a) Organizational Documents . Cause or permit any amendments to the Organizational Documents or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, or similar transaction;

(b) Dividends; Changes in Membership Units . Declare or pay any dividends on or make any other distributions (whether in cash, stock, membership interests or property) in respect of any of the Membership Units, or split, combine or reclassify any of the Membership Units or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for the Membership Units, or repurchase or otherwise acquire, directly or indirectly, any Membership Units;

(c) Material Contracts . Enter into any Contract that would constitute a Material Contract or a Contract requiring a novation or consent in connection with the Merger, or violate, terminate, amend, or otherwise modify (including by entering into a new Contract with such party or otherwise) or waive any of the terms of any of its Material Contracts;

(d) 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 Membership Units or securities convertible into, or subscriptions, rights, warrants or options to acquire, or other Contracts of any character obligating it to issue any such Membership Units or other convertible securities.

 

38


(e) Employee Matters . (i) Hire any officers or other employees, or any consultants or independent contractors, (ii) terminate the employment, change the title, office or position, or materially reduce the responsibilities of any officer of the Company, (iii) enter into, adopt, terminate or amend any Company Employee Plan, (iv) grant or establish or, increase or modify any form of compensation or benefits (including any severance or equity or equity-linked awards) payable or to become payable by the Company to any of its directors, officers, employees, consultants or other service providers (other than increases in the base salaries of employees who are not officers in an amount that does not exceed 5% of such base salaries), including any increase or change pursuant to any Company Employee Plan, (v) extend any new loans or permit the extension of any existing loans to any Persons, or (vi) accelerate the vesting of any equity or equity-linked awards or other similar benefits to any Person;

(f) Loans and Investments . Make any loans or advances to, or any investments in or capital contributions to, any Person or form any Subsidiary, or forgive or discharge in whole or in part any outstanding loans or advances; provided , however , that the Company may make advances to employees in connection with Company-related travel expenses in the ordinary course of business consistent with past practice;

(g) Intellectual Property . Abandon, encumber, convey title (in whole or in part), exclusively license or grant any right or other licenses to Company Intellectual Property Assets;

(h) Acquisitions . Acquire any material assets or a license therefor, other than in the ordinary course of business consistent with past practice, or make any capital expenditures, or incur any obligations or liabilities in connection therewith, except pursuant to existing Contracts or that, in the aggregate, would not exceed $50,000 during any fiscal quarter;

(i) Dispositions . Sell, lease, license or otherwise dispose of or encumber (other than Permitted Encumbrances) any of its material properties or assets, other than sales and nonexclusive licenses of Company Products in the ordinary course of business consistent with past practice, or enter into any Contract with respect to the foregoing;

(j) 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;

(k) Insurance . Materially change the amount of any insurance coverage;

(l) Lawsuits; Settlements . (i) Commence a Proceeding, (ii) waive, release, grant, or transfer any right of material value other than in the ordinary course of business consistent with past practice or (iii) settle or agree to settle any pending or threatened claim or Proceeding in any manner that is materially adverse to the Company;

(m) Taxes . Make or change any election in respect of Taxes, adopt or change any accounting method in respect of Taxes, amend any Tax Return, enter into any Tax sharing or similar agreement or closing agreement, settle any claim or assessment in respect of Taxes, consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes or surrender or forego any right to claim a refund of Taxes;

(n) Accounting . Change financial and tax accounting methods or practices (including any change in depreciation or amortization policies) or revalue any of its assets (including writing down the value of inventory or writing off notes or accounts receivable otherwise than in the ordinary course of business consistent with past practice), except in each case as required by changes in GAAP as concurred with its independent accountants and after notice to Acquiror;

 

39


(o) Real Property . Enter into any agreement for the purchase, sale or lease of any real property;

(p) Other . Take or agree in writing or otherwise to take, any of the actions described in clauses (a) through (o) in this Section 4.2 .

ARTICLE V.

ADDITIONAL AGREEMENTS

5.1. Member Approval . As promptly as practicable, and in no event later than five Business Days after the date of this Agreement, the Company shall prepare and deliver an information statement (the “ Information Statement ”) to each Company Holder setting forth the material terms of the Merger, including a copy of this Agreement. The parties hereby agree to cooperate with each other in preparing the Information Statement. Without limiting the generality of the foregoing, nothing shall be contained in the Information Statement or any related materials with respect to any party unless approved by such party, which approval shall not be unreasonably withheld. The Company will cause the Information Statement to be delivered to the Company Holders as promptly as practicable, and use its commercially reasonable efforts to obtain Company Member Approval as promptly as practicable.

5.2. No Solicitation .

(a) During the Pre-Closing Period, the Company will not, nor will it authorize or permit any of its officers, directors, Affiliates, members or employees or any investment banker, attorney or other advisor or representative retained by the Company (all of the foregoing collectively being the “ Company Representatives ”) to, directly or indirectly, (i) solicit, initiate, seek, knowingly encourage, facilitate, support or induce the making, submission or announcement of any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, (ii) enter into, participate in, maintain or continue any communications (except solely to provide notice as to the existence of these provisions) or negotiations regarding, or deliver or make available to any Person any non-public information with respect to, or take any other action similar to the foregoing regarding, any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, (iii) agree to, accept, approve, endorse or recommend (or publicly propose or announce any intention or desire to agree to, accept, approve, endorse or recommend) any Acquisition Proposal, (iv) enter into any letter of intent or any other Contract contemplating or otherwise relating to any Acquisition Proposal, or (v) submit any Acquisition Proposal to the vote of any Company Member. The Company will immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any Persons conducted prior to or on the Agreement Date with respect to any Acquisition Proposal. If any Company Representatives, whether in his or her capacity as such or in any other capacity, takes any action that the Company is obligated pursuant to this Section 5.2 to cause such Company Representatives not to take, then the Company shall be deemed for all purposes of this Agreement to have breached this Section 5.2 .

(b) The Company shall promptly, and in any event within one (1) Business Day, notify Acquiror orally and in writing after receipt by the Company (or, to the Knowledge of the Company, by any of the Company Representatives), of (i) any Acquisition Proposal, (ii) any inquiry, expression of interest, proposal or offer that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal, (iii) any other written notice that any Person is considering making an Acquisition Proposal, or (iv) any request for nonpublic information relating to the Company or for access to any of the properties, books or records of the Company by any Person or Persons other than Acquiror. Such notice shall describe (x) the material terms and conditions of such Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request, and (y) the identity of the Person or Group making any such

 

40


Acquisition Proposal, inquiry, expression of interest, proposal, offer, notice or request. The Company shall keep Acquiror fully informed of the status and details of, and any modification to, any such inquiry, expression of interest, proposal or offer and any correspondence or communications related thereto and shall provide to Acquiror a true, correct and complete copy of such inquiry, expression of interest, proposal or offer and any amendments, correspondence and communications related thereto, if it is in writing, or a reasonable written summary thereof, if it is not in writing. The Company shall provide Acquiror with 48 hours prior notice (or such lesser prior notice as is provided to the members of the Company Board or the Managers, as applicable) of any meeting of the Company Board or Managers, as applicable, at which the Company Board or the Managers, as applicable, are reasonably expected to discuss any Acquisition Proposal.

5.3. Confidentiality; Public Disclosure .

(a) The parties hereto acknowledge that Acquiror and the Company previously executed that certain Mutual Nondisclosure Agreement (the “ Nondisclosure Agreement ”), which shall continue in full force and effect in accordance with its terms. The parties further acknowledge and agree that the existence and substance of this Agreement, the Disclosure Letter, the Baseline Revenue and the documents and instruments contemplated hereby and thereby, shall constitute “Confidential Information” under and within the meaning of the Nondisclosure Agreement.

(b) The Company shall not, and the Company shall cause each Company Representative not to, directly or indirectly, issue any press release or other public statement relating to the terms of this Agreement or the transactions contemplated hereby or use Acquiror’s name or refer to Acquiror directly or indirectly in connection with Acquiror’s relationship with the Company in any media interview, advertisement, news release, press release or professional or trade publication, or in any print media, whether or not in response to an inquiry, without the prior written approval of Acquiror, unless required by Legal Requirements (in which event a satisfactory opinion of counsel to that effect shall be first delivered to Acquiror prior to any such disclosure). Notwithstanding anything herein or in the Nondisclosure Agreement, Acquiror may issue such press releases or make such other public statements regarding this Agreement or the transactions contemplated hereby as Acquiror may, in its reasonable discretion, determine; provided that, Acquiror shall consult with the Company prior to issuing or causing the publication of any press release or other public statements prior to the Closing regarding this Agreement or the transactions contemplated hereby and shall give the Company reasonable opportunity to review such press release or other public statement.

5.4. Regulatory Approvals .

(a) The Company shall promptly execute and file, or join in the execution and filing of, any application, notification or other document that is necessary in order to obtain the authorization, Approval or consent of any Governmental Entity, whether federal, state, local or foreign, which may be reasonably required in connection with the consummation of the Merger and the other transactions contemplated by this Agreement. The Company shall use commercially reasonable efforts to obtain, and to cooperate with Acquiror to promptly obtain, all such authorizations, Approvals and consents and shall pay any associated filing fees payable by the Company with respect to such authorizations, Approvals and consents. The Company shall promptly inform Acquiror of any material communication between the Company and any Governmental Entity regarding any of the transactions contemplated hereby. If the Company or any Affiliate of the Company receives any formal or informal request for supplemental information or documentary material from any Governmental Entity with respect to the transactions contemplated hereby, then the Company shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request. The Company shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of Acquiror.

 

41


(b) Acquiror shall promptly execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, Approval or consent of any Governmental Entity, whether foreign, federal, state, local or municipal, which may be reasonably required in connection with the consummation of the Merger and the other transactions contemplated by this Agreement. Acquiror shall use commercially reasonable efforts to obtain all such authorizations, Approvals and consents and shall pay any associated filing fees payable by Acquiror with respect to such authorizations, Approvals and consents. Acquiror shall promptly inform the Company of any material communication between Acquiror and any Governmental Entity regarding any of the transactions contemplated hereby. If Acquiror or any Affiliate of Acquiror receives any formal or informal request for supplemental information or documentary material from any Governmental Entity with respect to the transactions contemplated hereby, then Acquiror shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request. Acquiror shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of the Company.

5.5. Reasonable Efforts . Each of the parties hereto agrees to use its commercially reasonable efforts, and to cooperate with each other party hereto, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, appropriate or desirable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated hereby, and including to execute and deliver such other instruments and do and perform such other acts and things as may be necessary or reasonably desirable to cause the closing conditions set forth in Article VI to be satisfied and for effecting completely the consummation of the Merger and the other transactions contemplated hereby.

5.6. Third Party Consents; Notices . The Company shall use commercially reasonable efforts to obtain prior to the Closing, and to deliver to Acquiror at or prior to the Closing, all consents, waivers, amendments, terminations and approvals listed or described on Schedules 1.4(b)(xv) .

5.7. Litigation . The Company will (a) notify Acquiror in writing promptly after learning of any claim or Proceeding by or before any Governmental Entity or arbitrator initiated by or against it, or to the Knowledge of the Company threatened against the Company or its Affiliates in their capacity as such (a “ New Litigation Claim ”), (b) notify Acquiror of ongoing material developments in any New Litigation Claim, and (c) consult in good faith with Acquiror regarding the conduct of the defense of any New Litigation Claim; provided , however , that any obligations under this Section 5.7 shall be limited to the extent required to preserve attorney-client privilege.

5.8. Access to Information .

(a) During the Pre-Closing Period, (i) the Company shall afford Acquiror and its accountants, counsel and other representatives, upon reasonable notice, access during business hours to (A) all of the properties, books, Contracts, employees and records of the Company, and (B) all other information concerning the business, properties and personnel of the Company as Acquiror may reasonably request, and (ii) the Company shall provide to Acquiror and its accountants, counsel and other representatives correct copies of (A) internal financial statements of the Company, (B) Tax Returns, Tax elections and all other records and workpapers relating to Taxes of the Company, and (C) records for any Taxes paid to foreign Tax Authorities by the Company.

(b) Subject to compliance with applicable Legal Requirements during the Pre-Closing Period, the Company shall confer from time to time as requested by Acquiror with one or more representatives of Acquiror to discuss any material changes or developments in the operational matters of the Company and the general status of the ongoing operations of the Company.

 

42


5.9. Consideration Spreadsheet . The Company shall prepare and deliver to Acquiror, at or prior to the Closing, a spreadsheet (the “ Consideration Spreadsheet ”), in the form attached as Exhibit G , certified on behalf of the Company by the Chief Executive Officer and President of the Company, which spreadsheet shall be dated as of the Closing Date and shall set forth all of the following information (in addition to the other required data and information specified therein), as of the Closing Date and immediately prior to the Effective Time: (a) the calculation of the Indemnification Escrow Amount, Fully Diluted Interests Number, Initial Consideration, Total Consideration, Initial Per Unit Amount, Milestone Per Unit Amount and number of outstanding Membership Units of the Company as of the most practicable date and (b) for each Company Holder: (1) name, address, taxpayer identification number and employee or former employee status of such Person as reflected in the records of the Company; (2) the number of Membership Units and Series A Preferred Units held by such Person as of immediately prior to the Closing and, if in certificated form, the respective certificate numbers where applicable; (3) the amount of cash issuable as Initial Consideration to such Person in exchange for the Membership Units and Series A Preferred Units held by such Person; (4) the amount of cash, if any, issuable as Milestone Payments to such Person in exchange for the Membership Units held by such Person (including the amount of cash required to be deducted and withheld from such Person for Taxes); (5) the Initial Consideration issuable to such Person as a percentage of the Initial Consideration; (6) the Milestone Payments issuable to such Person as a percentage of Milestone Payments; (7) the Escrow Pro Rata Share (as a percentage interest) of such Person; (8) the Escrow Pro Rata Share of such Person in the Indemnification Escrow Amount (in dollar terms); (9) any information or other documentation that Acquiror is obligated to use commercially reasonable efforts to cause the Company Holders’ Agent to deliver or cause to be delivered to the Paying Agent pursuant to the Paying Agent Agreement; and (10) such other information relevant thereto or which Acquiror may reasonably request as of the date that is three (3) Business Days prior to the Closing Date.

5.10. Expenses . For the avoidance of doubt, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense.

5.11. Employees .

(a) Acquiror agrees that each employee of the Company will remain employed with the Company following the Effective Time (each, a “ Continuing Employee ”) will be provided with (i) a base salary or hourly wage rate, as applicable, that is no less than the base salary or hourly wage rate, as applicable, provided to such Continuing Employee immediately prior to the Effective Time, and (ii) “employee welfare benefits” (within the meaning of Section 3(1) of ERISA) (excluding equity compensation or benefits) that are no less favorable, in the aggregate, than the employee welfare benefits that are provided to similarly situated (based on levels of responsibility and geographic location) employees of Acquiror. Each Continuing Employee will remain employed by the Company (or an Affiliate) through July 31, 2014, subject to termination for Cause. In the event that a Continuing Employee is terminated by the Company for any reason other than Cause prior to December 31, 2014, that Continuing Employee shall be entitled to a one-time severance payment in an amount equal to three (3) months of salary based on that Continuing Employee’s June 30, 2014 annualized base salary rate. Notwithstanding the foregoing, each Key Employees will remain employed by the Company (or an Affiliate) through December 31, 2014, subject to termination for Cause. In the event that a Key Employees is terminated by the Company for any reason other than Cause prior to December 31, 2015, that Key Employee shall be entitled to a one-time severance payment in an amount equal to twelve (12) months of salary based on that Key Employee’s January 1, 2015 annualized base salary rate. For purposes of Section 5.11(a) , “ Cause ” shall mean: (i) Continuing Employee’s material failure or refusal to follow lawful directions; (ii) Continuing Employee’s commission (or attempted commission) of any act of fraud or dishonesty; (iii) any conviction of, or plea of guilty or nolo contendere to, Continuing Employee with respect to a felony (other than a minor traffic violation); or (iv) Continuing Employee’s material violation of the Acquiror’s compliance policies.

 

43


(b) As of the Effective Time, Acquiror shall, or shall cause the Company to, credit Continuing Employees with the amount of accrued, unused vacation time that such Continuing Employees had accrued under any applicable Company Employee Plan as of the Effective Time, subject to any limitations set forth in Acquiror’s applicable vacation policy.

(c) Nothing in this Agreement is intended to or shall be construed so as to (i) be treated as an amendment to any particular Company Employee Plan, (ii) prevent Acquiror or any of its Affiliates from modifying or terminating any of its benefit plans or other compensatory or benefits arrangements in accordance with their terms or obligate Acquiror or any of its Affiliates to adopt or maintain any benefit plan or other compensatory or benefits arrangement at any time, (iii) except as expressly set forth above, prevent Acquiror, after the Effective Time, from terminating, reassigning, promoting or demoting any Continuing Employee or other service provider, or changing the title, powers, duties, responsibilities, functions, locations, salaries, other compensation or terms or conditions of employment or service of any such Continuing Employees or other service providers, or (iv) create any third-party beneficiary rights in any current or former employee or other service provider of the Company.

5.12. Certain Closing Certificates and Documents . The Company shall prepare and deliver to Acquiror a draft of each of the CFO Certificate and the Consideration Spreadsheet no later than three (3) Business Days prior to the Closing Date. In addition, the Company shall prepare and deliver to Acquiror at or prior to the Closing the final CFO Certificate and the Consideration Spreadsheet. Without limiting the generality or effect of the foregoing, the Company shall provide to Acquiror, promptly after Acquiror’s reasoably request, copies of the documents or instruments evidencing the amounts set forth on any such draft or final certificate or schedule as well as any interim drafts of such certificates or schedules.

5.13. Transfer Taxes . All transfer, documentary, stamp, value-added and other such Taxes and fees (including all applicable real estate transfer Taxes) incurred in connection with this Agreement and the transactions contemplated hereby (collectively, “ Transfer Taxes ”) shall be paid fifty percent (50%) by the Company Members and fifty percent (50%) by Acquiror when due, and Acquiror and such Company Members will each be obligated to pay half of the expenses necessary to file all necessary Tax Returns and other documentation with respect to all such Transfer Taxes, and, if required by applicable Legal Requirements, Acquiror shall, and shall cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.

5.14. Member Information . The Company shall notify Acquiror in writing promptly upon obtaining Knowledge of any changes, arising after the Agreement Date, in the name and domicile address of any Company Member and the number Membership Units so owned by such Company Member.

5.15. Tax Matters .

(a) Tax Treatment of the Purchase of Membership Units . Acquiror and Company acknowledge and agree that, for U.S. federal and applicable state income Tax purposes, the purchase of the Membership Units by Acquiror pursuant to the Merger shall be treated consistently with Situation 2 of Revenue Ruling 99-6 and shall file all Tax Returns accordingly.

 

44


(b) Tax Returns .

(i) The Company shall use commercially reasonable efforts to prepare and timely file, or shall cause to be prepared and timely filed, all Tax Returns in respect of the Company that are required to be filed on or before the Closing Date, and the Company shall pay, or cause to be paid, all Taxes of the Company due on or before the Closing Date. Such Tax Returns shall be prepared by treating items on such Tax Returns in a manner consistent with the past practices of the Company with respect to such items, except as required by applicable Legal Requirement. At least twenty (20) calendar days prior to filing any such Tax Return, to the extent such Tax Return is an income or other material Tax Return, the Company shall submit a copy of such Tax Return to Acquiror for Acquiror’s review, comment and approval, which approval shall not be unreasonably withheld.

(ii) Acquiror and Company acknowledge and agree that for U.S. federal income Tax purposes, the Company shall be considered terminated under Section 708(b)(1)(A) of the Code as a result of the sale of the Membership Units to Acquiror and the Company’s Taxable year shall end as of the Closing Date. The Acquiror shall timely prepare, or cause to be timely prepared, all income Tax Returns required to be filed by the Company for any Tax period ending prior to or on the Closing Date. Each such Tax Return shall be prepared in accordance with the past practices of the Company, as applicable, with respect to such items, unless otherwise required by applicable Legal Requirement, and a copy thereof shall be provided to Company Holders’ Agent at least twenty (20) calendar days prior to the due date for filing for Company Holders’ Agent’ review.

(c) Certain Post-Closing Actions . Except as may be required by applicable Legal Requirement, Acquiror shall not, and shall not cause or permit the Company to, (i) amend any Tax Returns filed with respect to a Pre-Closing Tax Period or (ii) make any Tax election that has retroactive effect to a Pre-Closing Tax Period, in each such case without the prior written consent of the Company Holders’ Agent (not to be unreasonably withheld).

(d) Tax Cooperation . Acquiror and the Company Holders’ Agent agree to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information and assistance relating to Taxes, including access to books and records, as is reasonably necessary for the filing of all Tax Returns, the making of any election relating to Taxes, the preparation for any audit by any taxing authority and the prosecution or defense of any claim or Proceeding relating to any Tax.

5.16. Updates to the Disclosure Letter .

From the Agreement Date until the Closing Date, the Company may disclose to Acquiror in writing any variances from the representations and warranties contained in Article II as of all times first arising after the date hereof in the form of updates and/or modifications to the Disclosure Letter hereto (any such update, a “ Schedule Update ”); provided that the Company shall be required to disclose to Acquiror in writing any such variances which would reasonably be expected to have a Material Adverse Effect.

5.17. Baseline Revenue .

(a) Amount of Baseline Revenue; Changes to Baseline Revenue . On or before the Closing, Acquiror shall deliver to the Company Holders’ Agent a certificate, signed by an authorized officer of the Acquiror, certifying the amount of the Baseline Revenue for the calendar years ending December 31, 2014 and December 31, 2015, together with reasonable detail evidencing Acquiror’s calculation of such amount. In the event that Acquiror determines (as contemplated in the definition of Baseline Revenue) to increase the Baseline Revenue for either or both of the calendar years ending December 31, 2014, and December 31, 2015, respectively, then Acquiror shall promptly, but in no case later than fifteen (15) Business Days of the date of such determination, deliver an updated certificate,

 

45


signed by an authorized officer of Acquiror, providing, at a minimum, the following: (i) the amount of such increase; (ii) reasonable detail concerning the applicable acquisition, merger or similar transaction, including the purchase price of such transaction; and (iii) the additional revenue expectations for the applicable calendar year, resulting directly from such applicable acquisition, merger or similar transaction.

(b) Inspection Rights . During the period beginning on March 1, 2015 and ending on March 1, 2017 (the “ Baseline Period ”), Acquiror shall maintain complete and accurate books and records documenting Acquiror’s determination of the amount of Baseline Revenue for each of the calendar years ending December 31, 2014, and December 31, 2015, together with the Foot & Ankle Revenue applicable to each such year. Upon reasonable prior notice and during normal business hours, the Company Holders’ Agent, together with a certified public accountant, subject to a confidentiality agreement with Acquiror, selected by the Company Holders’ Agent, may audit (up to a maximum of two audits during the Baseline Period), Acquiror’ books and records pertaining thereto. If an audit shows Acquiror has failed to pay any Milestone Payment due hereunder, then Acquiror shall pay the Company Holders’ Agent (for the benefit of the Company Holders) the applicable Milestone Payment(s) plus compound interest thereon in the amount of 10% per annum. The Company Members shall bear the expenses and costs of such audit, provided however, that if an audit shows that Acquiror has failed to make any Milestone Payment, then, in addition to any amounts owed, Acquiror shall reimburse the Company Holders’ Agent’s reasonable expenses and costs incurred for such audit, together with any legal fees incurred in connection with such audit.

ARTICLE VI.

CONDITIONS TO THE MERGER

6.1. Conditions to Obligations of Each Party to Effect the Merger . The respective obligations of each party hereto to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions:

(a) Company Member Approval . This Agreement and the Merger shall have been duly and validly adopted and approved by the Company Members as required by the URLLCA, other applicable Legal Requirements, and the Organizational Documents, each as in effect on the date of such adoption.

(b) 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 Merger shall be in effect, nor shall any action have been taken by any Governmental Entity seeking any of the foregoing, and no statute, rule, regulation or order shall have been enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the Merger illegal.

(c) Governmental Approvals . The waiting period applicable to the consummation of the Merger under applicable antitrust Laws (or any extension thereof), if any, shall have expired or been terminated. Acquiror, Sub and the Company shall have timely obtained from each Governmental Entity all Approvals, waivers and consents with respect to Legal Requirements relating to antitrust matters, if any, necessary for consummation of, or in connection with, the Merger and the other transactions contemplated hereby.

6.2. Additional Conditions to Obligations of the Company . The obligations of the Company to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of the Company and may be waived by the Company in writing in its sole discretion without notice or Liability to any Person):

 

46


(a) Representations, Warranties and Covenants . Each of the representations and warranties made by Acquiror and Sub in this Agreement that is qualified by materiality shall be true and correct on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date which shall be true and correct as of such certain date), and each of the representations and warranties that is not so qualified shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as a certain date which shall be true and correct in all material respects as of such certain date). Acquiror shall have performed and complied with in all material respects all covenants and agreements required to be performed and complied with by Acquiror pursuant to this Agreement at or prior to the Closing, and the Company shall have received the Acquiror Closing Certificate from Acquiror to such effect.

(b) Closing Certificate . The Company will have received a certificate, signed by an authorized officer of the Acquiror, certifying as to the matters set forth in Section 6.2(a) .

6.3. Additional Conditions to the Obligations of Acquiror . The obligations of Acquiror to consummate the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (it being understood that each such condition is solely for the benefit of Acquiror and may be waived by Acquiror in writing in its sole discretion without notice or Liability to any Person):

(a) Representations, Warranties and Covenants of the Company . Each of the representations and warranties made by the Company in this Agreement that is qualified by materiality or “Material Adverse Effect” shall be true and correct on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as of a certain date which shall be true and correct as of such certain date), and each of the representations and warranties that is not so qualified shall be true and correct in all material respects on and as of the Closing Date as if made on and as of such date (other than representations and warranties which address matters only as a certain date which shall be true and correct in all material respects as of such certain date) without giving effect to any supplement to the Disclosure Letter. The Company shall have performed and complied with in all material respects all covenants and agreements required to be performed and complied with by the Company pursuant to this Agreement at or prior to the Closing, and Acquiror shall have received the Company Closing Certificate from the Company to such effect.

(b) No Material Adverse Effect . There shall not have occurred a Material Adverse Effect change in the business, prospects, financial condition or results of operations of the Company since the Agreement Date.

(c) Closing Certificate . Acquiror will have received a certificate, signed by the Chief Executive Officer and President of the Company, certifying as to the matters set forth in Sections 6.1(a)-(c)  and Sections 6.3(a)-(b) .

ARTICLE VII.

TERMINATION, AMENDMENT AND WAIVER

7.1. Termination . At any time prior to the Closing, this Agreement may be terminated and the Merger abandoned by authorized action taken by the terminating party, whether before or after the Company Member Approval:

(a) by mutual written consent duly authorized by the Company and Acquiror;

 

47


(b) by either Acquiror or the Company, if the Closing shall not have occurred on or before 11:59 p.m. Central time on April 1, 2014 or such other date that Acquiror and the Company may agree upon in writing (the “ Termination Date ”); provided , however , that the right to terminate this Agreement under this clause (b) of Section 7.1 shall not be available to any party whose breach (or whose Affiliate’s breach) of this Agreement has resulted in the failure of the Closing to occur on or before the Termination Date;

(c) by either Acquiror or the Company, if any permanent injunction or other order of a Governmental Entity of competent authority preventing the consummation of the Merger shall have become final and nonappealable;

(d) by Acquiror, if: (A) regardless of any Schedule Update, the Company shall have breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within fifteen Business Days after receipt by the Company from Acquiror of written notice of such breach ( provided , however , that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured) and if not cured within the timeframe above and at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in Section 6.1 or Section 6.3 to be satisfied, (B) the Company shall have breached (1)  Section 5.1 or (2)  Section 5.2 by reason of any action taken by a director or officer of the Company, or (C) there shall have been a Material Adverse Effect with respect to the Company since the Agreement Date;

(e) by the Company, if Acquiror shall have breached any representation, warranty, covenant or agreement contained herein and such breach shall not have been cured within fifteen Business Days after receipt by Acquiror from the Company of written notice of such breach ( provided , however , that no such cure period shall be available or applicable to any such breach which by its nature cannot be cured) and if not cured within the timeframe above and at or prior to the Closing, such breach would result in the failure of any of the conditions set forth in Section 6.1 or Section 6.2 to be satisfied;

7.2. Effect of Termination . In the event of termination of this Agreement as provided in Section 7.1 , this Agreement shall forthwith become void and there shall be no Liability or obligation under this Agreement on the part of Acquiror, Sub, the Company or their respective officers, directors, members or Affiliates; provided , however , that (a) the provisions of this Section 7.2 (Effect of Termination), Section 5.3 (Confidentiality; Public Disclosure), and Article IX (General Provisions) shall remain in full force and effect and survive any termination of this Agreement, and (b) nothing herein shall relieve any party hereto from Liability in connection with any willful or knowing breach of such party’s representations, warranties, covenants or agreements contained herein. For the avoidance of doubt, all fees and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expenses, whether or not the Merger is consummated.

7.3. Amendment . Subject to the provisions of applicable Legal Requirements, the parties hereto may amend this Agreement by authorized action at any time before or after the Company Member Approval pursuant to an instrument in writing signed on behalf of each of the parties hereto (provided that after such Company Member Approval, no amendment shall be made which by applicable Legal Requirements requires further approval by the Company Members without such further approval by the Company Members). To the extent permitted by applicable Legal Requirements, Acquiror and the Company Holders’ Agent may cause this Agreement to be amended at any time after the Closing by execution of an instrument in writing signed on behalf of Acquiror and the Company Holders’ Agent.

 

48


7.4. Extension; Waiver . At any time at or prior to the Closing, any party hereto may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, or (c) waive compliance with any of the covenants, agreements or conditions contained in this Agreement for the benefit of such party contained herein. At any time after the Closing, the Company Holders’ Agent and Acquiror may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto or the Company Holders’ Agent to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Without limiting the generality or effect of the preceding sentence, no delay in exercising any right under this Agreement shall constitute a waiver of such right, and no waiver of any breach or default shall be deemed a waiver of any other breach or default of the same or any other provision in this Agreement.

ARTICLE VIII.

ESCROW FUND AND INDEMNIFICATION

8.1. Survival of Representations, Warranties, Covenants and Agreements . Each party hereto shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other parties hereto contained in this Agreement and in any certificate delivered by any other party hereto at the Closing without regard to investigation or knowledge. If the Merger is consummated, all of the representations and warranties of the Company contained in this Agreement and such certificates shall survive the Closing and remain in full force and effect, regardless of any investigation or disclosure made by or on behalf of any of the parties to this Agreement, until the date that is the 18 month anniversary of the Closing Date (the “ Indemnification Escrow Period ”); provided , however , that the representations and warranties of the Company contained in the first sentence of Section 2.1 , Section 2.3 , Section 2.4 , Section 2.6 and Section 2.14 and in any certificate delivered to Acquiror regarding any matter set forth in such sections of this Agreement pursuant to any provision of this Agreement (collectively, the “ Fundamental Representations ”), will remain operative and in full force and effect, regardless of any investigation or disclosure made by or on behalf of any of the parties to this Agreement, until the date that is 90 days following the expiration of the applicable statute of limitations; provided , further , that such expiration shall not affect the rights of any Indemnified Person under Article VIII or otherwise to seek recovery of Damages from any Company Member arising out of any fraud, intentional misrepresentation or willful breach by the Company until the date that is 90 days following the expiration of the applicable statute of limitations.

8.2. Indemnification .

(a) Subject to the limitations set forth in this Article VIII , Acquiror and its Subsidiaries and Affiliates, and each of their respective officers, directors, members, agents, employees, successors and assigns (each of the foregoing being referred to individually as an “ Indemnified Person ” and collectively as “ Indemnified Persons ”) shall be entitled to be indemnified by the Company Members, severally and not jointly, from and against any and all Damages incurred by any Indemnified Person, directly or indirectly, arising out of, or resulting from:

(i) any failure of any representation or warranty made by the Company in this Agreement to be true and correct as of the Agreement Date and as of the Closing Date (regardless of any Schedule Update) as though such representation or warranty were made as of the Closing Date (except in the case of representations and warranties which by their terms speak only as of a specific date or dates, which representations and warranties shall be true and correct as of such date or dates);

 

49


(ii) any failure of any representation or warranty made by the Company in any certificate (other than the CFO Certificate) delivered to Acquiror pursuant to any provision of this Agreement, to be true and correct as of the date such certificate is delivered to Acquiror;

(iii) any breach of the covenants or agreements made by the Company in this Agreement;

(iv) any inaccuracy made by the Company in the CFO Certificate;

(v) any matter set forth on Schedule 8.2(a)(v) .

The remedies provided in this Section 8.2 will not be exclusive of or limit any other remedies that may be available to Acquiror or the other Indemnified Persons.

(b) Company Members will have no Liability with respect to the matters described in Sections 8.2(a)(i)-(iii)  until the total of all Damages with respect to such matters exceeds $200,000 (the “ Basket ”), and then only for the amount by which such Damages exceed the Basket. However, the limitations set forth in this Section 8.2(b) will not apply to claims under Sections 8.2(a)(iv)-(v)  or with respect to any: (i) breach of any of Company representations and warranties of which the Company had Knowledge at any time prior to the date on which such representation and warranty is made; (ii) breach of any of the Fundamental Representations; or (iii) fraud or any intentional breach by Company of any representation, warranty, covenant or obligation.

(c) The Indemnified Persons shall not be entitled to recover from the Company Members more than the Cap for any and all claims for indemnity in respect of Damages arising under this Agreement; provided, however, that the limitations set forth in this Section 8.2(c) will not apply to any: (i) breach of any of the Fundamental Representations; or (ii) fraud or any intentional breach by Company of any representation, warranty, covenant or obligation.

(d) To the extent that the Acquiror becomes aware that the Indemnified Persons are entitled to indemnification for a matter pursuant to this Agreement, then such Indemnified Persons shall use commercially reasonable efforts to mitigate such Damages for which such Indemnified Persons are entitled or may be entitled to indemnification under this ARTICLE VIII (that is, such Indemnified Persons shall use commercially reasonable efforts to respond to such Damages in the same manner that it would respond to such Damages in the ordinary course of business consistent with past practice in the absence of the indemnification provided for in this Agreement). Notwithstanding the foregoing, the failure of any Indemnified Persons to use such efforts to mitigate shall not constitute a defense to, or in any way otherwise relieve the indemnifying person of, the indemnifying person’s obligations to indemnify the Indemnified Persons pursuant to this Agreement, but may be asserted by the Company Members to reduce the amount of Damages.

(e) The amount of any Damages shall be net of any amounts actually received by the Indemnified Persons under insurance policies with third parties pursuant to which or under which such Person or such Person’s Affiliates is a party or has rights (“ Alternative Arrangements ”) with respect to such Damages, net of any expenses incurred by the applicable Indemnified Persons in collecting such amount and any increased premiums resulting therefrom. The amount of any Damages claimed by any Indemnified Person hereunder shall be reduced to the extent of any net Tax savings or net Tax benefits actually realized by any Indemnified Person or its Affiliates that is attributable to any deduction, loss,

 

50


credit or other Tax benefit resulting from or arising out of such Damages. If the amount to be netted pursuant to this Section 8.2(e) from any payment required pursuant to this ARTICLE VIII is determined only after such payment, the Indemnified Person shall repay the Company Members promptly (but in any event within thirty (30) Business Days after such determination) any amount that the Company Members would not have had to pay pursuant to this ARTICLE VIII had such determination been made at the time of such payment.

(f) Upon notice to the Company Holders’ Agent specifying in reasonable detail the basis for such set-off, Acquiror may set off any amount to which it may be entitled under this Article VIII against amounts otherwise payable under Section 1.9(a)(iii) and/or may give notice of a claim in such amount under the Escrow Agreement. The exercise of such right of set-off by Acquiror in good faith will not constitute an event of default under this Agreement. Neither the exercise of nor the failure to exercise such right of set-off or to give a notice of a claim under the Escrow Agreement will constitute an election of remedies or limit Acquiror in any manner in the enforcement of any other remedies that may be available to it.

8.3. Escrow Funds . The Indemnification Escrow Amount shall be deposited by Acquiror with U.S. Bank National Association (or another institution selected by Acquiror and reasonably satisfactory to the Company) as escrow agent (the “ Escrow Agent ”), such deposit, together with any interest that may be earned thereon, to constitute an escrow fund (the “ Indemnification Escrow Fund ”) and to be governed by the provisions set forth herein and in the Escrow Agreement. As between the parties to this Agreement, if any term or provision of the Escrow Agreement conflicts with any term or provision of this Agreement, then the term or provision of this Agreement will control. During the Indemnification Escrow Fund, the Indemnification Escrow Fund shall be available to compensate Acquiror (on behalf of itself or any other Indemnified Person) for Damages pursuant to the indemnification obligations set forth in this Article VIII as set forth herein.

8.4. Claims .

(a) If Acquiror determines in good faith that any Indemnified Person has a bona fide claim for indemnification pursuant to this Article VIII , Acquiror may deliver to the Escrow Agent a certificate signed by any officer of Acquiror (any certificate delivered in accordance with the provisions of this Section 8.4(a) an “ Officer’s Certificate ”): (i) stating that an Indemnified Person has a claim for indemnification pursuant to this Article VIII ; (ii) stating the amount of such Damages (which, in the case of Damages not yet incurred, paid or accrued, may be the maximum amount reasonably anticipated by Acquiror in good faith to be incurred, paid or accrued); and (iii) specifying in reasonable detail (based upon the information then possessed by Acquiror) the material facts known to the Indemnified Person giving rise to such claim.

(b) The Company Holders’ Agent shall have a period of 30 days after delivery of the Officer’s Certificate to the Company Holders’ Agent to raise bona fide good faith objections in a written statement (a “ Dispute Notice ”) to any claim or claims made in the Officer’s Certificate. If the Company Holders’ Agent does not raise good faith objections in a Dispute Notice delivered to Acquiror (with a copy to the Escrow Agent if the Officer’s Certificate involves recovery against the Indemnification Escrow Fund, as applicable) before the end of the 30-day period, then the Company Holders’ Agent shall be conclusively deemed to have consented, on behalf of all Company Members, to the recovery by the Indemnified Persons of the full amount of Damages (subject to the limits contained in this Article VIII ) specified in the Officer’s Certificate in accordance with this Article VIII , including the forfeiture of all or a portion of the Indemnification Escrow Fund or the Milestone Payments and, without further notice, to have stipulated to the entry of a final judgment for Damages against the Company Members for such amount in any court having jurisdiction over the matter where venue is proper.

 

51


(c) If an Officer’s Certificate is delivered to the Company Holders’ Agent prior to the expiration of the Indemnification Escrow Period, a duplicate copy of such Officer’s Certificate shall be delivered to the Escrow Agent by or on behalf of Acquiror (on behalf of itself or any other Indemnified Person) and, except as provided below, the Escrow Agent shall make no payment pursuant to this Section 8.4 until the expiration of the 30-day period described in Section 8.4(b) , unless the Escrow Agent shall have received written authorization from the Company Holders’ Agent to make such delivery. After the expiration of such 30-day period, the Escrow Agent shall make delivery of cash from the Indemnification Escrow Fund to Acquiror in accordance with this Section 8.4 ; provided , however , that no such delivery may be made if and to the extent the Company Holders’ Agent has raised good faith objections in a Dispute Notice to any claim or claims made in the Officer’s Certificate, and such Dispute Notice shall have been delivered to Acquiror and the Escrow Agent prior to the expiration of the 30-day period.

8.5. Resolution of Objections to Claims .

(a) If the Company Holders’ Agent raises good faith objections in a Dispute Notice to any claim or claims by Acquiror made in any Officer’s Certificate within the 30-day period set forth in Section 8.4(b) , Acquiror and the Company Holders’ Agent shall attempt in good faith for 30 days after Acquiror’s receipt of such Dispute Notice to resolve such objection. If Acquiror and the Company Holders’ Agent shall so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties. If the applicable Officer’s Certificate was delivered to the Escrow Agent prior to the expiration of the Indemnification Escrow Period, then the memorandum of agreement shall be delivered to the Escrow Agent and the Escrow Agent shall be entitled to conclusively rely on any such memorandum and the Escrow Agent shall distribute cash from the Indemnification Escrow Fund in accordance with the terms of such memorandum.

(b) If no such agreement can be reached during the 30-day period for good faith negotiation, but in any event upon the expiration of such 30-day period, either Acquiror or the Company Holders’ Agent may bring suit to resolve the matter. The decision of the trial court as to the validity and amount of any claim in such Officer’s Certificate shall be nonappealable, binding and conclusive upon the parties to this Agreement and the Company Members, and with respect to claims asserted in Officer’s Certificates delivered to the Company Holders’ Agent prior to the expiration of the Indemnification Escrow Period, the Escrow Agent shall be entitled to act in accordance with such decision and the Escrow Agent shall distribute cash from the Indemnification Escrow Fund in accordance therewith and Acquiror shall be permitted to set-off against any Milestone Payment in accordance therewith.

(c) Judgment upon any award rendered by the trial court may be entered in any court having jurisdiction. For purposes of this Section 8.5(c) , in any suit hereunder, Acquiror shall be deemed to be the non-prevailing party unless the trial court awards Acquiror at least one-half of the amount in dispute, in which case the Company Members shall be deemed to be the non-prevailing party. The non-prevailing party to a suit shall pay its own fees and expenses and the fees and expenses of the prevailing party, including attorneys’ fees and costs, reasonably incurred in connection with such suit.

8.6. Company Holders’ Agent .

(a) At the Closing, OP CHA, Inc. shall be constituted and appointed as the Company Holders’ Agent, and hereby accepts its appointment as the Company Holders’ Agent. For purposes of this Agreement, the term “ Company Holders’ Agent ” means the agent for and on behalf of the Company Holders to: (i) give and receive notices and communications to or from Acquiror (on behalf of itself or any other Indemnified Person) relating to this Agreement or any of the transactions and other matters contemplated hereby or thereby (except to the extent that this Agreement expressly contemplates that any

 

52


such notice or communication shall be given or received by such Company Holders individually); (ii) authorize deliveries to Acquiror of cash from the Indemnification Escrow Fund or the right of set-off against Milestone Payments in satisfaction of claims asserted by Acquiror (on behalf of itself or any other Indemnified Person, including by not objecting to such claims); (iii) object to such claims pursuant to Section 8.4 ; (iv) consent or agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to, such claims; (v) consent or agree to any amendment to this Agreement or any waiver of any provision of this Agreement; and (vi) take all actions necessary or appropriate in the judgment of the Company Holders’ Agent for the accomplishment of the foregoing, in each case without having to seek or obtain the consent of any Person under any circumstance. Subject to Acquiror’s prior written consent, not to be unreasonably withheld, conditioned or delayed, the Person serving as the Company Holders’ Agent may be replaced from time to time by a majority of the Company Members upon not less than ten (10) days’ prior written notice to Acquiror. No bond shall be required of the Company Holders’ Agent, and the Company Holders’ Agent shall receive no compensation for its services.

(b) The Company Holders’ Agent shall not be liable to any former Company Holder for any act done or omitted hereunder as the Company Holders’ Agent without gross negligence, willful misconduct or bad faith (and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of good faith). To the fullest extent permitted by applicable Legal Requirements, the Company Holders shall jointly and severally indemnify the Company Holders’ Agent and hold the Company Holders’ Agent harmless against any loss, liability or expense incurred without gross negligence, willful misconduct or bad faith on the part of the Company Holders’ Agent and arising out of or in connection with the acceptance or administration of the duties hereunder, including any out-of-pocket costs and expenses and legal fees and other legal costs reasonably incurred by the Company Holders’ Agent. If not paid directly to the Company Holders’ Agent by the Company Holders, such losses, liabilities or expenses may be recovered by the Company Holders’ Agent from the Indemnification Escrow Fund otherwise distributable to the Company Members (and not distributed or distributable to an Indemnified Person or subject to a pending indemnification claim of an Indemnified Person) after the expiration of the Indemnification Escrow Period pursuant to the terms hereof and of the Escrow Agreement, at the time of distribution, and such recovery will be made from the Company Members according to their respective Escrow Pro Rata Share.

(c) Any notice or communication given or received by, and any decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, the Company Holders’ Agent that is within the scope of the Company Holders’ Agent’s authority under Section 8.6(a) shall constitute a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of all the Company Holders and shall be final, binding and conclusive upon each such Company Holder; and each Indemnified Person shall be entitled to rely upon any such notice, communication, decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction as being a notice or communication to or by, or a decision, action, failure to act within a designated period of time, agreement, consent, settlement, resolution or instruction of, each and every such Company Holder.

(d) In connection with the performance of its obligations hereunder and under the Escrow Agreement, the Company Holders’ Agent shall have the right at any time and from time to time to select and engage, at the cost and expense of the Company Holders, attorneys, accountants, investment bankers, advisors, consultants and clerical personnel and obtain such other professional and expert assistance, and maintain such records, as the Company Holders’ Agent may deem necessary or desirable and incur other out-of-pocket expenses related to the performance of services hereunder.

 

53


(e) All of the immunities and powers granted to the Company Holders’ Agent under this Agreement shall survive the Closing and/or any termination of this Agreement and the Escrow Agreement. The grant of authority provided for in this Section 8.6 : (i) is coupled with an interest and shall be irrevocable and survive the death, incompetence, bankruptcy or liquidation of the respective Company Holder and shall be binding on any successor thereto; and (ii) shall survive the delivery of an assignment by any Company Holder of the whole or any fraction of his, her or its interest in the Indemnification Escrow Fund. The Company Holders’ Agent acknowledges and agrees that the existence and substance of this Agreement, the Disclosure Letter, the Baseline Revenue and the documents and instruments contemplated hereby and thereby, constitute “Confidential Information”, agrees not to use any Confidential Information for any purpose, except for in the performance of its obligations hereunder and under the Escrow Agreement, and to take all reasonable measures to protect the secrecy of and avoid disclosure and unauthorized use of the Confidential Information, including, but not limited to, requiring any Person engaged by the Company Holders’ Agent to be subject to a confidentiality agreement by and among that Person, the Company Holders’ Agent and the Acquiror.

8.7. Third Party Claims . In the event Acquiror or another Indemnified Person becomes aware of a third-party claim which Acquiror believes may result in a claim for indemnification pursuant to this Article VIII by or on behalf of an Indemnified Person (a “ Third Party Claim ”), Acquiror shall promptly notify the Company Holders’ Agent of such Third Party Claim. Notwithstanding the foregoing, no delay in providing such notice within the Indemnification Escrow Period shall affect an Indemnified Person’s rights hereunder. Acquiror shall have the right in its sole discretion to conduct the defense of and to settle or resolve any Third Party Claims and the costs and expenses incurred by Acquiror in connection with such defense, settlement or resolution (including reasonable attorneys’ fees, other professionals’ and experts’ fees and court or arbitration costs) shall be included in the potential Damages for which Acquiror may seek indemnification pursuant to a claim made hereunder. The Company Holders’ Agent shall have the right to receive copies of all pleadings, notices and communications with respect to the Third Party Claims and shall be entitled, at its expense, to participate in, but not to determine or conduct, any defense of the Third Party Claim or settlement negotiations with respect to the Third Party Claim. Damages payable to third parties pursuant to any settlement or other resolution of any claim with any third-party claimant shall not be determinative of the amount of such Damages any Indemnified Person is entitled to recover pursuant to the indemnification provisions of this Article VIII relating to the applicable Third Party Claim unless the Company Holders’ Agent has consented in writing to any such settlement or resolution, which consent shall not be unreasonably withheld, conditioned or delayed.

8.8. Treatment of Indemnification Payments . All indemnification payments made pursuant to this Article VIII shall be treated by the parties as adjustments to the Total Consideration for Tax purposes unless otherwise required by applicable Legal Requirements.

ARTICLE IX.

GENERAL PROVISIONS

9.1 Notices . All notices and other communications hereunder shall be in writing and shall be deemed given (a) when delivered by hand (with written confirmation of receipt), (b) on the first Business Day after the date mailed, if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third Business Day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice):

if to Acquiror, to:

Wright Medical Group, Inc.

1023 Cherry Road

Memphis, Tennessee 38117

Attention: General Counsel

Facsimile No.: 901.867.4398

Email address: james.lightman@wmt.com

 

54


with a copy (which shall not constitute notice) to:

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

165 Madison Avenue, Suite 2000

Memphis, Tennessee 38103

Attention: Richard F. Mattern

Facsimile No.: 901.577.4234

Email address: rmattern@bakerdonelson.com

if to the Company, to:

OrthoPro, L.L.C.

3939 S. Wasatch Blvd., Suite 19

Salt Lake City, Utah 84124

Attention: Dustin Leavitt

Facsimile No.: 801.746.1057

Email address: dleavitt@orthoprollc.com

with a copy (which shall not constitute notice) to:

Mitchell Barlow & Mansfield, P.C.

Boston Building

Nine Exchange Place, Suite 600

Salt Lake City, Utah 84111

Attention: John R. Barlow

Facsimile No.: 801.998.8077]

Email address: jbarlow@mbmlawyers.com

If to the Company Holders’ Agent, to:

OP CHA, Inc.

C/o Dustin Leavitt

5135 New Ln.

Oakley, Utah 84055

Attention: Dustin Leavitt

Facsimile No.: N/A

Email address: ddleavitt2@outlook.com

9.2. Interpretation . When a reference is made in this Agreement to Articles, Sections or Exhibits, such reference shall be to an Article or Section of, or an Exhibit to this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” Any undefined accounting term shall have the meaning assigned to it pursuant to GAAP. A

 

55


reference in this Agreement to $ or dollars is to U.S. dollars. Unless indicated otherwise or as agreed upon by the parties, all mathematical calculations contemplated hereby shall be rounded to the fifth decimal place. Unless the context of this Agreement otherwise requires: (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; and (iii) the terms “hereof,” “herein,” “hereunder” and derivative or similar words refer to this entire Agreement and not to any particular provision of this Agreement.

9.3. Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto; it being understood that all parties hereto need not sign the same counterpart. The exchange of a fully executed Agreement (in counterparts or otherwise) by electronic transmission in .PDF format or by facsimile shall be sufficient to bind the parties to the terms and conditions of this Agreement.

9.4. Entire Agreement; Parties in Interest . This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including all the Exhibits attached hereto, the Schedules, including the Disclosure Letter, and the Nondisclosure Agreement (a) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof, and (b) are not intended to confer, and shall not be construed as conferring, upon any Person other than the parties hereto any rights or remedies hereunder (except that Article VIII is intended to benefit Indemnified Persons).

9.5. Assignment . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties hereto, and any such assignment without such prior written consent shall be null and void, except that Acquiror may assign this Agreement to any direct or indirect wholly owned Subsidiary of Acquiror without the prior consent of the Company; provided , however , that Acquiror shall remain liable for all of its obligations under this Agreement. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.

9.6. Severability . If any term or provision of this Agreement is determined to be invalid, illegal or unenforceable in any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

9.7. Remedies Cumulative . Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party hereto shall 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 hereto of any one remedy shall not preclude the exercise of any other remedy and nothing in this Agreement shall be deemed a waiver by any party of any right to specific performance or injunctive relief. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity, and the parties hereby waive the requirement of any posting of a bond in connection with the remedies described herein.

 

56


9.8. Governing Law; Submission to Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to such state’s principles of conflicts of law; provided that the laws of the State of Utah shall apply to the extent mandatorily applicable with respect to the Merger. Each of the parties hereto irrevocably agrees that any legal action or Proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by any other party hereto or its successors or assigns shall be brought and determined exclusively in any court of the State and County of New York, or in the event (but only in the event) that such court does not have subject matter jurisdiction over such action or Proceeding, in the United States District Court for the Southern District of New York. Each of the parties hereto agrees that mailing of process or other papers in connection with any such action or Proceeding in the manner provided in Section 9.1 or in such other manner as may be permitted by applicable Legal Requirements, will be valid and sufficient service thereof. Each of the parties hereto hereby irrevocably submits with regard to any such action or Proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any action or Proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with this Section 9.8, (ii) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (iii) to the fullest extent permitted by the applicable Legal Requirements, any claim that (x) the suit, action or Proceeding in such court is brought in an inconvenient forum, (y) the venue of such suit, action or Proceeding is improper, or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

9.9. Rules of Construction . The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

9.10. WAIVER OF JURY TRIAL . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.10 .

[SIGNATURE PAGE FOLLOWS]

 

57


IN WITNESS WHEREOF , each of Acquiror, Sub, the Company Holders’ Agent and the Company have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized, all as of the date first written above.

 

WRIGHT MEDICAL GROUP, INC.
By:  

 

Name:   Lance A. Berry
Title:   Chief Financial Officer
WMMS, LLC
By:  

 

Name:   Lance A. Berry
Title:   President and Chief Financial Officer
ORTHOPRO, L.L.C.
By:  

 

Name:   Dustin Leavitt
Title:   President and Chief Executive Officer
OP CHA, INC, AS COMPANY HOLDERS’ AGENT
By:  

 

Name:   Dustin Leavitt
Title:   President

[Signature Page to Agreement and Plan of Merger]

 

Exhibit 2.2

 

 

AGREEMENT AND PLAN OF MERGER

Among

WRIGHT MEDICAL GROUP, INC.

WINTER SOLSTICE LLC

SOLANA SURGICAL, LLC

And

ALAN TAYLOR, AS MEMBERS’ REPRESENTATIVE

Dated as of January 30, 2014


TABLE OF CONTENTS

 

          Page  
ARTICLE 1 DEFINITIONS; CERTAIN RULES OF CONSTRUCTION      1   
ARTICLE 2 MERGER AND CONVERSION OF SHARES      15   

2.1.

   The Merger      15   

2.2.

   Effective Time      15   

2.3.

   The Closing      15   

2.4.

   Managers and Officers      15   

2.5.

   Effect on Company Member Interests      16   

2.6.

   Consideration      17   

2.7.

   Escrow      19   

2.8.

   Expense Fund      19   

2.9.

   Disbursement      20   

2.10.

   Withholding Rights      21   

2.11.

   Unclaimed Amounts      22   

2.12.

   Working Capital Adjustment      22   

2.13.

   Dissenting Shares      23   
ARTICLE 3 REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY      24   

3.1.

   Organization; Predecessors      24   

3.2.

   Power and Authorization      24   

3.3.

   Authorization of Governmental Authorities      25   

3.4.

   Noncontravention      25   

3.5.

   Capitalization of the Company      26   

3.6.

   Financial Statements      27   

3.7.

   Absence of Undisclosed Liabilities      27   

3.8.

   Absence of Certain Developments      28   

3.9.

   Debt; Guarantees      29   

3.10.

   Assets      30   

3.11.

   Real Property      30   

3.12.

   Equipment      31   

3.13.

   Intellectual Property      31   

 

-i-


3.14.

   Compliance with Laws; Governmental Permits      36   

3.15.

   FDA Regulatory Compliance      36   

3.16.

   Healthcare Regulatory Compliance      38   

3.17.

   Export Control Laws and Anticorruption Laws      40   

3.18.

   Tax Matters      42   

3.19.

   Employee Benefit Plans and Employee Matters      45   

3.20.

   Environmental Matters      48   

3.21.

   Contracts      49   

3.22.

   Affiliate Transactions      51   

3.23.

   Commercial Relationships      51   

3.24.

   Litigation; Governmental Orders; Product Liability      52   

3.25.

   Insurance      52   

3.26.

   No Brokers      53   

3.27.

   HSR Threshholds      53   

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER AND MERGER LLC

     53   

4.1.

   Organization      53   

4.2.

   Power and Authorization      53   

4.3.

   Authorization of Governmental Authorities      54   

4.4.

   Noncontravention      54   

4.5.

   Buyer SEC Filings      54   

4.6.

   Buyer Financial Statements      55   

4.7.

   Financing      55   

4.8.

   Capitalization      55   

4.9.

   No Brokers      55   

4.10.

   No Buyer Material Adverse Effect      55   

ARTICLE 5 COVENANTS

     55   

5.1.

   Closing      55   

5.2.

   Operation of Business      56   

5.3.

   401(k) Plans      56   

5.4.

   Notices and Consents      56   

5.5.

   Buyer’s Access to Premises; Information      57   

 

ii


5.6.

   Notice of Developments      56   

5.7.

   Exclusivity      57   

5.8.

   Payment of Indebtedness      58   

5.9.

   Confidentiality      58   

5.10.

   Publicity      58   

5.11.

   [Reserved]      59   

5.12.

   Lien Discharges      59   

5.13.

   Resignations      59   

5.14.

   Further Assurances      59   

5.15.

   Tax Matters      59   

5.16.

   Lock-up Period; Legends on Share Consideration      60   

5.17.

   Obligations Assumed by Surviving Company      61   

ARTICLE 6 CONDITIONS TO THE BUYER’S OBLIGATIONS AT THE CLOSING

     62   

6.1.

   Representations and Warranties      62   

6.2.

   Performance      63   

6.3.

   Member Approval      63   

6.4.

   Compliance Certificate      63   

6.5.

   Payment Schedule      63   

6.6.

   Qualifications      63   

6.7.

   Absence of Litigation      63   

6.8.

   Legal Opinion      64   

6.9.

   Consents, etc      64   

6.10.

   Ancillary Agreements      64   

6.11.

   Resignations      64   

6.12.

   Officer Certificate      64   

6.12.

   No Company Material Adverse Effect      64   

6.13.

   Repayment of Pre-Closing Indebtedness, Etc      65   

ARTICLE 7 CONDITIONS TO THE COMPANY’S OBLIGATIONS AT THE CLOSING

     65   

7.1.

   Representations and Warranties      65   

7.2.

   Performance      65   

7.3.

   Compliance Certificate      65   

7.4.

   Ancillary Agreements      65   

 

iii


7.5.

   Qualifications      65   

7.6.

   Absence of Litigation      66   

7.7.

   Consents, etc      66   

ARTICLE 8 TERMINATION

     66   

8.1.

   Termination of Agreement      66   

8.2.

   Effect of Termination      67   

ARTICLE 9 INDEMNIFICATION

     67   

9.1.

   Indemnification by the Members      67   

9.2.

   Time for Claims      69   

9.3.

   Third Party Claims      69   

9.4.

   No Circular Recovery      71   

9.5.

   Indemnity Escrow      71   

9.6.

   Remedies Cumulative      72   

ARTICLE 10 TAX MATTERS

     72   

10.1.

   Tax Indemnification      72   

10.2.

   Timing for Tax Indemnity Claims      72   

10.3.

   Returns      73   

10.4.

   Straddle Period      74   

10.5.

   Tax Sharing Agreements      74   

10.6.

   Certain Taxes and Fees      74   

10.7.

   Cooperation on Tax Matters      75   

10.8.

   Treatment of Payments      75   

10.9.

   Disclosure      75   

10.10.

   Tax Contests      75   

10.11.

   FIRPTA Certificate      77   

ARTICLE 11 MISCELLANEOUS

     77   

11.1.

   Notices      77   

11.2.

   Succession and Assignment; No Third-Party Beneficiary      79   

11.3.

   Amendments and Waivers      79   

11.4.

   Provisions Concerning Members’ Representative      79   

11.5.

   Entire Agreement      80   

 

iv


11.6.

   Counterparts      80   

11.7.

   Severability      81   

11.8.

   Headings      81   

11.9.

   Construction      81   

11.10.

   Governing Law      81   

11.11.

   Jurisdiction; Venue; Service of Process      81   

11.12.

   Specific Performance      82   

11.13.

   Waiver of Jury Trial      82   

Exhibits

Exhibit A – Company Products

Exhibit 2.5.3 – Equity Cash Out Agreement

Exhibit 2.7 – Escrow Agreement

Exhibit 2.9.1 – Form of Letter of Transmittal

Exhibit 6.4 – Form of Company Compliance Certificate

Exhibit 6.8 – Form of Opinion of Company Counsel

Exhibit 7.3 – Form of Buyer Compliance Certificate

 

v


AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (the “ Agreement ”), entered into as of January 30, 2014, by and among Wright Medical Group, Inc. a Delaware corporation (the “ Buyer ”), Winter Solstice LLC, a California limited liability company and wholly owned Subsidiary of the Buyer (“ Merger LLC ”), Solana Surgical, LLC, a California limited liability company (the “ Company ”), and Alan Taylor as a representative of the Company’s Members (the “ Members’ Representative ”). The Buyer, Merger LLC, the Company and the Members’ Representative are individually referred to herein as a “ Party ” and collectively referred to herein as the “ Parties .”

RECITALS

WHEREAS, the manager of the Company deems it advisable and in the best interests of the Company and its members that the Buyer acquire the Company;

WHEREAS, the Buyer, Merger LLC and the Company intend to effect a merger (the “ Merger ”) of Merger LLC with and into the Company in accordance with this Agreement and the California Revised Uniform Limited Liability Company Act (the “ CLLA”) ;

WHEREAS, the federal income tax treatment of the Merger will be determined by Revenue Ruling 99-6, Situation 2;

WHEREAS, contemporaneously with the execution of this Agreement, Alan Taylor has entered into an employment agreement with the Buyer in the form of an offer letter dated January 30, 2014, (“ Taylor Employment Agreement ”), which will be effective as of the Closing;

WHEREAS, the board of directors of the Buyer, the sole member of Merger LLC, and the manager of the Company have each approved this Agreement and the Merger.

Now, therefore, in consideration of the premises and mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the Parties hereby agree as follows:

ARTICLE 1

DEFINITIONS; CERTAIN RULES OF CONSTRUCTION.

As used herein, the following terms will have the following meanings:

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

5.5% Holder ” is defined in Section 5.16.1 .

Accounting Principles ” the accounting practices, assumptions, policies and methodologies used in the preparation of the Audited Financials and Most Recent Balance Sheet.

Action ” means any claim, action, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil or criminal), assessment,


arbitration, investigation, hearing, charge, complaint, demand, notice or proceeding, including any opposition, post-grant review, interference, re-examination, reissue, invalidation, or cancellation or other contested proceeding from, by or before any Governmental Authority.

Affiliate ” means, with respect to a Person, another Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. “Control,” whether or not capitalized, means, with respect to a Person, the ownership by another Person of greater than 50% of the profit or voting interests of such Person or such other arrangement as constitutes the direct or indirect ability to direct the management, affairs or actions of such Person, provided, however, that the term “Control” will not include circumstances in which a Person owns greater than 50% of the profit or voting interests necessary to elect a majority of the board of managers or other governing board of another Person, but is restricted from electing such majority by contract or otherwise and does not otherwise have the direct or indirect ability to direct the management, affairs or actions of such other Person, until such time as such Person does have such ability to direct the management, affairs or actions of such other Person or such restrictions are no longer in effect.

Agreement ” is defined in the Preamble.

Allocation ” is defined in Section 2.6.2 .

Ancillary Agreements ” means the Escrow Agreement, the Paying Agent Agreement, the letters of transmittal, the opinion of company counsel, the Taylor Employment Agreement and the Equity Cash Out Agreements.

Anticorruption Laws ” mean Legal Requirements relating to anti-bribery or anticorruption (governmental or commercial), which apply to the business and dealings of the Company, including Legal Requirements that prohibit the corrupt payment, offer, promise, or authorization of the payment or transfer of anything of value (including gifts or entertainment), directly or indirectly, to any foreign Government Official, foreign government employee or commercial entity to obtain a business advantage; such as, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act of 2010 and all national and international Legal Requirements enacted to implement the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions.

Audited Financials ” is defined in Section 3.6.1(b) .

Assets ” is defined in Section 3.10.1 .

Business ” means the business presently conducted by the Company.

Business Associate Agreement ” is defined in Section 3.16.5 .

Business Day ” means any weekday other than a weekday on which banks in New York, New York are authorized or required to be closed.

Buyer ” is defined in the Preamble.

 

2


Buyer Benefit Plan ” is defined in Section 5.17.3 .

Buyer Common Stock ” means common stock of the Buyer, $0.01 par value per share.

Buyer Common Stock Closing Price ” means the volume weighted average price of Buyer Common Stock measured over the previous ten trading days as of the close of regular trading on the last trading day prior to the date of this Agreement.

Buyer Indemnified Person ” is defined in Section 9.1.1 .

Buyer Material Adverse Effect ” means any change in, or effect on, the Business, operations, Assets or condition (financial or otherwise) of the Buyer which, when considered either individually or in the aggregate together with all other adverse changes or effects with respect to which such phrase is used in this Agreement, is, or is reasonably likely to be, materially adverse to the Business, operations, Assets or condition (financial or otherwise) of the Buyer, taken as a whole provided , however , that any change or effect to the extent resulting from the following will not constitute, and will be excluded from the determination of, a Material Adverse Effect: (a) changes or effects generally impacting the industries and markets in which the Buyer operates; (b) general developments in the United States or the global economy; (c) changes in the United States financial or securities markets or other financial markets in any other country or region in the world, including changes in interest rates or exchange rates; (d) acts of war or terrorism (or the escalation of the foregoing) or natural disasters or other force majeure events; or (e) changes in Legal Requirements or GAAP; in each case covered by clause (a) through (e), except to the extent changes or effects have had, or are reasonably likely to have, a disproportionate impact on the Buyer, taken together as a whole, relative to other companies in the same industry.

CLLA ” is defined in the Recitals.

Cash ” means the cash and cash equivalents required to be reflected as cash and cash equivalents on the balance sheet of the Company prepared in accordance with GAAP applied on a basis consistent with the Accounting Principles.

Cash Consideration ” is defined in Section 2.6.1(b) .

Certificate of Merger ” is defined in Section 2.2 .

Change of Control Payment ” means (a) any bonus, severance, tax gross up or other payment or form of compensation that is created, accelerated, accrues or becomes payable by the Company to any present or former manager, Member, employee, consultant or independent contractor (including independent sales representatives, whether individuals or entities) thereof, including pursuant to any employment agreement, benefit plan, Company Benefit Plan or any other Contractual Obligation, including any Taxes payable on or triggered by any such payment, and (b) without duplication of any other amounts included within the definition of Transaction Expenses, any other payment, expense, or fee that accrues or becomes payable by the Company to any Governmental Authority or other Person under any Legal Requirement or Contractual Obligation, including in connection with the making of any filings, the giving of any notices, or the obtaining of any consents, authorizations or approvals, in the cash of each of (a) and (b), as a

 

3


result of, or in connection with, the execution and delivery of this Agreement or any Ancillary Agreement or the consummation of the Contemplated Transactions (whether alone or in conjunction with any other event(s)), including by reason of a termination of employment following such transaction, provided, that no payment pursuant to an agreement and in an amount not in excess of the amount listed with respect to such agreement on Schedule 1 shall be a “Change of Control Payment” for purposes of this Agreement.

Cleanup ” means all actions required to: (a) cleanup, remove, treat or remediate Hazardous Materials in the indoor or outdoor environment; (b) prevent the Release of Hazardous Materials so that they do not migrate, endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (c) perform pre-remedial studies and investigations and post-remedial monitoring and care; or (d) respond to any government requests for information or documents in any way relating to cleanup, removal, treatment or remediation or potential cleanup, removal, treatment or remediation of Hazardous Materials in the indoor or outdoor environment.

Closing ” is defined in Section 2.3 .

Closing Balance Sheet ” is defined in Section 2.12.3 .

Closing Consideration ” is defined in Section 2.6.1 .

Closing Date ” means the date on which the Closing actually occurs.

Closing Debt Amount ” means the amount of Debt of the Company as of the Closing Date.

Closing Statement ” is defined in Section 2.12.3 .

COBRA ” is defined in Section 3.19.4 .

Code ” means the U.S. Internal Revenue Code of 1986, as amended.

Commission ” means the Securities and Exchange Commission.

Company ” is defined in the Preamble.

Company Authorizations ” is defined in Section 3.14.2 .

Company Material Adverse Effect ” means any change in, or effect on, the Business, operations, Assets or condition (financial or otherwise) of the Company which, when considered either individually or in the aggregate together with all other adverse changes or effects with respect to which such phrase is used in this Agreement, is, or is reasonably likely to be, materially adverse to the Business, operations, Assets or condition (financial or otherwise) of the Company, taken as a whole provided , however , that any change or effect to the extent resulting from the following will not constitute, and will be excluded from the determination of, a Material Adverse Effect: (a) changes or effects generally impacting the industries and markets in which the Company operates; (b) general developments in the United States or the global economy; (c)

 

4


changes in the United States financial or securities markets or other financial markets in any other country or region in the world, including changes in interest rates or exchange rates; (d) acts of war or terrorism (or the escalation of the foregoing) or natural disasters or other force majeure events; (e) changes in Legal Requirements or GAAP; (f) any change, effect, circumstance or event arising from the announcement of this Agreement other than changes effects circumstances or events required to be disclosed in this Agreement or in the Disclosure Schedule; or (g) any action or omission of the Acquired Companies prior to the Closing Date (i) required to be taken or omitted pursuant to the terms of this Agreement (other than changes, effects, circumstances, or events caused by the Company acting in the Ordinary Course of Business) or (ii) taken with the prior written consent of Buyer; in each case covered by clause (a) through (e), except to the extent changes or effects have had, or are reasonably likely to have, a disproportionate impact on the Company, taken together as a whole, relative to other companies in the same industry.

Company Member Interests ” means all of the issued and outstanding interests in profits or assets of the Company.

Company Employee Plans ” is defined in Section 3.19.1 .

Company Intellectual Property Rights ” means all Intellectual Property Rights owned by the Company or used by the Company in connection with the Business, including all Intellectual Property Rights in and to Company Technology.

Company’s Knowledge ” means the actual knowledge or the knowledge which should have been obtained in the reasonable performance of the duties of the officers and manager of the Company including, for purposes of Section 3.13 , consultation with Company patent counsel.

Company Option ” means any option to acquire Company Member Interests, including any options or other rights granted by the Manager pursuant to the authority granted by the Company’s Operating Agreement, outstanding immediately prior to the Effective Time.

Company-Owned IP Rights ” means the (a) Company Intellectual Property Rights and Company Technology that are owned or are purportedly owned by the Company, including the items of Scheduled Intellectual Property not identified as being licensed on Schedule 3.13.3 ; and (b) Company Intellectual Property Rights and Company Technology that were developed for the Company by full or part time employees or consultants or other contractors of the Company.

Company Products ” means the products listed on Exhibit A.

Company Registered Intellectual Property ” has the meaning given to it in Section 3.13.3 .

Company Member Approval ” is defined in Section 3.2.4 .

Company Transaction Expenses ” means the Transaction Expenses of the Company as of the Closing Date.

 

5


Company Technology ” means any and all Technology used in connection with the Business, including any products in the Company’s product pipeline.

Compensation ” means, with respect to any Person, all salaries, compensation, remuneration, bonuses or benefits of any kind or character whatever (including issuances or grants of Equity Interests), paid, provided or made directly or indirectly by the Company to such Person or any Affiliate, beneficiary or dependent of such Person.

Contact Letter ” is defined in Section 3.16.1 .

Contemplated Transactions ” means, collectively, the transactions contemplated by this Agreement, including (a) the Merger and (b) the execution, delivery and performance of this Agreement and the Ancillary Agreements.

Contractual Obligation ” means, with respect to any Person, any contract, agreement, deed, mortgage, lease, license, commitment, promise, undertaking, arrangement or understanding, whether written or oral and whether express or implied, or other document or instrument (including any document or instrument evidencing or otherwise relating to any Debt) to which or by which such Person is a party or otherwise subject or bound or to which or by which any property, business, operation or right of such Person is subject or bound.

Debt ” means, with respect to any Person, all obligations (including all obligations in respect of principal, accrued interest, penalties, fees and premiums, including any prepayment penalties, make whole payments or breakage fees associated with the repayment thereof) of such Person (a) for borrowed money (including overdraft facilities and lines of credit), (b) evidenced by notes, bonds, debentures or similar Contractual Obligations, (c) for the deferred purchase price of property, goods or services (other than trade payables or accruals incurred in the Ordinary Course of Business), (d) under capital leases (in accordance with GAAP), (e) in respect of letters of credit and bankers’ acceptances, (f) for Contractual Obligations relating to interest rate protection, swap agreements and collar agreements and (g) in the nature of guarantees of the obligations described in clauses (a) through (f) above of any other Person. For the avoidance of doubt “Debt” shall include any intercompany loans or payables outstanding as of the date of this Agreement.

Disclosed Contract ” is defined in Section 3.21.2 .

Disclosure Schedules ” is defined in Article 3.

Dispute Notice ” is defined in Section 2.12.4 .

Dissenting Members ” is defined in Section 2.13 .

Drop Dead Date ” is defined in Section 8.1(b) .

Effective Time ” is defined in Section 2.2 .

Encumbrance ” means any charge, claim, community or other marital property interest, condition, equitable interest, lien, license, option, pledge, security interest, title retention device,

 

6


mortgage, deed of trust, conditional sale or other security arrangement, collateral assignment, adverse claim of title, ownership or right of use, right of way, easement, encroachment, servitude, right of first offer or first refusal, buy/sell agreement and any other restriction or covenant with respect to, or condition governing the use, construction, voting (in the case of any security or equity interest), transfer, possession, receipt of income or exercise of any other attribute of ownership.

Enforceable ” means, with respect to any Contractual Obligation stated to be Enforceable by or against any Person, that such Contractual Obligation is a legal, valid and binding obligation of such Person enforceable by or against such Person in accordance with its terms, except to the extent that enforcement of the rights and remedies created thereby is subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application affecting the rights and remedies of creditors and to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

Environmental Action ” means any Action by any Person alleging potential Liability of the Company (including potential Liability for investigatory costs, Cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, Release or threatened Release of any Hazardous Materials at any location owned or operated by the Company, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law at any location currently or formerly owned or operated by the Company.

Environmental Laws ” means any federal, state, local and common Legal Requirements, ordinances, codes, regulations, rules and orders relating to pollution or protection of human health or the environment, including without limitation, laws relating to the exposure to, or Releases or threatened Releases of, Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport or handling of Hazardous Materials and all laws and regulations with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials.

Environmental Liabilities ” means any and all Losses arising under Environmental Laws (whether known or unknown, foreseen or unforeseen, contingent or otherwise, fixed or absolute, or present or arising in the future), including without limitation Losses consisting of or relating to any of the following conditions or events: (a) adverse environmental conditions resulting from the presence, release or management of Hazardous Materials arising out of or relating to the Company or a Predecessor or the operation of the Business at, on, in, from or around any Property or Facility; or (b) the off-site transportation, storage, treatment, recycling, disposal or arrangement for disposal or distribution of Hazardous Materials arising out of or relating to the Assets or the operation of the Business and which are managed or released at or from any Property or Facility; or (c) any violation of any Environmental Law; or (d) any required compliance with any Environmental Law applicable to the Contemplated Transactions.

Equipment ” is defined in Section 3.12 .

Equity Interests ” means (a) any capital stock, share, partnership or membership interest, unit of participation or other similar interest (however designated) in any Person and (b) any

 

7


option, warrant, purchase right, conversion right, exchange rights or other Contractual Obligation which would entitle any Person to acquire any such interest in such Person or otherwise entitle any Person to share in the equity, profit, earnings, losses or gains of such Person (including stock appreciation, phantom stock, profit participation or other similar rights).

ERISA ” means the federal Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate ” means any trade or business (whether or not incorporated) which is treated as a single employer with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code.

Escrow Account ” means the account maintained by the Escrow Agent and into which is deposited the Escrow Amount.

Escrow Agent ” is defined in Section 2.7 .

Escrow Agreement ” is defined in Section 2.7 .

Escrow Amount ” means a number of shares of Buyer Common Stock equal to (x) six million seven hundred fifty thousand dollars ($6,750,000) divided by (y) the Buyer Common Stock Closing Price.

Estimated Closing Balance Sheet ” is defined in Section 2.12.1 .

Estimated Closing Statement ” is defined in Section 2.12.1 .

Exclusivity Period ” is defined in Section 5.7 .

Expense Fund ” is defined in Section 2.8 .

Expense Fund Amount ” is defined in Section 2.8 .

Facilities ” means all buildings and improvements on the Property.

FDA ” means the U.S. Food and Drug Administration.

FDA Legal Requirements ” means the federal Food and Drug and Cosmetic Act, the Public Health Service Act, their applicable implementing regulations, any orders issued by FDA, and all comparable state and foreign Legal Requirements, and orders issued by any comparable Governmental Authority in jurisdictions outside the United States.

FIRPTA Certificate ” is defined in Section 10.11 .

Federal Health Care Program ” has the meaning specified in Section 1128B(f) of the SSA and includes the Medicare, Medicaid and TRICARE programs.

Federal Privacy and Security Regulations ” means the regulations promulgated pursuant to HIPAA, as amended, including the Privacy Regulations (45 C.F.R. Parts 160 and 164,

 

8


Subparts A and E), the Security Regulations (45 C.F.R. Parts 160 and 164, Subparts A and C), and the Breach Notification Regulations (45 C.F.R. Parts 160 and 164, Subparts A and D), all as may be amended from time to time.

Final Statement ” is defined in Section 2.12.6 .

Financials ” is defined in Section 3.6.1(b) .

GAAP ” means generally accepted accounting principles in the United States as in effect from time to time.

Governmental Order ” means any order, writ, judgment, injunction, decree, stipulation, ruling, determination or award entered by or with any Governmental Authority.

Government Official ” means: (a) any official, officer, employee or representative of, or any Person acting in an official capacity for or on behalf of, any Governmental Authority, (b) any political party or party official or candidate for political office, or (c) any company, business, enterprise or other entity owned, in whole or in part, or controlled by any Person described in the foregoing clause (a) or (b).

Governmental Authority ” means any United States federal, state or local or any foreign government, or political subdivision thereof, or any multinational organization or authority, or any authority, agency or commission entitled to exercise any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power, any court or tribunal (or any department, bureau or division thereof), or any arbitrator or arbitral body.

Hazardous Materials ” means any toxic or hazardous substance, material or waste or any pollutant or contaminant, or infectious or radioactive substance, material or waste defined in or regulated under any Environmental Laws.

Health Care Legal Requirements ” is defined in Section 3.16.3.

HIPAA ” means the Health Insurance Portability and Accountability Act of 1996, Pub. Law No. 104-191, as amended by the Health Information Technology for Economic and Clinical Health Act provisions of the American Recovery and Reinvestment Act of 2009, Pub. Law No. 111-5, and as otherwise may be amended from time to time.

HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Indemnifying Party ” means, with respect to any Indemnity Claims, the Party against whom such claim is asserted.

Indemnity Claim ” means a claim for indemnity under Section 9.1 .

Intellectual Property Rights ” means all worldwide industrial and intellectual property rights of every kind and nature however denominated, throughout the world, including:

 

9


(a) patents, patent applications (including provisional applications), and similar government-issued rights (e.g. utility models) protecting inventions in any country or jurisdiction however denominated, copyrights, mask work rights, confidential information, trade secrets, database rights, and all other proprietary rights in Technology;

(b) trademarks, trade names, service marks, service names, brands, trade dress and logos, and the goodwill and activities associated therewith;

(c) domain names, rights of privacy and publicity;

(d) moral rights and economic rights of authors and inventors;

(e) any and all registrations, applications, recordings, licenses, common-law rights, statutory rights, and contractual rights relating to any of the foregoing; and

(f) all Actions and rights to sue at law or in equity for any past or future infringement or other impairment of any of the foregoing, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions, or other extensions of legal protections pertaining thereto.

Legal Requirement ” means any United States federal, state or local or foreign law, statute, standard, ordinance, code, rule, regulation, resolution or promulgation, or any Governmental Order, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar provision having the force or effect of law.

Liability ” means, with respect to any Person, any liability or obligation of such Person, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, whether incurred or consequential, whether due or to become due and whether or not required under GAAP to be accrued on the financial statements of such Person.

Liability Policies ” is defined in Section 3.25.

Losses ” means that amount of any losses, damages, bonds, dues, assessments, fines, penalties, Taxes, fees, costs (including costs of investigation, defense and enforcement of this Agreement), expenses or amounts paid in settlement (in each case, including reasonable attorneys’ and experts fees and expenses) incurred or suffered which will be reduced by any net Tax Benefit arising from recognition of the Losses.

Member ” means a holder of a Member Equity Interest.

Member Escrow Amount ” is defined in Section 2.5.2(b)(5) .

Member Indemnified Person ” is defined in Section 9.1.2 .

Member Interest Grants ” means grants of membership interests of the Company granted as compensation to Employees and Consultants and subject to a vesting schedule.

Member Merger Payment ” is defined in Section 2.9.2 .

Members’ Representative ” is defined in the Preamble.

 

10


Merger ” is defined in the Recitals.

Merger Consideration ” means the aggregate amount payable hereunder to holders of Company Member Interests and Company Options in respect of such Equity Interests as a result of the Merger.

Merger LLC ” is defined in the Preamble.

Monthly Financials ” is defined in Section 5.5.2 .

Most Recent Balance Sheet ” is defined in Section 3.6.1(a) .

Most Recent Balance Sheet Date ” is defined in Section 3.6.1(a) .

Off-the-Shelf Software ” means software, other than open source software, obtained from a third party (i) on general commercial terms and that continues to be widely available on such commercial terms, (ii) that is not distributed with or incorporated in any product or services of the Company, (iii) that is used for business infrastructure or other internal purposes, and (iv) was licensed for fixed payments of less than $100,000 in the aggregate or annual payments of less than $50,000 per year.

Ordinary Course of Business ” means an action taken by any Person in the ordinary course of such Person’s business which is consistent with the past customs and practices of such Person.

Organizational Documents ” means, with respect to any Person (other than an individual), (a) the certificate or articles of incorporation or organization and any joint venture, limited liability company, operating or partnership agreement and other similar documents adopted or filed in connection with the creation, formation or organization of such Person and (b) all by-laws, agreements and similar documents, instruments or agreements relating to the organization or governance of such Person, in each case, as amended or supplemented.

Operating Agreement ” means the operating agreement of the Company dated as of August 28, 2008 and amended on August 24, 2011, July 1, 2012, August 15, 2012, January 4, 2013, June 1, 2013, October 1, 2013, January 16, 2014, January 22, 2014 and January 30, 2014.

Party ” and “ Parties ” are defined in the Preamble .

Paying Agent ” is defined in Section 2.9.1 .

Per Member Interest Consideration ” means $6.3433 plus $6.8417 shares of Buyer Common Stock, with no interest, subject to applicable tax withholding.

Permitted Encumbrance ” means (a) statutory liens for current Taxes not yet due and payable and for which adequate reserve has been established on the Financials of the Company in accordance with GAAP, (b) mechanics’, materialmen’s, carriers’, workers’, repairers’ and similar statutory liens arising or incurred in the Ordinary Course of Business which liens have not had and are not reasonably likely to have a Company Material Adverse Effect, (c) deposits or

 

11


pledges made in connection with, or to secure payment of, worker’s compensation, unemployment insurance, old age pension programs mandated under applicable Legal Requirements or other social security, (d) restrictions on the transfer of securities arising under federal and state securities laws, and (e) other than with respect to Company Intellectual Property Rights, imperfections of title and encumbrances, if any, as are not substantial in character, amount or extent and do not individually or in the aggregate, impair the continued use, occupancy, value or marketability of title of the property to which they relate, assuming that the property is used on substantially the same basis as such property is currently being used by the Company.

Person ” means any individual or corporation, association, partnership, limited liability company, joint venture, joint stock or other company, business trust, trust, organization, Governmental Authority or other entity of any kind.

Pre-Closing Tax Period ” is defined in Section 10.1 .

Pre-Closing Tax Return” is defined in Section 10.3 .

Predecessor ” is defined in Section 3.1.2 .

Property ” means all real property currently leased or owned by the Company or Predecessor.

Purchase Price ” is defined in Section 2.6.2 .

Real Property ” is defined in Section 3.11.1 .

Real Property Leases ” is defined in Section 3.11.1 .

Referee ” is defined in Section 2.12.5 .

Registrations ” means authorizations, approvals, clearances, licenses, permits, certificates or exemptions issued by any Governmental Authority (including 510(k) or pre-market notification clearances, pre-market approvals, investigational device exemptions, product recertifications, manufacturing approvals and authorizations, CE Marks, pricing and reimbursement approvals, labeling approvals, registration notifications or their foreign equivalent) that are required for the research, development, manufacture, distribution, marketing, storage, transportation, use and sale of the products of the Company.

Release ” means any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, dispersal, leaching or migration into the indoor or outdoor environment (including ambient air, surface water, groundwater and surface or subsurface strata) or into or out of any Facilities or Property, including the movement of Hazardous Materials through or in the air, soil, surface water, groundwater, Facilities or Property.

Representative ” means, with respect to any Person, any manager, officer, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

 

12


Scheduled Intellectual Property Rights ” has the meaning given to it in Section 3.13.3 .

Special Indemnities ” is defined in Section 9.1.3 .

Stock Consideration ” is defined in Section 2.6.1(a) .

Straddle Period ” is defined in Section 10.4 .

Straddle Period Tax Return ” is defined in Section 10.3 .

Subsidiary ” means, with respect to any specified Person, any other Person of which such specified Person will, at the time, directly or indirectly through one or more Subsidiaries, (a) own at least 50% of the outstanding capital stock (or other shares of beneficial interest) entitled to vote generally, (b) hold at least 50% of the partnership, limited liability company, joint venture or similar interests or (c) be a general partner or joint venturer.

Surviving Company ” is defined in Section 2.1.1 .

Tax ” (and, with correlative meaning, “ Taxes ” and “ Taxable ”) means (a) any federal, state, local or non-U.S. income, alternative or add-on minimum tax, gross income, estimated, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital stock, profits, license, registration, withholding, payroll, social security (or similar including FICA), employment, unemployment, disability, excise, severance, stamp, occupation, premium, property (real, tangible or intangible), environmental or windfall profit tax, custom duty or other tax, governmental fee, amount owed in respect of any Legal Requirement relating to escheat or unclaimed property, or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, fee, addition to tax or additional amount (in each case, whether disputed or not) imposed by any Governmental Authority responsible for or having authority with respect to the imposition, assessment, determination or collection of any such tax (each, a “ Tax Authority ”), (b) any Liability (contingent or otherwise) for the payment of any amounts of the type described in clause (a) of this sentence as a result of being or having been a member of an affiliated, consolidated, combined, unitary or aggregate group for any Taxable period, and (c) any Liability for the payment of any amounts of the type described in clause (a) or (b) of this sentence as a result of being a transferee of or successor to any Person or as a result of any express or implied obligation to assume such Taxes or to indemnify any other Person.

Tax Benefit ” means with respect to any Losses, in each case calculated on a with and without basis and net of any expenses, any net reduction in cash Taxes actually paid, or any net increase in any Tax refund actually received (including any related interest) on account of Losses, with respect to the taxable year in which a deduction for Losses is claimed or added to basis of an asset and each of the two succeeding taxable years.

Tax Matter ” is defined in Section 10.10.1.

Tax Indemnity Claim ” means any claim for indemnity under ARTICLE 10 .

Tax Return ” means any return, information return, statement, declaration, claim for refund, report, document or form (including estimated Tax returns and reports, withholding Tax returns and reports, any schedule or attachment, and information returns and reports) relating to Taxes, including any amendment thereof.

 

13


Taylor Employment Agreement ” is defined in the Recitals.

Technology ” means all inventions, works, discoveries, innovations, know-how, information (including ideas, research and development, formulas, algorithms, compositions, processes and techniques, data (including clinical data), results of experimentation and testing, designs, drawings, specifications, customer and supplier lists, pricing and cost information, business and marketing plans and proposals, graphics, illustrations, artwork, documentation, and manuals), databases, software, firmware, computer hardware, integrated circuits and integrated circuit masks, electronic, electrical, and mechanical equipment, materials, biological materials and samples, chemical compositions, assays, reagents, compounds, prototype and test devices, and all other forms of technology, including improvements, modifications, works in process, derivatives, or changes, whether tangible or intangible, embodied in any form, whether or not protectable or protected by patent, copyright, mask work right, trade secret law, or otherwise, and all documents and other materials recording any of the foregoing.

Termination Date ” is defined in Section 8.1 .

Third Party ” means any Person other than the Buyer, Merger LLC, the Company, or the Member Representative.

Third Party Claim ” is defined in Section 9.3.1 .

Third Party Intellectual Property Rights ” means any Intellectual Property Rights owned by a Third Party.

Transaction Expenses ” means any and all legal, accounting, consulting, investment banking, financial advisory, brokerage and other fees and expenses incurred by the Company or the Members’ Representative prior to Closing that become payable as a result of the negotiation, execution and performance of this Agreement or the consummation of the Merger or any of the Contemplated Transactions or in anticipation of any alternative transactions, including, without limitation, Change of Control Payments and any fees and expenses associated with obtaining necessary or appropriate waivers, consents or approvals of any Governmental Authority or third parties on behalf of such Party.

Treasury Regulations ” means the regulations promulgated under the Code.

Unaudited Financials ” is defined in Section 3.6.1(a) .

Working Capital ” means current assets (excluding Cash), minus current liabilities (excluding current Debt), determined in accordance with the Accounting Principles.

Working Capital Target ” means three million dollars ($3,000,000).

Except as otherwise explicitly specified to the contrary, (a) references to a Section, Article, Exhibit or Schedule means a Section or Article of, or Schedule or Exhibit to this

 

14


Agreement, unless another agreement is specified, (b) the word “including” (in its various forms) means “including without limitation,” (c) references to a particular statute or regulation include all rules and regulations thereunder and any predecessor or successor statute, rules or regulation, in each case as amended or otherwise modified from time to time, (d) words in the singular or plural form include the plural and singular form, respectively and (e) references to a particular Person include such Person’s successors and assigns to the extent not prohibited by this Agreement.

ARTICLE 2

MERGER AND CONVERSION OF SHARES.

2.1. The Merger .

2.1.1. Subject to the CLLA and the terms and conditions of this Agreement, at the Effective Time, the Company and Merger LLC will consummate the Merger pursuant to which Merger LLC will merge with and into the Company, and the separate existence of Merger LLC will thereupon cease, and the Company will be the successor or surviving company (the “ Surviving Company ”) and will continue to be governed by the laws of the State of California and will continue as a wholly owned subsidiary of the Buyer. The Merger will have the effects set forth in the CLLA.

2.1.2. Immediately following the effectiveness of the Merger, the limited liability company agreement of Merger LLC, as in effect immediately prior to the Merger, will be the limited liability company agreement of the Surviving Company until thereafter amended in accordance with the provisions thereof and the CLLA.

2.2. Effective Time . Subject to the provisions of this Agreement, the Buyer will prepare and, on the Closing Date, Merger LLC and the Company will cause to be filed with the Secretary of State of the State of California, a certificate of merger in such form as is required by the CLLA (the “ Certificate of Merger ”). The Merger will become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of California or at such later time as is set forth in the Certificate of Merger (the “ Effective Time ”).

2.3. The Closing . The closing of the Merger (the “ Closing ”) will take place electronically on such date and time to be specified by the Company and the Buyer, which will be no later than the second Business Day after satisfaction or waiver of all of the conditions set forth in ARTICLE 6 and ARTICLE 7 that are susceptible to satisfaction prior to the Closing Date. The failure to consummate the Merger on the date and time specified herein will not relieve any Party to this Agreement of any obligation under this Agreement.

2.4. Managers and Officers . The managers and officers of Merger LLC immediately prior to the Effective Time will, from and after the Effective Time, be the managers and officers of the Surviving Company, each to hold office in accordance with the Organizational Documents of the Surviving Company, until each such manager’s or officer’s, as applicable, successor is duly elected or appointed and qualified.

 

15


2.5. Effect on Company Member Interests . As of the Effective Time, by virtue of the Merger and without any action on the part of Buyer, the Company or the Merger LLC:

2.5.1. Treasury Interests; Company Member Interests Owned by Buyer . All Company Member Interests that are owned by the Company in treasury and any Company Member Interests owned by the Buyer or the Merger LLC will automatically be cancelled and retired and will cease to exist, and no consideration will be payable in exchange therefor.

2.5.2. Company Member Interests .

(a) Except as otherwise provided in Section 2.5.1 and subject to adjustment in accordance with Section 2.12 , each Company Member Interest issued and outstanding immediately prior to the Effective Time, will be converted into the right to receive, following surrender of any certificate representing such interest in accordance with the terms hereof and in the manner provided herein, the Per Member Interest Consideration. From and after the Effective Time, all such interests will no longer be outstanding and will be automatically cancelled and retired and will cease to exist, and the holder of each certificate formerly representing each such interest will cease to have any rights with respect thereto, except the right to receive (subject to the terms of this Agreement) the Per Member Interest Consideration for each such member interest;

(b) As noted in Section 2.7 below, the Escrow Amount will be withheld from the Per Member Interest Consideration otherwise distributable to the Members at the Closing on a pro rata basis, pursuant to the terms of the Escrow Agreement. The Escrow Agreement will provide that the remaining Escrow Amount, if any, will be distributed to the Members in accordance with the terms of the Escrow Agreement. Schedule 2.5.2 sets forth the following information with respect to each holder of Company Member Interests:

(1) the percentage Company Member Interests held by such Person;

(2) the original issuance date with respect to each Company Member Interest held by such Person;

(3) the amount of such Person’s Merger Consideration payable in cash;

(4) the amount, if any, of such Person’s Merger Consideration payable in Buyer Common Stock; and

 

16


(5) the amount of such Person’s Merger Consideration to be delivered to the Escrow Agent pursuant to Section 2.7 as part of the Escrow Amount (for each such Person, the “ Member Escrow Amount ”).

(c) Schedule 2.5.2 will be supplemented at Closing to set forth the Merger Consideration to be paid, as well as any changes to the list of Members to reflect the exercise or conversion of any Company Options between the date hereof and the Closing.

2.5.3. Company Options/Member Interest Grants . At the Effective Time unvested Company Options will accelerate and become exchangeable for an amount in cash equal to the Per Member Interest Consideration minus the exercise price with respect to each Company Member Interest for which the Company Option was exercisable. At the Effective Time, unvested Member Interest Grants that have not yet vested shall be deemed vested, and holders of such grants shall become entitled as of the Effective Time to receive an amount equal to the Per Member Interest Consideration for all member interests covered by such grant. All payments made pursuant to this Section 2.5.3 shall be processed through the Company’s payroll system as appropriate and no payments need be made pursuant to this Section 2.5.3 until the applicable holder of unvested Company Options or unvested Member Interest Grants delivers to the Buyer a duly executed equity cash out agreement in substantially the form attached as Exhibit 2.5.3 .

2.5.4. No Fractional Shares . No fractional shares of Buyer Common Stock will be issued in connection with the Merger. Any holder of Company Member Interests who would otherwise be entitled to receive a fraction of a share of Buyer Common Stock, will, in lieu of such fraction of a share and upon surrender of such holder’s certificates, be paid in cash the dollar amount equal to such fraction multiplied by the Buyer Common Stock Closing Price.

2.5.5. Rounding . All calculations to be performed pursuant to the terms of this Agreement will be calculated to four decimal places.

2.6. Consideration .

2.6.1. Closing Consideration . The aggregate consideration for the Company’s fully diluted Equity Interests at the Effective Time will be equal to an amount (such aggregate consideration, the “ Closing Consideration ”) calculated as follows:

(a) the aggregate amount required to exchange outstanding Company Options pursuant to Section 2.5.3. plus

 

17


(b) 1,364,632 shares of Buyer Common Stock calculated by dividing (x) forty two million four hundred twenty four thousand five sixty two ($42,424,562) by (y) the Buyer Common Stock Closing Price 1 (the “ Stock Consideration ”); plus

(c) Subject to Section 2.8 , forty two million four hundred twenty four thousand five sixty two ($42,424,562) in cash;

(1) less the Closing Debt Amount (including any current Debt);

(2) less the amount of any Company Transaction Expenses not otherwise paid prior to the Closing Date (but excluding any amounts included in the Closing Debt Amount);

(3) less the amount of the Expense Fund;

(4) plus Cash;

(5) plus the Working Capital Adjustment Amount (if Working Capital is greater than the Working Capital Target) or less the Working Capital Adjustment Amount (if Working Capital is less than the Working Capital Target).

The amount described in this Section 2.6.1(c) , the “ Cash Consideration.

The Closing Consideration will be subject to adjustment in accordance with Sections 2.8 and 2.12 .

2.6.2 Allocation of Closing Consideration . The purchase price for Tax purposes (the “ Purchase Price”) shall be allocated among the Assets in accordance with the principles of section 1060 of the Code and the related Treasury Regulations in a manner consistent Schedule 2.6.2 attached hereto (it being understood that the information on Schedule 2.6.2 are subject to adjustment as of the Closing Date as provided in this Section 2.6.2 (the “ Allocation ”). Any subsequent adjustments to the Purchase Price shall be reflected in the Allocation in accordance with the principles set forth in this Section 2.6.2 , and in a manner consistent with the Allocation as previously agreed between the Parties. If additional Assets are properly identified after Closing, the Purchase Price shall be re-allocated among the Assets in accordance with the principles set forth in the Section 2.6.2 and in a manner consistent with the Allocation as previously agreed between the Parties.

2.6.3 The Purchase Price will be reported for income and other tax purposes by the parties in accordance with the Allocation. Each of the parties covenants and agrees that, for purposes of preparing all of its Tax Returns, all such Tax Returns (including, without limitation, the Form 8594 filed by the Buyer and the Company’s Members in connection with the transaction contemplated hereunder, shall be prepared and filed on a basis consistent with the Allocation. Unless otherwise required by law, neither the Buyer nor the Company’s Members shall take any position (including a statement on a Financial Statement or a Tax Return or in an audit of a Tax Return) that is inconsistent with the Allocation.

 

 

1   Is $31.08 as of January 29, 2014.

 

18


2.6.4 On or before March 1, 2015, Buyer will prepare for the review and approval of the Member’s Representative (which approval will not be unreasonably withheld, conditioned or delayed) a proposed Form 8594 to be attached by each Party to its Tax Returns for the taxable year that includes the Closing Date. Within fifteen (15) days after receipt of the proposed Form 8594, the Member’s Representative will either approve the proposed Form 8594 as submitted by the Buyer, or object to the proposed Form 8594, in which event he will specify his objections in writing with particularity. In the event the Member’s Representative fails to respond within the fifteen (15) day time period referred to in the immediately preceding sentence, he shall be deemed to have approved the proposed Form 8594 as submitted by the Buyer. In the Member’s Representative communicates objections to the proposed Form 8594 to the Buyer, the Member’s Representative and the Buyer shall proceed promptly and in good faith to resolve their differences and prepare a Form 8594 that is acceptable to both the Buyer and the Member’s Representative that is consistent with the allocation contained in Schedule 2.6.2. attached hereto.

2.7 Escrow . At the Closing, the Escrow Amount will be delivered or caused to be delivered by the Buyer to American Stock Transfer & Trust Company, LLC, as escrow agent (the “ Escrow Agent ”), pursuant to the provisions of the escrow agreement in substantially the form attached as Exhibit 2.7 hereto, subject to any amendments to such form requested by the Escrow Agent and mutually agreed to by the Buyer and the Members’ Representative (the “ Escrow Agreement ”). The Escrow Agreement will be entered into prior to the Effective Time, by and among the Buyer, the Members’ Representative and the Escrow Agent, and will provide the Buyer with recourse against the Escrow Amount held in escrow by the Escrow Agent with respect to Losses and the Members’ indemnification obligations under this Agreement. The Escrow Amount (or any portion thereof) will be distributed to the Members and the Buyer at the times, and upon the terms and conditions, set forth in the Escrow Agreement.

2.8 Expense Fund . At the Closing, cash in an amount equal to $250,000 (the “ Expense Fund Amount ”) will be deducted from the Cash Consideration and delivered or caused to be delivered by the Buyer to the Members’ Representative by wire transfer in immediately available funds to an account designated by the Members’ Representative at least three (3) Business Days prior to the Closing Date (the “ Expense Fund ”). The Members’ Representative will hold the Expense Fund Amount for the purposes of paying fees and satisfying expenses of the Members’ Representative incurred in connection with the discharge of its duties under this Agreement, including the costs and expenses incurred by the Members’ Representative in defending against any claim or Liability in performing its duties on behalf of the Members. If any of the Expense Fund Amount remains after the Members’ Representative has discharged its duties under this Agreement, the Members’ Representative will promptly disburse such remainder to the Paying Agent and the Paying Agent will pay to each Member its Pro Rata Portion of such remainder.

 

19


2.9 Disbursement .

2.9.1 Paying Agent . At or prior to the Effective Time, the Buyer will deposit, or cause to be deposited, with American Stock Transfer & Trust Company, LLC (the “ Paying Agent ”) for the benefit of the Members, (i) cash in an amount equal to the Cash Consideration plus (ii) shares of Buyer Common Stock in an amount equal to the Stock Consideration minus the Escrow Amount. Cash funds may be invested as directed by the Buyer pending payment thereof by the Paying Agent to the Members. Earnings from such investments will be the sole and exclusive property of the Buyer, and no part of such earnings will accrue to the benefit of the Members. In no event may the Paying Agent sell or otherwise dispose of the Stock Consideration.

2.9.2 Surrender and Payment Procedures . As soon as reasonably practicable after the Effective Time, but no later than five Business Days thereafter, the Buyer will instruct the Paying Agent to mail to each Person listed on Schedule 2.5.2 (i) a letter of transmittal, in the form set forth in Exhibit 2.9.2 (which will specify that delivery will be effected, and risk of loss and title to any certificate(s) formerly representing Company Member Interests will pass, only upon receipt of such certificates by the Paying Agent) and (ii) instructions for use in effecting the surrender of certificate(s) formerly representing all the Company Member Interests held by such Member in exchange for the Member Merger Payment (as defined below). Such payment is conditioned upon the due execution and delivery of such letter of transmittal and any other documents as may be reasonably requested by the Paying Agent. After the Effective Time, within five Business Days after receipt by the Paying Agent of certificate(s), properly endorsed or otherwise in proper form for transfer, formerly representing all the Company Member Interests held by any Member for cancellation, together with such duly executed letter of transmittal and any other documents as may be reasonably requested by the Paying Agent, the Paying Agent will, in exchange therefor and in reliance on the representations and warranties herein and therein, pay to such Member an amount equal to (1) such Member’s Closing Consideration, less (2) such Member’s Escrow Amount (such amount, with respect to each such Member, being the “ Member Merger Payment ”), in each case payable without interest and subject to applicable Tax withholding. If payment of any portion of the applicable Member Merger Payment is to be made to a Person other than the Person in whose name the surrendered certificate(s) are registered, it will be a condition of payment that the Person requesting such payment (A) will have paid any Taxes required by reason of the payment of those amounts to a Person other than the registered holder of the certificate(s) surrendered, and will have established to the satisfaction of the Buyer that such Taxes have been paid, or (B) will have established to the satisfaction of the Buyer that such Taxes are not applicable. From and after the Effective Time, until surrendered as contemplated by this Section 2.9.2 , each certificate formerly representing Company Member Interests will be deemed to represent for all purposes only the right to receive the applicable consideration set forth in this ARTICLE 2 , if any, in respect of such interests formerly represented thereby in accordance with the terms hereof and in the manner provided herein.

2.9.3 Transfer Books; No Further Ownership Rights . At the Closing, the transfer books of the Company will be closed, and thereafter there will be no further registration of transfers of Company Member Interests on the records of the Company unless and until reopened by the Surviving Company. From and after the Effective Time,

 

20


the holders of certificates formerly evidencing ownership of Company Member Interests outstanding immediately prior to the Effective Time will cease to have any rights with respect to such interests, except as provided for herein or by applicable Legal Requirements. After the Effective Time, the Buyer will exchange, as provided in this ARTICLE 2 , any presented certificate representing Company Member Interests outstanding immediately prior to the Effective Time.

2.9.4 Termination of Fund; No Liability . At any time following six months after the Effective Time, the Buyer will be entitled to require the Paying Agent to deliver to it any funds (including, without limitation, any earnings received with respect thereto) and shares of Buyer Common Stock that had been made available to the Paying Agent and that have not been disbursed to the Members and thereafter such holders will be entitled to look only to the Buyer (subject to abandoned property, escheat or other similar Legal Requirements) and only as general creditors thereof with respect to such holder’s applicable payment, upon and subject to delivery of the duly executed applicable letter of transmittal, as applicable, and, with respect to any holder of Company Member Interests, upon due surrender of their certificates formerly representing such interests, without any interest thereon. Notwithstanding the foregoing, none of the Buyer, the Surviving Company or the Paying Agent will be liable to any Member for any amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar Legal Requirement.

2.9.5 Lost, Stolen or Destroyed Certificates . In the event any certificate(s) which formerly represented Equity Interests of the Company has been lost, stolen or destroyed, upon the making and delivery of an affidavit of that fact by the holder thereof in form reasonably satisfactory to the Buyer or the Paying Agent, the Buyer or Paying Agent will pay such holder the payment to which such holder is entitled, as provided in this ARTICLE 2 ; provided , however , that the Buyer may, in its sole discretion and as a condition precedent to issuing such payment, require the owner of such lost, stolen or destroyed certificate(s) to deliver an agreement of indemnification in form reasonably satisfactory to the Buyer and a bond in such sum as the Buyer may reasonably direct as indemnity, not to exceed the amount of the Member’s Merger Payment, against any claim that may be made against the Buyer or the Surviving Company with respect to the certificate(s) alleged to have been lost, stolen or destroyed.

2.10 Withholding Rights . Each of the Buyer, the Surviving Company, the Escrow Agent and any Paying Agent designated by the foregoing will be entitled to deduct and withhold, or cause to be deducted and withheld, from any amount payable or consideration otherwise deliverable pursuant to this Agreement such amounts as may be required to be deducted and withheld therefrom under the Code or any other Legal Requirement in connection with such payments and/or consideration. To the extent that amounts are so deducted or withheld and paid over to the appropriate Tax Authority, such deducted or withheld amounts will be treated for all purposes of this Agreement as having been paid to such holder in respect of which such deduction or withholding was made.

 

21


2.11 Unclaimed Amounts . Any amounts remaining unclaimed by any Member, immediately prior to such time when the amounts would otherwise escheat to or become the property of any Governmental Authority, will become, to the extent permitted by applicable Legal Requirements, the property of the Buyer, free and clear of any claims or interest of any Person previously entitled thereto. Any portion of the Merger Consideration made available to the Paying Agent in respect of interests held by Dissenting Members shall be returned to Buyer upon demand.

2.12 Working Capital Adjustment .

2.12.1 Estimated Balance Sheet . The Company has delivered to the Buyer concurrently with the execution and delivery of this Agreement, an estimated consolidated balance sheet of the Company as of immediately prior to the Closing (the “ Estimated Closing Balance Sheet ”), together with a written statement setting forth in reasonable detail its estimate of the Working Capital as of immediately prior to the Closing as reflected on the Estimated Closing Balance Sheet (the “ Estimated Closing Statement ”). The Estimated Closing Balance Sheet and the Estimated Closing Statement has been prepared in accordance with the methodology set forth in Section 2.12.3 and will be updated by the Company immediately prior to the Closing.

2.12.2 Adjustment to Closing Consideration . (a) If the Working Capital reflected on the Estimated Closing Statement is less than the Working Capital Target, then the total consideration payable to the Members pursuant to Section 2.6 will be reduced by the amount of such shortfall on a dollar-for-dollar basis; and (b) If the Working Capital reflected on the Estimated Closing Statement is greater than the Working Capital Target, then the total consideration payable to the Members pursuant to Section 2.6 will be increased by the amount of such increase on a dollar-for-dollar basis.

2.12.3 Closing Balance Sheet . As promptly as possible and in any event within sixty (60) days after the Closing Date, the Surviving Company will prepare or cause to be prepared, and will provide to the Members’ Representative, a consolidated balance sheet of the Surviving Company as of the Closing Date (the “ Closing Balance Sheet ”), together with a written statement setting forth in reasonable detail its determination of the Working Capital on the Closing Date as reflected on the Closing Balance Sheet (the “ Closing Statement ”). The Closing Balance Sheet and the Closing Statement will be prepared in accordance with GAAP as in effect on the date of the Most Recent Balance Sheet, in accordance with Accounting Principles. The Members’ Representative will have reasonable access to the work papers used by the Surviving Company in the preparation of the Closing Balance Sheet and the Closing Statement.

2.12.4 Dispute Notice . The Closing Balance Sheet and the Closing Statement will be final, conclusive and binding on the Parties unless the Members’ Representative provides a written notice (a “ Dispute Notice ”) to the Surviving Company no later than the thirtieth (30 th ) day after delivery of the Closing Statement setting forth in reasonable detail (a) any item on the Closing Balance Sheet and/or the Closing Statement

 

22


that the Members’ Representative believes is not materially correct or has not been prepared in accordance with the Accounting Principles and (b) the correct amount of such item in accordance with the Accounting Principles. Any item or amount to which no dispute is raised in the Dispute Notice will be final, conclusive and binding on the Parties.

2.12.5 Resolution of Disputes . The Surviving Company and the Members’ Representative will attempt to resolve the matters raised in a Dispute Notice in good faith. Twenty (20) Business Days after delivery of the Dispute Notice, either the Surviving Company or the Members’ Representative may provide written notice to the other that it elects to submit the disputed items to an independent nationally recognized accounting firm chosen jointly by the Surviving Company and Members’ Representative (the “ Referee ”). The Referee will promptly review only those items and amounts specifically set forth and objected to in the Dispute Notice and resolve the dispute by adopting, in its entirety, the calculations in either the Closing Statement or the Dispute Notice. The fees and expenses of the Referee will be shared equally by the Members on the one hand (out of funds allocated to the Expense Fund and disbursed by the Member’ Representative) and the Surviving Company on the other hand, and the decision of the Referee with respect to the items of the Closing Balance Sheet and the Closing Statement submitted to it will be final, conclusive and binding on the Parties. Each of the Parties to this Agreement agrees to use its commercially reasonable efforts to cooperate with the Referee and to cause the Referee to resolve any dispute no later than thirty (30) Business Days after selection of the Referee.

2.12.6 Post-Closing Adjustment to Closing Consideration . Promptly, and in any event no later than the fifth (5 th ) Business Day, after final determination of the Closing Statement in accordance with Section 2.12.4 or 2.12.5 (the “ Final Statement ”): (a) If the amount of Working Capital reflected on the Final Statement is less than the Working Capital estimated in the Estimated Closing Statement, then each Member will pay, out the Escrow Account, to the Buyer its pro rata share of such shortfall by transfer of shares of Buyer Common Stock ; and (b) If the amount of Working Capital reflected on the Final Statement is more than the Working Capital estimated in the Estimated Closing Statement, then the Buyer will pay to the Members’ Representative for payment to the Members outstanding immediately prior to the Effective Time on a pro rata basis, such excess by wire transfer in immediately available funds.

2.13 Dissenting Members . Notwithstanding any provision in this Agreement to the contrary, membership interests issued and outstanding immediately prior to the Effective Time and held by a Member who has not voted in favor of adoption of this agreement or consented thereto in writing and who has properly exercised dissenters’ rights of such membership interests in accordance with Article 11 of the CLLA (such members, the “ Dissenting Members ” until such time as such member loses his or her dissenters’ rights under the CLLA with respect to such membership interests) shall not be converted into a right to receive the Merger Consideration, without interest thereon, upon delivery of the certificate formerly representing such interest or transfer of the book-entry interest, as the case may be. The Company and the Members’ Representative will provide Buyer prompt written notice of any demands received by the

 

23


Company for the appraisal of membership interests, any withdrawal of such demand, and any other demand, notice or instrument delivered to the Company prior to the Effective Time, and the Buyer will have the right to direct all negotiations and proceedings with respect to such demands. Except with the prior written consent of the Buyer, the Company will not make any payment with respect to, or settle or offer to settle, any such demands.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY.

In order to induce the Buyer and Merger LLC to enter into and perform this Agreement and to consummate the Contemplated Transactions, and except as set forth on the disclosure schedules delivered by the Company to the Buyer and Merger LLC (the “ Disclosure Schedules ”), the section numbers of which are numbered to correspond to the sections of this Agreement to which they refer (provided that disclosures in the Disclosure Schedules as to which it is readily apparent apply to any other section shall be deemed to apply to such section as well), the Company and the Members (with respect to the Members, severally and not jointly) represent and warrant to the Buyer and Merger LLC as follows:

3.1. Organization; Predecessors .

3.1.1. Organization . Schedule 3.1.1 sets forth for the Company’s full name and jurisdiction of organization. The Company is (a) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and (b) is duly qualified to do business and in good standing in each jurisdiction in which it owns or leases Real Property and in each other jurisdiction in which the failure to so qualify has not had, and is not reasonably likely to have, a Company Material Adverse Effect. The Company has made available to the Buyer true, accurate and complete copies of (i) the Organizational Documents of the Company and (ii) the minute books of the Company covering each of the past three fiscal years, which contain records of all meetings held of, and other actions taken by, its Members, boards of managers (or other governing body) and any committees appointed by its boards of managers (or other governing body).

3.1.2. Predecessors . Schedule 3.1.2 sets forth a list, covering in each case the previous five years, of (a) any Person that has ever merged with or into the Company, (b) any Person a majority of whose capital stock (or similar outstanding ownership interests) or Equity Interests has ever been acquired by the Company, (c) any Person all or substantially all of whose assets has ever been acquired by the Company and (d) any prior names of the Company or any Person described in clauses (a) through (c) (each such Person, a “ Predecessor ”).

3.2. Power and Authorization .

3.2.1. Contemplated Transactions . The execution, delivery and performance by the Company of this Agreement and each Ancillary Agreement to which

 

24


it is (or will be) a party and the consummation of the Contemplated Transactions are within the power and authority of the Company and have been duly authorized by all necessary action on the part of the Company, other than approval by the holders of Company Member Interests of the Merger and the Contemplated Transactions as set forth in Section 3.2.4 . This Agreement and each Ancillary Agreement to which the Company is (or will be) a party (a) has been (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) duly executed and delivered by the Company and (b) is (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) a legal, valid and binding obligation of the Company, Enforceable against the Company in accordance with its terms.

3.2.2. Conduct of Business . The Company has the organizational power and authority necessary to own and use its Assets and carry on the Business as currently owned, used and carried on.

3.2.3. Manager Approvals . The Company’s sole manager has (i) determined that the Merger is fair to, and in the best interests of the Company and holders of the Company Member Interests, (ii) resolved to propose this Agreement for adoption by holders of the Company Member Interests and declared the advisability of this Agreement, and (iii) resolved to recommend that the holders of Company Member Interests adopt this Agreement.

3.2.4. Company Member Approval . The only votes or consents of holders of any Equity Interest of the Company necessary to adopt this Agreement and approve the Contemplated Transactions are the adoption of this Agreement by the holders of 75% of the outstanding Company Member Interests (the “ Company Member Approval ”). The adoption of this Agreement by written consent is permissible under the CLLA and the Company’s Organizational Documents.

3.3. Authorization of Governmental Authorities . Except as disclosed on Schedule 3.3 , no action by (including any authorization, consent or approval), or in respect of, or filing with, any Governmental Authority is required for, or in connection with, the valid and lawful (a) authorization, execution, delivery and performance by the Company of this Agreement and each Ancillary Agreement to which it is (or will be) a party or (b) the consummation of the Contemplated Transactions by the Company, other than the filing of the Certificate of Merger with the Secretary of State of the State of California.

3.4. Noncontravention . Except as disclosed on Schedule 3.4 , neither the execution, delivery and performance by the Company or any Member of this Agreement or any Ancillary Agreement to which it is (or will be) a party nor the consummation of the Contemplated Transactions will:

(a) assuming the taking of any action by (including any authorization, consent or approval), or in respect of, or any filing with, any Governmental Authority, in each case, as disclosed on Schedule 3.3 , violate any Legal Requirement applicable to the Company;

 

25


(b) result in a breach or violation of, or default under, or material modification or adverse change in, any material Contractual Obligation of the Company;

(c) require any action by (including any authorization, consent or approval) or in respect of (including notice to), any Person under any material Contractual Obligation of the Company;

(d) result in the creation or imposition of an Encumbrance upon (other than a Permitted Encumbrance), or the forfeiture of, any material Asset;

(e) result in a breach or violation of, or default under, the Organizational Documents of the Company; or

(f) result in an obligation to make any payment to any Person, or result in an acceleration of or increase in any rights or benefits of any Person.

3.5. Capitalization of the Company .

3.5.1. Outstanding Interests . As of the date of this Agreement, the authorized Equity Interests of the Company is as set forth on Schedule 3.5 . All of the outstanding member interests or capital stock of the Company have been duly authorized, validly issued, and are fully paid and non-assessable. The Company has not violated the 1933 Act, any state “blue sky” or securities laws, any other similar Legal Requirement or any preemptive or other similar rights of any Person in connection with the issuance or redemption of any of its Equity Interests. To the knowledge of the Company, all but ten (10) Members of the Company qualify as “accredited investors” (as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933 (“Regulation D”), as amended), and each member receiving Stock Consideration who is not an “accredited investor,” either alone or with such Member’s purchaser representative as defined in Regulation D, has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the Contemplated Transactions.

3.5.2. Ownership . The Company holds no member interests in its treasury. All of the outstanding Equity Interests of the Company are held of record and beneficially owned by the Persons and in the respective amounts set forth in Schedule 3.5 . The Company has delivered to the Buyer true, correct and complete copies of the ownership ledger of the Company as of the date of this Agreement, each of which reflects all issuances, transfers, repurchases and cancellations of its Equity Interests.

3.5.3. Subsidiaries . The Company does not have any Subsidiaries.

3.5.4. Encumbrances, etc . Except as disclosed on Schedule 3.5 : (a) there are no preemptive rights or other similar rights in respect of any Equity Interests in

 

26


Company, (b) except as imposed by applicable securities laws, there are no Encumbrances (other than Permitted Encumbrances) on, or other Contractual Obligations relating to, the ownership, transfer or voting of any Equity Interests in the Company, or otherwise affecting the rights of any holder of the Equity Interests in the Company, (c) except for the Contemplated Transactions, there is no Contractual Obligation, or provision in the Organizational Documents of the Company that obligates it to purchase, redeem or otherwise acquire, or make any payment (including any dividend or distribution) in respect of, any Equity Interests in the Company and (d) there are no existing rights with respect to registration under the 1933 Act of any Equity Interests in the Company.

3.5.5. Company Options . Each Company Option (i) was granted in compliance with all applicable Laws, (ii) has an exercise price per unit equal to or greater than the fair market value of a unit on the date of grant, and (iii) was granted with respect to “service recipient stock”, as such term is used in Treas. Regs. §1.409A-1.

3.6. Financial Statements .

3.6.1. Financial Statements . Attached as Schedule 3.6 are copies of each of the following:

(a) the unaudited consolidated balance sheet of the Company as of December 31, 2013 (respectively, the “ Most Recent Balance Sheet ,” and the “ Most Recent Balance Sheet Date ”) and the related unaudited consolidated statement of income, cash flow and changes in members’ equity of the Company for the fiscal year then ended (the “ Unaudited Financials ”); and

(b) the audited consolidated balance sheet of the Company as of December 31, 2012 and the related audited consolidated statements of income, cash flow and changes in members’ equity of the Company for the fiscal years then ended, accompanied by any notes thereto and the report of CEA, LLP (collectively, the “ Audited Financials ” and together with the Unaudited Financials, the “ Financials ”).

3.6.2. Compliance with GAAP, etc . Except as disclosed on Schedule 3.6 , the Financials (a) are complete and correct in all material respects and were prepared in accordance with the books and records of the Company, (b) have been prepared in accordance with GAAP, consistently applied (except as otherwise noted therein and subject, in the case of the unaudited Financials, to normal year-end adjustments and the absence of notes that, if presented, would not differ materially from those included in the Audited Financials) and (c) fairly present in all material respects the financial position of the Company as at the respective dates thereof and the results of the operations of the Company and changes in financial position for the respective periods covered thereby.

3.7. Absence of Undisclosed Liabilities . The Company has no Liabilities except for (a) Liabilities set forth on the face of the Most Recent Balance Sheet, (b)

 

27


Liabilities incurred in the Ordinary Course of Business since the Most Recent Balance Sheet Date (none of which results from, arises out of, or relates to any breach or violation of, or default under, a Contractual Obligation or Legal Requirement), and (c) Company Transaction Expenses.

3.8. Absence of Certain Developments . Since the Most Recent Balance Sheet Date, the Business has been conducted in the Ordinary Course of Business and, except for pursuing the Merger and the matters disclosed in Schedule 3.8 :

(a) the Company has not (i) amended its Organizational Documents, (ii) amended any term of its outstanding Equity Interests or other securities or (iii) issued, sold, granted, or otherwise disposed of, its Equity Interests or other securities;

(b) the Company has not become liable in respect of any guarantee or has incurred, assumed or otherwise become liable in respect of any Debt;

(c) the Company has not (i) acquired, sold, leased, disposed of, or pledged its Assets other than in the Ordinary Course of Business or (ii) permitted any of its Assets to become subject to an Encumbrance other than a Permitted Encumbrance;

(d) the Company has not (i) made any declaration, setting aside or payment of any dividend or other distribution with respect to, or any repurchase, redemption or other acquisition of, any of its Equity Interests (other than as between the Company, upon the exercise or conversion of any Equity Interests of the Company or repurchases made upon the termination of employment of employees or consultants in accordance with the terms of all existing agreements) or (ii) entered into, or performed, any transaction with, or for the benefit of, any member of the Company or any Affiliate of such member (other than payments made to officers, managers and employees in the Ordinary Course of Business);

(e) there has been no material loss, destruction, damage or eminent domain taking (in each case, whether or not insured) affecting the Business or any material Asset;

(f) the Company has not increased the Compensation or benefits payable or paid, whether conditionally or otherwise, to (i) any current or former employee, independent contractor or agent other than in the Ordinary Course of Business, (ii) any manager or officer or (iii) any member of the Company or any Affiliate of any such member, other than to employee or independent contractor Members in the Ordinary Course of Business;

(g) the Company has not entered into any Contractual Obligation providing for the employment of or an independent contractor relationship with any Person on a full-time, part-time, consulting or other basis or otherwise providing Compensation or other benefits to any member, officer, manager, employee, consultant, independent contractor or other agent or service provider except for hiring at-will employees in the Ordinary Course of Business;

 

28


(h) the Company has not adopted or amended any collective bargaining agreement or other agreement of any kind with a labor union;

(i) the Company has not instituted any new, or modified any existing, severance or termination pay plan, agreement or practice;

(j) the Company has not made any change in its methods of accounting or accounting practices (including with respect to reserves);

(k) the Company has not made, changed or revoked any Tax election, elected or changed any method of accounting for Tax purposes, amended any Tax return, settled any Action in respect of Taxes, entered into any Contractual Obligation in respect of Taxes with any Governmental Authority or consented to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company;

(l) the Company has not terminated or closed any facility, business or operation;

(m) the Company has not modified, suspended or terminated any Company Employee Plan or, except in accordance with terms thereof as in effect on the Most Recent Balance Sheet Date, increased any benefits under any Company Employee Plan, other than modifications, suspensions or terminations required by an applicable Legal Requirement;

(n) the Company has not written up or written down any of its material Assets;

(o) the Company has not adopted a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization, other than the Contemplated Transactions;

(p) the Company has not settled any investigation by a Governmental Authority or any material Action;

(q) the Company has not entered into a Contractual Obligation that is or would be a Disclosed Contract, other than in the Ordinary Course of Business, or waived, released or assigned any material rights or claims with respect to any Contractual Obligation that is or would be a Disclosed Contract in any material respect;

(r) the Company has not entered into any Contractual Obligation to do any of the things referred to elsewhere in this Section 3.8 ; and

(s) no Company Material Adverse Effect has occurred.

3.9. Debt; Guarantees . The Company has no Liabilities in respect of Debt except as reflected on the face of the Most Recent Balance Sheet or as set forth on Schedule 3.9 . For each item of Debt, Schedule 3.9 correctly sets forth the debtor, the principal amount of the Debt

 

29


as of the date of this Agreement, the creditor, the maturity date and the collateral, if any, securing the Debt. The Company has no Liability in respect of a guarantee of any Liability of any other Person.

3.10. Assets.

3.10.1. Ownership of Assets . The Company has sole and exclusive, good and marketable title to, or, in the case of property held under a lease or other Contractual Obligation, a sole and exclusive, Enforceable leasehold interest in, or right to use, all of its properties, rights and assets, whether real or personal and whether tangible or intangible, including all assets reflected in the Most Recent Balance Sheet or acquired after the Most Recent Balance Sheet Date (except for such assets which have been sold or otherwise disposed of since the Most Recent Balance Sheet Date in the Ordinary Course of Business) (collectively, the “ Assets ”). Except as disclosed on Schedule 3.10 , none of the Assets is subject to any Encumbrance other than Permitted Encumbrances.

3.10.2. Sufficiency of Assets . The Assets comprise all of the material assets, properties and rights of every type and description, whether real or personal, tangible or intangible, used in the conduct of the Business.

3.10.3. Investments . The Company does not control, directly or indirectly, or owns any direct or indirect Equity Interest in any Person which is not a Subsidiary of the Company.

3.11. Real Property .

3.11.1. The Company does not own and it has never owned any real property. Schedule 3.11 describes each leasehold interest in real property leased, subleased by, licensed or with respect to which a right to use or occupy has been granted to or by the Company (the “ Real Property ”), and specifies the lessor(s) of such leased property and identifies each lease or any other Contractual Obligation under which such property is leased (the “ Real Property Leases ”). Except as described on Schedule 3.11 there are no written or oral subleases, licenses, concessions, occupancy agreements or other Contractual Obligations granting to any other Person the right of use or occupancy of the Real Property and there is no Person (other than the Company and any lessor(s) of leased Real Property) in possession of the leased Real Property. With respect to each Real Property Lease that is a sublease, to the Company’s Knowledge, the representations and warranties set forth in Sections 3.21.2 and 3.21.3 are true and correct with respect to the underlying lease. The present use of, and operations conducted on, each leased Real Property are permitted under the terms of the applicable lease or sublease. To the Company’s Knowledge, there are no pending or threatened condemnation, building, zoning or other land use or regulatory proceedings relating to any portion of any leased Real Property that would preclude or materially impair the use of such leased Real Property for the continued operation of the business currently conducted thereon. The leased Real Property constitutes all real property and improvements used to conduct the business of the Company as it is currently conducted.

 

30


3.11.2. The Company is not obligated to pay any leasing or brokerage commission as a result of the Contemplated Transactions in connection with the Real Property Leases. The Company has made available to the Buyer true, correct and complete copies of the Real Property Leases including all amendments, modifications, supplements, notices or memoranda of lease thereto and all estoppel certificates or subordinations, non-disturbance and attornment agreements related thereto, together with copies of any notice of default provided by any party thereto.

3.12. Equipment . All of the fixtures and other improvements to the Real Property included in the Assets and all of the tangible personal property included in the Assets (the “ Equipment ”) are in reasonably good working order, operating condition and state of repair (subject to normal wear and tear) , such that any tangible personal property not in reasonably good working order, operating condition and state of repair has not had, and is not reasonably likely to have, a Company Material Adverse Effect.

3.13. Intellectual Property .

3.13.1. Company Intellectual Property . Except as disclosed on Schedule 3.13.1 the Company owns or has adequate rights to use all Company Technology and all Company Intellectual Property Rights in the United States, without, to the Company’s Knowledge, any conflict with, or infringement of, the Intellectual Property Rights of others. Except with respect to the Technology and Intellectual Property Rights licensed to the Company under the Inbound IP Contracts identified on Schedule 3.13.1 (to the extent provided in such Inbound IP Contracts), none of the Company Technology or Company Intellectual Property Rights is in the possession, custody, or control of any Person other than the Company.

3.13.2. Infringement . Exhibit A identifies all products currently offered for sale or planned for marketing by the Company. Except as disclosed on Schedule 3.13.2 , neither the Company nor any Predecessor(s) (i) has, to the Company’s Knowledge, interfered with, infringed, diluted, misappropriated, or violated any Intellectual Property Rights of any Person, (ii) has received any charge, complaint, claim, demand, or notice alleging interference, infringement, dilution, misappropriation, or violation of the Intellectual Property Rights of any Person (including any invitation to license or request or demand to refrain from using any Intellectual Property Rights of any Person in connection with the conduct of the Business or the use of the Company Technology), or (iii) has agreed to or has a Contractual Obligation to indemnify any Person for or against any interference, infringement, dilution, misappropriation, or violation with respect to any Intellectual Property Rights. Except as disclosed on Schedule 3.13.2 , the making, using, selling, offering for sale, and importation of the Company Products does not, to the Company’s Knowledge, infringe any issued U.S. patent of any Person and would not infringe any published U.S. patent application of any

 

31


Person if such patent application were issued with its current published claims. Based on an opinion of outside patent counsel, the making, using, selling, offering for sale, and importation of the Company’s product sold as of the Closing under the name FuseFORCE does not infringe any issued U.S. or European patent of any Person and would not infringe any published U.S. or European patent application of any Person if such patent application were issued with its current published claims. Except as disclosed on Schedule 3.13.2 , to the Company’s Knowledge, no Person has interfered with, infringed, diluted, misappropriated, or violated any Company Intellectual Property Rights.

3.13.3. Scheduled Intellectual Property Rights . Schedule 3.13.3 identifies all patents, patent applications, registered trademarks and copyrights, applications for trademark and copyright registrations, domain names, registered design rights, and other forms of registered Intellectual Property Rights and applications therefor, owned by or exclusively licensed to the Company (collectively, the “ Company Registered Intellectual Property ”). Schedule 3.13.3 also identifies each trade name, each unregistered trademark, or service mark, or trade dress, and each unregistered copyright owned or exclusively licensed by the Company that, in each case, is material to the Business. For purposes of this Agreement, all items listed on Schedule 3.13.3 will be called “ Scheduled Intellectual Property Rights ”. Schedule 3.13.3 specifically identifies those items of Scheduled Intellectual Property Rights that are exclusively licensed to the Company, including the identification of the Contractual Obligation pursuant to which each such Intellectual Property Right is licensed. For each of the Company Registered Intellectual Property, Schedule 3.13.3 includes the following information: (i) for each patent and patent application, the title, patent number or application serial number, jurisdiction, filing date, date issued (if applicable), inventors, owner of record, and present status thereof; (ii) for each registered trademark and trademark application, the mark, application serial number or registration number, jurisdiction, filing date, registration date (if applicable), class of goods or services covered, description of goods or services, owner of record, and present status thereof; (iii) for each domain name, the registration date, any renewal date, owner of record, and name of the registrar; (iv) for each copyright registration and copyright application, the title of the work, number and date of such registration or application, owner of record, and jurisdiction; and (v) any actions that must be taken within 120 days after the date hereof for the purposes of obtaining, maintaining, perfecting, preserving, or renewing any Company Registered Intellectual Property, including the payment of any registration, maintenance, or renewal fees or the filing of any responses to office actions, documents, applications, or certificates. Except as disclosed on Schedule 3.13. 3, the Company owns all right, title and interest in and to, and has the exclusive right to use, all of the Company Registered Intellectual Property.

3.13.4. Validity . Each item of Company Registered Intellectual Property is in force, and to the Company’s Knowledge, valid and enforceable. In addition, each item of Company Registered Intellectual Property is currently in compliance with Legal Requirements (including, (i) in the case of patents and patent applications, payment of filing, examination, and maintenance fees, listing all proper inventors, providing to relevant patent offices all required disclosure of prior art and other facts that are material to patentability, and proofs of working or use, and (ii) in the case of trademarks

 

32


registrations and applications, including the timely post-registration filing of affidavits of use and incontestability and renewal applications), and where Company is not in compliance with Legal Requirements, such failure has not had, and is not reasonably likely to have, a Company Material Adverse Effect.

3.13.5. IP Contracts . Schedule 3.13.5 identifies under separate headings each Contractual Obligation, whether written or oral, (i) under which the Company uses or licenses an item of Company Technology or any Company Intellectual Property Rights that is or are owned by any Person other than the Company (the “ Inbound IP Contracts ”), other than licenses to use Off-the-Shelf Software, and (ii) under which the Company has granted any Person any right or interest in any Company Intellectual Property Rights including any right to use any item of Company Technology or any covenant not to sue (the “ Outbound IP Contracts ”) (such Contractual Obligations, including the Inbound IP Contracts and Outbound IP Contracts, are referred to herein as the “ IP Contracts ”). Except as disclosed on Schedule 3.13.5 , none of the IP Contracts grants any Third Party exclusive rights under any Company-Owned IP Rights or grants any Third Party the right to sublicense any Company-Owned IP Rights. The Company has delivered to the Buyer Parties accurate and complete copies of each of the IP Contracts (or, where an IP Contract is an oral agreement, an accurate and complete written description of such IP Contract), in each case, as amended or otherwise modified and in effect. Schedule 3.13.5 , identifies all royalty payments (or other payments) that the Company is obligated to make to any Person with respect to the development or commercialization of Company Products in consideration for the use of any Intellectual Property Rights or Technology, identifying for each payment, the Inbound IP Contract pursuant to which the payment must be made, the amount of the payment, and the duration of the payment period for recurring payments.

3.13.6. Title, Orders and Actions . Except as disclosed on Schedule 3.13.6 ,

(a) the Company possesses all rights, title, and interests in and to each item of Company Technology and Company Intellectual Property Rights (other than Off-the-Shelf Software) that is not licensed to the Company pursuant to an Inbound IP Contract identified on Schedule 3.13.5 , free and clear of any Encumbrance other than Permitted Encumbrances and licenses granted in the Outbound IP Contracts identified on Schedule 3.13.5 ;

(b) with respect to (A) each item of Company Owned IP Rights and (B) to the Company’s Knowledge, all Company Technology and Company Intellectual Property Rights licensed to the Company on an exclusive basis, such item or right is not subject to any outstanding consent from any Governmental Authority or other Person or any Governmental Order, and no Action is pending or, to the Company’s Knowledge, threatened, which challenges the legality, validity, scope, registrability, enforceability, use, or ownership of such right or item, nor to the Company’s Knowledge do any grounds exist for any such Action; and

 

33


(c) no Action is pending or contemplated by the Company, which challenges the legality, validity, scope, registrability, enforceability, use, or ownership of the Intellectual Property Rights of any Person.

3.13.7. Confidentiality and Invention Assignments . The Company has maintained all commercially reasonable practices necessary to protect the confidentiality of the Company’s confidential information and trade secrets and, except as disclosed on Schedule 3.13.7 , have required all employees and other Persons with access to the Company’s confidential information to execute Enforceable Contractual Obligations requiring them to maintain the confidentiality of such information and use such information only for the benefit of the Company. All current and former employees and contractors of the Company who have made a technical or other inventive contribution to the Company Technology have executed Enforceable Contractual Obligations that assign to one of the Company all of such Person’s respective rights, including Intellectual Property Rights, relating to such Company Technology. No current or former employee or contractor of the Company has any right, license, claim or interest whatsoever in or with respect to Company-Owned IP Rights.

3.13.8. Software . The Company Technology includes all software used for the operation of the Business, including all software used in the manufacture and development of the Company’s products and services. Schedule 3.13.8 lists all open source computer code contained in or used in the development of Company Technology or any product or service of the Company and describes (i) the applicable software name and version number, (ii) the licensor, (iii) the license under which such code was obtained, (iv) the manner in which such code is used, (v) whether (and if so, how) such code was modified by or for the Company, (vi) whether such code was distributed by or for the Company, and (vii) how such code is integrated with or interacts with any other software. None of the Company Technology or any product or service of the Company constitutes, contains, or is dependent on any open source computer code, and none of the Company Technology or any product or service of the Company is subject to any IP Contract or other Contractual Obligation that would require the Company to divulge to any Person any source code or trade secret that is part of the Company Technology.

3.13.9. Government Funding; Standards Bodies . No funding or facilities of a government, or of any university, college, or other educational institution or research center were used in the development of the Company Products and Company-Owned IP Rights. The Company is not now nor has ever been a member or promoter of, or any contributor to, any industry standards body or similar organization that could reasonably be expected to require or obligate the Company to grant or offer to any other Person any license or right to any Company-Owned IP Rights.

3.13.10. Privacy and Data Security . The Company complies and has complied, in all material respects, with all applicable Laws, applicable Contractual Obligations, and any external published or posted company policies, notices and disclosures, and any internal privacy and information security policies governing the collection, sharing, processing, use, safeguarding and destruction of information that is personal, personally identifiable or subject to regulation by applicable Law or Contractual

 

34


Obligation (“Personal Information”), and have not received any written notice or claim alleging a breach or violation of the same. The Company does not, by itself or, to Company’s Knowledge, through third parties, violate (nor have they violated) the rights of any Person concerning confidential information or personal privacy as provided under applicable Laws relating to wiretapping, eavesdropping, trespass, surveillance, invasion of privacy or the obtaining, processing or using of Personal Information in or via any media. The Company has implemented and maintain a comprehensive and commercially reasonable written information security program that protects the security, confidentiality, and integrity of Personal Information and confidential business information and the systems and networks on which such information resides or through which it is processed (collectively “ Systems ”), which program contains administrative, technical, and physical safeguards appropriate to the Company’s size, complexity, the nature and scope of their activities, and the sensitivity of the Personal Information and confidential business information collected or maintained by or on behalf of the Company and, in any event, is in compliance, in all material respects, with all applicable Laws and applicable Contractual Obligations. Without limiting the generality of the foregoing, the Company uses reasonable efforts to select and retain third party service providers that are capable of maintaining appropriate security measures to protect Personal Information and confidential business information and contractually require that each third party service provider to whom the Company provides Personal Information or confidential business information maintain the confidentiality of such Personal Information or confidential business information and comply with all applicable laws relating thereto. To the Company’s Knowledge, there have been no security breaches relating to, or violations of any Law, Contractual Obligation (including any Payment Network Regulation) or internal security policy regarding, or any unauthorized access or acquisition of any Personal Information or confidential business information maintained by the Company or by any third party service provider on behalf of the Company, nor has there been any security breach or unauthorized access of any System of the Company or of any such third party service provider on which such information resides or through which such information is processed. The Company has not provided, or been required by any Law or Contractual Obligation to provide, any notice of any security breach or unauthorized acquisition or access of Personal Information of the Company to any Person. No Person has notified the Company in writing that any Personal Information or other confidential information of the Company (whether in the custody or control of the Company or any third party service provider) has been breached, accessed or acquired by an unauthorized third party, or that any of the Company’s Systems have been breached. The Company is not subject to any governmental or court order, consent decree, written assurance, written agreement, investigation, inquiry, hearing, proceeding, action or written complaint with or of any Governmental Authority relating to the privacy or security of Personal Information. The Company has provided the Buyer with accurate and complete copies of all internal written information security policies, standards and procedures, and the most recent written third party or internal assessments of the Company’s information security programs.

 

35


3.14. Compliance with Laws; Governmental Permits .

3.14.1. The Company has complied in all material respects with, are not in material violation of, and have not received any written notices or other claims or assertions of material violation with respect to, any Legal Requirement with respect to the conduct of the Business, or the ownership or operation of the Business or otherwise applicable to it or its properties or assets. Neither the Company, nor, to the Company’s Knowledge, any manager, officer, Affiliate, contractor or employee thereof (in their capacities as such or relating to their employment, services or relationship with the Company), has given, offered, paid, promised to pay or authorized payment of any money, any gift or anything of value, with the purpose of influencing any act or decision of the recipient in his or her official capacity or inducing the recipient to use his or her influence to affect an act or decision of a Government Official or employee, to any (a) governmental official or employee, (b) political party or candidate thereof, or (c) Person while knowing that all or a portion of such money or thing of value would be given or offered to a governmental official or employee or political party or candidate thereof.

3.14.2. The Company has obtained each material federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Authority that is necessary to own, lease and operate its properties and to carry on the Business as owned, leased, operated or carried on as of the date of this Agreement (all of the foregoing consents, licenses, permits, grants, and other authorizations, collectively, the “ Company Authorizations ”), and all of the Company Authorizations are in full force and effect, except as has not had, and is not reasonably likely to have, a Company Material Adverse Effect . The Company has not received any written notice or other communication from any Governmental Authority regarding (a) any material violation of any Legal Requirements or material violation of any Company Authorization or any failure to comply in a material respect with any term or requirement of any Company Authorization or (b) any revocation, withdrawal, suspension, cancellation, termination or modification of any Company Authorization. None of the Company Authorizations will be terminated or impaired, or will become terminable, in whole or in part, as a result of the consummation of the Contemplated Transactions. Schedule 3.14.2 sets forth a true and complete list of each Company Authorization.

3.15. FDA Regulatory Compliance .

3.15.1. Except as set forth on Schedule 3.15.1 , the Company has all Registrations required to conduct their business, and Schedule 3.15.1 sets forth a true and complete list of such Registrations. Each of the Registrations is valid and subsisting in full force and effect. Neither the FDA nor any comparable Governmental Authority has notified the Company that it is considering limiting, suspending or revoking such Registrations or changing the marketing classification or labeling of the products of the Company. To the Company’s Knowledge, there is no false or misleading information or significant omission in any product application or other submission to the FDA or any comparable Governmental Authority. The Company has fulfilled and performed their obligations under each Registration required to be performed as of or prior to the date hereof, and to the Company’s Knowledge, no event has occurred or condition or state of facts exists which would constitute a breach or default or would cause revocation or

 

36


termination of any such Registration. To the Company’s Knowledge, any Third Party that is a manufacturer or contractor for the Company is in compliance with all Registrations insofar as they pertain to the manufacture of product components or products for the Company.

3.15.2. All products developed, tested, investigated, manufactured, stored, distributed, marketed, or sold by or on behalf of the Company that are subject to the jurisdiction of the FDA or any comparable Governmental Authority have been and are being developed, tested, investigated, manufactured, stored, distributed, marketed, and sold in compliance with FDA Legal Requirements or any other applicable Legal Requirement, including, to Company’s Knowledge, those regarding non-clinical testing, clinical research, establishment registration, device listing, pre-market notification, good manufacturing practices, labeling, advertising, record-keeping, adverse event reporting and reporting of corrections and removals.

3.15.3. The Company has not received any Form FDA-483, notice of adverse finding, FDA warning letters, notice of violation or “untitled letters,” or notice of FDA action for import detentions or refusals or any other written correspondence from the FDA or other Governmental Authority alleging or asserting material noncompliance with any applicable Legal Requirements or Registrations. The Company is not subject to any obligation arising under an administrative or regulatory action, inspection, warning letter, notice of violation letter, or other notice, response or commitment made to or with the FDA or any comparable Governmental Authority with respect to a violation or FDA action, and, to the Company’s Knowledge, no such proceedings have been threatened. The Company has made all material notifications, submissions and reports required by FDA Legal Requirements.

3.15.4. Except as set forth on Schedule 3.15.4 , no product distributed or sold by or on behalf of the Company has been seized, withdrawn, recalled, detained or subject to a suspension of manufacturing, and to the Company’s knowledge, there are no facts or circumstances reasonably likely to cause (a) the seizure, denial, withdrawal, recall, detention, field notification, field correction, safety alert or suspension of manufacturing relating to any such product; (b) a change in the labeling of any such product; or (c) a termination, seizure or suspension of marketing of any such product. No proceedings in the United States or any other jurisdiction seeking the withdrawal, recall, correction, suspension, import detention or seizure of any such product are pending or threatened against the Company, and no product sold by or on behalf of the Company is characterized by a design or other defect.

3.15.5. To the Company’s Knowledge, the Company has never been, and none of its employees or other persons engaged by the Company have ever been, (a) debarred (under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. §335a (a) and (b)), (b) convicted of a crime for which a person can be debarred, (c) threatened to be debarred, (d) indicted for a crime or otherwise engaged in conduct for which a person can be debarred.

 

37


3.16. Healthcare Regulatory Compliance .

3.16.1. Neither Company, nor any officer, managing employee, or agent (as those terms are defined in 42 C.F.R. § 1001.1001) of the Company, nor, to the Company’s Knowledge, any other Person described in 42 C.F.R. § 1001.1001(a)(ii), (a) is or has been a party to, or bound by, any order, individual integrity agreement, corporate integrity agreement or other formal or informal agreement with any Governmental Authority concerning compliance with Health Care Legal Requirements; (b) has made any filings pursuant to the U.S. Department of Health and Human Services Office of Inspector General self-disclosure protocol; (c) is or has been a defendant in any Action brought under a federal or state whistleblower statute, including without limitation the False Claims Act of 1863 (31 U.S.C. § 3729 et seq.); or (d) has been served with or received any written search warrant, subpoena (other than those related to actions against Third Parties), civil investigative demand or contact letter from a Governmental Authority. For purposes of this Section 3.16.1, a “ Contact Letter ” means a letter from a Governmental Authority notifying the Company, any officer or managing employee or to Company’s Knowledge, an agent of the Company or the Company’s Representatives of a potential violation under a Health Care Legal Requirement which allows the Company, its officers, managing employees, agents or its Representatives an opportunity to respond prior to the Governmental Authority taking further action.

3.16.2. Neither the Company, nor, to Company’s Knowledge, any officer, managing employee, agent (as those terms are defined in 42 C.F.R. § 1001.1001) of the Company, nor any other Person described in 42 C.F.R. § 1001.1001(a)(ii): (a) has been charged with or convicted of any criminal offense relating to the delivery of an item or service under any Federal Health Care Program; (b) has been debarred, excluded or suspended from participation in any Federal Health Care Program; (c) has had a civil monetary penalty assessed against it, him or her under Section 1128A of the Social Security Act; (d) is currently listed on the list of parties excluded from federal procurement programs and non-procurement programs as maintained by the System for Award Management or other federal agencies; or (e) to the Company’s Knowledge, is the target or subject of any current or potential investigation relating to any Federal Health Care Program-related offense.

3.16.3. To Company’s Knowledge, neither the Company, nor any officer, managing employee, agent (as those terms are defined in 42 C.F.R. § 1001.1001) of the Company, nor any other Person described in 42 C.F.R. § 1001.1001(a)(ii) has engaged in any activity that is in violation of, or is cause for civil penalties or mandatory or permissive exclusion under, the federal Medicare or federal or state Medicaid statutes, including without limitation Sections 1128, 1128A, 1128B, 1128C, 1128G or 1877 of the Social Security Act (42 U.S.C. §§ 1320a-7, 1320a-7a, 1320a-7b, 1320a-7c, 42 U.S.C. § 1320a-7h and 1395nn), the federal TRICARE statute (10 U.S.C. § 1071 et seq.), the civil False Claims Act of 1863 (31 U.S.C. § 3729 et seq.), criminal false claims statutes (e.g., 18 U.S.C. §§ 287 and 1001), the Program Fraud Civil Remedies Act of 1986 (31 U.S.C. § 3801 et seq.), the anti-fraud and related provisions of the Health Insurance Portability and Accountability Act of 1996 (e.g., 18 U.S.C. §§ 1035 and 1347), or any other state or

 

38


federal Legal Requirement that governs the activities of manufacturers of medical devices or the healthcare industry generally (collectively, “ Health Care Legal Requirements ”), including the following:

(a) knowingly and willfully making or causing to be made a false statement or representation of a material fact in any application for any benefit or payment;

(b) knowingly and willfully making or causing to be made a false statement or representation of a material fact for use in determining rights to any benefit or payment;

(c) knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or kind (i) in return for referring an individual to a Person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under any Federal Health Care Program; or (ii) in return for purchasing, leasing, or ordering, or arranging, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service or item for which payment may be made in whole or in part under any Federal Health Care Program;

(d) knowingly and willfully offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to any person to induce such Person (i) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal Health Care Program; or (ii) to purchase, lease, order or arrange for or recommend purchasing, leasing or ordering any good, facility, service or item for which payment may be made in whole or in part under a Federal Health Care Program unless such offer or payment fully complies with applicable statutory or regulatory safe harbors; or

(e) any other activity that violates any state or federal Legal Requirement relating to prohibiting fraudulent, abusive or unlawful practices connected in any way with the provision of health care items or services or the billing for such items or services provided to a beneficiary of any Federal Health Care Program.

3.16.4. To the Company’s Knowledge, no Person has filed or has threatened to file against the Company an Action relating to the Company under any federal or state whistleblower statute, including under the False Claims Act of 1863 (31 U.S.C. § 3729 et seq.).

3.16.5. The Company’s use and dissemination of any personally-identifiable information concerning individuals is in material compliance with all applicable Legal Requirements, contractual obligations to which the Company is bound, privacy policies and terms of use. The Company maintains policies and procedures regarding data security and privacy and maintain administrative, technical and physical safeguards that are commercially reasonable and, in any event, in compliance with

 

39


applicable Legal Requirements or contractual obligations. To the Company’s Knowledge, there have been no security breaches relating to, or violations of any security policy regarding, or any unauthorized access of, any data or information used by the Company. The Company has made available to the Buyer true and complete copies of all agreements (each, a “ Business Associate Agreement ”) under which the Company is a business associate, as such term is defined in 45 C.F.R. § 160.103, as amended. The Company is not in breach of any Business Associate Agreement. To the Company’s Knowledge, the Company is not under investigation by any Governmental Authority for a violation of HIPAA, the Federal Privacy and Security Regulations, or any other Legal Requirement applicable to the Company’s use and dissemination of any personally-identifiable information concerning individuals, including receiving any notices from the United States Department of Health and Human Services Office of Civil Rights relating to any such violations.

3.16.6 To the extent any the Company provides to customers or others reimbursement coding or billing advice regarding products offered for sale by the Company and procedures related thereto, such advice is materially: (a) true and complete, (b) in compliance with all Federal Healthcare Program Laws, (c) conforms to the applicable American Medical Association’s Current Procedural Terminology (CPT), the International Classification of Disease, Ninth Revision, Clinical Modification (ICD 9 CM) and other applicable coding systems, (d) includes a disclaimer advising customers to contact individual payers to confirm coding and billing guidelines, (e) has been independently verified and supports accurate claims for reimbursement by federal, state and commercial payors, and (f) provided only with respect to approved indications of such products.

3.16.7 The Company has an operational healthcare compliance program that: (a) governs all employees and contractors, including sales representatives; and (b) is consistent with the current U.S. Federal Sentencing Guidelines standards for effective compliance programs; and (c) complies with the AdvaMed Code of Ethics on Interactions with Health Care Professionals. The Company operates in strict compliance with such healthcare compliance program.

3.16.8. The Company is in material compliance, and has policies and procedures in place to track activities to ensure material compliance, with: (a) state Legal Requirements regulating, or requiring the disclosure to a state agency of, interactions between medical device manufacturers or related entities and healthcare providers or other individuals and entities associated with the healthcare industry; and (b) the so-called federal sunshine law (42 U.S.C. § 1320a-7h). Such compliance includes, without limitation, current registration and filings with appropriate federal and state agencies, as applicable. Other than as listed on Schedule 3.16.8 , no Member is a “Physician” or “Teaching Hospital” under the Patient Protection and Affordable Care Act or applicable regulations thereunder or a healthcare professional otherwise subject to disclosure requirements under such law or any comparable state Legal Requirement.

3.17. Export Control Laws and Anticorruption Laws . The Company has conducted its export transactions in accordance in all material

 

40


respects with applicable provisions of United States export control laws and regulations, including the Export Administration Act and implementing Export Administration Regulations. Without limiting the foregoing:

3.17.1. The Company has obtained all material export licenses and other approvals required for its exports of products, software and technologies from the United States;

3.17.2. The Company is in compliance with the material terms of all applicable export licenses or other approvals;

3.17.3. There are no pending or, to the Company’s Knowledge, threatened claims against the Company with respect to such material export licenses or other approvals;

3.17.4. There are no Actions or, to the Company’s Knowledge, conditions or circumstances pertaining to any of the Company’s export transactions that would reasonably be expected to give rise to any future claims; and

3.17.5. No consents or approvals for the transfer of export licenses to the Buyer are required, except for such consents and approvals that can be obtained expeditiously without material cost.

3.17.6. None of the Company, or to the Company’s Knowledge, its Representatives or any other Person acting for or on behalf of the Company, has paid, promised to pay, or authorized the payment of any money, or offered, given, promised to give, or authorized the giving of anything of value to any Government Official or to any Person, in each case, under circumstances where the Company, its Representatives or such Persons knew or reasonably ought to have known (after due and proper inquiry) that all or a portion of such money or thing of value would be offered, given or promised, directly or indirectly, to a Government Official:

(a) for the purpose of: (i) influencing any act or decision of a Government Official in their official capacity; (ii) inducing a Government Official to do or omit to do any act in violation of their lawful duties; (iii) securing any improper advantage; (iv) inducing a Government Official to influence or affect any act or decision of any Governmental Authority, any company, business, enterprise or other entity owned, in whole or in part, or controlled by any Governmental Authority, or any political party; or (v) assisting the Company or its Representatives or any other Person acting for or on behalf of the Company in obtaining or retaining business for or with, or directing business to, the Company, its Representatives or such Persons; and

(b) in a manner which would constitute or have the purpose or effect of public or commercial bribery, acceptance of or acquiescence in extortion, kickbacks or other unlawful or improper means of obtaining business or any improper advantage in violation of any Anticorruption Laws.

 

41


3.17.7. The Company has not conducted or initiated any internal investigation or made a voluntary, directed or involuntary disclosure to any Governmental Authority or similar agency with respect to any alleged act or omission arising under or relating to any noncompliance with any Anticorruption Law. Neither the Company nor, to Company’s Knowledge, its Representatives nor any other Person acting for or on behalf of the Company has received any notice, request or citation for any actual or potential noncompliance with any of the foregoing in this Section 3.17 .

3.17.8. No officer, manager or employee of the Company is a Government Official. No Government Official, Governmental Authority, company, business, enterprise or other entity owned, in whole or in part, or controlled by any Governmental Authority, or any political party, presently owns an interest, whether direct or indirect, in the Company or has any legal or beneficial interest in the Company.

3.17.9. The Company has maintained complete and accurate books and records, including records of payments to any agents, consultants, representatives, third parties and Government Officials, in accordance with GAAP.

3.18. Tax Matters .

3.18.1. The Company has duly and timely filed all income and other material Tax Returns required to be filed by them and will prepare and file, in a manner consistent with prior years, all Tax Returns required to be filed by them on or before the Closing Date. The Company has timely paid (and will timely pay, as applicable) all Taxes owed by them (whether or not shown on any Tax Return), except Taxes that are not yet due and for which adequate reserve has been accrued (or will be accrued, as applicable) on the books and records of the Company in accordance with GAAP. All Tax Returns are and will be complete and accurate in all material respects and were and will be prepared in compliance with all applicable Legal Requirements. The Company has delivered or made available to the Buyer correct and complete copies of all Tax Returns filed by, assessed against, or agreed to by, the Company within the last three (3) calendar years.

3.18.2. The Most Recent Balance Sheet reflects all Liability for unpaid Taxes of the Company for periods (or portions of periods) through the Most Recent Balance Sheet Date. The Company does not have any Liability for unpaid Taxes accruing after the Most Recent Balance Sheet Date except for Taxes arising in the Ordinary Course of Business subsequent to the Most Recent Balance Sheet Date. The Company will have no material Liability for unpaid Taxes as of the Closing Date that was not included in the Estimated Closing Statement.

3.18.3. There are no liens with respect to Taxes upon any asset of the Company other than liens for Taxes not yet due and payable and for which adequate reserves have been set forth in the Audited or Unaudited Financials in accordance with GAAP. No foreign, federal, state, or local tax audits, investigation, claim, dispute or other administrative or judicial Tax proceedings are pending or being conducted with

 

42


respect to the Company. The Company has not received from any foreign, federal, state, or local Tax Authority (including jurisdictions where the Company has not filed Tax Returns) any (a) notice indicating an intent to open an audit or other review, (b) request for information related to Tax matters, or (c) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against the Company. No extension of time with respect to a Tax assessment or deficiency, waiver of any statute of limitations with respect to Taxes or power of attorney with respect to Taxes granted by the Company is currently in effect, proposed or agreed. No claim has ever been received by the Company from a Tax Authority in a jurisdiction where the Company does not file Tax Returns asserting that the Company is or may be subject to taxation by that jurisdiction. The Company has not participated in a “reportable transaction” or a “listed transaction” within the meaning of Section 1.6011-4 of the Treasury Regulations or any similar Legal Requirement.

3.18.4. The Company is and has always been treated as a partnership for United States federal and state income tax purposes. No entity classification election pursuant to Treasury Regulations Section 301.7701-3 has ever been filed with respect to the Company.

3.18.5. The Company has not been required to include any adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481, 482 or 263A of the Code as a result of transactions, events or accounting methods employed prior to the Merger.

3.18.6. The Company is not a party to or bound by any Tax sharing, Tax indemnity, or Tax allocation agreement.

3.18.7. The Company has not ever been a member of an “affiliated group” within the meaning of section 1504(a) of the Code filing a consolidated federal income Tax Return or any consolidated, combined, unitary, aggregate group or similar affiliated group for tax purposes under any state, local or foreign law (in each case, other than an “affiliated group” the common parent of which is the Company).

3.18.8. The Company has no Liability for the Taxes of any Person (other than the Company) under Section 1.1502-6 of the Treasury Regulations or any similar Legal Requirement, or as a transferee, successor, by Contract or otherwise.

3.18.9. Except as disclosed in Schedule 3.18.9, the Company will not be required to include in income, or exclude any item of deduction from, Taxable income for any Taxable period (or portion thereof) ending after the Closing Date as a result of any (a) change in method of accounting for a Taxable period ending on or prior to the Closing Date or requested prior to the Closing; (b) “closing agreement” described in Section 7121 of the Code (or any similar Legal Requirement) executed prior to the Closing; (c) deferred intercompany gain or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any similar Legal Requirement); (d) election under Code Section 108(i); or (e) installment sale, open transaction or prepaid amount made or received prior to the Closing.

 

43


3.18.10. The Company has provided or made available to the Buyer all documentation relating to any applicable Tax holidays or incentives. The Company is in compliance with the requirements for any applicable Tax holidays or incentives and none of the Tax holidays or incentives will be jeopardized by the Contemplated Transactions.

3.18.11. The Company has deducted, withheld and timely paid to the appropriate Tax Authority all Taxes required to be deducted, withheld or paid in connection with amounts paid or owing to any employee, independent contractor, creditor, Member or other third party, and has complied with all reporting and recordkeeping requirements.

3.18.12. The Company has not made any payments, or has been or is a party to any Contractual Obligation that could result (alone or in connection with any other event) in it making payments, that have resulted or would result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Code Section 280G or in the imposition of an excise Tax under Code Section 4999 (or any corresponding provisions of state, local or foreign Tax law) or that were or would not be deductible under Code Sections 162 or 404.

3.18.13. The Company has not ever been a party to any joint ventures, partnership or other agreement that could be treated as a partnership for Tax purposes, not including the Operating Agreement, for the avoidance of doubt. The Company does not own, directly or indirectly, any Equity Interest in any Person. The Company owns no property of a character, the indirect transfer of which, pursuant to this Agreement, would give rise to any documentary, stamp, or other transfer tax.

3.18.14. The Company has neither requested nor received any private letter ruling from the Internal Revenue Service or comparable rulings from any Governmental Authority or Tax Authority.

3.18.15. Since January 1, 2013, the Company has neither made nor changed any material tax election; elected or changed any method of accounting for tax purposes or any annual tax accounting period; settled or compromised any material amount of taxes; amended any material tax returns or filed claims for refund of income taxes, sales taxes, or a material amount of other taxes; or entered into any closing agreement or surrendered in writing any right to claim a tax refund, offset, or other reduction in tax liability.

3.18.16. There is no unclaimed property or escheat obligation with respect to property or other assets held or owned by the Company.

3.18.17. The representations and warranties in this Section 3.18 and Sections 3.5.5, 3.8(f), 3.8(g), 3.8(j), 3.8(k), 3.8(m),

3.8(o), and 3.19 shall constitute the sole and exclusive representations and warranties on any Tax matter of the Company or any Subsidiary of the Company, including representations and warranties regarding the compliance with Tax Laws, liability for Taxes, and accruals and reserves for Taxes on any financial statement or the books and records of the Company.

 

44


3.19. Employee Benefit Plans and Employee Matters .

3.19.1. Schedule 3.19.1 lists (i) all “employee benefit plans” within the meaning of Section 3(3) of ERISA, (ii) all option, profits interest, equity purchase, phantom equity, stock appreciation right, supplemental retirement, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Section 125 of the Code), flexible spending account, dependent care (Section 129 of the Code), life insurance or accident insurance, vacation pay, salary continuation for disability, sick leave, paid time off, death, profit sharing, education, legal services, employee assistance, long term care, incentive or fringe benefit plans, programs or arrangements, (iii) all other bonus, pension, profit sharing, savings, retirement, deferred compensation or incentive plans, programs or arrangements, and (iv) all employment or executive Compensation or severance agreements or offer letters, in each case, whether or not reduced to writing, sponsored, maintained, contributed to (or required to be contributed to) by the Company or for the benefit of, or relating to, any current or former member, employee, consultant or non-employee manager of the Company, or any of their respective dependents or beneficiaries, or with respect to which the Company has any liability (contingent or otherwise) (clauses (i) – (iv) together, the “ Company Employee Plans ”).

3.19.2. The Company has furnished or made available to the Buyer a true, correct and complete copy of each of the Company Employee Plans and related plan documents (including trust documents, insurance policies or Contractual Obligations, employee booklets, summary plan descriptions and other authorizing documents) and any amendments thereto and has, with respect to each Company Employee Plan which is subject to ERISA reporting requirements, provided to the Buyer true, correct and complete copies of the Form 5500 reports filed for the last three plan years, if any. Each Company Employee Plan that is intended to be qualified under Code Section 401(a) has received a favorable determination letter from the Internal Revenue Service, or with respect to a prototype plan, can rely on an opinion or determination letter from the Internal Revenue Service to the prototype plan sponsor, to the effect that the form of such Company Employee Plan is so qualified and that the plan and the trust related thereto are exempt from federal income Taxes under Sections 401(a) and 501(a), respectively, of the Code, and nothing has occurred that could reasonably be expected to result in the loss of the qualified status of such Company Employee Plan.

3.19.3. Each Company Employee Plan has been administered in all material respects in accordance with its terms and in compliance with the applicable requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code). All contributions required to be made by the Company or any ERISA Affiliate to any Company Employee Plan have been made as required by applicable Legal Requirements and the terms of the relevant Company Employee Plan and at the time(s) required by Applicable Legal Requirements. Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, and Applicable Law, without material Liability to the Buyer and/or the Surviving Company (other than ordinary administrative expenses typically incurred in a termination event). No suit, administrative proceeding, action or other litigation has been

 

45


brought, or to the Company’s Knowledge, is threatened, against or with respect to any such Company Employee Plan (other than routine claims for benefits). No Company Employee Plan is or, within the last six years, has been the subject of an examination or audit by a Governmental Authority, is the subject of an application or filing under, or is a participant in, a government-sponsored amnesty, voluntary compliance, self-correction or similar program.

3.19.4. None of the Company Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person other than as required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) or similar state Legal Requirement.

3.19.5. Neither the Company nor any current or former ERISA Affiliate currently maintains, sponsors, participates in, contributes to or is required to contribute to, or has ever maintained, established, sponsored, participated in, contributed to or been required to contribute to, any pension plan (within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, including any “multiemployer plan” as defined in Sections 3(37) or 4001(a)(8) of ERISA, and no condition exists that presents a risk to the Company of incurring any material liability under Title IV of ERISA or Section 412 or Section 430 of the Code.

3.19.6. No Company Employee Plan is maintained or sponsored primarily for the benefit of current or former employees or service providers located outside of the United States or is subject to the Laws of a jurisdiction other than the United States, and neither the Company nor any of its Affiliates has any obligation to provide for statutorily mandated benefits in a jurisdiction outside of the United States.

3.19.7. Except as set forth on Schedule 3.19.7 , none of the execution and delivery of this Agreement, the consummation of the Merger or any other Contemplated Transaction or any termination of employment or service in connection therewith or subsequent thereto will, individually or together with the occurrence of some other event, (a) result in any payment (including severance, bonus or other similar payment) becoming due to any Person, (b) increase or otherwise enhance any benefits otherwise payable by the Company, (c) result in the acceleration of the time of payment or vesting of any such benefits, (d) increase the amount of Compensation due to any Person, or (e) result in the forgiveness in whole or in part of any outstanding loans made by the Company to any Person.

3.19.8. The Company is, and has been since January 1, 2010, in compliance in all material respects with all applicable Legal Requirements respecting employment and employment practices, including but not limited to those respecting discrimination, terms and conditions of employment, worker classification (including the proper classification of workers as employees, independent contractors and consultants, as exempt or non-exempt for overtime pay and for all Tax purposes and for purposes of determining eligibility to participate in any Company Employee Plans), wages, hours, occupational safety and health, immigration, layoffs and plant closings or shut-downs,

 

46


and the Company has not engaged in any unfair labor practice as defined in the National Labor Relations Act or other analogous Legal Requirement. The Company has not received notice of any charge, complaint or other proceeding pending or threatened before the National Labor Relations Board or any other Governmental Authority relating to employment or employment practices. The Company is not liable for any payment to any trust or other fund or to any Governmental Authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for employees (other than routine payments to be made in the normal course of business and consistently with past practice).

3.19.9. The Company is not a party to or bound by any collective bargaining agreement or other labor union Contractual Obligation or arrangement, and no collective bargaining agreement is being negotiated by the Company. To Company’s Knowledge, there is no pending demand for recognition or any other request or demand from a labor organization for representative status with respect to any Person employed by the Company. To the Company’s Knowledge there are no activities, petitions or proceedings of any labor union, works council, or similar organization or to organize its employees. There is no labor dispute, strike, lockout, slowdown or work stoppage against or affecting the Company pending or, to the Company’s Knowledge, threatened in writing.

3.19.10. Except as set forth on Schedule 3.19.10 , no employee of the Company has given notice of intention to terminate employment in writing to the Company and to the Company’s Knowledge, no such employee intends to terminate his or her employment with the Company. The employment of each of the employees of the Company is “at will” (except for non-U.S. employees of the Company located in a jurisdiction that does not recognize the “at will” employment concept) and the Company has no obligation to provide any particular form or period of notice prior to terminating the employment of any of its employees, except as set forth on Schedule 3.19.10 . The Company has not been: (a) a “contractor” or “subcontractor” (as defined by Executive Order 11246), (b) required to comply with Executive Order 11246 or (c) required to maintain an affirmative action plan. The Company is in material compliance with all applicable obligations to file EEO-1 reports and VET-100 reports.

3.19.11. The Company has provided or made available to the Buyer a true, correct and complete list of the titles, hire date, and rates of Compensation of all officers, managers, and employees of the Company, showing each such person’s position, base pay (or applicable hourly rate), status as exempt/non-exempt and part/full time and bonuses and similar payments for the 2014 fiscal year.

3.19.12. The Company has provided or made available to the Buyer a true, correct and complete list of all of its and the Company’s current consultants, advisory board members and independent contractors, showing applicable contract rates and other payments made to or with respect to, such consultants, advisory board members and independent contractors.

 

47


3.19.13. The Company has made available to the Buyer true, correct and complete copies of each of the following: all forms of confidentiality, non-competition or inventions agreements between employees/consultants and the Company; the most current management organization chart(s); all current agreements and/or insurance policies providing for the indemnification of any officers or managers of the Company; and all personnel manuals, handbooks, policies, rules or procedures applicable to the Company employees. The execution of this Agreement and the consummation of the Contemplated Transactions will not result in any breach or other violation of any Company Employee Plan or any other labor-related agreement to which the Company is a party or by which it is bound, or that pertains to the Company employees or any independent contractor of the Company.

3.20. Environmental Matters .

3.20.1. Except as set forth in Schedule 3.20 , the Company is in material compliance with all applicable Environmental Laws (which compliance includes the possession by the Company of all permits and other governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof), except where failure to be in compliance could not reasonably be expected to be material to the Company taken as a whole. The Company has not received any written communication, whether from a Governmental Authority, citizens group, employee or otherwise, alleging that the Company is not in such compliance, and, to the Company’s Knowledge, there are no past or present actions, activities, circumstances conditions, events or incidents that may prevent or interfere with such compliance in the future.

3.20.2. Except as set forth in Schedule 3.20 , there is no Environmental Action pending or, to the Company’s Knowledge, threatened against the Company or, to the Company’s Knowledge, against any Person whose Liability for any Environmental Action the Company have or may have retained or assumed either contractually or by operation of law which could reasonably be expected to be material to the Company taken as a whole.

3.20.3. To the Company’s Knowledge, except as set forth in Schedule 3.20 , there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the Release, threatened Release or presence of any Hazardous Material which could form the basis of any Environmental Action against the Company, or to the Company’s Knowledge, against any Person whose Liability for any Environmental Action the Company has or may have retained or assumed either contractually or by operation of law which could reasonably be expected to be material to the Company.

3.20.4. Except as set forth in Schedule 3.20 , the Company has not, and to the Company’s Knowledge, no other person has placed, stored, deposited, discharged, buried, dumped or disposed of Hazardous Materials or any other wastes produced by, or resulting from, any business, commercial or industrial activities, operations or processes, on, beneath or adjacent to any Facilities or Property currently or formerly owned,

 

48


operated or leased by the Company or a Company Subsidiary, except for inventories of such substances to be used, and wastes generated therefrom, in the Ordinary Course of Business of the Company(which inventories and wastes, if any, were and are stored or disposed of in accordance with applicable Environmental Laws and in a manner such that there has been no Release or threatened Release of any such substances).

3.20.5. The Company has delivered or otherwise made available for inspection to the Buyer true, complete and correct copies and results of any reports, studies, analyses, tests or monitoring possessed or initiated by the Company pertaining to Hazardous Materials in, on, beneath or adjacent to any Facilities or Property, or regarding the Company’s compliance with applicable Environmental Laws.

3.21. Contracts .

3.21.1. Contracts . Except as disclosed on Schedule 3.21.1 , no the Company is not bound by or a party to:

(a) any Contractual Obligation (or group of related Contractual Obligations) for the purchase or sale of inventory, raw materials, commodities, supplies, goods, products, equipment or other personal property, or for the furnishing or receipt of services, in each case, the performance of which will extend over a period of more than one year or which provides for aggregate payments to or by the Company in excess of an aggregate of $50,000 in 2014 and 2015;

(b)(i) any capital lease or (ii) any other lease or other Contractual Obligation relating to Equipment providing for aggregate rental payments in excess of $50,000, under which any Equipment is held or used by the Company;

(c) any Contractual Obligation, other than Real Property Leases or leases relating to the Equipment, relating to the lease or license of any Asset, including Intellectual Property (and including all customer license and maintenance agreements) that is not included on Schedule 3.13 ;

(d) any Contractual Obligation relating to the acquisition or disposition of (i) any business of the Company (whether by merger, consolidation or other business combination, sale of securities, sale of assets or otherwise) or (ii) any asset other than in the Ordinary Course of Business;

(e) any Contractual Obligation under which the Company is, or may become, obligated to pay any amount in respect of indemnification obligations or purchase price adjustment or otherwise in connection with any (i) acquisition or disposition of assets or securities (other than the sale of inventory in the Ordinary Course of Business), (ii) merger, consolidation or other business combination or (iii) series or group of related transactions or events of the type specified in clauses (i) and (ii) above;

(f) any Contractual Obligation concerning or consisting of a partnership or joint venture agreement;

 

49


(g) any Contractual Obligation (or group of related Contractual Obligations) (i) under which the Company has created, incurred, assumed or guaranteed any Debt or (ii) under which the Company has permitted any Asset to become subject to an Encumbrance;

(h) any Contractual Obligation under which any other Person has guaranteed any Debt of the Company;

(i) any Contractual Obligation relating to confidentiality or non-competition, except for employee agreements (whether the Company is subject to or, to the Company’s Knowledge, the beneficiary of such obligations);

(j) any Contractual Obligation under which the Company is, or may become, obligated to incur any severance pay or Compensation obligations which would become payable by reason of, this Agreement or the Contemplated Transactions (whether alone or in conjunction with any other event, including by reason of a termination of employment following such transaction);

(k) any Contractual Obligation under which the Company has, or may, have any Liability to any investment bank, broker, financial advisor, finder’s agreement or other similar Person (including an obligation to pay any accounting, brokerage, finder’s, or similar fees or expenses in connection with this agreement or the Contemplated Transactions);

(l) any Contractual Obligation providing for the employment or consultancy with an individual on a full-time, part-time, consulting or other basis or otherwise providing Compensation or other benefits to any member, officer, manager, employee, independent contractor or consultant (other than a Company Employee Plan);

(m) any Contractual Obligation under which the Company has advanced or loaned an amount to any of its Affiliates or employees other than in the Ordinary Course of Business;

(n) any Contractual Obligation under which the Company has non-competition obligations or other agreements that prohibit or otherwise restrict the Company or any of the Company’s current or future Affiliates from freely engaging in business anywhere in the world;

(o) any Contractual Obligation with a Governmental Authority;

(p) any Contractual Obligation with any surgeon, physician or other health care professional; and

(q) any other Contractual Obligation (or group of related Contractual Obligations) the performance of which involves consideration in excess of $100,000 over the life of such Contractual Obligation.

 

50


The Company has delivered or otherwise made available to the Buyer true, correct and complete copies of each written Contractual Obligation listed on Schedule 3.21 , in each case, as amended or otherwise modified and in effect.

3.21.2. Enforceability, etc . Each Contractual Obligation required to be disclosed on Schedule 3.9 (Debt), 3.11 (Real Property Leases), 3.13 (Intellectual Property), 3.19.1 (Employee Plans), 3.21 (Contracts), 3.23 (Commercial Relationships) or 3.25 (Insurance) (each, a “ Disclosed Contract ”) is Enforceable against the Company and, to the Company’s Knowledge, each other party to such Contractual Obligation, and is in full force and effect, and, subject to obtaining any necessary consents disclosed in Schedule 3.3 , will continue to be so Enforceable and in full force and effect on identical terms following the consummation of the Contemplated Transactions.

3.21.3. Breach, etc . The Company is not nor, to the Company’s Knowledge, any other party to any Disclosed Contract is in breach or violation of, or default under, or has repudiated any material provision of, any Disclosed Contract.

3.22. Affiliate Transactions . Except for the matters disclosed on Schedule 3.22 , no Member of the Company or any Affiliate of any such Member is, to the Company’s Knowledge, an officer, manager, employee, consultant, competitor, creditor, debtor, customer, distributor, supplier or vendor of, or is a party to any Contractual Obligation with, the Company. Except as disclosed on Schedule 3.22 , no Member of the Company or any Affiliate of any such Member owns any Asset used in the Business.

3.23. Commercial Relationships . None of the Company’s material suppliers, collaborators, distributors, licensors or licensees has canceled or otherwise terminated its relationship with the Company or has, during the last twelve months, materially altered its relationship with the Company. The Company has not received any written threat or notice from any such entity, to terminate, cancel or otherwise materially modify its relationship with the Company. Without limiting the generality of the foregoing, the Company is in material compliance with diligence obligations, and has not failed to achieve any material development milestones within applicable time periods that have not been extended or waived, under material license agreements.

3.24. Litigation; Governmental Orders; Product Liability .

3.24.1. Litigation . Except as set forth in Schedule 3.24.1, there is no Action to which the Company is a party (either as plaintiff or defendant) or to which its Assets are subject pending, or to the Company’s Knowledge, threatened, which may affect the Company or its ownership of, or interest in, any material Asset or the use or exercise by the Company of any material Asset. There is no Action to which the Company is a party (either as plaintiff or defendant) or to which its Assets are subject pending, or to the Company’s Knowledge, threatened, which (a) in any manner challenges or seeks the rescission of, or seeks to prevent, enjoin, alter or materially delay

 

51


the consummation of, or otherwise relates to, this Agreement and the Contemplated Transactions, or (b) may result in any change in the current equity ownership of the Company, nor, to the Company’s Knowledge, is there any basis for any of the foregoing. There is no Action which the Company presently intends to initiate.

3.24.2. Governmental Orders . No Governmental Order has been issued which is applicable to, or otherwise affects, the Company or its Assets or the Business.

3.24.3. Product Liability . Except as set forth in Schedule 3.24.3 , the Company has not received any written claim for or based upon breach of product warranty or product specifications or any other allegation of Liability resulting from the sale of its products or the provision of services. The products sold or delivered (including the features and functionality offered thereby) or services rendered by the Company comply in all material respects with all contractual requirements, covenants or express or implied warranties applicable thereto and are not subject to any term, condition, guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale for such products and services, true and complete copies of which have previously been made available to the Buyer. All Company Products sold prior to the date of this Agreement are free from design defects, except as would not, individually or in the aggregate, be expected to cause a Company Material Adverse Effect.

3.25. Insurance . Schedule 3.25 sets forth a list of insurance policies under which the Company, or any of its Assets, employees, officers or managers or the Business is currently insured (the “ Liability Policies ”). The list includes for each Liability Policy the type of policy, form of coverage, policy number and name of insurer. The Company has made available to the Buyer true, correct and complete copies of all Liability Policies, in each case, as amended or otherwise modified and in effect. Schedule 3.25 describes any self-insurance arrangements affecting the Company. The Company has for the past five years maintained in full force and effect the insurance policies listed in Schedule 3.25 or other policies providing similar coverage with respect to their Assets and the Business. Except as disclosed on Schedule 3.25 , no insurer (a) has questioned, denied or disputed (or otherwise reserved its rights with respect to) the coverage of any claim pending under any Liability Policy or (b) has threatened in writing to cancel any Liability Policy. Except as disclosed on Schedule 3.25 , to the Company’s Knowledge, no insurer plans to raise the premiums for, or materially alter the coverage under, any Liability Policy. Except as disclosed on Schedule 3.25 , the Company will after the Closing continue to have coverage under all of the Liability Policies with respect to events occurring prior to the Closing.

3.26. No Brokers . The Company has no Liability of any kind to, nor is subject to any claim of, any broker, finder or agent for any fee or commission in connection with the Contemplated Transactions other than those that are paid prior to the Closing or included in Company Transaction Expenses. The Company has disclosed to the Buyer correct and complete copies of all engagement letters with a broker, finder or agent related to any fee or commission included in the Company Transaction Expenses.

 

52


3.27. HSR Thresholds . The Company represents and warrants that it is not a “person” (as defined in 16 C.F.R. § 801.1(a)(1)) with $14.2 million or more of total assets or annual net sales, in each case as determined in accordance with 16 C.F.R. § 801.11.

3.28 No Other Representations or Warranties . Except for the representations and warranties contained in Article 3 (as qualified by the Disclosure Schedules), neither the Company, nor any Member nor any other Person (including any officer, manager, employee, Affiliate, advisor, agent, broker or other representative of the Company) has made to Buyer, Merger LLC or any other Person any representation or warranty, express or implied, relating or with respect to this Agreement, the transactions contemplated thereby, the Company or its business, operations, properties, and liabilities or obligations, whether arising by statute or otherwise in law, including any implied warranty of merchantability, fitness for a particular purpose or otherwise.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE BUYER AND MERGER LLC.

Except as set forth in (i) the annual report on Form 10-K filed by the Buyer with the SEC with respect to the fiscal year ended December 31, 2012 (the “ Form 10-K ”), (ii) any Current Reports on Form 8-K filed by the Buyer with the SEC since January 1, 2013, (iii) the quarterly reports on Form 10-Q filed by the Buyer with the SEC since January 1, 2013, (iv) all other statements, reports, schedules, forms and other documents filed by the Buyer with the SEC since December 31, 2012, and all amendments thereto, other than exhibits to any of the foregoing (collectively the “ SEC Reports ”) (it being understood that any matter disclosed in any SEC Report will be deemed to be disclosed for a representation herein only to the extent that it is reasonably apparent from such disclosure in such SEC Report that such disclosure is applicable to such representation) the Buyer makes the following representations and warranties to the Company as of the date of this Agreement:

4.1. Organization . Each of the Buyer and Merger LLC is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified to do business and in good standing in each jurisdiction in which it owns or leases Real Property and in each other jurisdiction in which the failure to so quality has not had, and is not reasonably likely to have, a Buyer Material Adverse Effect.

4.2. Power and Authorization . The execution, delivery and performance by each of the Buyer and Merger LLC of this Agreement and each Ancillary Agreement to which the Buyer or Merger LLC, as applicable, is (or will be) a party and the consummation of the Contemplated Transactions are within the power and authority of each of the Buyer and Merger LLC, as applicable, and have been duly authorized by all necessary action on the part of each of the Buyer and Merger LLC. This Agreement and each Ancillary Agreement to which the Buyer or Merger LLC is (or will be) a party (a) has been (or, in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) duly executed and delivered by the Buyer or

 

53


Merger LLC, as applicable, and (b) is (or in the case of Ancillary Agreements to be entered into at or prior to the Closing, will be) a legal, valid and binding obligation of each of the Buyer or Merger LLC, as applicable, Enforceable against each of the Buyer or Merger LLC, as applicable, in accordance with its terms.

4.3. Authorization of Governmental Authorities . Except as disclosed on Schedule 4.3 , no action by (including any authorization, consent or approval), or in respect of, or filing with, any Governmental Authority is required for, or in connection with, the valid and lawful (a) authorization, execution, delivery and performance by the Buyer and the Merger LLC of this Agreement and each Ancillary Agreement to which each of the Buyer or Merger LLC, as applicable, is (or will be) a party or (b) the consummation of the Contemplated Transactions by the Buyer and the Merger LLC, other than the filing of the Certificate of Merger with the Secretary of State of the State of California.

4.4. Noncontravention . Except as disclosed on Schedule 4.4 , neither the execution, delivery and performance by the Buyer or Merger LLC of this Agreement or any Ancillary Agreement to which such entity is (or will be) a party nor the consummation of the Contemplated Transactions will:

(a) assuming the taking of any action by (including any authorization, consent or approval) or in respect of, or any filing with, any Governmental Authority, in each case, as disclosed on Schedule 4.3 , violate any provision of any Legal Requirement applicable to the Buyer or Merger LLC;

(b) result in a breach or violation of, or default under, or material modification or adverse change in any material Contractual Obligation of the Buyer or Merger LLC;

(c) require any action by (including any authorization, consent or approval) or in respect of (including notice to), any Person under any material Contractual Obligation; or

(d) result in a breach or violation of, or default under, either the Buyer’s or Merger LLC’s Organizational Documents, except, in the case of clauses (a) - (c) above, which has not had and is not reasonably likely to have a Buyer Material Adverse Effect.

4.5. Buyer SEC Filings . The periodic reports required to be made by the Buyer since December 31, 2012 under the Exchange Act have been filed with the SEC, and such filings complied, as of their respective dates or, if applicable, as of the date of any subsequent amendment to such filing, in all material respects with applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder (collectively, the “ Buyer SEC Reports ”). None of the Buyer SEC Reports, as of their respective dates, after giving effect to any amendments thereto filed prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein not misleading.

 

54


4.6. Buyer Financial Statements . The consolidated financial statements of the Buyer and its subsidiaries included in the Buyer SEC Reports complied, as of the dates thereof, as to form in all material respects with the applicable rules and regulations of the SEC with respect thereto. The consolidated financial statements of the Buyer and its subsidiaries included in the Buyer SEC Reports present fairly, in all material respects, the financial position of the Buyer and its subsidiaries as of the dates thereof, and the results of operations and cash flows for the periods set forth therein (subject, in the case of unaudited statements, to the absence of notes and normal year-end audit adjustments), in each case in conformity with U.S. GAAP, except as may be noted therein.

4.7. Financing . The Buyer will have at Closing cash funds in sufficient amounts to pay the cash portion of the Merger Consideration.

4.8. Capitalization . As of October 30, 2013, 47,099,032 shares of Buyer Common Stock were issued and outstanding. All such outstanding shares have been validly issued, fully paid and nonassessable. Upon issuance and receipt of consideration in accordance with the terms and conditions of this Agreement, the shares of Buyer Common Stock included in the Merger Consideration will be validly issued, fully paid and nonassessable but are subject to restrictions on transfer and trading imposed by Securities Act of 1933, as amended, and the rules thereunder, and any applicable blue sky laws.

4.9. No Brokers . Neither the Company nor any Member has or will have any Liability of any kind to any investment bank or broker due to the engagement by the Buyer of such investment bank or broker with respect to the Contemplated Transactions.

4.10. No Buyer Material Adverse Effect . Since the filing with the SEC by Buyer of Buyer’s most recent SEC Report, there has been no Buyer Material Adverse Effect.

ARTICLE 5

COVENANTS.

5.1. Closing . The Parties will cooperate with each other and the Company, the Members’ Representative and the holders of the Company Member Interests will use commercially reasonable efforts to take all of the actions and deliver all the various certificates, documents and instruments described in ARTICLE 6 as being performed or delivered by the holders of Company Member Interests, the Members’ Representative or the Company. The Buyer will use commercially reasonable efforts to take all of the actions and deliver all the various certificates, documents and instruments described in ARTICLE 7 as being performed and delivered by the Buyer.

 

55


5.2. Operation of Business .

5.2.1. Conduct of Business . From the date of this Agreement until the Closing Date, the Company will:

(a) conduct the Business only in the Ordinary Course of Business; and

(b) use commercially reasonable efforts to preserve intact its business organization, Assets and relationships with third parties (including lessors, licensors, suppliers, distributors and customers) and employees, and will not abandon or materially limit the scope of any Company Intellectual Property Rights.

5.2.2. Buyer’s Consent . Without limiting the generality of Section 5.2.1 , without the written consent of the Buyer (which consent will not be unreasonably withheld, delayed or conditioned), the Company will not:

(a) take or omit to take any action that would cause the representations and warranties in ARTICLE 3 to be untrue at, or as of any time prior to, the Closing Date; and

(b) take or omit to take any action which, if taken or omitted to be taken between the Most Recent Balance Sheet Date and the date of this Agreement, would have been required to be disclosed on Schedule 3.8 , provided that prior to the Closing, the Company will be permitted to use any available cash and cash equivalents of the Company to pay the Transaction Expenses and to repay or redeem any outstanding Debt of the Company.

5.3. 401(k) Plans. If requested by the Buyer in writing, the Company will terminate any 401(k) plan sponsored by the Company immediately prior to the Effective Time.

5.4. Notices and Consents .

5.4.1. The Company . The Company will give all notices to, make all filings with and use their commercially reasonable efforts to obtain all authorizations, consents or approvals from, any Governmental Authority or other Person that are set forth on Schedule 3.3 and Schedule 3.4 . Prior to distributing any notice, consent or other communication pursuant to this Section 5.4.1 , the Company will provide such communication to the Buyer and provide the Buyer with a reasonable opportunity to review and comment thereon.

5.4.2. Members . Prior to 5:00 p.m. Central Time on the date of this Agreement, the Company will obtain the Company Member Approval.

 

56


5.4.3. Buyer . The Buyer will give all notices to, make all filings with and use its commercially reasonable efforts to obtain all authorizations, consents or approvals from, any Governmental Authority or other Person that are set forth on Schedule 4.3 and Schedule 4.4 .

5.4.4. Options . Promptly after execution and delivery of this Agreement, the Company will provide notice to all of the holders of the Company Options of the Contemplated Transactions.

5.5. Buyer’s Access to Premises; Information .

5.5.1. Access . From the date of this Agreement until the Closing Date, the Company will permit the Buyer and its Representatives to have reasonable access (at reasonable times and upon reasonable notice) to all officers of the Company and to all premises, properties, books, records (including Tax records), contracts, financial and operating data and information and documents pertaining to the Company and make copies of such books, records, contracts, data, information and documents as the Buyer or its Representatives may reasonably request.

5.5.2. Monthly Financials . The Company will prepare and furnish to the Buyer, promptly after becoming available and in any event within fifteen days of the end of each calendar month, monthly unaudited financial statements of the Company in the form customarily prepared by management for internal use, (the “ Monthly Financials ”) for each complete month following the Most Recent Balance Sheet Date through the Closing Date.

5.6. Notice of Developments . From the date of this Agreement until the Closing Date, the Company and the Members will give the Buyer prompt written notice upon becoming aware of any development that is or would reasonably be expected to constitute a Company Material Adverse Effect, or any event or circumstance that could reasonably be expected to result in a breach of, or material inaccuracy in, any of the Company’s or the Members’ representations and warranties; provided , however , that no such disclosure will be deemed to prevent or cure any such breach of, or inaccuracy in, amend or supplement any Schedule to, or otherwise disclose any exception to, any of the representations and warranties set forth in this Agreement. From the date of this Agreement until the Closing Date, the Buyer will give the Company and the Members prompt written notice upon becoming aware of any development that is or would reasonably be expected to constitute a Buyer Material Adverse Effect, or any event or circumstance that could reasonably be expected to result in a breach of, or material inaccuracy in, any of the Buyer’s representations and warranties; provided , however , that no such disclosure will be deemed to prevent or cure any such breach of, or inaccuracy in, amend or supplement any Schedule to, or otherwise disclose any exception to, any of the representations and warranties set forth in this Agreement.

5.7. Exclusivity . From the date of this Agreement until the Closing, unless earlier terminated

 

57


under ARTICLE 8 hereof (the “ Exclusivity Period ”), the Company will not (and will not permit its Affiliates or any of its Representatives or its Affiliates’ Representatives to) directly or indirectly: (a) solicit, initiate or encourage the submission of any proposal or offer from any Person relating to, or enter into or consummate any transaction relating to, the acquisition of any Equity Interests in the Company or any merger, recapitalization, share exchange, sale of substantial Assets or any similar transaction or alternative to the Contemplated Transactions or (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. The Company will notify the Buyer promptly if any Person makes any proposal, offer, inquiry or contact with respect to any of the foregoing (whether solicited or unsolicited). Notwithstanding the foregoing, prior to the receipt of consents setting forth the approval of the holders of the Company Member Interests signed by the holders of outstanding Company Member Interests having not less than the minimum number of votes and/or interests as are necessary to approve and adopt this Agreement, nothing in this Section 5.7 or any other provision of this Agreement will prohibit the Company’s manager from taking a position or disclosing to the holders of the Company Member Interests of a position that it believes in its good faith judgment is required under applicable Legal Requirements and that the failure to take such position or make such disclosure would cause the Company’s manager to violate any fiduciary duties it has to the holders of the Company Member Interests under applicable Legal Requirements.

5.8. Payment of Indebtedness .

5.8.1. Debt of the Company. The Company will satisfy all Liabilities in respect of the Debt identified on Schedule 5.8 in full at or before the Closing.

5.8.2. Members’ Obligations . At or before the Closing, the Company will cause each of its Members and Affiliates to satisfy all Liabilities to the Company in respect of Debt.

5.9. Confidentiality . Each of the Buyer and the Company hereby reaffirms its obligations under the Non Disclosure Agreement, dated as of November 6, 2013, and the confidentiality provisions of the Letter of Interest dated as of December 20, 2013, by and between the Buyer and the Company.

5.10. Publicity . No public announcement or disclosure may be made by any Party with respect to the subject matter of this Agreement or the Contemplated Transactions without the prior written consent of the other Parties; provided , however , that the provisions of this Section 5.10 will not prohibit (a) any disclosure required by any applicable Legal Requirement or listing standard of any applicable exchange (b) any disclosure made in connection with the enforcement of any right or remedy relating to this Agreement or the Contemplated Transactions, or (c) after the Effective Time, in the Ordinary Course of the Business, consistent with past practice. Until the receipt of Company Member Approval, the Company will not, and will cause the Company not to, make any disclosure, including to its employees and business partners, regarding the Contemplated

 

58


Transactions, other than as required in connection with obtaining the Company Member Approval. After the Effective Time, the Members’ Representative will be permitted to announce that it has been engaged to serve as the Members’ Representative in connection with the Merger so long as such announcement does not disclose any identifiable terms of the Merger and the Contemplated Transactions which have not been otherwise previously publicly disclosed by or on behalf of the Buyer.

5.11. [Reserved] .

5.12. Lien Discharges . The Company will obtain from the relevant secured parties a discharge or termination of the financing statements, security agreements and other filings evidencing liens and Encumbrances as listed on Schedule 5.12 hereto, in form and substance reasonably acceptable to Buyer, at or prior to Closing.

5.13. Resignations . Prior to the Closing Date, the Company will deliver to Buyer resignations executed by each manager or officers of the Company in office immediately prior to the Effective Time, which resignations will be effective at the Effective Time.

5.14. Further Assurances . From and after the Closing Date, upon the request of either the Members’ Representative or the Buyer, each of the Parties hereto will do, execute, acknowledge and deliver all such further acts, assurances, deeds, assignments, transfers, conveyances and other instruments and papers as may be reasonably required or appropriate to carry out the Contemplated Transactions.

5.15. Tax Matters . From the date of this Agreement until the Closing Date, without the prior written consent of Buyer, and except as required by Law, with respect to Taxes, the Company will not make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment, or take any other similar action relating to the filing of any Tax Return or payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action could increase the Tax Liability of the Company after the Closing Date. After the Closing Date, without reasonable notice to the Members’ Representative, with respect to Taxes, neither the Buyer nor the Company will make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment, or take any other similar action relating to the filing of any Tax Return or payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action could increase the Tax Liability of the Company’s Members with respect to periods before and up to the Closing Date.

 

59


5.16. Lock-up Period; Legends on Share Consideration .

5.16.1. Lock-up Period . Until the first anniversary of the Closing Date, any Member owning 5.5% or more of the Company Member Interests outstanding immediately prior to the Closing (each a “ 5.5% Holder ”), will not offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any share of Buyer Common Stock included in the Merger Consideration. The letter of transmittal will reflect this restriction. The certificates representing the shares of Buyer Common Stock issued as Merger Consideration to 5.5% Holders will bear the following legend:

THESE SECURITIES ARE SUBJECT TO RESALE RESTRICTIONS IN AN AGREEMENT AND PLAN OF MERGER, DATED JANUARY     , 2014.

5.16.2. Securities Act Legend . All certificates representing the shares of Buyer Common Stock issued as Merger Consideration also will bear the following legend :

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

5.16.3. Resale Registration Statement . Buyer agrees to file, as promptly as possible, but no later than ten (10) Business Days following the Effective Time, a registration statement on Form S-3 (the “ Registration Statement ”) with the Commission registering all shares of Buyer Common Stock included in the Stock Merger Consideration for resale by the Members from time to time during the subsequent one year period not subject to section 5.16.1. Buyer shall use commercially reasonable efforts to have the Registration Statement and the related prospectuses declared effective by the Commission as soon as possible thereafter and to prepare and file with the Commission such amendments and supplements to the registration as may be necessary to keep such Registration Statement effective until the date that is twelve months after the Closing Date. At the request of Buyer, the Members’ Representative will promptly report to Buyer the number of shares of Buyer Common Stock held by each Member that was not sold under the Registration Statement at the time the Buyer chooses to de-register the remaining securities registered on the Registration Statement. Buyer will use its commercially reasonable efforts to cause all Buyer Common Stock issued pursuant to this

 

60


Agreement to be listed on each securities exchange on which similar securities issued by Buyer are then listed. Buyer will provide a transfer agent and registrar for all Buyer Common Stock issued pursuant to this Agreement no later than the effective date of the Registration Statement. Upon the expiration of applicable holding periods under Rule 144 of the Act and the restrictions of 5.16.1 the Company will provide, or cause its counsel to provide, an opinion to the transfer agent and registrar that, subject to the holder’s satisfaction of the conditions of Rule 144, the shares of Buyer Common Stock can be resold pursuant to Rule 144. The obligations of the Buyer to maintain an effective Registration Statement under this Section 5.16.3 shall cease on the first anniversary of the Closing Date.

5.17. Obligations Assumed by Surviving Company .

5.17.1. Continuing Indemnification . The Surviving Company will, and the Buyer will cause the Surviving Company to, indemnify and hold harmless, and provide advancement of expenses to, all current and former managers and officers of the Company to the same extent such individuals are indemnified or have the right to advancement of expenses as of the date of this Agreement by such Company pursuant to the Company’s Organizational Documents or in any indemnification agreements listed in Schedule 5.17.1 , in each case for acts or omissions occurring at or prior to the Effective Time (including for acts or omissions occurring in connection with the approval of this Agreement and the consummation of the Contemplated Transactions). Without limiting the foregoing, the Buyer agrees that all rights to indemnification (including any obligations to advance funds for expenses) and exculpation from Liabilities for acts or omissions occurring at or prior to the Effective Time now existing in favor of the current or former managers or officers of the Company as provided in the Company’s Organizational Documents or any indemnification agreement listed in Schedule 5.17.1 will be assumed by the Surviving Company without further action, as of the effective time of the Merger, will survive the Contemplated Transactions and will continue in full force and effect in accordance with their terms and such rights will not be amended, or otherwise modified in any manner that would adversely affect the rights of individuals who on or prior to the Effective Time were managers or officers of the Company.

5.17.2. Employees of the Company . The Buyer will offer all employees of the Company employment with the Buyer or the Surviving Company period for a period of at least six months in consideration for each such employee agreeing to terminate and waive any rights under any prior employment arrangement with the Company. Any employee of the Company whose employment is terminated by the Surviving Company within twelve months of the Closing Date shall be entitled to receive from the Surviving Company a severance payment equal to the greater of three months of the employee’s base salary as set forth in Schedule 3.19.1 or the change of control payment listed on Schedule 1 relating to such employee’s terminated employment agreement with the Company, paid in full upon termination of such employee. Notwithstanding anything to the contrary stated herein, any such severance payment shall not be considered a Transaction Expense, deductible from the Closing Consideration.

 

61


5.17.3. Employees; Benefit Plans .

(a) The Surviving Company shall provide to the employees of the Surviving Company plans, programs and arrangements with benefits (other than equity-based awards) that are substantially similar in the aggregate to those provided to similarly situated employees of Buyer as of the Closing Date. For purposes of determining eligibility to participate or levels of benefits or entitlement to benefits (but not for benefit accrual) under Buyer’s or the Surviving Corporation’s benefit plans, programs and arrangements (“ Buyer Benefit Plans ”), each such employee shall be credited with his or her years of service with the Company prior to the Closing Date (except to the extent such service credit would result in a duplication of benefits for the same period of service) and any pre-existing condition, actively-at-work, or similar requirement under any such benefit plans, programs or arrangements shall be waived by the plan sponsor with respect to such employees to the extent allowed thereunder and under Applicable Law. Notwithstanding any other provision of this Agreement to the contrary, all provisions contained in this Section 5.17 are included for the sole benefit of the parties hereto, and nothing in this Agreement, whether express or implied, (i) shall be treated as the adoption of or an amendment or other modification to any Buyer Benefit Plan, Company Employee Plan or other employee benefit plan, policy, agreement or other arrangement, (ii) shall limit the right of Buyer or its respective Affiliates to amend, terminate or otherwise modify any Buyer Benefit Plan, Company Employee Plan or other employee benefit plan, policy, agreement or other arrangement following the Closing, or (iii) shall create any third party beneficiary or other right (x) in any person other than the parties hereto, including, without limitation, any current or former director, officer, employee or independent contractor of any of the Company or any participant in any Buyer Benefit Plan, Company Employee Plan or other employee benefit plan, agreement or other arrangement (or any dependent or beneficiary thereof) or (y) to continued employment or engagement with Buyer or the Company.

ARTICLE 6

CONDITIONS TO THE BUYER’S OBLIGATIONS AT THE CLOSING.

The obligations of the Buyer and Merger LLC to consummate the Closing are subject to the fulfillment of each of the following conditions, which may be waived at the Buyer’s sole discretion in accordance with Section 11.3 :

6.1. Representations and Warranties . The representations and warranties of the Company and the Members contained in this Agreement and in any document, instrument or certificate delivered hereunder (a)(i) that are not qualified by materiality or Company Material Adverse Effect are true and correct in all material respects at and as of the date of this Agreement and (ii) that are qualified by materiality or Company Material Adverse Effect are true and correct in all respects as so qualified at and as of the date of this Agreement and (b) will be true and correct in all respects as of the Closing Date as if made on the Closing Date (and representations and warranties that expressly speak only as of a specific date or time will be true and correct as of such specified date or time); provided , however , that the representations and warranties in Sections 3.1.1 (Organization), 3.2 (Power and Authorization), 3.2.4 (Company Member Approval) and 3.5 (Capitalization) are true and correct at and as of the date of this Agreement and are true and correct at and as of the Closing Date.

 

62


6.2. Performance . The Company and each Member will have performed and complied in all material respects, with all agreements, obligations and covenants contained in this Agreement and the Ancillary Agreements that are required to be performed or complied with by them at or prior to the Closing.

6.3. Member Approval . The Company will have delivered to the Buyer consents setting forth the Company Member Approval.

6.4. Compliance Certificate . The Company and the Members’ Representative will have delivered to the Buyer a certificate substantially in the form of Exhibit 6.4 .

6.5. Payment Schedule . The Company and the Members’ Representative will have delivered to the Buyer a schedule setting forth, with respect to each Member:

(a) the name and address of such Person and whether such Person is a Physician or Teaching Hospital under the Patient Protection and Affordable Care Act or applicable regulations thereunder or a healthcare professional otherwise subject to disclosure requirements under any comparable state Legal Requirement;

(b) all Company Member Interests held by such Person immediately prior to the Effective Time;

(c) all Company Options held by such Person immediately prior to the Effective Time (including, as of immediately prior to the Effective Time, the number of Company Member Interests that would be issuable upon exercise of such Equity Interests);

(d) the original issuance date with respect to each Company Member Interest held by such Person;

(e) the Merger Consideration to be paid to each such Person; and

(f) the number of shares and amount of cash in such Person’s Member Escrow Amount.

6.6. Qualifications . No provision of any applicable Legal Requirement and no Governmental Order prohibits the consummation of any of the Contemplated Transactions.

6.7. Absence of Litigation . No Action brought by a Government Entity will be

 

63


pending or threatened in writing that may result in a Governmental Order (nor will there be any Governmental Order in effect) (a) which would prevent consummation of any of the Contemplated Transactions, (b) which could result in any of the Contemplated Transactions being rescinded following consummation, (c) which could limit or otherwise adversely affect the right of the Buyer to own the Equity Interests of the Company (including the right to vote such interests), to control the Company, to operate all or any material portion of either the Business or Assets, or to operate all or any of the business or assets of the Buyer or any of its Affiliates to the extent arising out of or relating to the Contemplated Transactions or (d) could compel the Buyer or any of its Affiliates to dispose of all or any material portion of either the Business or Assets or, to the extent arising out of or relating to the Contemplated Transactions, the business or assets of the Buyer or any of its Affiliates.

6.8. Legal Opinion . The Buyer will have received from counsel to the Company and the Members (or other counsel reasonably acceptable to the Buyer), its opinion with respect to the Contemplated Transactions, which opinion will be in substantially the form attached hereto as Exhibit 6.8 .

6.9. Consents, etc. All actions by (including any authorization, consent or approval) or in respect of (including notice to), or filings with, any Governmental Authority or other Person that are required to consummate the Contemplated Transactions, including those disclosed in Schedule 3.3 and Schedule 3.4 , will have been obtained or made, in a manner reasonably satisfactory in form and substance to the Buyer, and no such authorization, consent or approval will have been revoked.

6.10. Ancillary Agreements . Each of the Ancillary Agreements will have been executed and delivered to the Buyer by each of the other Parties thereto.

6.11. Resignations . The Buyer will have received the resignations, effective as of the Closing, of each officer and manager of the Company, other than those whom the Buyer will have specified in writing at least five (5) Business Days prior to the Closing.

6.12. Officer Certificate . The Buyer will have received a certificate of the President and CEO of the Company, dated as of the Closing Date, in form and substance reasonably satisfactory to the Buyer, as to (a) no amendments to the Operating Agreement of the Company and (b) the resolutions duly adopted by the Company’s manager authorizing the execution, delivery and performance of this Agreement, the Ancillary Agreements and the consummation of the Contemplated Transactions.

6.13. No Company Material Adverse Effect . Since the Most Recent Balance Sheet Date, there will have occurred no events nor will there exist circumstances which singly or in the aggregate have resulted in, or are reasonably likely to result in, a Company Material Adverse Effect.

 

64


6.14. Repayment of Pre-Closing Indebtedness, Etc . The Company will have paid all Debt listed on Schedule 5.8 and will have obtained and delivered to the Buyer documentation satisfactory to Buyer evidencing such repayment and the termination of all Encumbrances on any Assets securing such Debt.

ARTICLE 7

CONDITIONS TO THE COMPANY’S OBLIGATIONS AT THE CLOSING.

The obligations of the Company and the Members to consummate the Closing are subject to the fulfillment of each of the following conditions (unless waived in writing by the Members’ Representative in accordance with Section 11.3 ):

7.1. Representations and Warranties . The representations and warranties of the Buyer and Merger LLC contained in this Agreement and in any document, instrument or certificate delivered hereunder (a) that are not qualified by materiality will have been true and correct in all material respects at and as of the date of this Agreement and will be true and correct in all material respects at and as of the Closing Date with the same force and effect as if made as of the Closing Date and (b) that are qualified by materiality will have been true and correct in all respects as so qualified at and as of date of this Agreement and will be true and correct in all respects as so qualified at and as of the Closing with the same force and effect as if made as of the Closing, in each case, other than representations and warranties that expressly speak only as of a specific date or time, which will be true and correct as of such specified date or time; provided , however , that the representations and warranties in Sections 4.1 (Organization), 4.2 (Power and Authorization), and 4.8 (Capitalization) are true and correct at and as of the date of this Agreement and are true and correct at and as of the Closing Date.

7.2. Performance . Each of the Buyer and Merger LLC will have performed and complied with, in all material respects, all agreements, obligations and covenants contained in this Agreement that are required to be performed or complied with by them at or prior to the Closing.

7.3. Compliance Certificate . The Buyer will have delivered to the Members’ Representative a certificate in the form of Exhibit 7.3 .

7.4. Ancillary Agreements . Each of the Ancillary Agreements will have been executed and delivered to the Members’ Representative by each of the other parties thereto.

7.5. Qualifications . No provision of any applicable Legal Requirement and no Governmental Order prohibits the consummation of any of the Contemplated Transactions.

 

65


7.6. Absence of Litigation . No Action brought by a Government Entity will be pending or threatened in writing that may result in a Governmental Order (nor will there be any Governmental Order in effect) (a) which would prevent consummation of any of the Contemplated Transactions, or (b) which could result in any of the Contemplated Transactions being rescinded following consummation,

7.7. Consents, etc. All actions by (including any authorization, consent or approval) or in respect of (including notice to), or filings with, any Governmental Authority or other Person that are required to consummate the Contemplated Transactions, including those disclosed in Schedule 4.3 and Schedule 4.4 , will have been obtained or made, in a manner reasonably satisfactory in form and substance to the Members’ Representative, and no such authorization, consent or approval will have been revoked.

ARTICLE 8

TERMINATION.

8.1. Termination of Agreement . This Agreement may be terminated (the date on which the Agreement is terminated, the “ Termination Date ”) at any time prior to the Closing:

(a) by mutual written consent of the Buyer and the Company;

(b) by either the Buyer or the Company by providing written notice to the other at any time after March 31, 2014 (the “ Drop Dead Date ”) if the Closing has not occurred by reason of the failure of any condition set forth in ARTICLE 6 , in the case of the Buyer’s termination right, or ARTICLE 7 , in the case of the Company’s termination right, to be satisfied (unless such failure is the result of one or more breaches or violations of, or inaccuracy in any covenant, agreement, representation or warranty of this Agreement by the terminating party);

(c) by either the Buyer or the Company if there is a Legal Requirement, or a final nonappealable Governmental Order permanently enjoining, restraining or otherwise prohibiting the Closing;

(d) by the Buyer if (i) there is a breach of, or material inaccuracy in, any representation or warranty of the Company contained in this Agreement as of the date of this Agreement or as of any subsequent date (other than representations or warranties that expressly speak only as of a specific date or time, with respect to which the Buyer’s right to terminate will arise only in the event of a breach of, or inaccuracy in, such representation or warranty as of such specified date or time), or (ii) the Company has breached or violated in any material respect any of its covenants and agreements contained in this Agreement, and, in the case of each of clauses (i) and (ii) above, such breach or failure, singly or in the aggregate, has resulted in, or is reasonably likely to result in, a Company Material Adverse Effect or the failure of a condition set forth in ARTICLE 6 and cannot be or has not been cured on or before the earlier of five (5) Business Days before the Drop Dead Date or ten Business Days after the Buyer delivers notice to the Company of such breach or violation;

 

66


(e) by the Company if either (i) there is a breach of, or inaccuracy in, any representation or warranty of the Buyer contained in this Agreement as of the date of this Agreement or as of any subsequent date (other than representations or warranties that expressly speak only as of a specific date or time, with respect to which the Company’s right to terminate will arise only in the event of a breach of, or inaccuracy in, such representation or warranty as of such specified date or time), or (ii) the Buyer will have breached or violated in any material respect any of its covenants and agreements contained in this Agreement, which breach or violation would give rise, or could reasonably be expected to give rise, to a failure of the condition set forth in ARTICLE 7 and cannot be or has not been cured on or before the earlier of five (5) Business Days before the Drop Dead Date or ten Business Days after the Company delivers notice to the Buyer of such breach or violation; or

(f) by the Buyer, if consents in writing setting forth the Company Member Approval have not been delivered to the Buyer prior to 5:00 p.m. Central Time on the date of this Agreement.

8.2. Effect of Termination .

8.2.1. In the event of the termination of this Agreement pursuant to Section 8.1 , this Agreement – other than the provisions of Sections 3.26 and 4.9 (No Brokers), 5.10 (Publicity), 11.10 (Governing Law), 11.11 (Jurisdiction) and 11.13 (Waiver of Jury Trial) – will then be null and void and have no further force and effect and all other rights and Liabilities of the Parties hereunder will terminate without any Liability of any Party to any other party, except for Liabilities arising in respect of breaches under this Agreement by any Party on or prior to the Termination Date, which will survive.

ARTICLE 9

INDEMNIFICATION.

9.1. Indemnification .

9.1.1. Indemnification by the Members . From and after the Effective Time and subject to the limitations set forth in this ARTICLE 9 , each Member will, on a pro-rata basis according to the aggregate consideration received by each such Member, indemnify and hold harmless the Buyer and Merger LLC and each of their Affiliates (including the Surviving Company), and the Representatives and Affiliates of each of the foregoing Persons (each, a “ Buyer Indemnified Person ”), from, against and in respect of any and all Losses, whether or not involving a Third Party Claim, incurred or suffered by the Buyer Indemnified Persons or any of them as a result of, arising out of or directly or indirectly relating to:

(a) any breach of, or inaccuracy in, any representation or warranty made by the Company in this Agreement, any Ancillary Agreement or in any document, Schedule, instrument or certificate delivered pursuant to this Agreement (in each case, as such representation or warranty would read if all qualifications as to materiality, including each reference to the defined term “Material Adverse Effect,” and the Company’s Knowledge were deleted therefrom);

 

67


(b) any breach of, or inaccuracy in, any representation or warranty made by the Members in or pursuant to this Agreement or any Ancillary Agreement;

(c) any breach or violation of any covenant or agreement of the Company to the extent required to be performed or complied with by the Company prior to the Closing in or pursuant to this Agreement or any Ancillary Agreement;

(d) any fraud of the Company;

(e) any claim by any Member, employee, option holder or Member Interest Grant holder of the Company for consideration arising out of the Contemplated Transactions in excess of the Per Member Interest Merger Consideration paid to Dissenting Members; provided, however, that to the extent any amounts paid to Dissenting Members are less than the Merger Consideration to which such Members would have been entitled under this Agreement, the difference will be allocated to the Members who did not seek appraisal pursuant to the CLLA in accordance with their pro rata ownership of the Company prior to the Effective Time;

(f) any claims arising from or related to products, materials or acts accused in the letter dated June 25, 2013, from Musculoskeletal Transplant Foundation to the Company; and

(g) any payment relating to an agreement listed on Schedule 1 in excess of the estimated amount payable in respect of such agreement on such schedule unless the amount of such payment has reduced Cash Consideration or been taken into account in the Working Capital Adjustment pursuant to Section 2.12 .

9.1.2. Indemnification by Buyer . From and after the Effective Time and subject to the limitations set forth in this ARTICLE 9 , Buyer will indemnify and hold harmless each Member and each of their Affiliates, and the Representatives and Affiliates of each of the foregoing Persons (each, a “ Member Indemnified Person ”), from, against and in respect of any and all Losses, whether or not involving a Third Party Claim, incurred or suffered by the Member Indemnified Persons or any of them as a result of, arising out of or directly or indirectly relating to:

(a) any breach of, or inaccuracy in, any representation or warranty made by the Buyer or Merger LLC in this Agreement, any Ancillary Agreement or in any document, Schedule, instrument or certificate delivered pursuant to this Agreement (in each case, as such representation or warranty would read if all qualifications as to materiality, including each reference to the defined term “Material Adverse Effect,” and the Company’s Knowledge were deleted therefrom);

 

68


(b) any breach or violation of any covenant or agreement of the Buyer in or pursuant to this Agreement or any Ancillary Agreement; or

(c) any fraud of the Buyer.

9.1.3. Monetary Limitations . Other than with respect to Losses relating to Special Indemnities, an Indemnifying Party will have no obligation to indemnify the Buyer Indemnified Persons pursuant to Sections 9.1.1(a) or (b)  or 9.1.2 (a)  or (b)  in respect of Losses unless the aggregate amount of all such Losses incurred or suffered by the Indemnified Persons exceeds five hundred thousand dollars ($500,000) after which point the Indemnifying Party will indemnify the Indemnified Persons for such Losses that exceed five hundred thousand dollars ($500,000). The aggregate amount recoverable in respect of claims made pursuant to Sections 9.1.1(a) or (b) , or 9.1.2 (a) or (b) , may not exceed six million seven hundred fifty thousand dollars ($6,750,000). Notwithstanding the above, the foregoing limitations will not apply to (i) claims for indemnification pursuant to Section 9.1.1(a) or 9.1.2(a) in respect of breaches of, or inaccuracies in, representations and warranties set forth in Sections 3.1 or 4.1 (Organization), 3.2 or 4.2 (Power and Authorization), 3.4(e) or 4.4(d) ( Breach of Organizational Documents), 3.5 or 4.8(Capitalization), 3.18 (Tax Matters), and 3.26 or 4.9 (No Brokers), (ii) claims for indemnification pursuant to Section 9.1.1(d) , (e), (f), or (g)  or 9.1.2(c) (the items described in clauses (i)and (ii) collectively, the “ Special Indemnities ”). No Member that is neither a manager nor Member holding more than 10% of outstanding membership interests as of the Effective Time will have an obligation to indemnify Buyer for an amount in excess of the Merger Consideration such Member receives with respect to its Interests if the representations in such Member’s letter of transmittal are accurate.

9.2. Time for Claims . No claim may be made or suit instituted seeking indemnification pursuant to ARTICLE 9 unless a written notice describing such claim in reasonable detail in light of the circumstances then known to the Indemnified Person, is provided to the Indemnifying Party:

(a) at any time in the case of a claim made under Section 9.1(d) or 9.2(c);

(b) at any time prior to the one hundred twentieth day after the expiration of the applicable statute of limitations (taking into account any tolling periods and other extensions) in the case of the Special Indemnities, other than relating to Section 9.1(d) or 9.2(c) ; and

(c) at any time during the fifteen (15) months following the Closing in the case of any other claims pursuant to Sections 9.1.1(a), (b), and (c)  .

9.3. Third Party Claims .

9.3.1. Notice of Claim . If any Third Party notifies an Indemnified Person with respect to any matter which is expected to give rise to an Indemnified Claim against

 

69


an Indemnifying Party under this ARTICLE 9 (a “ Third Party Claim ”), then the Indemnified Person will promptly give written notice to the Indemnifying Party; provided, however, that no delay on the part of the Indemnified Person in notifying the Indemnifying Party will relieve the Indemnifying Party from any obligation under this ARTICLE 9 , except to the extent such delay actually prejudices the Indemnifying Party.

9.3.2. Assumption of Defense, etc. The Indemnifying Party will be entitled to participate in the defense of any Third Party Claim that is the subject of a notice given by the Indemnified Person pursuant to Section 9.3.1 . In addition, the Indemnifying Party will have the right (at its own expense) to defend the Indemnified Person against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Person by giving written notice to the Indemnified Person within ten Business Days after the Indemnified Person has given notice of the Third Party Claim that the Indemnifying Party intends to assume such defense and so long as (i) the Indemnifying Party undertakes to indemnify the Indemnified Person from and against the entirety of any and all Losses the Indemnified Person may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim subject to the terms hereof, (ii) the Indemnifying Party provides the Indemnified Person with evidence reasonably acceptable to the Indemnified Person that the Indemnifying Party will have adequate financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder, (iii) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief against the Indemnified Person, (iv) the Indemnified Person has not been advised by counsel that an actual or potential conflict exists between the Indemnified Person and the Indemnifying Party in connection with the defense of the Third Party Claim, and (v) the Third Party Claim does not principally relate to or otherwise principally arise in connection with any Tax, criminal or regulatory enforcement Action. The Indemnified Person may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim; provided , however , that the Indemnifying Party will pay the fees and expenses of separate co-counsel retained by the Indemnified Person that are incurred prior to the Indemnifying Party’s assumption of control of the defense of the Third Party Claim.

9.3.3. Limitations on Indemnifying Party . The Indemnifying Party will not consent to the entry of any judgment or enter into any compromise or settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Person (which consent will not be unreasonably withheld, delayed or conditioned) unless such judgment, compromise or settlement (a) provides for the payment by the Indemnifying Party of money as sole relief for the claimant, (b) results in the full and general release of the Indemnified Persons, as applicable, from all Liabilities arising or relating to, or in connection with, the Third Party Claim, (c) involves no finding or admission of any violation of Legal Requirements or the rights of any Person and no effect on any other claims that may be made against the Indemnified Person and (d) involves no issue with respect to Taxes.

9.3.4. Indemnified Person’s Control . If the Indemnifying Party does not deliver the notice that it intends to assume the defense of the Indemnified Person, or the

 

70


evidence contemplated by clause (ii) of the second sentence of Section 9.3.2 , within ten (10) Business Days after the Indemnified Person has given notice of the Third Party Claim, or otherwise at any time fails to conduct the defense of the Third Party Claim, the Indemnified Person may, upon prior written notice to the Indemnifying Party, defend and may consent to the entry of any judgment or enter into any compromise or settlement with respect to, the Third Party Claim in any manner it may deem reasonably appropriate (and the Indemnified Person shall consult with the Indemnifying Party in connection therewith, and the Indemnified Person will not consent to the entry of any judgment or enter into any compromise or settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Person, which consent will not be unreasonably withheld, delayed or conditioned). In the event that the Indemnified Person conducts the defense of the Third Party Claim pursuant to this Section 9.3.4 , the Indemnifying Party will (a) reimburse the Indemnified Person reasonably promptly and periodically for the reasonable costs of defending against the Third Party Claim (including reasonable attorneys’ fees and expenses) and (b) remain responsible for any and all other Losses that the Indemnified Person may incur or suffer resulting from, arising out of, relating to, in the nature of or caused by the Third Party Claim to the fullest extent provided in this ARTICLE 9 .

9.4. No Circular Recovery . No Indemnifying Party shall be entitled to indemnification from the Buyer, the Company, or the Surviving Company by reason of the fact that such Indemnifying Party was a controlling person, manager, employee or Representative of the Company or was serving as such for another Person at the request of the Buyer or the Company for any amounts that the Indemnifying Party is ultimately determined to owe to a Buyer Indemnified Party pursuant to this ARTICLE 9 . With respect to any claim brought by a Buyer Indemnified Person against any Indemnifying Party pursuant to this Article 9, no Indemnifying Party will have any right of subrogation, contribution, advancement, indemnification or other claim against the Company with respect to any amounts owed by such Member pursuant to this ARTICLE 9 . Except as specifically set forth in the two preceding sentences, no Indemnifying Party’s rights under Section 5.17 or any other manager, officer, director or similar indemnification provisions of any contract or statute shall be limited in any way. Nothing in this Section 9.4 will prevent or prohibit any Indemnifying Party from seeking recovery under any available insurance policy, to the extent applicable.

9.5. Indemnity Escrow . For as long as there are amounts in the Escrow Account, any and all amounts payable by the Members as an Indemnifying Party to a Buyer Indemnified Person will be paid out of the Escrow Account. Shares of Buyer Common Stock in the Escrow Account will be valued at the Buyer Common Stock Closing Price for purposes of satisfying indemnification obligations. The existence of escrowed funds will not limit any rights of a Buyer Indemnified Person pursuant to this Agreement to recover for Losses in excess of the amount of such escrowed funds in respect of Special Indemnities or Article 10 .

9.6. Remedies Cumulative . The rights of each Buyer Indemnified Person and Member Indemnified Person under this ARTICLE 9 are cumulative, and each Buyer Indemnified

 

71


Person and Member Indemnified Person, as the case may be, will have the right in any particular circumstance, in its sole discretion, to enforce any provision of this ARTICLE 9 without regard to the availability of a remedy under any other provision of this ARTICLE 9 , provided , however , that any Losses hereunder may only be recovered once by any Buyer Indemnified Person.

ARTICLE 10

TAX MATTERS

10.1. Tax Indemnification . In addition to the indemnification obligations in ARTICLE 9 (but without duplication), each Member will, on a pro- rata basis according to the aggregate consideration received by such Member, indemnify, exonerate and hold free and harmless each Buyer Indemnified Person from, against and in respect of any and all Losses, whether or not involving a Third Party Claim incurred or suffered by the Buyer Indemnified Persons or any of them as a result of, arising out of or directly or indirectly relating to: (a) all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any Tax period that includes (but does not end on) the Closing Date (“ Pre-Closing Tax Period ”), (b) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar Legal Requirement, (c) any and all Taxes of any Person imposed on the Company as a result of any tax sharing agreement, arrangement, or understanding or as a transferee or successor, by contract, or otherwise (with respect to transactions, actions or events occurring on or before the Closing), (d) any breach of, or inaccuracy in, any representation or warranty made by the Company or a Member in this Agreement relating to Taxes, or (e) any breach or violation of any covenant or agreement by the Company or a Member in or pursuant to this Agreement or any Ancillary Agreement relating to Taxes; provided , however , that (A) the Members will be liable for Taxes pursuant to this Section 10.1 above only to the extent such Taxes exceed the amount, if any, reserved for such Taxes on the final Working Capital statement and reflected in the final purchase price as determined for tax purposes and (B) no Member will be liable for any Taxes attributable for actions taken by the Buyer or the Company after the Effective Time, provided such actions are not in the Ordinary Course of Business and not otherwise contemplated by this Agreement . For the avoidance of doubt, no provision under ARTICLE 9 will limit the obligations of the Members with respect to any Tax Indemnity Claims brought pursuant to this ARTICLE 10 . In addition to the indemnification obligations in ARTICLE 9 (but without duplication), the Buyer will indemnify, exonerate and hold free and harmless each Member from, against and in respect of any and all Losses, whether or not involving a Third Party Claim incurred or suffered by such Member or any of them as a result of, arising out of or directly or indirectly relating to any breach or violation of any covenant or agreement by the Buyer in or pursuant to this Agreement or any Ancillary Agreement relating to Taxes.

10.2. Timing for Tax Indemnity Claims . No claim may be made or suit instituted seeking indemnification pursuant to this ARTICLE 10 unless a written notice describing such claim in reasonable detail in light of the circumstances then known to the Buyer Indemnified Person or the Members’ Representative, is provided to the Members’ Representative or the Buyer (as applicable):

(a) at any time, in the case of any claim or suit based upon fraud or intentional misrepresentation;

 

72


(b) at any time prior to the 120 th day after the expiration of the applicable statute of limitations (taking into account any tolling periods and other extensions) in the case of any other Tax Indemnity Claim.

10.3. Returns .

(a) The Members will prepare and file or otherwise furnish to the appropriate party (or cause to be prepared and filed or so furnished) in a timely manner all Tax Returns relating to the Company that are due on or before the Closing Date. All such Tax Returns will be prepared on a basis consistent with the most recent Tax Returns of the Company unless the Members determines that there is no reasonable basis for such position, and will be true, correct and complete in all material respects. Buyer will have a reasonable opportunity to review any income Tax Returns required to be filed by the Company after the date of signing of this Agreement but prior to the Closing Date. The Company will in good faith consider incorporation of any comments made by Buyer on such income Tax Returns. No such Tax Returns will be amended without the Members’ Representative’s and Buyer’s prior written consent, which consents will not be unreasonably withheld, conditioned or delayed.

(b) The Members’ Representative will timely prepare (or cause to be timely prepared) for the review, comment, and approval of the Buyer (which approval will not be unreasonably withheld, conditioned or delayed) and, upon such approval of the Buyer, file or otherwise furnish to the appropriate party (or cause to be filed or so furnished) in a timely manner all Tax Returns relating to the Company for all taxable periods ending on or before the Closing Date that are due after the Closing Date (each, a “Pre-Closing Tax Return”). All Pre-Closing Tax Returns will be prepared on a basis consistent with the most recent Tax Returns of the Company unless the Members’ Representative determines that there is no reasonable basis for such position, and will be true, correct and complete in all material respects. Buyer will have a reasonable opportunity to review any Pre-Closing Tax Returns. The Members’ Representative will in good faith consider incorporation of any comments made by Buyer with respect to any income Pre-Closing Tax Returns, and shall incorporate any reasonable comments made by Buyer with respect to any other Pre-Closing Tax Return. No such Tax Returns will be amended without the Members’ Representative’s and Buyer’s prior written consent, which consents will not be unreasonably withheld, conditioned or delayed.

(c) The Buyer will prepare (or cause to be prepared) for the review and approval of the Member’s Representative (which approval will not be unreasonably withheld, conditioned or delayed) and, upon such approval of the Member’s Representative, file or otherwise furnish to the appropriate party (or cause to be filed or

 

73


so furnished) all Tax Returns of the Company for all Straddle Periods (defined below) (each, a “ Straddle Period Tax Return ”) on a basis consistent with past practice of the Company unless the Buyer determines that there is no reasonable basis for such position. The Members’ Representative will have a reasonable opportunity to review any such income Tax Returns and the Company will, in good faith, consider incorporation of any comments made by the Members’ Representative on such income Tax Returns. The Buyer will not amend any Pre-Closing Tax Return and Straddle Period Tax Return without written the consent of the Members’ Representative, which consent will not be unreasonably withheld, conditioned or delayed. The Members will reimburse the Buyer for their pro-rata share of all reasonable out-of-pocket costs incurred by the Company in preparing any Straddle Period Tax Return pursuant to this Section 10.3(c) (for this purpose, the Members’ pro rata share will be deemed to be a fraction, the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period).

10.4. Straddle Period . In the case of any Tax period that includes (but does not end on) the Closing Date (a “ Straddle Period ”), the amount of any Taxes of the Company based upon or measured by net income or gain for the Pre-Closing Tax Period will be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the Tax period of any partnership or other pass-through entity in which the Company holds a beneficial interest will be deemed to terminate at such time). The amount of Taxes, other than Taxes of the Company based upon or measured by net income or gain for a Straddle Period, which relate to the Pre-Closing Tax Period will be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction, the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

10.5. Tax Sharing Agreements . All Tax sharing agreements or similar agreements and all powers of attorney with respect to or involving any the Company will be terminated prior to the Closing Date and, on or after the Closing Date, the Company will not be bound thereby or have any Liability thereunder.

10.6. Certain Taxes and Fees . All transfer, documentary, sales, use stamp, registration and other such Taxes, and any conveyance fees or recording charges incurred in connection with the Contemplated Transactions, will be paid by the Members when due. The Members will, at their own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges and, if required by applicable Legal Requirements, the Buyer will (and will cause its Affiliates to) join in the execution of any such Tax Returns and other documentation.

 

74


10.7. Cooperation on Tax Matters .

10.7.1. The Buyer, the Company and the Members’ Representative, on behalf of the Members, will cooperate fully, as and to the extent reasonably requested by the other Party, in connection with any Tax matters relating to the Company. Such cooperation will include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such Tax matter. The Members and the Buyer agree to cause the Company prior to Closing and after Closing, respectively, (a) to retain all books and records with respect to Tax matters pertinent to any of the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Buyer or the Members’ Representative, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (b) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, the Company or the Members’ Representative, as the case may be, will allow the other Party to take possession of such books and records.

10.7.2. The Members’ Representative, on behalf of the Members, further agrees, upon request, to provide the Buyer with all information that the Buyer determines to be required to report pursuant to Code Section 6043, 6043A and all Treasury Regulations promulgated thereunder.

10.8. Treatment of Payments . Each Party agrees to treat all payments made by it to or for the benefit of another Party (including any payments to the Company or the Members) under indemnity provisions of this Agreement, and for any misrepresentations or breaches of warranties or covenants, as adjustments to the Purchase Price paid in connection with the Merger, and such treatment will govern for purposes hereof except to the extent that the Legal Requirements of a particular jurisdiction provide otherwise, in which case such payment will be made on an after-tax basis.

10.9. Disclosure . Notwithstanding anything to the contrary, the parties to this agreement, and their respective representatives, may disclose to any and all Persons, without limitation of any kind, the tax treatment and tax structure of the Contemplated Transactions and all materials of any kind (including opinions or other tax analyses) that relating to such tax treatment and tax structure, all as contemplated by Treasury Regulations section 1.6011-4(b)(3)(iii).

10.10. Tax Contests .

10.10.1. Buyer will promptly notify Members’ Representative in writing upon receipt by Buyer or any affiliate of Buyer (including any of the Company) of written notice of any inquiries, claims, assessments, audits or similar events with respect to Taxes (any such inquiry, claim, assessment, audit or similar event, a “ Tax Matter ”) relating to a Pre-Closing Tax Period (a “ Pre-Closing Tax Matter ”); provided, however, that no delay on the part of Buyer in notifying the Members’ Representative will relieve the Members from any obligation under ARTICLE 9 or ARTICLE 10 , except to the extent such delay actually prejudices the Members.

 

75


10.10.2. The Members’ Representative will be entitled to participate, at its sole expense, in the defense of any Pre-Closing Tax Matter that is the subject of a notice given by the Buyer pursuant to Section 10.10.1 . In addition, the Members’ Representative, at its sole expense, will have the authority to represent the interests of the Company with respect to any Pre-Closing Tax Matter before any taxing authority, any other governmental agency or authority or any court and will have the sole right to control the defense or other resolution of any Pre-Closing Tax Matter, including responding to inquiries, filing Tax Returns and contesting, defending against and resolving any assessment for additional Taxes or notice of Tax deficiency or other adjustment of Taxes of, or relating to, a Pre-Closing Tax Matter, so long as (i) the Members’ Representative gives written notice to Buyer within fifteen days after Buyer has given notice of the Pre-Closing Tax Matter that Members will indemnify the Buyer Indemnified Person from and against the entirety of any and all Losses the Buyer Indemnified Person may suffer from, arising out of, relating to, in the nature of, or caused by the Pre-Closing Tax Matter, (ii) the Members’ Representative provides the Buyer with evidence reasonably acceptable to the Buyer that the Members will have adequate financial resources to defend against the Pre-Closing Tax Matter and fulfill their indemnification obligations hereunder, (iii) the Pre-Closing Tax Matter does not involve an issue relating to Taxes for a period other than a Pre-Closing Tax Period, (iv) the Members’ Representative conducts the defense of the Pre-Closing Tax Matter actively and diligently, and (v) the Pre-Closing Tax Matter does not involve a criminal Action; provided, however, that Members’ Representative will not enter into any settlement of or otherwise compromise any Tax Matter unless (a) such judgment, compromise or settlement results in the full and general release of the Buyer Indemnified Persons from all Liabilities arising or relating to, or in connection with, the Pre-Closing Tax Matter, and (b) in the case of a settlement or compromise that adversely affects or may adversely affect the Tax liability of Buyer, the Company or any affiliate of the foregoing for any period ending after the Closing Date, including the portion of the Straddle Period that is after the Closing Date, the Members’ Representative obtains the prior written consent of Buyer, which consent will not be unreasonably withheld or delayed. Members’ Representative will keep the Buyer fully and timely informed with respect to the commencement, status and nature of any Pre-Closing Tax Matter. Members’ Representative will, in good faith, allow Buyer, at Buyer’s sole expense, to participate in any such proceeding and make comments to Members’ Representative, regarding the conduct of or positions taken in any such proceeding.

10.10.3. Except as otherwise provided in Section 10.10.2 above, Buyer will have the sole right to control any Tax Matter (each, a “Post-Closing Tax Matter”); provided, however, that Buyer will not, and will cause its affiliates (including the Company) not to, enter into any settlement of any contest or otherwise compromise any issue with respect to a Pre-Closing Tax Period, including the portion of the Straddle Period that is before and including the Closing Date, without the prior written consent of Members’ Representative, which consent will not be unreasonably withheld, conditioned or delayed. For clarity, if the Members’ Representative does not deliver the notice

 

76


contemplated by Section 10.10.2(i) , or the evidence contemplated by Section 10.10.2(ii) within fifteen (15) days after the Buyer has given notice of the Pre-Closing Tax Matter, or otherwise at any time fails to conduct the defense of the Pre-Closing Tax Claim actively and diligently, Buyer will have the sole right to control any Pre-Closing Tax Matter. The Members will (x) reimburse Buyer reasonably promptly and periodically for the reasonable costs of defending Pre-Closing Tax Matters (including reasonable attorneys’ fees and expenses, and the Members’ equitable share of the costs of defending against Tax Matters relating to a Straddle Period), (y) remain responsible for any and all other Losses that Buyer may incur or suffer resulting from, arising out of, relating to, in the nature of or caused by the Pre-Closing Tax Matter or Tax Matters relating to a Straddle Period to the fullest extent provided in this ARTICLE 10 .

10.10.4. In the event of any conflict between the procedures governing Tax Matters as set forth in this Section 10.10 and the procedures set forth in Section 9.3 , then, with respect to Tax Matters, this Section 10.10 will govern.

10.11. FIRPTA Certificate . The Members will have delivered to the Buyer a certification, included in the letter of transmittal in Exhibit 2.9.2 hereto, conforming to the requirements set forth in Treasury Regulations section 1.1445-2(b)(2) to the effect that such Member is not a “foreign person” as defined in Section 1445 of the Code (each, a “FIRPTA Certificate”); it being understood that if any such Member fails to complete the FIRPTA Certificate included in the letter of transmittal, but returns such Member’s letter of transmittal, the Buyer shall be entitled to withhold, or cause to be withheld, from such Person’s Merger Consideration such amount as may be required to be withheld under section 1445 of the Code.

ARTICLE 11

MISCELLANEOUS

11.1. Notices . All notices, requests, demands, claims and other communications required or permitted to be delivered, given or otherwise provided under this Agreement must be in writing and must be delivered, given or otherwise provided:

(a) by hand (in which case, it will be effective upon delivery);

(b) by facsimile (in which case, it will be effective upon receipt of confirmation of good transmission);

(c) by electronic mail with confirmatory copies delivered promptly thereafter by hand or overnight delivery by a nationally recognized courier service (in which case it will be effective upon the later of confirmed receipt of such electronic mail message or the Business Day after being deposited with such courier service); or

(d) by overnight delivery by a nationally recognized courier service (in which case, it will be effective on the Business Day after being deposited with such courier service);

 

77


in each case, to the address (or facsimile number) listed below:

If to the Company, to Company at:

Solana Surgical LLC

6363 Poplar Ave, Ste 312

Memphis, TN 38119

Attn: Alan Taylor

Email: agttga@aol.com

with a copy to:

Deborah A. Nilson & Associates, PLLC

10 E. 40 th Street, Suite 3310

New York, NY 10016

Attn: Deborah Nilson

Email: dnilson@nilsonlaw.com

If to the Buyer, to it at:

Wright Medical Group, Inc.

1023 Cherry Road

Memphis, TN 38117

Attention: Lance A. Berry

Facsimile: (901) 867-4423

Email: lance.berry@wmt.com

Attention: James A. Lightman

Facsimile: (901) 867-4423

Email: james.lightman@wmt.com

with a copy to:

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, Massachusetts 02199

Attention: Paul M. Kinsella

Facsimile: (617) 235-0822

Email: paul.kinsella@ropesgray.com

If to the Members, to the Members’ Representative.

 

78


If to the Members’ Representative, to:

Alan Taylor

c/o Solana Surgical LLC

6363 Poplar Ave, Ste 312

Memphis, TN 38119

Email: agttga@aol.com

Each of the Parties to this Agreement may specify a different address or facsimile number by giving notice in accordance with this Section 11.1 to each of the other Parties hereto.

11.2. Succession and Assignment; No Third-Party Beneficiary . Subject to the immediately following sentence, this Agreement will be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, each such successors and permitted assigns will be deemed to be a party hereto for all purposes hereof. No Party may assign, delegate or otherwise transfer either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the Buyer, Company and Member Representative; provided , however , that the Buyer may (a) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (b) designate one or more of its Affiliates to perform its obligations hereunder, in each case, provided that , Buyer is not relieved of any Liability hereunder. Except as expressly provided herein, this Agreement is for the sole benefit of the Parties and their permitted successors and assignees and nothing herein expressed or implied will give or be construed to give any Person, other than the Parties and such successors and assignees, any legal or equitable rights hereunder, including any rights of employment for any specified period, under or by reason of this Agreement. Notwithstanding anything to the contrary in this Agreement, no provision of this Agreement is intended to, or does, constitute the establishment of, or an amendment to, any Company Employee Plan.

11.3. Amendments and Waivers . No amendment or waiver of any provision of this Agreement will be valid and binding unless it is in writing and signed, in the case of an amendment, by Buyer, Company and the Members’ Representative or in the case of a waiver, by the Party (in the case of the Members, the Members’ Representative) against whom the waiver is to be effective. No waiver by any Party of any breach or violation or, default under or inaccuracy in any representation, warranty or covenant hereunder, whether intentional or not, will be deemed to extend to any prior or subsequent breach, violation, default of, or inaccuracy in, any such representation, warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. No delay or omission on the part of any Party in exercising any right, power or remedy under this Agreement will operate as a waiver thereof.

11.4. Provisions Concerning Members’ Representative .

11.4.1. Appointment . Upon approval of this Agreement, the Members shall be deemed to have appointed Alan Taylor as the agent, proxy and attorney-in-fact for the Members, with full power of substitution and re-substitution, for all purposes

 

79


under this Agreement (including full power and authority to act on the Members’ behalf). Without limiting the generality of the foregoing, the Members’ Representative will be authorized to:

(a) take all actions on behalf of the Members in connection with any adjustment to the Cash Consideration set forth in Section 2.6 , including to object to amounts and calculations, to agree to, negotiate, enter into settlements and compromises of, demand arbitration and comply with orders of courts and awards of arbitrators with respect to such disputes, and direct that payments be made from the Escrow Account in respect of any fees or expenses due to the Referee incurred thereunder, if any;

(b) in connection with the Closing, execute and receive all documents, instruments, certificates, statements and agreements on behalf of and in the name of the Members necessary to effectuate the Closing and consummate the Contemplated Transactions;

(c) take all actions on behalf of the Members in connection with any claims made under ARTICLE 9 to defend or settle such claims, and to make payments in respect of such claims;

(d) execute and deliver, should it elect to do so in its sole discretion, on behalf of the Members, any amendment to this Agreement so long as such amendment will apply equally to all Members; and

(e) take all other actions to be taken by or on behalf of the Members and exercise any and all rights which the Members are permitted or required to do or exercise under this Agreement.

11.4.2. Liability . The Members’ Representative will not be liable to any Member for any action taken by it in good faith pursuant to this Agreement, and the Members will jointly and severally indemnify the Members’ Representative from any Losses arising out of its serving as the Members’ Representative hereunder. The Members’ Representative is serving in that capacity solely for purposes of administrative convenience, and is not personally liable in such capacity for any of the obligations of the Members hereunder, and the Buyer agrees that it will not look to the personal assets of the Members’ Representative, acting in such capacity, for the satisfaction of any obligations to be performed by the Members hereunder.

11.5. Entire Agreement . This Agreement, together with the other Ancillary Agreements and any documents, instruments and certificates explicitly referred to herein, constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes any and all prior discussions, negotiations, proposals, undertakings, understandings and agreements, whether written or oral, with respect thereto.

11.6. Counterparts . This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute but one and the same instrument. This Agreement will become effective when duly executed by each Party hereto.

 

80


11.7. Severability . Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction will not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. In the event that any provision hereof would, under applicable Legal Requirements, be invalid or unenforceable in any respect, each Party hereto intends that such provision will be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable Legal Requirements.

11.8. Headings . The headings contained in this Agreement are for convenience purposes only and will not in any way affect the meaning or interpretation hereof. All schedules, addenda and exhibits attached to this Agreement, including without limitation, the Disclosure Schedules, are incorporated herein and will be part of this Agreement for all purposes.

11.9. Construction . The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of proof will arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. The Parties intend that each representation, warranty and covenant contained herein will have independent significance.

11.10. Governing Law . This Agreement, the rights of the Parties and all Actions arising in whole or in part under or in connection herewith, will be governed by and construed in accordance with the domestic substantive laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.

11.11. Jurisdiction; Venue; Service of Process .

11.11.1. Jurisdiction . Each Party to this Agreement, by its execution hereof, (a) hereby irrevocably submits to the jurisdiction of the state courts of the State of Delaware and the United States District Court sitting in Wilmington for the purpose of any Action between the Parties arising in whole or in part under or in connection with this Agreement, (b) hereby waives to the extent not prohibited by applicable Legal Requirements, and agrees not to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such Action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens , should be transferred or

 

81


removed to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court and (c) hereby agrees not to commence any such Action other than before one of the above-named courts. Notwithstanding the previous sentence a Party may commence any Action in a court other than the above-named courts solely for the purpose of enforcing an order or judgment issued by one of the above-named courts.

11.11.2. Venue . Each Party agrees that for any Action between the Parties arising in whole or in part under or in connection with this Agreement, such Party may bring Actions only in the city of Wilmington, Delaware. Each Party further waives any claim and will not assert that venue should properly lie in any other location within the selected jurisdiction.

11.11.3. Service of Process . Each Party hereby (a) consents to service of process in any Action between the Parties arising in whole or in part under or in connection with this Agreement in any manner permitted by Delaware law, (b) agrees that service of process made in accordance with clause (a) or made by registered or certified mail, return receipt requested, at its address specified pursuant to Section 11.1 , will constitute good and valid service of process in any such Action and (c) waives and agrees not to assert (by way of motion, as a defense, or otherwise) in any such Action any claim that service of process made in accordance with clause (a) or (b) does not constitute good and valid service of process.

11.12. Specific Performance . Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or violated. Accordingly, each of the Parties agrees that, without posting bond or other undertaking, the other Parties will be entitled to an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any Action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity. Each Party further agrees that, in the event of any action for specific performance in respect of such breach or violation, it will not assert that the defense that a remedy at law would be adequate.

11.13. Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, THE PARTIES HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. THE PARTIES AGREE THAT ANY OF THEM MAY FILE A

 

82


COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED-FOR AGREEMENT AMONG THE PARTIES IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY IN ANY PROCEEDING WHATSOEVER BETWEEN THEM RELATING TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED TRANSACTIONS, AND SUCH PROCEEDING WILL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

83


IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an agreement under seal as of the date above first written.

 

BUYER:      WRIGHT MEDICAL GROUP, INC.   
     By:      

/s/ Lance Berry

  
      Name: Lance Berry   
      Title: Chief Financial Officer   
MERGER LLC:      WINTER SOLSTICE LLC   
     By:      

/s/ Lance Berry

  
      Name: Lance Berry   
      Title: Authorized Person   

 


IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an agreement under seal as of the date first above written.

 

THE COMPANY:     SOLANA SURGICAL, INC.
    By:  

/s/ Bruce Lawrence

      Name: Bruce Lawrence
      Title: Manager

 


IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as an agreement under seal as of the date first above written.

THE MEMBERS’ REPRESENTATIVE:

 

By:  

/s/ Alan Taylor

  Name: Alan Taylor

 

FOR IMMEDIATE RELEASE       Exhibit 99.1
Investors & Media:      

Julie D. Tracy

Sr. Vice President, Chief Communications Officer

Wright Medical Group, Inc.

(901) 290-5817

julie.tracy@wmt.com

      LOGO

Wright Medical Group, Inc. Announces Acquisition of Solana Surgical, LLC and Entry into Definitive Agreement to Acquire OrthoPro, LLC

Adds Complementary Foot and Ankle Products to Further Accelerate Growth Opportunities and Profitability in Wright’s Extremities Business

Purchase Price of $90 Million in Cash and Stock for Solana Surgical and Up to $36 Million in Cash for OrthoPro

Both Transactions Anticipated To Be Accretive to Adjusted EBITDA in 2014 and Beyond

MEMPHIS, Tenn. - January 30, 2014 - Wright Medical Group, Inc. (NASDAQ: WMGI) today announced it has acquired Solana Surgical, LLC (Solana) and entered into a definitive agreement to acquire OrthoPro, LLC (OrthoPro), both privately held high growth extremity companies. The transactions add complementary extremity product portfolios to further accelerate growth opportunities in Wright’s global Extremities business. The transaction with OrthoPro is expected to close in February 2014. In addition, voting agreements have been executed with members of OrthoPro holding greater than the required number of membership interests needed to approve the transaction.

Under the terms of the agreement with Solana, Wright acquired 100% of Solana’s outstanding equity on a fully diluted basis for total consideration, net of acquired cash, of $90 million, consisting of approximately $47.6 million in cash and approximately $42.4 million of Wright common stock.

Under the terms of the agreement with OrthoPro, Wright will acquire 100% of OrthoPro’s outstanding equity on a fully diluted basis at a total price of up to $36 million in cash as follows: $32.5 million paid at closing and up to an additional $3.5 million in cash contingent upon achievement of certain revenue-based milestones.

Robert Palmisano, president and chief executive officer of Wright, commented, “The acquisitions of Solana and OrthoPro are excellent fits for our Extremities business, enabling us to add a base of fast-growing extremity revenue that we can effectively grow on a go-forward basis. Both of these transactions meet our criteria of being accretive to revenue growth and adjusted EBITDA. In addition, products from both companies will complement our existing foot and ankle portfolio and include several specialized products that expand our extremities product offering. Both companies have a reputation for leading innovation, and we anticipate that their products will help expand Wright’s position as the definitive technology leader in the foot and ankle market.”

Alan Taylor, chief executive officer of Solana, added, “We are delighted to partner with a company that shares Solana’s commitment to building a high-growth Extremities business. We believe that Wright Medical, with its global leadership position in the foot and ankle market and expertise in medical education and product development, is the ideal partner to accelerate our growth and realize the full potential of Solana’s products around the world. We look forward to an exciting future and the continued success of our business as part of Wright Medical.”


Dustin Leavitt, chief executive officer of OrthoPro, commented, “This combination will provide the opportunity for further expansion of OrthoPro’s innovative products to support market growth and procedure penetration worldwide. We look forward to advancing our foot and ankle business with the recognized leader in the foot and ankle market.”

Although Wright has not yet finalized the purchase price allocation and fair value assessment of the contingent consideration, and thus cannot yet assess the exact impact on its future GAAP earnings, Wright anticipates that both transactions will be accretive to adjusted EBITDA in 2014. Wright will provide additional information on the financial impact of this transaction on its fourth quarter 2013 earnings call, which is scheduled for February 24, 2014.

For more information on this transaction, please refer to the investor presentation that is available in the Investor Relations section of Wright’s website at www.wmt.com .

About Wright Medical

Wright Medical Group, Inc. is a specialty orthopaedic company that provides extremity and biologic solutions that enable clinicians to alleviate pain and restore their patients’ lifestyles. The company is the recognized leader of surgical solutions for the foot and ankle market, one of the fastest growing segments in medical technology, and markets its products in over 60 countries worldwide. For more information about Wright Medical, visit www.wmt.com .

About Solana Surgical

Solana Surgical is a global extremity orthopedic company that develops breakthrough solutions to restore motion while relieving pain for patients and improving surgical outcomes for surgeons. Based in Memphis, Tennessee, and having launched its first product in 2011, Solana Surgical’s goal is to advance the science in the foot, ankle and hand markets by meeting unmet needs with innovative new products. For more information, please visit www.SolanaSurgical.com .

About OrthoPro

OrthoPro, based in Salt Lake City, Utah, is dedicated to providing quality and innovative foot and ankle products. Since 2003, OrthoPro has launched several innovative surgical products for the foot & ankle market, including the Phalinx Cannulated Hammertoe Fixation System, Total Compression Plate System, and Hemiarthroplasty Implant. For more information about OrthoPro, visit www.orthoprollc.com .

Cautionary Note Regarding Forward-Looking Statements

This press release may contain “forward-looking statements” as defined under U.S. federal securities laws, including statements about the complementary nature of the acquired businesses and the financial benefits of these acquisitions to Wright. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations and express management’s current view of future performance, results, and trends. Forward-looking statements may be identified by their use of terms such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those described in the forward-looking statements. The reader should not place undue reliance on forward-looking statements. Such statements are made as of the date of this press release, and we undertake no obligation to update such statements after this date. Risks and uncertainties that could cause our actual results to materially differ from those described


in forward-looking statements in this press release include failure to realize the anticipated benefits, in whole or in part, from the acquired businesses, a delay in the realization thereof, unexpected liabilities and/or erroneous financial estimates and projections for the acquired businesses, and potential sales dis-synergies during the integration process. Additional risks and uncertainties are discussed in our filings with the Securities and Exchange Commission (including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012, and as may be supplemented in our Quarterly Reports on Form 10-Q). By way of example and without implied limitation, such risks and uncertainties include: failure to realize the anticipated benefits of the Biotech International acquisition in whole or in part, and unexpected liabilities and/or erroneous financial estimates and projections for the acquired business; failure to realize the anticipated financial and other benefits from the acquisition of BioMimetic Therapeutics, Inc. or a delay in realization thereof; failure to obtain, or a delay in obtaining, FDA approval of Augment Bone Graft, or a material limitation on the scope of such approval; lower than anticipated market acceptance of, or annual market demand for, Augment Bone Graft; failure to realize the anticipated benefits of the OrthoRecon divestiture to MicroPort in whole or in part, including unexpected liabilities and/or erroneous financial estimates and projections for the retained business; future actions of the United States Attorney’s office, the FDA, the Department of Health and Human Services or other U.S. or foreign government authorities, including those resulting from increased scrutiny under the Foreign Corrupt Practices Act and similar laws, that could delay, limit or suspend our development, manufacturing, commercialization and sale of products, or result in seizures, injunctions, monetary sanctions or criminal or civil liabilities; failure to obtain the FDA or other regulatory clearances needed to market and sell our products; any actual or alleged breach of the Corporate Integrity Agreement to which we are subject through September 2015 which could expose us to significant liability including exclusion from Medicare, Medicaid and other federal healthcare programs, potential criminal prosecution, and civil and criminal fines or penalties; adverse outcomes in existing product liability litigation; new product liability claims; inadequate insurance coverage; the possibility of private securities litigation or shareholder derivative suits; demand for and market acceptance of our new and existing products; potentially burdensome tax measures; recently enacted healthcare laws and changes in product reimbursement which could generate downward pressure on our product pricing; lack of suitable business development opportunities; inability to capitalize on business development opportunities; product quality or patient safety issues; challenges to our intellectual property rights; geographic and product mix impact on our sales; our inability to retain key sales representatives, independent distributors and other personnel or to attract new talent; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; inability to realize the anticipated benefits of restructuring initiatives; negative impact of the commercial and credit environment on us, our customers and our suppliers; and the potentially negative effect of our ongoing compliance enhancements on our relationships with customers and our ability to deliver timely and effective medical education, clinical studies, and new products.

###